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RYMER FOODS INC.
May 30, 1997
Dear Stockholders and Senior Noteholders:
As you know, our recent operating results have been seriously hurt by a
number of factors, such as intense price competition and concern about our
ability to supply product over a long period of time. In an attempt to ensure
our long-term viability, we propose two financial restructuring options that
would eliminate at least 95% of our long-term debt. To do either option, we need
the cooperation of our stockholders and primary creditors.
Our main debt is the approximately $23.1 million of 11% Senior Notes Due
2000 we issued in our 1993 restructuring plus the accrued interest on these
notes.
PROPOSALS TO ELIMINATE DEBT
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EXCHANGE OFFER PREPACKAGED PLAN
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We propose to our 11% senior noteholders: Our plan involves:
- 143.02 shares of common stock - a conversion of notes to equity
for similar to the exchange offer to our 11%
senior noteholders;
- - each $1,000 of principal plus unpaid interest. - a reverse stock split of 25 shares
into 1; and
THIS EXCHANGE OFFER EXPIRES ON JULY 7, 1997. - a new employee stock option plan
THIS PROPOSAL EXPIRES ON JULY 7, 1997
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The securities we're offering are very risky.
Please read this entire set of documents carefully.
The discussion of some specific risk factors begins on page .
ANNUAL STOCKHOLDER MEETING
To accomplish the Exchange Offer, our Stockholders must approve a 25 into 1
reverse stock split and issuing up to 3,870,000 additional shares of common
stock to our creditors and senior officers, and adopt a new employee stock
option plan. These actions will dilute the percentage of your common stock
ownership from 100% to 10%.
The annual meeting will take place on Tuesday, July 8, 1997, beginning at
10:00 a.m. Chicago Time at Rymer's main office, 4600 South Packers Avenue,
Chicago, Illinois 60609.
Separately, we are asking our stockholders and noteholders to vote on the
Prepackaged Plan.
Neither the SEC nor any state securities commissions have approved or
disapproved of the proposals we describe, or the securities we offer, in this
document. Nor has the SEC or any state securities commissions determined if this
document is accurate or adequate. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... I-1
AVAILABLE INFORMATION....................................... I-6
INFORMATION INCORPORATED BY REFERENCE....................... I-6
RISK FACTORS................................................ I-7
THE RESTRUCTURING........................................... I-11
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SUMMARY
This section highlights selected information and may not contain all of the
information that is important to you. To understand the exchange offer and the
Prepackaged Bankruptcy Plan fully, you should read carefully this document and
the other documents that we are sending to you or refer you to on page .
"Rymer" means Rymer together with its wholly owned subsidiary, Rymer Meat Inc.
unless the context indicates otherwise.
THE COMPANY
Rymer is the holding company for its direct, wholly owned subsidiary, Rymer
Meat Inc. Through this subsidiary, we are primarily engaged in the development
and production of frozen, pre-seasoned, portion-controlled meat entrees for
restaurants, food distributors, food processors and retail customers.
Rymer was incorporated in the State of Delaware in 1969. Our principal
offices are located at 4600 South Packers Avenue, Suite 400, Chicago, IL 60609
(telephone no. (773) 927-7777).
PRESENT FINANCIAL CONDITIONS
Our recent operating results have been seriously hurt by a number of
factors including consolidation among mid-scale family restaurant chains and
intense price competition in certain food market segments. In recent years, we
withdrew from both the chicken and seafood markets and are now concentrating on
the beef market. Some of our customers have questioned our ability to continue
to supply product over the long term. We are current in paying our bills, but
face a dilemma as we look forward.
Our main liabilities are the approximately $23.1 million of Senior Notes
issued in our 1993 restructuring and accrued interest on those notes of
approximately $1,500,000. The December 15, 1996 interest payment on the Senior
Notes was made by issuing more Senior Notes equal to the interest payment then
due. A cash interest payment of approximately $1.3 million is due on June 15,
1997. We do not expect to have the cash to make this payment. Also, this payment
cannot be made by issuing additional Notes. Failure to make the June 1997
interest payment would be a serious default under the Indenture governing the
Notes and most likely would result in a demand for payment of the Notes.
We maintain a $4,000,000 revolving working capital and letter of credit
facility with LaSalle National Bank under an annually renewable Credit
Agreement. The Credit Agreement recently has been extended to July 31, 1997. We
are currently in default with respect to the minimum consolidated net income and
minimum tangible net worth covenants in the Credit Agreement. The bank has
waived similar past defaults up to and including March 22, 1997. However, there
can be no assurance that LaSalle National Bank will continue to waive future
defaults or renew or extend the Credit Agreement after July 31st. If the
proposed restructuring is successful, we anticipate that we will be able to
enter into a new Credit Agreement with LaSalle National Bank or another lender.
If there is no restructuring, we predict that our bank will not continue to
extend the Credit Agreement.
THE PROPOSED RESTRUCTURING
We believe that our dilemma will be overcome by eliminating all or
substantially all of our Senior Notes. To do this, we are making two proposals.
Our first proposal is an Exchange Offer
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to eliminate at least 95% of the long-term debt from our capital structure. We
are asking that noteholders and the holder of certain long-term deferred
compensation payments exchange their claims against us for shares of our New
Common Stock. We also are asking that our stockholders approve a Charter
Amendment and take other actions necessary to issue the New Common Stock and
complete the Exchange Offer.
Our second proposal is a Prepackaged Chapter 11 Bankruptcy Plan. This is a
way to maximize the likelihood of completing the conversion of debt into equity.
It also is an alternative way to achieve the same results as our Exchange Offer
by means of a Chapter 11 bankruptcy. The bankruptcy restructuring involves the
same basic economic considerations as the Exchange Restructuring. We are asking
our stockholders and our noteholders to approve the bankruptcy restructuring.
In the absence of a restructuring several undesirable things could happen:
(1) the Notes could be declared payable in full if we do not make the June 15th
interest payment by July 15th; (2) an involuntary bankruptcy petition could be
filed against us; (3) Rymer Meat could lose business if customers doubt its
ability to supply products on a timely or long term basis; (4) we will be unable
to invest adequate capital in our business; and (5) LaSalle National Bank may
not extend or renew the Credit Agreement.
A bankruptcy proceeding brought under these circumstances would be lengthy
and contested and could disrupt our business operations and shrink or eliminate
our remaining value. We have been advised by Kirkland Messina, Inc., our
investment banker, and believe that (1) our stockholders would most likely
suffer a total loss of their investments, and (2) our noteholders would likely
recover no more, and potentially could recover substantially less, than the
value of the New Common Stock. In the worst case, if Rymer is liquidated, the
recovery could be as little as $0.18 for each $1.00 (including accrued interest)
due under the Notes. A Chapter 7 liquidation analysis is included in the
accompanying Disclosure Statement.
RESTRUCTURING CONDITIONS
To do the Exchange Restructuring, we need:
- Acceptance of the Exchange Offer by 95% of the Notes
- Stockholder approval of the Charter Amendment, New Common Stock
issuance, and new employee stock option plan
- Signing of a new $4 million credit facility with LaSalle National Bank
or another lender
- Signing of new employment agreements with Mr. Ed Schenk and Mr. Ed
Hebert
To do the Prepackaged Plan, we need:
- Acceptance by Noteholders and other voting creditors of
-- 66 2/3% of the principal amount of Notes and other debt
actually voted and
-- 50% plus 1 of the number of Noteholders and other voting
creditors actually voting
- Acceptance by Stockholders
-- 66 2/3% of the common stock actually voted
- Signing of a new $4 million credit facility with LaSalle National Bank
or another lender
- Bankruptcy Court approval and final confirmation
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HISTORICAL FINANCIAL INFORMATION
Operating Information
The following table summarizes selected financial data for Rymer for each
of the five years in the period ended October 26, 1996 and the thirteen weeks
ended January 25, 1997.
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FISCAL YEAR ENDED
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THIRTEEN
WEEKS
ENDED
OCT. 31, OCT. 30, OCT. 29, OCT. 28, OCT. 26, JAN. 25,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Net sales from continuing operations......... $ 92,665 $ 99,644 $106,252 $ 79,920 $ 44,329 $ 8,278
(Loss) Income from continuing operations..... (4,729) (23,867) 1,883 (29,620) (7,144) (1,223)
(Loss) Income from discontinued operations,
net of income taxes........................ (5,094) 777 121 290 (167) --
Gain (loss) on disposal of discontinued
operations, net of income taxes............ 400 261 4,474 -- (1,853) --
Net (loss) income.......................... (9,423) (11,441) 6,478 (29,330) (9,164) (1,223)
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit).................. (41,898) 14,108 16,013 (10,524) (18,202) (19,287)
Total assets............................... 81,820 65,627 51,506 26,074 10,563 9,541
Long-term liabilities...................... 2,462 45,968 19,994 842 806 791
Total stockholders' equity (deficit)....... 18,109 15,590 22,464 (6,858) (15,616) (16,839)
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Ratio of Earnings to Fixed Charges
Our net operating income on a consolidated basis has been insufficient to
cover our fixed charges, such as rent and debt service, in four of the past five
fiscal years. In 1992 the insufficiency was $4.7 million, in 1993 $23.9 million,
in 1995 $29.6 million, and in 1996 $7.1 million. In 1994 there was adequate
coverage of $1.9 million. In prior years we have been able to pay our debt
service obligations of interest only on the Senior Notes partially by issuing
additional Senior Notes. We cannot continue to do this.
EQUITY OWNERSHIP ASSUMING EXCHANGE OF 95% OF SENIOR NOTES AND
BANKRUPTCY (100% EXCHANGE OF NOTES)
The restructuring will change the ownership of our company. The following
table shows the changes in ownership.
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PRIOR TO RESTRUCTURING ASSUMING 95% EXCHANGE ASSUMING BANKRUPTCY
----------------------- --------------------- --------------------
DESCRIPTION OF HOLDER SHARES % SHARES % SHARES %
--------------------- ------------ ----- ---------- ----- ---------- ----
(AFTER 25 INTO 1 REVERSE STOCK SPLIT)
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Senior Note Holders and
Deferred Compensation
Claimant............... 0 0% 3,268,000 79.2% 3,440,000 80%
Existing Common
Stockholders........... 10,750,372 100% 429,952 10.4% 429,952 10%
Executive Officers....... 3,721 -- 430,148 10.4% 430,148 10%
---------- --- --------- ---- --------- ---
Total.................... 10,754,093 100% 4,128,000 100% 4,300,000 100%
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Our executive officers hold options and warrants to purchase common shares,
but own only 3,721 common shares at this time. All 61,000 options and 750,000
warrants held by the two most senior executive officers will be cancelled in the
restructuring. In return for implementing the restructuring and carrying out our
business plan, the two most senior executive officers will receive 430,000
shares of New Common Stock and interest-free loans to finance their income tax
liabilities for the stock received. Each loan will be forgiven at the rate of
50% the first year, and 25% per year in the second and third years, provided the
executive remains an employee.
BOARD RECOMMENDATIONS
The Board of Directors recommends that all noteholders:
- Tender their Notes in the Exchange Offer.
- Vote to accept the Prepackaged Bankruptcy Plan.
The Board of Directors recommends that all stockholders:
- Vote for
-- The Charter Amendment
-- The New Common Stock issuance
-- The Stock Option Plan
-- Mr. Ed Hebert as a director
-- Coopers & Lybrand LLP as Auditors
- Vote to accept the Prepackaged Bankruptcy Plan
Our current management and directors directly or indirectly own or control
1,830,933 shares, or 17.0% of our outstanding common stock. We expect all these
shares to be voted in favor of the proposed transactions.
NOTEHOLDER AND STOCKHOLDER ACTIONS
NOTEHOLDERS -- To accept the Exchange Offer:
- Complete and sign the enclosed letter of transmittal
- Obtain the required signature guarantees
- Either:
-- Enclose your Note
or
-- Complete the Guarantee of Delivery
- Return your letter of Transmittal and Note or Guarantee of
Delivery in the BLUE ENVELOPE to:
ChaseMellon Shareholder Services LLC
85 Challenger Road
Mail Stop Reorg.
Richfield Park, New Jersey 07660
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-- To accept or Reject the Prepackaged Plan:
- Beneficial Owners
-- Complete and sign the BLUE Ballot. Beneficial Owners who are
also record holders should forward their Blue Ballots
directly to ChaseMellon Shareholder Services, LLC in the
YELLOW ENVELOPE. Beneficial Owners who are not record
holders should forward their BLUE Ballot to their record
holder which is the broker, bank, dealer, trust company or
other nominee in whose name the Beneficial Owner's Note is
held of record in the envelope provided by the record
holder.
- Record Owners
-- Complete and sign the GREY Master Ballot. Return your Master
Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
STOCKHOLDERS -- To vote at the Annual Meeting:
- Complete and sign the enclosed proxy card
- Return your proxy card in the WHITE ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
-- To accept or Reject the Prepackaged Plan:
- Beneficial Owners
-- Complete and sign the GREEN Ballot. Beneficial Owners who
are also record holders should forward their Green Ballots
directly to ChaseMellon Shareholder Services, LLC in the
YELLOW ENVELOPE. Beneficial Owners who are not record
holders should forward their Green Ballot to their record
holder which is the broker, bank, dealer, trust company or
other nominee in whose name the Beneficial Owner's Note is
held of record in the envelope provided by the record
holder.
- Record Owners
-- Complete and sign the WHITE Master Ballot. Return your
Ballot or Master Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
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AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of New Common Stock to be issued
in connection with the restructuring. As permitted by the SEC rules, this
Prospectus omits certain information contained in the Registration Statement.
For further information pertaining to the New Common Stock, reference is made to
the Registration Statement, including its exhibits.
We filed annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any of the information on file
with the SEC at the SEC's public reference rooms in Washington, D.C., New York,
New York, and Chicago, Illinois. Copies of filed documents can be obtained by
mail from the Public Reference Section of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. You may call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Filed
documents are also available to the public at the SEC's Web site at
http://www.sec.gov.
The Common Stock was suspended from trading on the New York Stock Exchange
on Wednesday, February 19, 1997 and subsequently delisted. Rymer common stock
currently trades in the over-the-counter Bulletin Board market under the symbol
RYMR.
You can request, and we will send to you, without charge, copies of
documents that are incorporated by reference in this Prospectus but which are
not delivered to you with it (other than exhibits to such documents which are
not specifically incorporated by reference).
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the SEC are incorporated by reference in
this Prospectus:
(a) Our Annual Report on Form 10-K (File No. 1-6071) for the fiscal
year ended October 26, 1996.
(b) Our Amended Annual Report on Form 10K-A (File No. 1-6071) for the
fiscal year ended October 26, 1996.
(c) Our Quarterly Report on Form 10-Q (File No. 1-6071) for the
quarter ended January 25, 1997.
------------------------
This Prospectus and the documents incorporated by reference contain
forward-looking statements. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be accurately predicted and some
of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements.
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RISK FACTORS
The New Common Stock described herein involves a high degree of risk. Each
stockholder and noteholder should carefully consider the following risk factors
before: (1) stockholders decide whether or not to vote for the matters to be
brought before the Annual Shareholder's Meeting, including, the Charter
Amendments, the New Common Stock issuance, and the Stock Option Plan, or (2)
noteholders decide to exchange Notes for common stock in the Exchange Offer or
(3) both stockholders and noteholders voting to accept or reject the Prepackaged
Plan. The risk factors must be considered together with all of the other
information contained in this Prospectus.
HIGHLY COMPETITIVE BUSINESS
Our business is highly competitive. Many companies process and sell meat
products to restaurants and consumers. Every year new companies are formed and
enter the meat industry, some becoming sizeable competitors in a short period of
time.
Steakhouse sales, which now comprise approximately 31% of Rymer Meat sales,
continued to decline during fiscal 1996 due to the ongoing consolidation within
that segment of the restaurant market along with increasing competitive
pressures. The segment of retail sales which represents home delivery sales
declined significantly in 1996 to 16% of total sales, due primarily to the loss
of customers.
Some of our competitors are larger and have greater resources. We believe
that we provide our customers with a broader line of quality products and
services than do many of our competitors. Competition in the markets served by
the Company is based primarily on quality, service and price. We believe that we
have an excellent reputation for high quality, on time service, and competitive
prices. We are also known for our willingness to develop proprietary recipes for
specific customers at competitive prices. To compete successfully in the future,
we must increase the volume of our business which will require fiscal stability
and assurance of the ability to deliver product over a long period of time.
Without a restructuring, it is unlikely that we will be able to meet the product
delivery demands of our customers or increase our volume of business. Even after
a restructuring is completed, there can be no assurance that we will be able to
recapture or replace some or all of our lost customers.
DEPENDENCE OF OPERATING PLAN ON A SUCCESSFUL RESTRUCTURING
Our ability to meet our financial projections and our obligations depends
on our ability to achieve our operating plan. Accomplishing our operating plan
may be affected by general economic conditions, industry trends and other
factors beyond our control. Many of our competitors have greater financial
resources and may have more operating flexibility. We may be unable to implement
certain elements of our operating plan following completion of the restructuring
due to continuing pressures on our operating cash flow.
It is possible that announcing the Bankruptcy Restructuring or any filing
of a bankruptcy case could adversely affect operations and relationships with
employees, customers and suppliers. Due to uncertainty about our future, many
risks exist including the following: (1) employees may be distracted from
performance of their duties or more easily attracted to other career
opportunities, (2) customers may seek alternative sources of supply, and (3)
suppliers may further restrict ordinary credit terms or require guarantees of
payment. The filing of a bankruptcy case or a delay in completing the
Prepackaged Plan may cause LaSalle National Bank to stop funding loans, reduce
our credit line or exercise creditor remedies. Based on conversations with
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our bankers, we believe that even if a restructuring is not completed by the
July 31, 1997 expiration date of our Credit Facility, LaSalle National Bank will
continue to advance funds to us and will hold off from exercising its remedies
if it seems that we are going to be successful in doing the restructuring.
DEPENDENCE ON MAJOR CUSTOMERS
Sales to two primary customers, Bonanza and Ponderosa, together accounted
for 28.6%, 23.1% and 16.3% of Rymer Meat unit sales from continuing operations
in fiscal 1996, 1995 and 1994, respectively. There are no fixed long-term supply
contracts with these customers or others.
The loss of any of our major customers, or a substantial portion of these
major accounts, could have a material adverse effect on our business. We are
currently pursuing new customers and additional sales to existing customers. We
believe that the completion of the restructuring will instill confidence in
customers currently concerned about our ability to perform. However, there can
be no assurance that sales efforts will succeed.
DEPENDENCE ON KEY PERSONNEL
Rymer's operations and prospects depend in large part on the performance of
its senior executives, particularly Mr. P.E. "Ed" Schenk, Chairman of the Board
and Chief Executive Officer, and Mr. Ed Hebert, Senior Vice President, Chief
Financial Officer, and Treasurer. No assurance can be given that we would be
able to secure adequate replacements for these individuals if their services
were no longer available. These key employees will enter into new Employment
Agreements as part of a restructuring. Our success will also depend on our
ability to attract and retain other highly skilled personnel in all areas of our
business. See "The Exchange Restructuring -- New Employment Agreements".
NO DIVIDENDS
We do not anticipate that we will be able to pay any dividends on the New
Common Stock in the foreseeable future. We are currently prohibited from paying
dividends on the Common Stock under the terms of our Credit Facility and the
Indenture for the Senior Notes. We expect to be subject to similar or more
stringent restrictions on the payment of dividends on the New Common Stock under
any New Credit Facility.
POSSIBLE FAILURE AS AN OPERATING COMPANY
Currently, there is substantial doubt about our ability to continue as a
going concern. Our auditors have included a "going concern" exception on their
most recent report on our financial statements.
DILUTION
Under the Exchange Restructuring (assuming the exchange of 95% of the Notes
for Common Stock) the equity interests of the existing stockholders will be
diluted to approximately 10%. In the case of the Bankruptcy Restructuring, if
stockholder approval is received, stockholders will also be diluted to
approximately 10%. The ownership interest held by all stockholders is subject to
further dilution if and when options are exercised in future years.
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LACK OF PUBLIC MARKET FOR THE NEW COMMON STOCK
We intend to file an application to list the New Common Stock on the
NASDAQ/NMS. However, the stock may not satisfy the minimum price requirements
for listing. In that case it will continue to trade only in the over-the-counter
Bulletin Board market.
RESTRICTIONS ON WORKING CAPITAL
The New Credit Facility will contain substantial protective covenants. Some
covenants may restrict the use of cash for various purposes. These restrictions
may limit our ability to use funds to implement our operating plan.
CONFLICTS OF INTEREST AS TO VOTING
A director of Rymer controls the voting of 17% of the Common Stock. Because
of the dilution in percentage ownership that will result from the proposed
reverse stock split, the existence of such stock ownership may be deemed to
constitute a conflict of interest in voting for a restructuring. We expect all
these shares to be voted in favor of the proposed transactions. A plurality of
votes at any election of directors is required to elect a director.
NOTEHOLDERS WILL CONTROL THE COMPANY
After the restructuring, the current noteholders will beneficially own
approximately 80% of the New Common Stock. If these stockholders act together,
they will have the ability to elect a majority of the Board of Directors and
control the affairs and management of Rymer. They also would have the power to
approve most actions requiring stockholder approval. This high level of
ownership might delay, defer, or prevent a future change in the control of
Rymer.
LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
The Exchange Restructuring and the Bankruptcy Restructuring may result in
taxable income and may reduce or limit the use of our net operating loss
carryovers. In either the Exchange Restructuring or the Bankruptcy
Restructuring, we will realize income from the discharge of indebtedness. In the
Exchange Restructuring, this income will not be taxed to the extent that we are
insolvent at the time of the Exchange Restructuring. Any debt discharge income
over the amount by which we are insolvent will be taxed. In the Bankruptcy
Restructuring, we will not be taxed on any of the debt discharge income. In
either case, however, the amount of untaxed debt discharge income must be used
to reduce our net operating loss carryovers and other tax attributes.
The Exchange Restructuring will limit the future use of our remaining net
operating loss carryovers. After the Exchange Restructuring, our net operating
losses may be used in any year only to the extent of the product of the
"tax-exempt long-term interest rate" in effect at the time of the Exchange
Restructuring multiplied by the value of our stock at the time of the Exchange
Restructuring. In the case of the Bankruptcy Restructuring, the limitation
described above will not apply to Rymer, but our net operating loss carryovers
may be reduced to some extent. The effect of the Bankruptcy Restructuring on any
net operating loss carryovers attributable to Rymer Meat is not clear. It may be
that the Bankruptcy Restructuring will limit the use of the net operating loss
carryovers of Rymer Meat in the same manner as the Exchange Restructuring.
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BANKRUPTCY RISKS
If a restructuring is not done, we most likely will need to seek to
reorganize and restructure Rymer under the protection of the Bankruptcy Code
without a preapproved plan of reorganization. If this occurs, Rymer Meat may
also need to seek protection under the Bankruptcy Code. There can be no
assurance that a bankruptcy case, other than pursuant to the Prepackaged Plan,
will result in a reorganization rather than a liquidation, or that any
reorganization would be on terms as favorable to the noteholders and
stockholders as the terms of the restructuring. If a liquidation or lengthy and
non-orderly reorganization were to occur, there is a substantial risk that (1)
there would be little or no value available for distribution to the stockholders
and (2) the noteholders would receive substantially less than the recovery
anticipated in the restructuring.
For purposes of comparing the distributions under the Prepackaged Plan, we
have prepared an analysis of estimated recoveries in a liquidation of Rymer
under Chapter 7 of the Bankruptcy Code. This analysis is attached as EXHIBIT A
to the Disclosure Statement. The procedures followed and the assumptions and
qualifications used in this analysis are presented in the notes following the
analysis.
Even if all impaired classes accept the Prepackaged Plan, the Prepackaged
Plan might not be confirmed by a bankruptcy court. The Bankruptcy Code requires
various findings such as (1) that the confirmation of the Prepackaged Plan not
be followed by a need for further financial reorganization, (2) that the value
of distributions to non-accepting noteholders and stockholders not be less than
the value of distributions they would receive if Rymer were liquidated under
Chapter 7 of the Bankruptcy Code and, (3) that both the Prepackaged Plan and
Rymer otherwise comply with the applicable provisions of the Bankruptcy Code.
See "Summary of the Plan of Reorganization -- Confirmation of the Prepackaged
Plan". Although we believe that the Prepackaged Plan will meet all applicable
tests, there can be no assurance that a bankruptcy court will reach the same
conclusion.
Even if the required acceptances are received, a bankruptcy court could
find that the accepting noteholders and stockholders have not validly accepted
the Prepackaged Plan. If this happens, we may seek to re-solicit acceptances,
but confirmation of the Prepackaged Plan could be substantially delayed and
possibly jeopardized. We believe that (1) the Prepackaged Bankruptcy
solicitation complies with the requirements of the Bankruptcy Code; (2) that
signed and returned Ballots and Master Ballots will be in compliance with the
applicable provisions of the Bankruptcy Code and the Bankruptcy Rules, and that,
(3) if sufficient acceptances are received, the Prepackaged Plan should be
confirmed by a bankruptcy court. We, however, expressly reserve the right not to
file the Prepackaged Plan and to pursue other alternatives. See "The Bankruptcy
Restructuring" and "Confirmation and Consummation".
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THE RESTRUCTURING
RYMER'S BUSINESS
Rymer is the holding company for its direct, wholly owned subsidiary, Rymer
Meat. Thus, our principal asset is the stock of Rymer Meat. Rymer Meat is
primarily engaged in the development and production of frozen, pre-seasoned,
portion-controlled meat entrees for restaurants, food distributors, food
processors and retail customers.
Our operating results in recent years have been seriously hurt by a number
of factors, including, without limitation, consolidation among mid-scale family
restaurant chains and intense price competition in certain food market segments.
In recent years we withdrew from both the chicken and seafood markets through
the sale of the subsidiaries serving these markets. We are now concentrating
only on the beef market.
In October of 1995, we hired Kirkland Messina, Inc. to help develop a
comprehensive financial and operating plan to return us to profitability. The
plan started immediately. We downsized staff, cut administrative expenses,
improved our working capital through inventory liquidation, improved collection
of receivables and the sale of non-core assets. Also, we accepted the
resignations of several members of management (including the Chairman and CEO)
and laid-off approximately 40% of the production staff. After an extensive
search for new senior management, we hired Mr. P.E. ("Ed") Schenk, a former
senior executive of Smithfield Foods as our CEO. Mr. Schenk continued to cut
costs, improved the quality of our product line and stabilized our customer
base. Last August, we sold our seafood assets to and entity formed by the prior
President of Rymer Seafoods. Proceeds from the sale were used to repay bank
debt.
Although our operating cash flow improved, we still are unable to service
our Senior Notes. As a result, on November 8, 1996, we hired Kirkland Messina,
Inc. to explore restructuring options.
We met with Riverside Capital Advisors, Inc. an adviser to the holders of a
majority of the Senior Notes, on November 11, 1996, to discuss restructuring
options. So that we could speak candidly with this adviser about our business
and prospects, we asked, and he agreed, to keep the information we shared with
him at that time confidential and to not use that information to buy or sell
Senior Notes or common stock. At this meeting, the adviser agreed to consider a
restructuring plan which would involve the conversion of the Senior Notes into
common stock. After a series of telephone negotiations, we and the adviser met
in Florida in mid-January to discuss Rymer's situation. After additional
telephone discussions, we reached an understanding in principle on the
approximate percentage of common stock into which the Senior Notes would be
exchanged. This understanding has allowed us to proceed with the exchange offer.
At March 1, 1997, we employed 237 persons, of which approximately 194 were
covered by union contracts.
We conduct our business from a 123,000 square foot meat processing and
office facility located in Chicago, Illinois. This facility is a single purpose
building that has been occupied by Rymer for more than 10 years. It is USDA
licensed and approved for our use. As a result of our financial status, we have
elected to continue to lease and occupy the facility on a month-to-month basis.
Our future success depends primarily on reversing the sales declines
experienced in the last two fiscal years and on the continued reduction of
operating costs. We are pursuing new sales opportunities while we continue to
streamline our production process and to reduce other costs.
I-11
<PAGE> 14
RYMER'S FINANCIAL CONDITION
Before 1992, a substantial amount of capital was invested in Rymer as
senior debt and preferred stock and used to expand its core business from red
meat to chicken and seafood. The expanded business could not pay the required
debt service and dividends on the capital financing. Thus, in 1993, prior
management, with the approval of the creditors and stockholders, did a
prepackaged bankruptcy that resulted in the bonds and preferred stock being
converted into the Senior Notes and common stock, and representative of the
noteholders being elected to the Board. Then we adopted and implemented a
business plan to sell the chicken and seafood operations and emphasize our meat
operations with a view towards retiring the Senior Notes. The chicken and
seafood operations were sold and the meat business contracted. This has left us
with no choice but to pursue the restructuring being proposed.
At October 26, 1996, our liabilities included $21,544,000 of principal
amount of Notes and $210,000 principal amount of bank debt, and we had a
$15,616,000 stockholder's deficit. During the three fiscal years ended October
26, 1996, we incurred net losses of approximately $9.1 million in 1996, compared
to $29.3 million of losses in 1995 following a profit of $6.5 million in 1994.
Rymer incurred a loss of approximately $1.2 million during the thirteen week
period ended January 25, 1997. At January 25, 1997 our liabilities included
$23,483,000 of principal amount of Notes and we had a $16,839,000 stockholders'
deficit. In addition, we have various contingent liabilities including pending
litigation which in our opinion does not involve material risks of loss. We have
not declared dividends on our Common Stock for the past 14 years.
The December 15, 1996 interest payment on the Senior Notes was made by
issuing additional Senior Notes in a principal amount equal to the interest
payment then due. A cash interest payment is due on June 15, 1997 of
approximately $1.3 million. We do not expect to have sufficient available cash
to make this payment. Also, this payment cannot be made with additional Senior
Notes. Failure to make the June 1997 payment would be an event of default under
the Indenture under which the Senior Notes were issued.
Our Credit Agreement has been extended to July 31, 1997. The original
termination date was April 7, 1997. We currently are in default under certain
covenants in the Credit Agreement. LaSalle National Bank has waived past similar
defaults. However, there can be no assurance that LaSalle National Bank will
continue to waive future defaults or renew or extend the Credit Agreement after
July 31, 1997 if the restructuring is not done.
REASONS FOR THE RESTRUCTURING PLAN
If we do not do a restructuring: (1) the indebtedness outstanding under the
Notes will likely be declared payable in full after the June 15th interest
payment is not paid by July 15th; (2) Rymer Meat may lose business if customers
begin to doubt Rymer Meat's ability to supply products on a timely basis; (3) we
will be unable to invest adequate capital in our business or make appropriate
capital expenditures; and (4) LaSalle National Bank may not extend or renew the
Credit Agreement.
A bankruptcy proceeding initiated in such circumstances, in our opinion,
would be lengthy and perhaps contested and, therefore, could be expected to
result in substantial disruption of business operations and a material reduction
of our value. We have been advised by Kirkland Messina, our investment banker,
and believe that (1) our stockholders would most likely suffer a total loss of
their investments, and (2) our noteholders would likely recover no more, and
potentially could recover substantially less than the recovery available through
the restructuring. Based upon our analysis done by Kirkland Messina, in the
event of a liquidation, such recovery
I-12
<PAGE> 15
could be only $0.18, or less in value for each $1.00 of indebtedness under the
Notes. See Part III "Chapter 7 Liquidation Analysis for Rymer Foods Inc."
THE RESTRUCTURING PLAN
We are proposing the Exchange Restructuring to eliminate at least 95% of
the long-term debt from our capital structure. We believe this is necessary to
best ensure Rymer's long-term viability. We are asking noteholders and the one
person who is entitled to receive long-term deferred compensation payments from
us to exchange their debt claims against us for New Common Stock. We are asking
our stockholders to approve the actions necessary to issue the New Common Stock,
effect the 25 into 1 Reverse Stock Split, and adopt a new employee stock option
plan.
We are simultaneously proposing the Bankruptcy Restructuring as a way to
maximize the likelihood of successfully completing the Exchange Restructuring or
getting the same results in a Chapter 11 bankruptcy. The Bankruptcy
Restructuring involves the same basic economic considerations as the Exchange
Restructuring.
The Bankruptcy Restructuring has the added benefits to the noteholders and
stockholders of discharging us from all liabilities that we do not specifically
assume and assuring us that all of the Senior Notes will be exchanged into
common stock. This, in effect, gives us a fresh start. An additional benefit to
the stockholders would be the elimination of all claims and debt that is senior
to the equity position in our Company. However, the cost of this is the dilution
to 10% ownership.
The Exchange Restructuring offers us the advantage of time. If all of the
conditions are met, it can be done in a matter of days after the Exchange Offer
closes. Proceeding with the Bankruptcy Restructuring will be more costly than
the Exchange Restructuring in time, money and reputation. However, the
additional financial costs could be recouped over time through savings that will
result from having all of the Senior Notes and deferred compensation exchanged
for common stock. As in the Bankruptcy Restructuring, the stockholders will
benefit from the elimination of debt that is senior to their equity position.
The Noteholders that become stockholders will be subordinating their creditor
position to the noteholders who do not accept the Exchange Offer.
Because of the high percentage of Notes which must be exchanged in the
Exchange Offer and the stockholder majority approval required for the Charter
Amendment, we realize that it may be difficult to do the Exchange Restructuring.
We believe it is more likely that we will receive the requisite acceptances
necessary for filing the Bankruptcy Restructuring. If all conditions to both the
Exchange and the Bankruptcy Restructuring are satisfied, we intend to proceed
with the Exchange Restructuring.
Rymer has many competitive advantages. We have a reputation for
consistently high quality and high levels of service. We offer a broad menu of
products and develop proprietary recipes for specific customers. We also offer
competitive pricing. With an appropriate long-term capital structure and
adequate working capital, we believe that our business will remain viable and
can reasonably be managed to produce higher margins in the future than those
experienced during fiscal year 1996. Our strengthened capital structure will
enable us to retain customers and attract new customers.
I-13
<PAGE> 16
We have retained Kirkland Messina as our financial advisor in connection
with the Restructuring. Kirkland Messina has been paid $50,000 and will be paid
an additional $100,000 (plus expenses) upon consummation of the Exchange or the
Bankruptcy Restructuring.
THE EXCHANGE RESTRUCTURING
Assuming a 95% exchange of Notes for New Common Stock, Rymer's long-term
debt will be reduced from approximately $24.1 million in principal plus accrued
interest to the closing to approximately $1 million. Short-term bank debt will
continue to be required.
For agreeing to compromise their claims, the noteholders and a deferred
compensation claimant will receive shares of New Common Stock representing in
the aggregate approximately 80% of the outstanding New Common Stock. The two
most senior executives will receive 10% of the outstanding New Common Stock in
connection with entering into new Employment Agreements. Current stockholders
will suffer dilution of their ownership interest from 100% at present to 10%.
Credit Facility: New Credit Facility
We have a Loan and Security Agreement dated April 7, 1995, as amended, with
LaSalle National Bank which provides up to $4 million in revolving credit and
letter of credit financing based upon borrowing base availability calculations.
This Agreement currently terminates on July 31, 1997. We are currently
negotiating with LaSalle National Bank to renew or extend the Credit Agreement
to April, 1998. We expect that if the restructuring is completed LaSalle
National Bank will renew or extend the Credit Agreement through April, 1998 or
that a substitute credit agreement can be obtained. To date, we have no
commitment in hand for a Credit Facility.
Charter Amendment and the New Common Stock Issuance
We urge our stockholders to approve the Charter Amendment. The Charter
Amendment must be approved by the holders of a majority of the outstanding
Common Stock. The Charter Amendment will reduce the par value of our common
stock from $1.00 to $0.04 and enable us to effect a 25 into 1 reverse stock
split. The result will be New Common Stock. Under the Exchange Restructuring we
will allocate the New Common Stock as follows: (1) 3,268,000 shares for the
noteholders and the deferred compensation claimant, (2) 430,000 shares for our
two most senior executives, and (3) 430,000 shares for the stockholders. If
adopted, the Charter Amendment will not become effective until consummation of a
restructuring.
New Employment Agreements
Rymer will enter into new Employment Agreements effective with a
restructuring with Mr. Ed Schenk and Mr. Ed Hebert.
Because we believe that if we do not do a restructuring we will not be able
to keep key members of senior executives or attract new management to replace
them, and because we need management to carry out our operating plan after a
restructuring, we will enter into new Employment Agreements with Mr. Schenk and
Mr. Hebert. Under the new Employment Agreements, among other things, we will
grant them 258,000 and 172,000 fully vested shares of New Common Stock,
respectively. We will also give them interest free loans to pay their income
taxes on these shares. We will forgive half of these loans after their first
full year of employment, and then 25% after each of the second and third year of
employment. To illustrate: if the stock is
I-14
<PAGE> 17
valued at $1.21 a share, the taxable income to Ed Schenk will be about $312,150
and the loan for his taxes would be about $125,000. Also the taxable income to
Ed Hebert would be about $208,120 and the loan for his taxes would be about
$83,000. Each new Employment Agreement will be for a term of three years and
will provide for a base salary of $250,000 for Mr. Schenk and $140,000 for Mr.
Hebert.
Warrants
Warrants to purchase 1,250,000 shares of Common Stock at prices ranging
from $1.00 to $1.675 per share are currently outstanding. All of these warrants
will be cancelled in a restructuring.
Option Plan
Options to purchase 293,250 shares of Common Stock are currently
outstanding. These options were granted under Rymer's 1993 Stock Option Plan and
Rymer's 1994 Stock Plan. The exercise prices of these options range from $1.50
to $2.88. In the Exchange Restructuring, all options granted under the Existing
Plans and the Existing Plans themselves will be cancelled.
As part of the Restructuring, we will adopt the 1997 Stock Option Plan. The
Option Plan is set forth in APPENDIX A to our Proxy Statement. It is
substantially the same plan as our 1994 Stock Plan. The Option Plan provides for
the grant of options to purchase up to 430,000 shares of New Common Stock.
Options will be granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant. Options will generally vest over one
to three years of service by the optionee following the restructuring. Options
terminate upon the earlier of: (a) the termination for cause of the optionee or
the optionee's voluntary termination of employment in violation of an applicable
employment agreement; (b) 45 days after the optionee's death or other
termination of service or (c) five years from the option grant.
Board of Directors
The current members of our Board of Directors will continue to serve until
the next Annual Meeting of stockholders following completion of the Exchange
Restructuring, which will be in 1998. At that time the current directors will
resign. Nominees for the new Board will be Mr. Ed Schenk, Mr. Joe Colonnetta and
three others to be determined.
Accounting Treatment
The proposed Exchange Restructuring would be accounted for as a
quasi-reorganization. A quasi-reorganization involves an adjustment of the
company's balance sheet to fair market value and the transfer of the accumulated
deficit reflected therein to additional paid in capital in accordance with
quasi-reorganization accounting principles.
Conditions to the Exchange Offer
The Exchange Restructuring is conditioned upon, among other things:
- acceptance of the Exchange Offer by holders of 95% in principal amount of
Notes;
- stockholder approval of the Charter Amendment, the New Common Stock
issuance, and the new employee stock option plan;
I-15
<PAGE> 18
- signing of a new $4 million credit facility with LaSalle National Bank or
another lender; and
- execution of the new employee agreements with Mr. Schenk and Mr. Hebert.
On or prior to the expiration date we may waive or amend any of the
conditions if we obtain the consent of the adviser to the majority noteholders
and promptly disclose such waiver or amendment to the noteholders. We do not
presently intend to waive any conditions or make any amendments. We, may amend
any of the terms of the Exchange Restructuring if and to the extent that we
decide amendments are needed to complete the Exchange Restructuring. We will
give stockholders and noteholders notice of any amendments and the opportunity
to withdraw tendered Notes, votes and consents, as may be required by applicable
law.
If we increase the percentage of Notes we want to receive in the Exchange
Offer by more than 2%, or if we reduce the percentage of Notes we want to
receive in the Exchange Offer, or if we change the consideration for the Notes,
the Exchange Offer will remain open for at least 10 business days from the day
we give the noteholders notice of the change. Also, if we decide to waive or
change other material items of the Exchange Offer, we will keep it open for at
least five additional business days from the day we give the noteholders notice
of the change. Notice of an extension of the Exchange Offer shall be given no
later than 9:00 a.m., Eastern time, on the next business day after the scheduled
expiration date.
If the Exchange Restructuring is to occur, it would be at a closing
scheduled as soon as possible after satisfaction or waiver of all conditions. At
the Exchange Restructuring closing: (1) We would accept all valid Notes
submitted for exchange and issue New Common Stock for the Notes, (2) the Charter
Amendment would be filed, (3) the Replacement Credit Agreement would be signed,
and (4) the New Employment Agreements and certain other agreements would become
effective. All conditions to the Exchange Offer must be satisfied or waived
prior to the expiration date, or in the case of an extension of the Exchange
Offer, prior to the revised expiration date. If the Exchange Offer closing does
not occur, all of the Notes submitted for exchange will be promptly returned to
their owners. If all of the conditions of the Exchange Offer are satisfied or
waived on or prior to the expiration date, we will proceed with the Exchange
Offer.
Expiration
The Exchange Offer will remain open for at least 25 business days. The
Exchange Offer will expire at 5:00 p.m. New York Time, on the July 7, 1997
expiration date, unless extended.
Acceptance of Notes; Delivery of New Common Stock
If we accept Notes for exchange, the Exchange Agent will deliver the New
Common Stock as soon as possible after the Expiration Date. No certificates or
scrip representing fractional shares of New Common Stock will be issued in the
restructuring. Instead, fractions will be rounded up to the next highest whole
number of shares.
The consideration to be paid in the Exchange Restructuring will be paid in
respect of each $1,000 principal amount of Notes plus all accrued and unpaid
interest up to the date of the Exchange Restructuring closing. By tendering
Notes a noteholder surrenders all rights to receive any payments of accrued
interest on such Notes until the Exchange Restructuring closing.
I-16
<PAGE> 19
Instructions For Accepting the Exchange Offer
There are two ways for you to accept the Exchange Offer:
1. Complete and sign the Letter of Transmittal with any required signature
guarantees and send it, together with a properly completed and signed
Notice of Guaranteed Delivery ("Guaranty of Delivery") and the Notes,
and any other documents required by the Letter of Transmittal, to the
Exchange Agent; or
2. Have your broker or bank sign and send in the Letter of Transmittal for
you. If you are the beneficial owner of Notes registered in the name of
a broker, dealer, bank, trust company, or other nominee and you want to
do the Exchange Offer, promptly tell your registered holder to tender
and consent.
If you are a beneficial owner of a Note and want to do the Exchange
Offer yourself, before doing so you will have to either have your Note
transferred to your own name or get from your record holder a signed and
completed bond power. Changing record ownership may take considerable time.
We have hired Hill and Knowlton to be our Information Agent for the
Exchange Offer. You should call the Information Agent at 1-800-755-3002 if
you have any questions or need any help.
Withdrawal Rights
Notes sent in under the Exchange Offer (and the related consents and votes)
may be withdrawn at any time before the Expiration Date.
Procedures for Noteholders to Vote on the Prepackaged Plan
Noteholders can vote to accept or reject the Prepackaged Plan. This is done
by Ballot. The Letter of Transmittal and Guaranty of Delivery are NOT Ballots.
There are 2 ballots -- GREY for record noteholders and BLUE for beneficial owner
of Notes. Noteholders -- both beneficial and record -- should complete, sign and
return their ballots to the Exchange Agent. If you are not sure which Ballot to
use, call the Information Agent.
Even if you accept the Exchange Offer, you should vote on the Prepackaged
Plan so if the Exchange Offer does not happen we can proceed with a
restructuring.
Exchange Agent; Information Agent
ChaseMellon Shareholder Services LLC is the Exchange Agent and Hill and
Knowlton is the Information Agent for the Restructuring.
Annual Meeting of Stockholders
At the Meeting, stockholders will vote on three items relevant to the
Exchange Restructuring. These three items are: (1) the Charter Amendment
changing the par value of the common stock from $1.00 per share to $0.04 per
share, (2) the Common Stock issuance in the Exchange Restructuring, and (3) the
Option Plan.
The Charter Amendment and New Common Stock issuance must be approved by
holders of a majority of Common Stock outstanding on the May 23, 1997 Record
Date. Only stockholders of record at the close of business on May 23, 1997 will
be entitled to vote at the Meeting. As of May 23, 1997 there were outstanding
approximately 10,750,000 shares of Common Stock.
I-17
<PAGE> 20
Each share of Common Stock is entitled to one vote on the Charter
Amendment, the New Common Stock issuance, and the Option Plan. Stockholders have
no appraisal or dissenters' rights with respect to any of the actions to be
approved in connection with the restructuring. The Annual Meeting items are
discussed in greater detail in the accompanying Proxy Statement.
At February 10, 1997, the directors and officers of Rymer owned
beneficially and of record an aggregate of 1,830,933 shares of Common Stock
(approximately 17.0% of the outstanding Common Stock). All of such directors and
officers intend to vote for the restructuring.
Illustrative Unaudited Financial Information Giving Effect to the
Restructuring
The following illustrated unaudited financial statement information gives
effect to the Exchange Restructuring.
EXCHANGE RESTRUCTURING (95% EXCHANGE)
ILLUSTRATIVE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 26, 1996
-----------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net sales.................................................. $44,329 $ -- $44,329
Cost of sales.............................................. 42,516 -- 42,516
------- ------- -------
Gross profit............................................. 1,813 -- 1,813
Selling, general and administrative expense................ 4,794 -- 4,794
------- ------- -------
Operating loss........................................... (2,981) -- (2,981)
Interest expense........................................... 4,198 (3,515)(a) 683
Other income............................................... (35) -- (35)
------- ------- -------
Loss from continuing operations before income taxes........ (7,144) (3,515) (3,629)
Provision for income taxes................................. -- -- --
------- ------- -------
Loss from continuing operations............................ $(7,144) $(3,515) $(3,629)
======= ======= =======
Loss from continuing operations per common share*.......... $ (.66) $ (.88)
</TABLE>
- ---------------
* Historical loss calculated with average shares of 10,754,000 outstanding.
Illustrative loss calculated with average shares of 4,128,000 outstanding,
after giving effect to the 25 into 1 reverse stock split.
The accompanying notes are an integral part of the
illustrative unaudited financial statements.
I-18
<PAGE> 21
EXCHANGE RESTRUCTURING (95% EXCHANGE)
ILLUSTRATIVE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JANUARY 25, 1997
-----------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net sales................................................. $ 8,278 $ -- $8,278
Cost of sales............................................. 7,575 -- 7,575
------- ----- ------
Gross profit............................................ 703 -- 703
Selling, general and administrative expenses.............. 1,057 -- 1,057
------- ----- ------
Operating loss.......................................... (354) -- (354)
Interest expense.......................................... 879 (809)(b) 70
Other income.............................................. (10) -- (10)
------- ----- ------
Loss from continuing operations before income taxes..... (1,223) (809) (414)
Provision for income taxes................................ -- -- --
------- ----- ------
Loss from continuing operations........................... $(1,223) $(809) $ (414)
======= ===== ======
Loss from continuing operations per common share*......... $ (.11) $ (.10)
</TABLE>
- ---------------
* Historical loss calculated with average shares of 10,754,000 outstanding.
Illustrative loss calculated with average shares of 4,128,000 outstanding,
after giving effect to the 25 into 1 reverse stock split.
The accompanying notes are an integral part of the
illustrative unaudited consolidated financial statements.
I-19
<PAGE> 22
EXCHANGE RESTRUCTURING (95% EXCHANGE)
ILLUSTRATIVE UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 25, 1997
------------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Current Assets:
Cash and Equivalents..................................... $ 586 $ (586)(c) $ --
Receivables............................................ 1,658 -- 1,658
Inventories............................................ 3,805 -- 3,805
Other.................................................. 253 -- 253
-------- -------- ------
Total current assets........................... 6,302 (586) 5,716
-------- -------- ------
Property, plant and equipment:
Leasehold improvements................................. 1,789 -- 1,789
Machinery and equipment................................ 6,806 -- 6,806
-------- -------- ------
8,595 -- 8,595
Less accumulated depreciation and amortization........... 7,027 -- 7,027
-------- -------- ------
1,568 -- 1,568
-------- -------- ------
Assets held for sale or lease............................ 1,150 -- 1,150
Other.................................................... 521 (421)(d) 100
-------- -------- ------
$ 9,541 $ 1,007 $8,534
======== ======== ======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable -- Bank.................................. $ -- $ 279(e) $ 279
Senior Notes........................................... 23,483 (22,309)(d) 1,174
Accounts payable....................................... 276 -- 276
Accrued interest....................................... 297 (279)(g) 18
Accrued liabilities.................................... 1,533 -- 1,533
-------- -------- ------
Total current liabilities...................... 25,589 (22,309) 3,280
Long-term debt:.......................................... 791 (542)(h) 249
-------- -------- ------
26,380 (22,851) 3,529
-------- -------- ------
Commitments and contingencies Stockholders'
(deficit)/equity
Preferred stock, none outstanding...................... -- -- --
Common stock, $1 par (historical), $0.04 par
(Illustrative) 20,000,000 shares authorized;
10,754,093 shares outstanding in 1997 and 4,128,000
shares outstanding on an Illustrative basis......... 10,754 (10,589)(i) 165
Additional paid-in capital............................... 44,363 (39,523)(j) 4,840
Accumulated deficit...................................... (71,956) 71,956(k) --
-------- -------- ------
Total stockholders' (deficit)/equity........... (16,839) 21,844 5,005
-------- -------- ------
$ 9,541 $ (1,007) $8,534
======== ======== ======
</TABLE>
The accompanying notes are an integral part of the
illustrative unaudited consolidated financial statements.
I-20
<PAGE> 23
NOTES TO EXCHANGE RESTRUCTURING (95% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
On March 3, 1997, the Board of Directors of Rymer (Rymer Foods or the
Company) approved the Exchange Restructuring. The primary purpose of the
restructuring is to achieve changes in the Company's capital structure that
Rymer Foods believes are necessary to alleviate the problems caused by its
excessive debt levels and debt and interest repayment obligations.
The adjustments giving effect to the Exchange Restructuring assume that (i)
95% of the outstanding principal amount of the Senior Notes and deferred
compensation payable are exchanged for 3,268,000 shares of Common Stock, (ii)
the Company obtains the New Credit Facility, (iii) the Company issues 430,000
shares of Common Stock to management, and (iv) the 25 into 1 reverse stock split
occurs.
The proposed Exchange Restructuring would be accounted for as a
quasi-reorganization. The Quasi-Reorganization involves an adjustment of the
Company's balance sheet to fair market value and the transfer of the accumulated
deficit reflected therein to additional paid in capital in accordance with
quasi-reorganization accounting principles. The carrying values of the Company's
assets and liabilities are expected to approximate fair value, therefore, the
resulting shareholders equity of $1.21 per share is derived by dividing the book
value of the Company subsequent to the reorganization by the amount of the new
shares. The financial information assumes that 95% of the Senior Noteholders
tender in the Exchange Restructuring.
These illustrative unaudited consolidated financial statements are not
necessarily indicative of the results which would have actually been obtained
had all the transactions referred to above occurred on such dates. They should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto.
NOTE 2 -- EXCHANGE RESTRUCTURING ADJUSTMENTS
The Illustrative Unaudited Consolidated Balance Sheet presents the
historical Consolidated Balance Sheet of the company as if all of the above
transactions were consummated on January 25, 1997. The Illustrative Unaudited
Consolidated Statements of Operations present the historical Consolidated
Statements of Operations of the Company for the thirteen weeks ended January 25,
1997 and the year ended October 26, 1996 as if all of the above transactions had
occurred on October 28, 1995 and are carried forward to January 25, 1997. The
statements of operations disclose the loss from continuing operations, excluding
nonrecurring items directly attributable to restructuring. Such items include
estimated restructuring expenses of approximately $1.4 million, which will be
expensed as incurred and reported as reorganization expenses, and a gain on
exchange of the debt of approximately $22.7 million, which will be reported as
an extraordinary item. These amounts will be included in Rymer's results of
operations subsequent to the reorganization proceedings. In addition, the
Company's results of operations subsequent to reorganization proceedings will
include amounts related to forgiveness of interest free loans extended to senior
management in amounts of up to approximately $208,000 which will be expensed
over a three year employment period.
I-21
<PAGE> 24
NOTES TO EXCHANGE RESTRUCTURING (95% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(a) Reduction in interest expense as a result of the
restructuring (for the year ended October 26, 1996), as
follows:
Reduction of historical interest expense on deferred
compensation payable........................................ $ (49)
Reduction of historical interest expense (including
amortization Senior Notes issue costs) relating to 95% of
Senior Notes................................................ (3,551)
Addition of estimated interest expense on borrowings to pay
debt issuance costs and estimated restructuring expenses.... 85
--------
$ (3,515)
========
(b) Reduction in interest expense as a result of the
restructuring (for the thirteen weeks ended January 25,
1997), as follows:
Reduction of historical interest expense on deferred
compensation payable........................................ $ (11)
Reduction of historical interest expense (including
amortization of Senior Notes issue costs) relating to 95% of
Senior Notes................................................ (810)
Addition of estimated interest expense on borrowings (net of
existing cash investments) to pay debt issuance and
estimated restructuring expenses............................ 12
--------
$ (809)
========
(c) Elimination of cash as a result of incurring restructuring
expenses.................................................... $ (586)
========
(d) Reduction of unamortized Senior Notes issue costs related to
95% of the Senior Notes..................................... $ (451)
Record estimated fees for the New Credit Facility........... 30
--------
$ (421)
========
(e) Increase in bank debt from cash payments for restructuring
expenses:
Total estimated restructuring expenses...................... $1,355
Bank fee (for New Credit Facility).......................... 30
Less: Estimated amount to be paid in
Common stock (430,000 shares X $1.21)............ (520)
Cash used................................................... (586)
------
$ 279
========
(f) Reduction of Senior Notes which will be exchanged for
approximately 3,190,532 shares of common stock. A total of
95% of the Senior Notes are assumed to have been
exchanged................................................... $(22,309)
========
(g) Reduction of accrued interest expense on the Senior Notes... $ (279)
========
(h) Elimination of deferred compensation payable which will be
exchanged for 77,468 shares................................. $ (542)
========
(i) Reduction of Senior Notes and deferred compensation payable
which will be exchanged for approximately 3,268,000 shares
of common stock. A total of 95% of the Senior Notes are
assumed to have been exchanged.
Par value of common shares issued to Senior Noteholders
(143.02 common shares for each $1000 of Senior Note
principal).................................................. $ 128
Par value of common shares issued to deferred compensation
claimant.................................................... 3
Par value of common shares issued to senior management...... 17
Par value of common shares eliminated in 25 into 1 reverse
stock split................................................. (10,737)
--------
$(10,589)
========
</TABLE>
I-22
<PAGE> 25
NOTES TO EXCHANGE RESTRUCTURING (95% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(j) Additional paid-in capital on common stock issued to
deferred compensation claimant (77,468 shares X $1.17)...... $ 91
Additional paid-in capital on common stock issued to Senior
Noteholders (3,190,532 shares X $1.17)...................... 3,733
Additional paid-in capital on common stock issued to senior
management (430,000 shares X $1.17)......................... 503
Additional paid-in capital on common stock issued in reverse
stock split (10,737,000 shares X $1.00)..................... 10,737
Elimination of accumulated deficit after adjustments........ (54,587)
--------
$(39,523)
========
(k) Record gain on exchange of Senior Notes and other
adjustments to accumulated deficit, as follows:
Carrying amount of Senior Notes exchanged net of bond
issuance costs.............................................. $ 21,857
Amounts allocated to common stock and additional paid-in
capital (3,268,000 shares at $1.21)......................... (3,954)
Accrued interest payable on Senior Notes exchange........... 279
Carrying amount of deferred compensation payable............ 542
Estimated fees to be incurred upon the restructuring........ (1,355)
Accumulated deficit after adjustments reclassified to
additional paid-in capital.................................. $ 54,587
--------
$ 71,956
========
I-23
<PAGE> 26
THE BANKRUPTCY RESTRUCTURING
To increase the likelihood that the conversion of debt to equity result of
the Exchange Restructuring will occur, we are asking that the stockholders and
noteholders also approve the Prepackaged Bankruptcy Plan. The votes required for
the Prepackaged Plan are different than those votes required for the Exchange
Restructuring.
Approval Requirements
Approval of the Prepackaged Plan is based only on those noteholders and
stockholders that send in Ballots. Approval of the Prepackaged Plan needs "For"
votes from more than 50% in number and 66 2/3% in dollar amount of the
noteholders and any other affected creditors that send in their Ballots and more
than 66 2/3% of the stockholders that send in their Ballots. However, we can
also do the Prepackaged Plan without approval of the stockholders, but doing so
could be harder and could take more time.
It is important that noteholders and stockholders vote because only actual
votes received will be counted to determine if the Prepackaged Plan is approved.
See "The Bankruptcy Restructuring -- Confirmation Without Acceptance." Failure
to send in a signed Ballot by the Expiration Date will constitute an abstention.
An abstention will not be counted as a vote "for" or "against" the Prepackaged
Plan. See Disclosure Statement -- "Confirmation and Consummation Procedure" for
a discussion of the requirements for confirmation of the Prepackaged Plan.
If acceptances are received from (1) the noteholders, the deferred
compensation claimant and other holders of unsecured claims that will not be
satisfied in cash in the bankruptcy, as the impaired class of unsecured claims,
and (2) the stockholders, as the impaired class of equity interests, in
sufficient amounts and numbers to effect the bankruptcy restructuring, we expect
to (but expressly reserves the right not to) file under Chapter 11 of the
Bankruptcy Code and use those acceptances to confirm the Prepackaged Plan. If
both the conditions to the Exchange Offer are satisfied and the Bankruptcy
Restructuring is accepted, we will do the Exchange Offer.
If we do not receive the needed approvals from both classes, we will review
our options at that time. Our choices would include (1) filing the Prepackaged
Plan without consent of both or either impaired classes or (2) simply filing for
protection under the Bankruptcy Code without a pre-approved plan of
reorganization, or (3) pursue other options such as liquidation. We reserve the
right to pursue alternatives other than the exchange and the bankruptcy
restructuring, even if all necessary approvals are obtained.
Even if the noteholders and stockholders approve the Prepackaged Plan, the
Prepackaged Plan may not be confirmed by a bankruptcy court. Although we believe
that the Prepackaged Plan will meet the legal tests for court approval, there
can be no assurance that a bankruptcy court will agree. For example, the
Bankruptcy Code requires that the Prepackaged Plan be feasible and be in the
best interests of creditors. These matters are discussed in detail under
"Confirmation and Consummation Procedure" in the Disclosure Statement.
The Prepackaged Plan does not include a bankruptcy filing by Rymer Meat or
any other Subsidiary. Consequently, none of Rymer Meat's creditors would be
directly affected by the bankruptcy restructuring.
The bankruptcy restructuring involves substantially the same economic
considerations and transactions as the exchange restructuring, except that in
the bankruptcy restructuring 100% of
I-24
<PAGE> 27
the Notes and the deferred compensation claim will be retired and the Indenture
through which the Notes were issued will be discharged.
We have not at this time approved a bankruptcy filing. To the extent we
deem it to be appropriate, we may choose to pursue other alternatives, including
the implementation of a new restructuring plan outside of bankruptcy or the
filing of Chapter 11 proceedings to implement a plan of reorganization other
than the Prepackaged Plan. We believe, however, that if the restructuring is not
consummated, it is likely that we will be unable to meet our June 15, 1997
interest payment on the Notes or continue our working capital financing. Hence,
our only viable option would be to seek protection from creditors under Chapter
11 of the Bankruptcy Code. We believe that a bankruptcy proceeding initiated in
such a manner would be lengthy and perhaps contested. This could substantially
disrupt our operations and materially diminish our value. If, before the
Prepackaged Plan is confirmed by the Bankruptcy Court, we modify the Plan in a
way that materially adversely affects unsecured claims or the stockholders and
which has not been described as possibly happening, we will resolicit the votes
from the classes that are affected.
Voting
Only the beneficial owners of Notes and Common Stock at the close of
business on May 23, 1997 are entitled to vote to accept or reject the
Prepackaged Plan. These stockholders and noteholders may vote on the Prepackaged
Plan whether or not they vote or act on the Exchange Offer, and regardless of
how they so vote, or whether they send in their Notes in the Exchange Offer.
For purposes of voting on the Prepackaged Plan, both Ballots and Master
Ballots are furnished for the voting classes. The Green ballots are for voting
by the beneficial owners of Notes, white ballots are for voting by beneficial
owners of Common Stock, whether or not they are also the holder of record of
such securities. For example, if Notes or Stock are held in the name of a
broker, dealer, bank, trust company or other nominee, the true or beneficial
owner must vote. These votes are combined into Master Ballots ("Master Ballots")
voted by holders of record of Notes or Common Stock who hold for the account of
one or more beneficial owners.
Holders should complete the appropriate Ballot or Master Ballot carefully
following these instructions and the instructions on the Ballot forms.
If a person is both a noteholder and a stockholder, he or she should vote
separately and complete a separate Ballot or Master Ballot for each class.
Persons who acquire Notes or Common Stock after May 23, 1997 must arrange
with the sellers to receive a proxy, Ballot or Letter of Transmittal, as the
case may be, from the holder of record of such securities on May 23, 1997.
Noteholders tendering using the procedures for guaranteed delivery (see
"The Exchange Offer -- Procedures for Tendering") who desire to vote on the
Prepackaged Plan must deliver to the Exchange Agent a Green Noteholder Ballot
voting on the Prepackaged Plan. Timely delivery to the Exchange Agent of a
Guaranty of Delivery is not a vote on the Prepackaged Plan.
Trade Suppliers, Employees and Certain Contracts
Rymer is a holding company. We do not have a significant amount of trade
creditor claims. The Prepackaged Plan does not involve Rymer Meat's creditors.
Rymer Meat intends to continue to pay all trade creditors and employees in full
in the ordinary course of business. We are assuming that if (1) we obtain an
extension of our Credit Agreement beyond July 31, 1997
I-25
<PAGE> 28
and (2) LaSalle National Bank continues to advance funds and, together with the
noteholders, abstains from exercising creditor remedies, then both Rymer and
Rymer Meat should be able to pay their respective trade creditors and employees
during the restructuring.
We and Rymer Meat intend to pay, on time, all salaries, wages, accrued
vacations, health-related benefits, severance benefits and similar benefits to
all of our current officers and employees. We will reject all outstanding
warrants and stock options and may reject some executory contracts in the
bankruptcy proceeding pursuant to the Prepackaged Plan. A bankruptcy
restructuring will have no impact on any collective bargaining agreements to
which Rymer Meat is a party or is bound.
Classification and Treatment of Noteholders and Stockholders under the
Prepackaged Plan
Here is a summary of the classification and treatment of claims and equity
interests in the Prepackaged Plan:
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
----------------- ------------------------
<S> <C>
ADMINISTRATIVE EXPENSES. Costs and expenses - UNIMPAIRED (non-voting)
of administration and expenses of operations - Paid in full on the Effective Date or as
and claims of the kind specified under the parties otherwise agree.
Section 507(a)(1) of the Bankruptcy Code.
CLASS 1. Allowed Priority Claims. These are - UNIMPAIRED. (non-voting)
certain claims given priority under the - Paid in full on the Effective Date or, if
Bankruptcy Code, other than Administrative later, 11 days after being finally allowed
Expenses or those of a kind specified in by the Bankruptcy Court, except that, at
Section 507(a)(2) of the Bankruptcy Code, to Rymer's option, allowed priority tax claims
the extent allowed. We currently estimate (together with accrued interest) may be paid
that about $110,000 would be paid to about 4 over a period not exceeding six years after
creditors as Allowed Priority Claims. assessment.
CLASS 2. Allowed Secured Claims. This class - UNIMPAIRED (non-voting)
includes LaSalle National Bank as a secured - On the Effective Date, all defaults other
creditor. than those specified in Section 365(b)(2) of
the Bankruptcy Code shall be cured. All
claims will be reinstated to maturity and
secured creditors shall retain all their
legal, equitable and contractual rights.
CLASS 3. Allowed Unsecured Claims (other - IMPAIRED (voting)
than Class 5 claims). This class includes - Holders will receive as of the Effective
the Notes, the deferred compensation claim Date a pro rata distribution of 3,440,000
and a limited number of other claims newly-issued shares of New Common Stock or
including contingent liabilities. The approximately 143.02 shares for every $1,000
aggregate claims in Class 3 are of claims
approximately $23.6 million. There are
approximately 15 holders of record of Class
3 claims.
</TABLE>
I-26
<PAGE> 29
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
----------------- ------------------------
<S> <C>
CLASS 4. The Common Stock. There are - IMPAIRED (voting)
approximately 10,754,000 issued and - If Class 4 accepts the Plan, stockholders
outstanding shares of Common Stock. There will receive 430,000 shares of New Common
are approximately 725 beneficial holders of Stock or 4 shares for every 100 shares of
Class 4 Interests. common stock now outstanding. The ownership
interest in Rymer represented by the Common
Stock outstanding prior to the Effective
Date will be substantially diluted from 100%
to 10%. If the plan is not accepted by Class
4, all outstanding Common Stock may be
cancelled. If this happens, stockholders
will receive nothing.
CLASS 5. All unsecured claims other than - UNIMPAIRED (non-voting)
Class 3 less than $2,500. We currently - Either paid in full on the Effective Date
estimate that about $150,000 would be paid or, if later, 11 days after being finally
to about 150 creditors in this class. allowed by the Bankruptcy Court, or
unaltered as to original legal, equitable
and contractual rights.
</TABLE>
CONDITIONS TO THE BANKRUPTCY RESTRUCTURING
The Bankruptcy Code requires that a bankruptcy court determine that the
Prepackaged Plan complies with the requirements of Section 1129 of the
Bankruptcy Code. The Bankruptcy Restructuring is conditioned upon, among other
things, (1) acceptance of the Prepackaged Plan by the noteholders and deferred
compensation claimant as a Class; (2) acceptance from the stockholders or
confirmation of the Prepackaged Plan by a bankruptcy court without stockholder
approval; (3) entry by the bankruptcy court of an order confirming the
Prepackaged Plan, which confirmation order shall not be stayed and, unless
waived by us with the written consent of the official committee of creditors or,
if no such committee is set up, the Restricted Noteholder, shall be final and
non-appealable; (4) signing of the new Employment Agreements with Mr. Ed Schenk
and Mr. Ed Hebert; (5) opening a New Credit Facility providing for a $4 million
credit line based upon borrowing base availability; and (6) all agreements,
instruments and documents necessary in connection with consummation of the
restructuring and the governance of Rymer and its Subsidiaries being in form and
substance satisfactory to the official committee of creditors or, if no such
committee is constituted, the Restricted Noteholder. We would expect that the
closing of the Bankruptcy Restructuring would occur within 15 days following
entry of a final order by a bankruptcy court confirming the Prepackaged Plan.
Board of Directors
The current members will continue to serve until the closing of the
Bankruptcy Restructuring. At that time a new Board will be installed. The new
Board would be Mr. Ed Schenk, Mr. Joe Colonnetta and three others to be
determined.
Amendments to the Prepackaged Plan
We reserve the right to amend or modify the Prepackaged Plan, if and to the
extent that we decide that amendments or modifications are needed to complete
the bankruptcy restructuring. However, we will not amend or modify the
Prepackaged Plan without the consent of the official committee of creditors or,
if no such committee has been constituted, the Restricted Noteholder, and
provide such disclosure and opportunity to change votes as may be required by
law. If we decide that a modification to the Prepackaged Plan is material to a
particular class, we will
I-27
<PAGE> 30
resolicit the approval of that class. We do not presently intend to waive any
bankruptcy conditions or make any amendments or modifications; we just reserve
the right to do so.
Confirmation without Acceptance by the Stockholders
Under the Bankruptcy Code, the Prepackaged Plan may be confirmed even if
the Prepackaged Plan is not accepted by all impaired classes. In the bankruptcy
restructuring, the noteholders (and the deferred compensation claimant) and the
stockholders are the only impaired classes. Section 1129(b) of the Bankruptcy
Code sets forth the conditions to a confirmation of a plan of reorganization
without the acceptance of all impaired classes (or "cram-down," as it is
generally called). Generally, if at least one impaired class of claims has
accepted the Prepackaged Plan, the Prepackaged Plan may be confirmed over the
dissent of other impaired classes of claims and interests. This can be done if
(1) the bankruptcy court finds that the Prepackaged Plan does not discriminate
unfairly (generally meaning respecting the relative priorities among creditors
and stockholders), and (2) if any dissenting class does not receive or retain
property at least equal to the allowed amount of its claim or interest, no class
junior to any such dissenting class receives or retains any property under the
Prepackaged Plan.
We reserve the right to seek confirmation of the Prepackaged Plan even if
the stockholders do not accept the Prepackaged Plan. Confirmation, without the
acceptance of the stockholders, could eliminate the distribution as to all
stockholders. This means that the stockholders may get less than 10% of the New
Common Stock and may even get nothing. We also reserve the right to proceed
other than under the Prepackaged Plan, which could result in less favorable
treatment to the stockholders than the treatment currently provided in the
Prepackaged Plan. See "The Plan of Reorganization -- Confirmation without
Acceptance by All Impaired Classes" in the Disclosure Statement.
Non-Acceptance by Noteholders
We do not intend to seek confirmation of the Prepackaged Plan if the
noteholders, voting as a class, do not accept the Prepackaged Plan. We may
choose instead to seek an alternative means of restructuring, including the
filing of a Chapter 11 proceeding without a pre-approved plan of reorganization.
We believe that if this happens, the noteholders and the deferred compensation
claimant will receive substantially less than the recovery provided in the
Prepackaged Plan and that the stockholders will receive nothing. See
"Alternatives to Confirmation and Consummation of the Prepackaged Plan" in the
Disclosure Statement.
Exchange of Stock Certificates; Fractional Shares
No certificates or scrip representing fractional shares of Common Stock
will be issued. The Exchange Agent will round up to the next highest whole
number of shares.
Revocation Rights
Votes to accept or reject the Prepackaged Plan may be revoked at any time
before the earlier of (1) the filing of a bankruptcy petition in connection with
the bankruptcy restructuring or (2) the Expiration Date. Thereafter, such votes
may be revoked only with the approval of the bankruptcy court.
I-28
<PAGE> 31
Amendments to Certificate of Incorporation
The Prepackaged Plan provides that Rymer's Certificate of Incorporation
will be amended to give effect to the Charter Amendments on the Effective Date.
Release of Claims
In addition to voting on the Prepackaged Plan, the Ballots provide that
approving noteholders and stockholders may release their claims, if any, against
Rymer, its officers, directors, agents, employees and controlling stockholders,
the Indenture Trustee and its affiliates, and the Restricted Noteholder. The
release is intended to assure us of a fresh start. The release will only be
binding if the bankruptcy restructuring is effected and only with respect to the
noteholders and stockholders who release their claims by checking the
appropriate box on the ballot.
Illustrative Unaudited Financial Information giving Effect to the Bankruptcy
Restructuring
The following Illustrative unaudited financial statement information
including the capitalization of Rymer assumes (unless otherwise indicated) that
(i) the bankruptcy restructuring happens and (ii) all other assumed events and
matters described in the accompanying notes occur.
BANKRUPTCY RESTRUCTURING (100% EXCHANGE)
ILLUSTRATIVE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JANUARY 25, 1997
-------------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net sales.............................................. $ 8,278 $ -- $8,278
Cost of sales.......................................... 7,575 -- 7,575
------- ----- ------
Gross profit......................................... 703 -- 703
Selling, general and administrative expenses........... 1,057 -- 1,057
------- ----- ------
Operating loss....................................... (354) -- (354)
Interest expense....................................... 879 (852)(b) 27
Other income........................................... (10) -- (10)
------- ----- ------
Loss from continuing operations before income
taxes............................................. (1,223) 852 (371)
Provision for income taxes............................. -- -- --
------- ----- ------
Net loss from continuing operations.................. $(1,223) $ 852 $ (371)
======= ===== ======
Loss from continuing operations per common share*...... $(.11) $(.09)
</TABLE>
- ---------------
* Historical loss calculated with average of 10,754,000 shares outstanding.
Illustrative loss calculated with average of 4,300,000 shares outstanding
after giving effect to the 25 into 1 reverse stock split.
The accompanying notes are an integral part of the
illustrative unaudited consolidated financial statements.
I-29
<PAGE> 32
BANKRUPTCY RESTRUCTURING (100% EXCHANGE)
ILLUSTRATIVE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 26, 1996
-------------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net sales.............................................. $44,329 $ -- $44,329
Cost of sales.......................................... 42,516 -- 42,516
------- ------- -------
Gross profit......................................... 1,813 -- 1,813
Selling, general and administrative expenses........... 4,794 -- 4,794
------- ------- -------
Operating loss....................................... (2,981) -- (2,981)
Interest expense....................................... 4,198 (3,704)(a) 494
Other income........................................... (35) -- (35)
------- ------- -------
Loss from continuing operations before income taxes.... (7,144) (3,704) (3,440)
Provision for income taxes............................. -- -- --
------- ------- -------
Loss from continuing operations........................ $(7,144) $(3,704) $(3,440)
======= ======= =======
Loss from continuing operations per common share*...... $(.66) $(.80)
</TABLE>
- ---------------
* Historical loss calculated with average shares of 10,754,000 outstanding.
Illustrative loss calculated with average shares of 4,300,000 outstanding,
after giving effect to the 25 into 1 reverse stock split.
The accompanying notes are an integral part of the
illustrative unaudited financial statements.
I-30
<PAGE> 33
BANKRUPTCY RESTRUCTURING (100% EXCHANGED)
ILLUSTRATIVE UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 25, 1997
-------------------------------------------
CONSOLIDATED ILLUSTRATIVE
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash and Equivalents:.................................. $ 586 $ (586)(c) $ --
Receivables.......................................... 1,658 -- 1,658
Inventories.......................................... 3,805 -- 3,805
Other................................................ 253 -- 253
-------- -------- -------
Total current assets......................... 6,302 (586) 5,716
-------- -------- -------
Property, plant and equipment:
Leasehold improvements............................... 1,789 -- 1,789
Machinery and equipment.............................. 6,806 -- 6,806
-------- -------- -------
8,595 -- 8,595
Less accumulated depreciation and amortization......... 7,027 -- 7,027
1,508 -- 1,568
-------- -------- -------
Assets held for sale or lease.......................... 1,150 -- 1,150
Other.................................................. 521 (445)(d) 76
-------- -------- -------
$ 9,541 $ (1,031) $ 8,510
======== ======== =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable -- Bank................................ $ -- $ 279(e) $ 279
Senior Notes......................................... 23,483 (23,483)(f) --
Accounts payable..................................... 276 -- 276
Accrued interest..................................... 297 (294)(g) 3
Accrued liabilities.................................. 1,533 -- 1,533
-------- -------- -------
Total current liabilities.................... 25,589 (23,498) 2,091
Long-term debt:........................................ 791 (570)(h) 221
-------- -------- -------
26,380 (24,068) 2,312
-------- -------- -------
Commitments and contingencies
Stockholders' (deficit) equity
Preferred stock, none outstanding.................... -- -- --
Common stock, $1 par (historical) $0.04 par
(illustrative), 20,000,000 shares authorized;
10,754,093 shares outstanding in 1997 and
4,300,000 shares outstanding on an illustrative
basis............................................. 10,754 (10,582)(i) 172
Additional paid-in capital............................. 44,363 38,337(j) 6,026
Accumulated deficit.................................... (71,956) 71,596(k) --
-------- -------- -------
Total stockholders' (deficit)/equity......... (16,839) 23,037 6,198
-------- -------- -------
$ 9,541 $ (1,031) $ 8,510
======== ======== =======
</TABLE>
The accompanying notes are considered an integral part of the
illustrative unaudited consolidated statements.
I-31
<PAGE> 34
NOTES TO BANKRUPTCY RESTRUCTURING (100% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
On March 3, 1997, the Board of Directors of Rymer (Rymer Foods or the
Company) approved the Exchange Restructuring. The primary purpose of the
restructuring is to achieve changes in the Company's capital structure that
Rymer Foods believes are necessary to alleviate the problems caused by its
excessive debt levels and debt and interest repayment obligations.
The adjustments giving effect to the Bankruptcy Restructuring assume that
(i) 100% of the outstanding principal amount of the Senior Notes and deferred
compensation payable are exchanged for 3,440,000 shares of Common Stock, (ii)
the Company obtains the New Credit Facility, (iii) the Company issues 430,000
shares of Common Stock to management, and (iv) a 25 into 1 reverse stock split
occurs.
Pursuant to SOP 90-7, the Company will adopt "fresh start" reporting as of
the effective date of the Plan. Management of the Company has estimated that
Rymer's reorganization value is equal to the carrying values of the assets at
the effective date of the Plan. Liabilities existing as of the effective date of
the Plan are stated at the present values of amounts to be paid. Accordingly,
the resulting shareholders equity of $1.44 per share is derived by dividing the
book value of the Company subsequent to the reorganization by the amount of the
new shares. As a result of adopting fresh start reporting upon emerging from
Chapter 11 status, the "new" Company will have no beginning retained earnings or
deficit. In future reporting periods, Rymer's financial statements will be
presented on a different basis than for prior reporting periods and, therefore
will not be comparable with those financial statements prepared before the Plan
is confirmed.
These illustrative unaudited consolidated financial statements are not
necessarily indicative of the results which would have actually been obtained
had all the transactions referred to above occurred on such dates. These
Illustrative unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto.
NOTE 2 -- ADJUSTMENTS
The Illustrative Unaudited Consolidated Balance Sheet presents the
historical Consolidated Balance Sheet of the Company as if all of the above
transactions were consummated on January 25, 1997. The Illustrative Unaudited
Consolidated Statements of Operations present the historical Consolidated
Statements of Operations of the Company for the thirteen weeks ended January 25,
1997 and the year ended October 26, 1996 as if all of the above transactions had
occurred October 26, 1995 and carried forward to January 25, 1997.
The illustrative statements of operations disclose the loss from continuing
operations, excluding nonrecurring items directly attributable to the
restructuring. Such items include estimated restructuring expenses of
approximately $1.5 million, which will be expensed as incurred and reported as
reorganization expenses, and a gain on exchange of the Senior Notes of
approximately $23.9 million, which will be reported as an extraordinary item.
These amounts will be included in the Company's results of operations prior to
fresh start accounting. In addition, the Company's results of operations
subsequent to fresh start accounting will include amounts
I-32
<PAGE> 35
NOTES TO BANKRUPTCY RESTRUCTURING (100% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
related to forgiveness of interest free loans extended to senior management in
amounts of up to approximately $250,000 which will be expensed over a three year
employment period.
<TABLE>
<S> <C> <C> <C>
(a) Reduction in interest expense as a result of the restructuring (for
the year ended 10/26/96), as follows:
Elimination of historical interest expense on deferred compensation
payable............................................................. $ (51)
Elimination of historical interest expense (including amortization
of Senior........................................................... (3,738)
Notes issue costs) relating to 100% of Senior Notes................. 85
--------
Addition of estimated interest expense on borrowings to pay debt
issuance cost and estimated restructuring expenses.................. $ (3,704)
========
(b) Reduction in interest expense as a result of the restructuring (for
the thirteen weeks ended January 25, 1997), as follows:
Elimination of historical interest expense on deferred compensation
payable............................................................. $ (12)
Elimination of historical interest expense (including amortization
of Senior........................................................... (852)
Notes issue costs) relating to 100% of Senior Notes................. 12
--------
Addition of estimated interest expense on borrowings (net of
existing cash investments) to pay cash debt issuance cost and
estimated restructuring expenses.................................... $ (852)
========
(c) Elimination of cash as a result of incurring restructuring
expenses............................................................ $ (586)
========
(d) Reduction of unamortized Note issue costs related to 100% of the
Senior Notes........................................................ $ (475)
Record estimated fees for the New Credit Facility................... 30
--------
$ (445)
========
(e) Increase in bank debt from cash payments for restructuring expenses:
Total estimated restructuring expenses...................... $1,455
Bank fee (for replacement credit agreement)................. 30
Less: Estimated amount to be paid in Common Stock (430,000
shares x $1.44)............................................. (620)
Cash used................................................... (586) $ 279
------ ========
(f) Elimination of Senior Notes which will be exchanged for
approximately 3,358,539 shares of common stock. One hundred percent
are assumed to have been exchanged.................................. $(23,483)
========
(g) Elimination of accrued interest expense on Senior Notes............. $ (294)
========
(h) Elimination of deferred compensation payable which will be exchanged
for 81,521 shares................................................... $ (570)
========
(i) Elimination of Senior Notes and deferred compensation payable which
will be exchanged for approximately 3,440,000 shares of Common
Stock. 100% of the Senior Notes are assumed to have been exchanged.
Par value of common shares issued to Senior Noteholders (143.02
common shares for each $1000 of Senior Note principal).............. $ 135
Par value of common shares issued to deferred compensation
claimant............................................................ 3
Par value of common shares issued to senior management.............. 17
Par value of common shares eliminated in 25 into 1 reverse stock
split............................................................... (10,737)
--------
$(10,582)
========
</TABLE>
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<PAGE> 36
NOTES TO BANKRUPTCY RESTRUCTURING (100% EXCHANGE) ILLUSTRATIVE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(j) Additional paid-in capital on common stock issued to deferred
compensation claimant (81,521 shares x $1.40)....................... $ 114
Additional paid-in capital on common stock issued to Senior
Noteholders (3,358,479 shares x $1.40).............................. 4,707
Additional paid-in capital on common stock issued to senior
management (430,000 shares x $1.40)................................. 603
Additional paid-in capital on common stock issued in reverse stock
split (10,737,000 shares x $1.00)................................... 10,737
Elimination of accumulated deficit after adjustments................ (54,498)
--------
$(38,337)
========
(k) Record gain on exchange of Senior Notes and other
adjustments to Retained Earnings, as follows:
Carrying amount of Senior Notes exchanged net of bond issuance
costs............................................................... $ 23,008
Amounts allocated to common stock and additional paid-in capital
(3,440,000 shares at $1.44)......................................... (4,959)
Accrued interest payable on Senior Notes exchange................... 294
Carrying amount of deferred compensation payable.................... 570
Estimated fees to be incurred upon the restructuring................ (1,455)
Accumulated deficit after adjustments reclassified to additional
paid-in capital..................................................... 54,498
--------
$ 71,956
========
</TABLE>
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<PAGE> 37
CAPITALIZATION OF THE COMPANY
The following table sets forth the consolidated current maturities of our
long-term debt and our capitalization as of January 25, 1997, and as adjusted to
give effect to the restructuring. You should read this information in
conjunction with our Consolidated Financial Statements and accompanying notes.
See "Financial Statements" and "Illustrative Financial Information."
<TABLE>
<CAPTION>
JANUARY 25, 1997
-----------------------------------------------
CONSOLIDATED EXCHANGE BANKRUPTCY
HISTORICAL RESTRUCTURING* RESTRUCTURING
------------ -------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Current maturities of long-term debt Senior Notes.... $ 23,483 $1,174 $ 0
-------- ------ ------
Total current maturities of long term debt........... 23,483 1,174 0
Long-term Debt.......................................
Total long-term debt....................... 791 249 221
-------- ------ ------
Shareholders (deficit) equity Common Stock, $1 par
(historical) $0.04 par (as adjusted), 20,000,000
shares authorized; 10,754,093 shares outstanding
(historical), 4,128,000 shares outstanding
(exchange) and 4,300,000 shares outstanding
(bankruptcy)....................................... 10,754 165 172
Additional paid-in capital........................... 44,363 4,840 6,026
Accumulated deficit.................................. (71,956) 0 0
-------- ------ ------
Total Stockholder's (deficit) equity....... (16,839) 5,005 6,198
-------- ------ ------
Total Capitalization....................... $ 7,435 $6,707 $6,419
======== ====== ======
</TABLE>
- ---------------
* Assumes 95% of Senior Notes are exchanged.
DESCRIPTION OF CAPITAL STOCK
After our exchange restructuring, our authorized capital stock will consist
of 20,000,000 shares of Common Stock, par value $0.04, and 400,000 shares of
Preferred Stock, par value $10.00 per share.
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of stockholders. The Common Stock has cumulative
voting rights for the election of directors. Subject to the restrictions imposed
by the Replacement Credit Agreement, dividends may be paid to the holders of
shares of Common Stock when and if declared by the Board of Directors out of
funds legally available for dividends. All outstanding shares of Common Stock
are fully paid and non-assessable. Upon the liquidation, dissolution, or winding
up of our affairs, whether voluntary or involuntary, the holders of Common Stock
are entitled to share ratably in all assets available for distribution after
payment of all liabilities and liquidation preferences of the Preferred Stock,
if any. Holders of Common Stock have no preemptive rights, no cumulative voting
rights, and no rights to convert their Common Stock into any other securities.
We are subject to Section 203 of the Delaware GCL. Section 203 of the
Delaware GCL prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (1) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation; (2) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (3) on or after such date, the business combination
is approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the
I-35
<PAGE> 38
interested stockholder. A "business combination" includes mergers, asset sales,
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
Our Amended and Restated Certificate of Incorporation and By-Laws contain a
number of provisions relating to corporate governance and to the rights of
stockholders. Certain of these provisions may be deemed to have a potential
"antitakeover" effect in that such provisions may delay, defer, or prevent a
change of control. These provisions include the requirement that not less than
66 2/3% of the voting power present and entitled to vote at a duly called
shareholder's meeting approve any proposal for (1) the merger of the Company or
any significant Subsidiary with any other corporation, or (2) the sale, lease,
transfer, or other disposition of all or any substantial part of our assets.
Our Board of Directors can, without stockholder approval, issue from time
to time, authorized but unissued preferred stock in one or more series and to
fix the number of shares to be included in each series and the designations of
the relative rights, preferences and limitations of each series. We have no
preferred stock issued and outstanding at this time and no present intention to
issue any.
MARKET PRICES AND DIVIDENDS
Our Common Stock was traded on the New York Stock Exchange ("NYSE") until
it was suspended from trading by the NYSE on February 19, 1997. The high and low
sales prices on the last day of trading were $0.24 and $0.14. Since February 19,
1997, our Common Stock has been traded on the NASDAQ Bulletin Board. There is
one market maker, Carr Securities. From February 20th through May 22, 1997 the
high and low sales prices have been $0.15 and $0.03 respectively. One reason for
the reverse stock split is to increase the possibility of the New Common Stock
being accepted for listing by the NASDAQ/NMS system.
The Senior Notes are traded in the over-the-counter market. The last
reported bid quotation for each $1,000 principal amount of Senior Notes during
the week of May 26th was exchange of $350 to 400 per thousand. This information
is based on reports of market makers in the Senior Notes. Over-the-counter price
quotations may represent inter-dealer prices (without retail mark-ups,
mark-downs or commissions) which may not represent actual transactions and do
not necessarily reflect all transactions in Senior Notes. Quotations for
securities which are not actively traded, such as the Notes, may differ from
actual trading prices and should be viewed only as approximations of market
value.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consequences to Rymer and Rymer Meat
The federal income tax consequences to Rymer and Rymer Meat will vary
depending upon whether the Exchange Restructuring or the Bankruptcy
Restructuring is put into effect. According to our attorneys, Rudnick & Wolfe,
there are three tax issues: first, whether we will be required to recognize
taxable income by reason of the discharge of indebtedness; second, whether our
net operating loss carryovers or other tax attributes will be reduced by our not
recognizing debt discharge income; and third, whether the restructuring is a
"change of ownership" that will limit the use of our net operating loss
carryovers.
I-36
<PAGE> 39
At October 26, 1996, we had net operating loss carryforwards of
approximately $38.6 million. We expect that 1997 losses will add to the
carryforward.
Exchange Restructuring. If the Exchange Restructuring is done, we will
realize income from the cancellation of indebtedness to the extent the amount of
the Senior Notes (including any accrued interest) cancelled is more than the
fair market value of the New Common Stock issued in exchange for the Senior
Notes. However, our debt discharge income will not be taxable to the extent that
we are insolvent immediately before the discharge, that is, our liabilities
exceed the fair market value of our assets. That excess will not be subject to
current federal income tax. But, if the debt discharge income is more than the
excess liabilities, this excess amount will be taxable income.
The untaxed debt discharge income will be charged against our other tax
attributes in the following priority:
(i) Net operating losses and net operating loss carryovers;
(ii) General business credits ( 1/3 reduction);
(iii) Minimum tax credits;
(iv) Net capital loss and any net capital loss carryovers;
(v) The basis of property;
(vi) Passive activity loss or credit carryovers; and
(vii) Foreign tax credit carryovers ( 1/3 reduction).
Instead of following this order of priority to reduce tax attributes, we
may elect to instead first reduce the basis of our depreciable property. We can
bring our depreciable asset basis down to zero and then charge the unrecognized
income against our other tax attributes. In either case, any basis reductions
are treated as accelerated depreciation and subject to recapture as ordinary
income upon disposition of the assets. This recapture effect lessens over time.
In addition, our ability to use net operating loss carryovers after the
Exchange Restructuring will be limited. If a corporation with net operating loss
carryovers experiences a "change of ownership," the use of the net operating
loss carryovers is subject to an annual limitation. A change of ownership occurs
if there is a more than 50% change in the stock ownership. The Exchange
Restructuring will result in a change of ownership of both Rymer and Rymer Meat.
After the Exchange Restructuring, the use of our net operating loss
carryovers in any year will be limited to the product of the "long-term
tax-exempt rate" in effect at the time of the Exchange Restructuring multiplied
by the value of all of our Common Stock before the Exchange Restructuring. For
this purpose, the value of our stock will be measured after taking into account
the Exchange Restructuring. The "long-term tax-exempt rate" is an interest rate
adjusted monthly and published by the Internal Revenue Service. For May 1997,
the long-term tax-exempt rate is 5.64%. For example, if the Exchange
Restructuring were to occur in May 1997, we would be limited in the annual use
of our net operating loss carryovers to the product of 5.64% multiplied by the
value of our stock. If our stock is worth $1.21 per share after the Exchange
Restructuring, its total value would be $5,203,000 and the net operating loss
carry-forward would be limited to $293,450 per year.
Bankruptcy Restructuring. If the Bankruptcy Restructuring occurs, we will
realize debt discharge income as in the Exchange Restructuring. This debt
discharge income will not be
I-37
<PAGE> 40
taxable since it will arise as part of a Chapter 11 bankruptcy case. Unlike the
exclusion described with respect to the Exchange Restructuring, the exclusion
from tax of debt discharge income arising in bankruptcy is not limited by the
amount of the insolvency of the debtor. Accordingly, we would not be taxed on
any of the debt discharge income arising in the Bankruptcy Restructuring. Our
tax attributes, however, would be reduced by the excluded debt discharge income,
in the same manner as in the Exchange Restructuring.
The limits on the use of net operating losses after an ownership change do
not apply if the change occurs in a bankruptcy case and the shareholders and
creditors of the corporation immediately before the ownership change own at
least 50% of the stock after the ownership change. For purposes of this test,
only "qualified creditors" that become shareholders are counted. A qualified
creditor is a creditor that has been owed the same money for at least 18 months
before the bankruptcy filing who receives stock in full or partial satisfaction
of that indebtedness pursuant to a plan approved by the bankruptcy court. To our
knowledge, if the Bankruptcy Restructuring takes effect, the Senior Notes will
constitute qualified indebtedness and the noteholders will constitute qualified
creditors for this purpose.
Assuming that the Noteholders are qualified creditors, our ability to use
our net operating loss carryovers will not be limited by the Bankruptcy
Restructuring. One condition to this special rule, however, requires that our
net operating losses must be reduced by a portion of the interest that has been
deducted on the Senior Notes. This reduction is required for interest deducted
during the three years preceding the Bankruptcy Restructuring. The application
of this rule would reduce our net operating loss carryovers by approximately
$7,000,000.
One other condition to this special rule provides that if another ownership
change occurs during the two years immediately following the Bankruptcy
Restructuring, we will not be allowed to use any net operating loss carryovers
arising before the second ownership change.
The application to Rymer Meat of the special rule pertaining to
bankruptcies is not clear. This rule applies only to corporations in bankruptcy.
Since Rymer Meat will not be in bankruptcy, the general limitation on the use of
losses after an ownership change may limit the use of net operating loss
carryovers attributable to Rymer Meat. This limitation is described above in
connection with the Exchange Restructuring.
Consequences to Noteholders
In general, Noteholders should not recognize taxable gain or loss from the
exchange of Senior Notes for New Common Stock (whether in the Exchange
Restructuring or the Bankruptcy Restructuring). The tax basis of Notes will be
allocated to the New Common Stock received. New Common Stock issued to pay
interest will be taxable income to the noteholder in the amount the fair market
value of the New Common Stock so issued, if the noteholder has not previously
recognized the interest as taxable income. New Common Stock will be issued to
noteholders in payment of interest in the same proportion as New Common Stock is
issued in payment of principal under the Senior Notes, i.e., based on the same
ratio of 143.02 shares of New Common Stock in exchange for $1,000 of
indebtedness of principal and accrued interest.
Consequences to Stockholders
The existing stockholders that exchange shares of stock for shares of New
Common Stock after the reverse stock split, as part of either the exchange
restructuring or the bankruptcy restructuring, will not recognize gain or loss
for federal income tax purposes. The tax basis of the New Common Stock received
will equal the tax basis of the stock that is surrendered.
ALL NOTEHOLDERS AND STOCKHOLDERS SHOULD CONSULT THEIR OWN ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN
I-38
<PAGE> 41
TAX CONSEQUENCES (IF ANY) OF THE RESTRUCTURING AND OF THE OWNERSHIP AND
DISPOSITION OF THE NEW COMMON STOCK.
LEGAL OPINIONS
Certain legal matters in connection with the restructuring and New Common
Stock including certain Federal income tax considerations, will be passed upon
for us by Rudnick & Wolfe, our legal counsel.
EXPERTS
Our consolidated balance sheets as of October 26, 1996 and October 28, 1995
and the consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended October 26, 1996,
incorporated by reference in this Prospectus and in the Registration Statement
on Form S-4, have been included in reliance upon the report, which includes an
explanatory paragraph that describes an uncertainty about our ability to
continue as a going concern as discussed in the Notes to said financial
statements of Coopers & Lybrand L.L.P. independent accountants, given on the
authority of said firm as experts in accounting and auditing.
FINANCIAL PROJECTIONS
We have prepared the following projections to illustrate the effects of the
restructuring and to assess whether we can reasonably be expected to meet our
financial obligations. The projections should not be relied upon as
representative of future results. The estimates and assumptions underlying the
projections are inherently uncertain. They are based on events that have not
taken place, are subject to significant economic, competitive and other
uncertainties and contingencies beyond our control and involve judgments based
upon past performance and industry trends, which may not necessarily be
indicative of future performance or trends. Consequently, there can be no
assurance that the projected results can be realized, or that actual results
will not be higher or lower than those projected.
We believe that the basis for our projections is reasonable, taking into
account the purpose for which they were prepared. However, our accounting staff
did not prepare the projections with a view toward compliance with the published
guidelines of the Securities and Exchange Commission or the American Institute
of Certified Public Accountants regarding projections or forecasts. Coopers &
Lybrand L.L.P., the Company's independent accountants, has neither examined,
reviewed nor compiled the projections and, consequently, does not express an
opinion or any other form of assurance with respect to them. Based upon our
accounting staff's knowledge of generally accepted accounting principles, we
believe that the projections are presented on a basis consistent with generally
accepted accounting principles as applied to our historical financial
statements. Noteholders and stockholders are cautioned not to place undue
reliance on these projections in determining whether or how to vote at the
Meeting or whether to tender into the Exchange Offer or accept the Prepackaged
Plan.
The financial projections demonstrate that, if our assumptions are
reasonably accurate, we can reasonably be expected to meet our restructured
financial obligations through fiscal year 2000.
The financial projections, which were compiled on March 25, 1997, are based
upon assumptions that we believe provide a reasonable basis for presenting the
effects of the restructuring.
I-39
<PAGE> 42
ASSUMPTIONS
The general assumptions used to prepare these projections include the
following:
1. The restructuring happens at the end of July 1997 and is accounted
for as provided under "Accounting Treatment of the Restructuring".
2. The 11% Senior Notes are exchanged for approximately 80% of the New
Common Stock;
3. Stockholders retain 10% of the New Common Stock.
4. Senior management is issued 10% of the New Common Stock.
5. All other outstanding indebtedness is refinanced through a $4
million revolving credit facility:
Major covenants anticipated as part of the new credit facility are
as follows:
(1) Minimum tangible net worth covenant.
(2) Minimum cumulative Earnings Before Taxes, Interest,
Depreciation and Amortization
6. Inventory levels are based on 9 times average turnover ratio.
7. Receivables are projected at 5.9% of sales.
8. Projected sales are based on senior management projections for
growth unadjusted for inflation. We assume that demand in the
"comfort" meals segment of the industry will continue to increase
and that stabilizing our financial position will enable us to
attract more customers.
9. Cost of sales: projections assume that operating costs will not
increase in proportion to the increases in sales.
10. The proposed Exchange Restructuring would be accounted for as a
quasi-reorganization. The quasi-reorganization involves an
adjustment of our balance sheet to fair value and the transfer of
the retained deficit to additional paid-in capital. The carrying
values of our remaining assets and liabilities are expected to
approximate fair value. The Bankruptcy Restructuring would be
accounted for in accordance with the accounting principles required
under SOP No. 90-7 for entities qualifying for fresh-start
accounting. As a result of adopting 'fresh start' reporting, upon
emerging from Bankruptcy the 'new' company will have no retained
earnings or deficit.
11. It is assumed $1.5 million of expenses are incurred in connection
with the restructuring.
12. An effective tax rate of 40% is assumed for fiscal years 1998
through 2000 for federal, state and local taxes, although there may
be substantial net operating loss carryforwards used to minimize
actual tax payments. However, due to the uncertainties of such NOL
carryforwards, they are not included in the projections.
13. There are assumed no additional adverse effects resulting from the
bankruptcy restructuring as compared to the exchange restructuring.
It is possible that the sales (and, accordingly, earnings) would
decline during such bankruptcy proceeding and that we would be
unable to recover such lost sales (and earnings) during any future
period.
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<PAGE> 43
RYMER FOODS INC.
EXCHANGE RESTRUCTURING
PROJECTED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales................................................. $ 45,657 $ 52,050 $ 58,295
Cost of sales............................................. 40,163 44,929 50,321
--------- --------- ---------
Gross profit.............................................. 5,494 7,121 7,974
Selling, general and administrative expense............... 4,649 4,743 4,837
--------- --------- ---------
Operating income.......................................... 845 2,378 3,137
--------- --------- ---------
Interest expense.......................................... 490 501 469
Other income.............................................. 0 0 0
Income before taxes....................................... 355 1,877 2,668
Provision for income taxes................................ 142 751 1,067
--------- --------- ---------
Net income................................................ $ 213 1,126 1,601
========= ========= =========
Net income per common shares Primary...................... $ 0.05 $ 0.27 $ 0.39
Fully diluted............................................. $ 0.05 $ 0.25 $ 0.35
Weighted Average Shares of Common Stock Outstanding:
Primary................................................... 4,128,000 4,128,000 4,128,000
Fully diluted............................................. 4,558,000 4,558,000 4,558,000
Capital Expenditures...................................... $ 800 $ 1,000 $ 1,200
Depreciation & Amortization............................... 752 940 1,128
Supplementary Information:
Coverage Ratios:
EBITA(1)/Total Net Interest............................... 1.7 4.7 6.7
EBITDA(2) less capital expenditures/Total Net Interest.... 1.6 4.6 6.5
</TABLE>
- ---------------
(1) EBITA is defined as earnings before interest, taxes and amortization
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization
I-41
<PAGE> 44
RYMER FOODS INC.
EXCHANGE RESTRUCTURING
PROJECTED CONSOLIDATED UNAUDITED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PROJECTIONS
-----------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash...................................................... $ 0 $ 0 $ 0
Receivables............................................... 2,712 3,067 3,414
Inventories............................................... 4,674 5,217 5,831
Other..................................................... 227 252 277
------- ------- -------
Total Current Assets............................ 7,613 8,536 9,522
Property, plant and equipment:
Leasehold improvements.................................... 2,550 3,050 3,650
Machinery and equipment................................... 7,500 8,000 8,600
------- ------- -------
10,050 11,050 12,250
Less accumulated depreciation and amortization............ (8,343) (9,283) (10,411)
------- ------- -------
Net property, plant and equipment......................... 1,707 1,767 1,839
------- ------- -------
Assets held for sale...................................... 1,150 1,150 1,150
Other assets.............................................. 91 91 91
------- ------- -------
Total assets.................................... $10,561 $11,544 $12,602
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes Payable -- Bank..................................... $ 1,575 $ 667 $ 816
Senior Notes.............................................. 1,174 1,174 0
Accounts payable.......................................... 699 775 861
Accrued liabilities....................................... 1,878 2,587 3,003
------- ------- -------
Total current liabilities....................... 5,326 5,203 4,680
Long term debt............................................ 229 209 189
------- ------- -------
Total liabilities............................... 5,555 5,412 4,869
Stockholders Equity:
Common Stock, $0.04 par, 20,000,00 shares authorized
4,128,000 shares outstanding............................ 165 165 165
Additional paid-in capital................................ 4,840 4,840 4,840
Retained earnings......................................... 1 1,127 2,728
------- ------- -------
Total stockholder's equity...................... 5,006 6,132 7,733
------- ------- -------
Total liabilities and stockholder's equity...... $10,561 $11,544 $12,602
======= ======= =======
</TABLE>
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<PAGE> 45
RYMER FOODS INC.
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
EXCHANGE RESTRUCTURING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTIONS FOR THE YEARS ENDED
---------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 213 $ 1,126 $ 1,601
Non-cash adjustments to net income:
Depreciation and amortization............................... 752 940 1,128
(Increase) decrease in receivables.......................... (260) (355) (347)
(Increase) decrease in inventory............................ (391) (543) (614)
(Increase) decrease in other assets......................... (25) (25) (25)
Increase (decrease) in accounts payable and other
accruals.................................................. 302 785 503
----- ------- -------
Net cash flows from operating activities.................... 591 1,928 2,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (800) (1,000) (1,200)
Other....................................................... (0) (0) (0)
----- ------- -------
Net cash flows from financing activities.................... (800) (1,000) (1,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments on Revolving Credit Facility..... 229 (908) 148
Other....................................................... (20) (20) (1,194)
-------
Net cash flows from financing activities.................... 209 (928) (1,046)
Net increase (decrease) in cash............................. $ 0 $ 0 $ 0
----- ------- -------
Cash balance at beginning of year........................... $ 0 $ 0 $ 0
----- ------- -------
Cash balance at end of year................................. $ 0 $ 0 $ 0
----- ------- -------
</TABLE>
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<PAGE> 46
RYMER FOODS INC.
BANKRUPTCY RESTRUCTURING
PROJECTED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales................................................... $ 45,657 $ 52,050 $ 58,295
Cost of Sales............................................... 40,163 44,929 50,321
--------- --------- ---------
Gross profit................................................ 5,494 7,121 7,974
Selling, general and administrative expense................. 4,649 4,744 4,837
--------- --------- ---------
Operating income............................................ 845 2,377 3,137
--------- --------- ---------
Interest expense............................................ 361 371 383
Other income................................................ 0 0 0
Income before income taxes.................................. 484 2,006 2,754
Provision for income taxes.................................. 194 802 1,102
--------- --------- ---------
Net income.................................................. $ 290 $ 1,204 $ 1,652
--------- --------- ---------
Net income per common share
Primary..................................................... $ 0.07 $ 0.28 $ 0.38
Fully diluted............................................... $ 0.06 $ 0.25 $ 0.35
Weighted Average Shares of Common Stock Outstanding:
Primary..................................................... 4,300,000 4,300,000 4,300,000
Fully diluted............................................... 4,730,000 4,730,000 4,730,000
Capital Expenditures........................................ $ 800 $ 1,000 $ 1,200
Depreciation & Amortization................................. 752 940 1,128
Supplementary information:
Coverage ratios:
EBITA(1)/Total Net Interest................................. 2.3 6.4 8.2
EBITDA(2) less capital expenditures/Total Net Interest...... 2.2 6.2 8.0
</TABLE>
- ---------------
(1) EBITA is defined as earnings before interest, taxes and amortization
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization
I-44
<PAGE> 47
RYMER FOODS INC.
BANKRUPTCY RESTRUCTURING
PROJECTED CONSOLIDATED UNAUDITED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PROJECTIONS
-----------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash...................................................... $ 0 $ 0 $ 611
Receivables............................................... 2,712 3,067 3,414
Inventories............................................... 4,674 5,217 5,831
Other..................................................... 227 252 278
------- ------- --------
Total Current Assets............................ 7,613 8,536 10,134
Property, plant and equipment:
Leasehold improvements.................................... 2,550 3,050 3,650
Machinery and equipment................................... 7,500 8,000 8,600
------- ------- --------
10,050 11,050 12,250
Less accumulated depreciation and amortization............ (8,343) (9,283) (10,411)
------- ------- --------
Net property, plant and equipment......................... 1,707 1,767 1,839
------- ------- --------
Assets held for sale...................................... 1,150 1,150 1,150
Other assets.............................................. 67 67 67
------- ------- --------
Total assets.................................... $10,537 $11,520 $ 13,190
======= ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes Payable -- Bank..................................... $ 1,434 $ 449 $ 0
Senior Notes.............................................. 0 0 0
Accounts payable.......................................... 699 775 861
Accrued liabilities....................................... 1,828 2,537 2,937
------- ------- --------
Total current liabilities....................... 3,961 3,761 3,798
Long term debt............................................ 201 181 161
------- ------- --------
Total liabilities............................... 4,162 3,942 3,959
Stockholders Equity:
Common Stock, $0.04 par, 20,000,000 shares authorized,
4,300,000 shares outstanding............................ 172 172 172
Additional paid-in capital................................ 6,027 6,027 6,027
Retained earnings......................................... 176 1,379 3,032
------- ------- --------
Total stockholder's equity...................... 6,375 7,578 9,231
------- ------- --------
Total liabilities and stockholders equity....... $10,537 $11,520 $ 13,190
======= ======= ========
</TABLE>
I-45
<PAGE> 48
RYMER FOODS INC.
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
BANKRUPTCY RESTRUCTURING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTIONS FOR THE YEARS ENDED
-----------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 290 $ 1,204 $ 1,652
Non-cash adjustments to net income: Depreciation and
amortization............................................ 752 940 1,128
(increase) decrease in receivables........................ (260) (355) (347)
(increase) decrease in inventory.......................... (391) (543) (614)
(increase) decrease in inventory.......................... (25) (25) (25)
(increase) decrease in accounts payable and accruals...... 354 784 486
----- ------- -------
Net cash flows from operating activities.................. 720 2,005 2,280
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (800) (1,000) (1,200)
Other..................................................... (0) (0) (0)
----- ------- -------
Net cash flows from financing activities.................. (800) (1,000) (1,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on Revolving Credit
Facility................................................ 100 (985) (449)
Other..................................................... (20) (20) (20)
----- ------- -------
Net cash flows from financing activities.................. 80 (1,005) (469)
Net increase (decrease) in cash........................... $ 0 $ 0 $ 611
===== ======= =======
Cash balance at beginning of year......................... $ 0 $ 0 $ 0
===== ======= =======
Cash balance at end of year............................... $ 0 $ 0 $ 611
===== ======= =======
</TABLE>
I-46
<PAGE> 49
RYMER FOODS INC.
4600 SOUTH PACKERS AVENUE
SUITE 400
CHICAGO, ILLINOIS 60609
------------------------
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 8, 1997
------------------------
To the Holders of Rymer Foods Inc. Common Stock:
Our annual meeting of stockholders will be held at 10:00 a.m. Chicago time
on Tuesday, July 8, 1997 at our Company's headquarters, 4600 South Packers
Avenue, Chicago, Illinois. At the meeting, we will present our plan to
restructure Rymer in view of its current financial situation, and stockholders
will vote on the following proposals that relate to our ongoing business and the
restructuring:
1. to elect one Class 3 director;
2. to ratify the appointment of Coopers & Lybrand L.L.P. as Rymer's
auditors for fiscal 1997;
3. to approve an amendment ("Charter Amendment") to Rymer's Certificate of
Incorporation reducing the par value of its common stock from $1.00 per
share to $0.04 per share to allow a reverse stock split of 25 into 1;
4. to approve the issuance of 4,300,000 shares of New Common Stock;
5. to approve the 1997 Stock Option Plan;
6. to transact such other business as may properly come before the meeting
or any adjournments thereof;
Only stockholders of record at the close of business on May 23, 1997, the
record date, will be entitled to notice of and to vote at the meeting or any
adjournments thereof.
You may attend the meeting in person. EVEN IF YOU PLAN TO ATTEND THE
MEETING, PLEASE INDICATE YOUR VOTE ON EACH MATTER TO BE VOTED UPON, SIGN AND
DATE THE ENCLOSED PROXY CARD, AND RETURN IT PROMPTLY IN THE ENCLOSED WHITE
ENVELOPE. YOU CAN REVOKE YOUR PROXY AT ANY TIME BY DELIVERING A NEW PROXY CARD
OR OTHER WRITTEN AND SIGNED REVOCATION TO OUR SECRETARY, BARBARA MCNICHOLAS, AT
OR BEFORE THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY, IF YOU WISH, REVOKE
YOUR PROXY BY VOTING IN PERSON.
WE RECOMMEND THAT YOU VOTE IN FAVOR OF ALL PROPOSED RESOLUTIONS.
By Order of the Board of Directors
Barbara McNicholas, Secretary
<PAGE> 50
PROXY STATEMENT
------------------------
ANNUAL MEETING
OF STOCKHOLDERS, VOTING AND PROXIES
DATE, TIME AND PLACE OF STOCKHOLDERS MEETING
Our annual meeting will be held at Rymer's headquarters at 4600 S. Packers
Avenue, Chicago, Illinois at 10:00 a.m. Chicago time on Tuesday, July 8, 1997.
SOLICITATION OF PROXIES
We are providing this proxy statement and the accompanying Prospectus to
solicit proxies from our common stockholders. The proxies will be voted at the
meeting.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, YOUR VOTE BY PROXY IS
VERY IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY FORM AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
We are paying the costs of this proxy solicitation. The solicitation will
generally be by mail. Also, our directors, officers and employees may solicit
proxies. They may solicit in person or by telephone, telegram, cablegram or
other form of electronic transmission. They will not receive any additional
compensation for such solicitation. In addition, we have hired Hill & Knowlton,
the Information Agent, to assist in the proxy solicitation for a fee estimated
at $20,000.00.
This proxy statement is first being mailed to stockholders on or about June
2, 1997. It is part of a package containing a Prospectus discussing our
restructuring proposals, our 1996 Annual Report on Form 10-K and Quarterly
Report on Form 10-Q, and information about a bankruptcy alternative to the
restructuring plan. If you did not get all of these materials, let us know and
we'll get them to you.
Arrangements have been made with brokers and other custodians, nominees and
fiduciaries to send copies of this proxy statement, proxy card and other proxy
solicitation materials to their principals, and we will reimburse them for their
reasonable out-of-pocket and clerical expenses for doing this.
STOCKHOLDERS ENTITLED TO VOTE
We have fixed the close of business on May 23, 1997 as the record date for
our meeting. Only holders of record of common stock at the close of business on
the May 23, 1997 record date (10,754,093 shares) are entitled to notice of and
to vote at the meeting. For a quorum to be present, the holders of more than 50%
of the shares entitled to vote at the meeting must be present in person or
represented by proxy.
PURPOSE OF STOCKHOLDERS' MEETING
We believe that the future viability of Rymer depends upon a restructuring
of our debt and equity. To do this, we have offered each of the holders of
Senior Notes the opportunity to
II-1
<PAGE> 51
exchange their Senior Notes for New Common Stock. To balance the economic
interests of the noteholders with those of the stockholders, a 25 into 1 reverse
stock split is required. To do this, the par value of Rymer common stock will be
reduced from $1.00 per share to $0.04 per share. In addition, to align the
interests of our management with the interests of the stockholders, a new stock
option plan and other equity participation by management is required. These
items are referred to throughout this Proxy Statement and the Prospectus as the
exchange restructuring.
Thus, the purpose of the meeting is to approve (1) the Charter Amendment
(for the 25 into 1 reverse stock split), (2) the issuance of New Common Stock to
the noteholders, the stockholders and senior management, and (3) the Option
Plan. In addition, two routine annual meeting items will be considered. They
are: (a) to elect one Class 3 director, and (b) to ratify the appointment of
Coopers & Lybrand L.L.P. as our independent auditors for fiscal 1997.
Stockholders are requested to vote on all five proposals. Approval of the
Charter Amendment, stock issuance and Option Plan proposals are conditions to
doing the exchange restructuring.
The stockholder votes on the Charter Amendment, stock issuance and Option
Plan proposals will be effective upon the filing of the Charter Amendment with
the Secretary of State of Delaware and successfully completing the exchange
restructuring.
If sufficient votes in favor of any of the proposals are not received by
the time scheduled for the meeting, persons entitled to vote at the meeting may
adjourn the meeting to permit further solicitation of proxies for any one or all
of the proposals. Any adjournment will require the affirmative vote of a
majority of the votes present or represented at the meeting. If an adjournment
is proposed, the persons named as proxies will vote for adjournment those
proxies which they are entitled to vote in favor of the proposals and against
adjournment those proxies required to be voted against the proposals.
At April 1, 1997, the directors and officers of Rymer held the power to
vote an aggregate of 1,830,933 shares of common stock (approximately 17.0% of
the outstanding shares of common stock). All directors and officers intend to
vote FOR all of the proposals.
VOTING RIGHTS -- ANNUAL MEETING
You have cumulative voting rights for the election of directors and one
vote per share for all other purposes. Cumulative voting for directors means
that you have as many votes as are equal to the number of shares of common stock
that you own multiplied by the number of directors to be elected. You may cast
all of your votes for a single director or may distribute them among the number
to be voted for, or any two or more of them, as you may see fit. Because only
one director is to be elected at this meeting, cumulative voting will not be a
factor in the election of directors. Elections for directors are determined by a
plurality vote of the shares voting, assuming that a quorum is present. With
regard to the election of the Class 3 director, votes may be cast in favor of,
against or withheld from the nominee. Votes that are withheld will be excluded
entirely from the vote and will have no effect, except for quorum purposes.
Abstentions may be specified on the other proposals and will be counted as
present for purposes of determining the existence of a quorum regarding the
proposal on which the abstention is noted. An abstention on any proposal will
have the same effect as a no vote.
In voting on other proposals that may be properly brought before the
meeting, you have one vote for each share of common stock that you own. Approval
of the appointment of auditors and the Option Plan will be decided by a vote of
the majority of the shares present or represented at the meeting and voting on
those matters. A Yes -- vote of the holders of a majority of the shares of
common stock present at the meeting in person or by proxy and voting is required
for these
II-2
<PAGE> 52
proposals to be approved. The Charter Amendment and the stock issuance need to
be approved by an absolute majority of all of the shares issued and outstanding
before they can go into effect. Stockholders have no appraisal or dissenter's
rights with respect to any of the proposals.
Brokers who hold shares in street name may have the authority to vote on
certain items when they have not received instructions from beneficial owners.
Brokers that do not receive instructions generally are entitled to vote on the
election of directors and the ratification of the appointment of auditors
(proposals 1 and 2). If a broker indicates on the proxy card that it does not
have discretionary authority as to certain shares to vote on a particular
proposal, the shares will be counted for purposes of determining a quorum, but
those shares will not be considered as present or entitled to vote with respect
to that proposal. Thus, under Delaware law, a broker non-vote will have no
effect on the outcome of the election of the Class 3 director or the other
proposals.
Your signed and dated proxy will be voted as marked by you. If you do not
mark an item to be voted on, the proxy holder will vote your proxy for that
proposal. You may revoke your proxy by written notice delivered to our
Secretary, Barbara McNicholas, at any time before your proxy is voted.
We will have a list of our stockholders at our office for 10 days before
the meeting. You can examine the stockholders list for any purpose related to
the meeting.
VOTING RIGHTS -- PREPACKAGED BANKRUPTCY PLAN
Because of the conditions that must be met to do the exchange
restructuring, including, among other things, the exchange of at least 95% of
the Senior Notes, it is very possible that the exchange restructuring will not
be effected as proposed. So that we have an alternative plan, we are also
soliciting ballots from stockholders and noteholders to approve a pre-packaged
bankruptcy plan. The bankruptcy restructuring is basically the same economic
plan as the exchange restructuring, except that it may be imposed by the
bankruptcy court upon stockholders and noteholders without their consent.
The bankruptcy restructuring is described in the accompanying Prospectus
and bankruptcy disclosure statement. The Prospectus also compares the exchange
restructuring to the bankruptcy restructuring. An even more detailed description
of the bankruptcy restructuring and the plan that would be filed with court are
being given to you.
You may vote on any or all of the meeting proposals whether or not you vote
on the bankruptcy restructuring. Likewise, you may vote on the bankruptcy
restructuring whether or not you vote on any of the meeting proposals. In other
words, you are being asked to vote separately on two different but related
matters. Step by step voting instructions are presented in the Prospectus. We
urge you to vote for all annual meeting proposals and for the bankruptcy
restructuring.
II-3
<PAGE> 53
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 1, 1997, the beneficial
ownership of Rymer Common Stock by each of our directors, each of our executive
officers listed in the Summary Compensation Table below, by all of our directors
and executive officers as a group, and by each person who is known by us to
beneficially own 5% or more of the Common Stock. The Common Stock is our only
outstanding equity security.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME POSITION OF BENEFICIAL OWNERSHIP OF CLASS
---- -------- ----------------------- --------
<S> <C> <C> <C>
Samuel I. Bailin................... Director 30,000 Direct(1) *
David E. Jackson................... Director 1,827,212 Indirect(2) 17.0%
P.E. Schenk........................ President, CEO 750,000 Direct(3) 7.0%
Director
Hannah Strasser.................... Director -0- *
Joseph Colonnetta.................. Director -0- *
Edward M. Hebert................... Vice President, CFO 64,721 Direct(4) *
Oppenheimer & Co., Inc............. 70,934 Direct(5) *
Oppenheimer Tower.................. 1,827,212 Indirect(6) 17.0%
New York, 10281
All directors and executive 987,876 Direct 9.2%
officers.........................
as a group (5 people)(7)........... 1,827,212 Indirect(2) 17.0%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares
(1) Such shares include options exercisable within 60 days from the date hereof
to purchase 30,000 shares of Common Stock.
(2) Mr. Jackson disclaims beneficial ownership of all 1,827,212 of such shares.
Such shares are held by two limited partnerships, Oppenheimer Horizon
Partners, L.P. and Oppenheimer Institutional Horizon Partners, L.P. (the
"Partnerships"), and a corporation (the "Corporation"). Mr. Jackson is a
partner of Contrarian Capital Management, LLC, a money management concern
that has shared voting and dispositive power with the Partnerships and the
Corporation with respect to such shares.
(3) A warrant to purchase 750,000 shares of Common Stock was issued to Mr.
Schenk in connection with his employment agreement. The exercise price for
such warrants is $1.00 per share of Common Stock, the market value of such
stock on the date of issuance of the warrant. The warrant became exercisable
November 8, 1996.
(4) Such shares include options exercisable within 60 days from the date hereof
to purchase 61,000 shares of Common Stock.
(5) These shares are held by Oppenheimer on behalf of itself and certain related
entities.
(6) These shares are held by affiliates of Oppenheimer on behalf of themselves
and certain related entities. See Note (2).
(7) See disclaimer of beneficial/ownership set forth in footnote (2).
Our Indenture dated as of April 7, 1993 with Continental Stock Transfer &
Trust Company relating to Rymer's 11% Senior Notes due 2000 (the "Senior
Notes"), provides for the immediate acceleration of principal and interest in
the event of a "Change of Control". For this purpose, "Change in Control" means
the acquisition by any person or entity or affiliated group of at least 55% of
the aggregate voting power of all classes of capital stock entitled to vote
generally in the election of directors, excluding from such calculation shares
held by any person that were
II-4
<PAGE> 54
issued to such person in its reorganization to the extent that such person is
the acquiror or a member of such affiliated acquiring group.
If the stock issuance contemplated as part of the exchange restructuring is
approved and effected, the options and warrants held by the listed officers and
directors will be cancelled, the beneficial ownership interest of Mr. Jackson
and Oppenheimer & Co., Inc. will be reduced to 73,089 (1.7%) and 75,925 (1.8%)
shares of New Common Stock, respectively, and because of the stock issuance, Ed
Schenk and Ed Hebert will own 10% of the New Common Stock. The issuance of stock
to Ed Schenk and Ed Hebert is discussed below under "Item 4 of Proxy Card -- New
Common Stock Issuance."
ITEM 1 ON PROXY CARD
ELECTION OF DIRECTOR
Our Board has three classes and will consist of six directors in total. We
have four Class 1 directors whose terms expire in 1999 and one Class 2 director
whose term expires in 1998. Class 3 will have one director whose term will
expire in 2000.
At the meeting, one Class 3 director will be elected for a term of three
years. Our nominee for election is Edward M. Hebert. At the meeting,
stockholders may make nominations for the Class 3 director. Mr. Hebert, age 46,
has served as our Senior Vice President since 1990. Before becoming Senior Vice
President, Mr. Hebert served for two years as our controller. Mr. Hebert has
consented to being named as a nominee and to serve as a Class 3 director if
elected.
Unless otherwise indicated on a proxy, the proxy holders intend to vote the
shares of common stock for which they hold proxies "FOR" the election of Ed
Hebert as the Class 3 director.
The affirmative vote of a plurality of the shares of common stock present
or represented by proxy and voted at the meeting is required for the election of
directors. The Board has no nominating committee. Our nominee for Class 3
director was selected by our entire Board.
WE RECOMMEND A VOTE FOR THE ELECTION OF ED HEBERT AS THE CLASS 3 DIRECTOR.
ITEM 2 ON PROXY CARD
APPOINTMENT OF AUDITORS
It is intended that the shares represented by proxy will be voted for
approval of the appointment of Coopers & Lybrand L.L.P. (unless otherwise
indicated on the proxy) as independent public accountants (auditors) to report
to our stockholders on our financial statements for the fiscal year ending
October 25, 1997. Each professional service performed by Coopers & Lybrand
L.L.P. during fiscal 1996 was approved in advance or was subsequently approved,
and the possible effect on the auditors' independence was considered, by the
Audit Committee. The Audit Committee has recommended, and the Board has
approved, the appointment of Coopers & Lybrand L.L.P. subject to the approval of
the stockholders at the meeting. Representatives of Coopers & Lybrand L.L.P. are
expected to be present at the meeting with the opportunity to make a statement
if they desire to do so and to be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of common
stock present and voted at the meeting is required for the approval of this
proposal. We have not determined what
II-5
<PAGE> 55
action we will take if the stockholders do not approve the appointment of
Coopers & Lybrand L.L.P., but would reconsider its selection in light of the
stockholders' action.
WE RECOMMEND THAT STOCKHOLDERS VOTE FOR THE APPOINTMENT OF COOPERS &
LYBRAND L.L.P.
ITEM 3 ON PROXY CARD
CHARTER AMENDMENT
Our Board has approved a Charter Amendment reducing the par value of our
common stock from $1.00 to $0.04 per share. The lower par value is needed to
properly effect the reverse stock split of 25 into 1 and make available
authorized but unissued shares for the stock issuance. The market value of
common stock is so low that payment on fractional shares would be meaningless.
Thus, fractional shares will be rounded up to the next whole number of shares.
The exchange restructuring will not occur unless the Charter Amendment is
adopted and has become effective. The Charter Amendment will not be filed with
the Secretary of State of Delaware until the exchange restructuring closing. The
Charter Amendment will become effective upon such filing.
The full text of the Charter Amendment is as follows:
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RYMER FOODS INC.
Rymer Foods Inc., a Delaware corporation (the "Corporation"), does hereby
certify as follows:
1. The amendments set forth below to the Corporation's Certificate of
Incorporation were duly adopted in accordance with the provisions of
Sections 222 and 242 of the General Corporation Law of the State of
Delaware:
RESOLVED, that the first unnumbered paragraph of ARTICLE FOURTH of
the Certificate of Incorporation of the Corporation be and hereby is
amended to read as follows:
FOURTH: The total number of shares of all classes of stock of
which the corporation shall have authority to issue is 20,400,000
shares, of which 20,000,000 shares shall be Common Stock, par value
of $0.04 per share.
II-6
<PAGE> 56
Adoption of the Charter Amendment requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of Common Stock.
WE RECOMMEND A VOTE FOR THE CHARTER AMENDMENT.
ITEM 4 ON PROXY CARD
NEW COMMON STOCK ISSUANCE
We have unanimously adopted a resolution to issue 4,300,000 shares of New
Common Stock as part of the exchange restructuring. This is the key and final
step of the exchange restructuring. The New Common Stock is to be shared as
follows:
- Up to 3,440,000 shares to the noteholders and other creditors
- 258,000 shares to Mr. Ed Schenk and 172,000 shares to Mr. Ed Hebert
- 430,000 shares to the existing stockholders in a ratio of one share of
New Common Stock for each 25 shares of old common stock.
Because we believe that if we do not do a restructuring we will not be able
to keep key members of senior management or attract new management to replace
them, and because we need management to carry out our operating plan after a
restructuring, we will enter into new employment agreements with Mr. Ed Schenk
and Mr. Ed Hebert. Under these agreements, among other things, we will grant to
them 258,000 and 172,000 shares of New Common Stock, respectively. These stock
grants will be taxable to them. We also will give them interest free loans to
pay the income taxes on the shares. We will forgive half of these loans after
their first full year of employment and then 25% after each of the second and
third years of employment. To illustrate: If the New Common Stock is valued at
$1.21 per share when issued, Ed Schenk will have taxable income of about
$312,180 and we will loan him about $125,000 to pay his taxes. The taxable
income to Ed Hebert would be about $208,120 and we would loan him about $83,000
to pay his taxes. If they both keep working for us, in July 1998 we will forgive
$62,000 of Ed Schenk's loan and $41,500 of Ed Hebert's loan. Then, in July 1999
we'll forgive another $31,250 and $20,750, respectively, for Mr. Schenk and Mr.
Hebert. The final $31,750 and $20,750 will be forgiven in July 2000, provided
they are still working for us. Each new employment agreement will be for a term
of three years and will provide for a base salary of $250,000 for Mr. Schenk and
$140,000 for Mr. Hebert. See, "Certain Relationships and Related
Transactions -- Employment Agreements" for a description of Ed Schenk's and Ed
Hebert's current employment agreements.
The approval of the stock issuance requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of Common Stock.
The stock issuance will occur only if it is approved, the Charter Amendment
has been filed with the Secretary of State of Delaware, and the Exchange Offer
is being completed.
WE RECOMMEND A VOTE FOR THE STOCK ISSUANCE.
ITEM 5 ON PROXY CARD
1997 STOCK OPTION PLAN
We believe that it is important for our employees and directors to have an
economic interest in the future of our company. This will give the employees an
incentive to build value in Rymer.
II-7
<PAGE> 57
For this reason, we have unanimously adopted a resolution approving the 1997
Stock Option Plan. The 1997 Stock Option Plan is substantially the same as the
1994 Stock Option Plan now in effect that will be cancelled in the Exchange
Restructuring. A copy of the 1997 Stock Option Plan is attached as Appendix A.
The approval of the Stock Option Plan by the stockholders is necessary for
options granted to employees under the plan to qualify as incentive stock
options for federal income tax purposes.
The Stock Option Plan will permit the grant of options to purchase up to
430,000 shares of common stock. The Stock Option Plan will be administered by a
committee of disinterested Board members. The exercise price of options granted
under the Option Plan will be the fair market value of a share of common stock
on the date of the grant. Options will vest at the rate of 25% for each full
year of employment after the grant date. In the event of a merger, sale or
liquidation of Rymer or certain other events, all of the options granted would
be exercisable. Options will have a term of 10 years from the grant date, except
that they will expire earlier if the optionholder is not employed by us for any
reason. Options may be either incentive stock options under Section 422 of the
Internal Revenue Code (but only to officers and employees) or non-qualified
stock options. Options may only be exercised for cash and, during his or her
lifetime, only by the persons granted the option. All other terms of the options
will be set by the committee. No Options will be granted under the Option Plan
after five years.
After its adoption, we may amend the Option Plan without stockholder
approval. We may not, however, without your approval, increase the number of
shares of stock which may be sold pursuant to Options granted or expand or
change the class of persons eligible to participate in the Stock Option Plan,
change the exercise price of an option to be less than the fair market value of
such shares at the time the option is granted, extend the term of the Stock
Option Plan, or materially increase the benefits under the Option Plan. No
change will be permitted to an Stock Option previously granted which will alter
or impair any of the rights or obligations of a participant without the
participant's consent.
Generally, the recipient of an incentive stock option does not realize any
taxable income either at the time of grant or exercise, and Rymer is not
entitled to a deduction either at the time of grant or at the time of exercise
of incentive stock options, provided that the participant was an employee of
Rymer or of a subsidiary at all times during the period beginning on the date of
grant and ending three months prior to the date of exercise and does not sell
the shares within two years from the date of grant and one year from the date
the shares are issued to the participant upon exercise. At the time of ultimate
sale following the applicable holding periods, the participant will realize
income taxable at capital gain rates on the excess of the sale price over his or
her exercise price. If a participant sells such shares prior to the expiration
of the application holding periods, the participant will realize ordinary income
at that time in an amount equal to (a) the excess of the fair market value of
the shares on the date of exercise over his exercise price or (b) if the sale is
for less than the fair market value at the date of exercise, the gain realized
on the sale, and Rymer will be entitled to a deduction equal to the amount of
such ordinary income. Such participant will realize income taxable at capital
gain rates on any excess of the sale price over the fair market value on the
date of exercise.
Generally, the recipient of a non-qualified stock option does not realize
any taxable income at the time of grant and Rymer is not then entitled to a
deduction. Upon exercise of a non-qualified stock option, the participant will
recognize income at ordinary income tax rates. The amount of income then
recognized by a participant will be the excess of the fair market value of
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<PAGE> 58
the shares purchased over the exercise price paid for the shares. Rymer will
generally be entitled to a deduction equal to this amount.
A participant's basis in shares acquired upon the exercise of an Option
will be the exercise price of the option, plus any amount includable in the
participant's gross income upon the exercise of the option. The gain or loss
realized by the participant upon a subsequent sale or exchange of the shares
will be a capital gain or loss.
We have not decided which employees or directors will receive option grants
under the Stock Option Plan. Those decisions will be made by the Board as it is
reconstituted after the Exchange Restructuring or the Bankruptcy Restructuring,
whichever is effected. We believe it is unlikely that options will be granted
this year to Mr. Ed Schenk or Mr. Ed Hebert under the Option Plan because they
are receiving shares in the stock issuance.
Approval of the Stock Option Plan requires the affirmative vote of the
holders of a majority of the common stock present or represented by proxy at the
meeting and voting.
WE RECOMMEND A VOTE FOR ADOPTION OF THE 1997 STOCK OPTION PLAN.
RISK FACTORS
Because of the complexity of the Exchange Restructuring, stockholders are
urged to consider the "Risk Factors" in the accompanying Prospectus.
RYMER DIRECTORS AND EXECUTIVE OFFICERS
Our Board currently has the following five members:
CLASS 1 DIRECTORS (TERM OF OFFICE EXPIRING IN 1999)
P. EDWARD SCHENK (age 59; Director since November 1995). Mr. Schenk was
named to the Board on November 8, 1995 to fill a vacancy created by a
resignation. Mr. Schenk has served as our President and Chief Executive Officer
since November 1995. In 1994 and 1995, Mr. Schenk operated Schenk & Associates,
Inc., a consulting practice. Mr. Schenk was Executive Vice President of Lykes
Processed Meats Group from December 1993 to November 1994, and from August 1993
to December 1993 he served as Senior Vice President of Sales & Marketing. From
1986 to 1993, Mr. Schenk was employed by Smithfield Foods, Inc. as President and
Chief Operating Officer of various meat processing subsidiaries.
DAVID E. JACKSON (age 38; Director since 1993). Since May 1995, Mr. Jackson
has been a Managing Director of Contrarian Capital Management, LLC, a money
management firm. From September 1990 to May 1995, Mr. Jackson was a Managing
Director of, and a Portfolio Manager at Oppenheimer & Co., Inc.
HANNAH H. STRASSER (age 37; Director since 1993). Since April 1995, Ms.
Strasser has been a Managing Director of Cardinal Capital LLC, a money
management firm. From 1989 to April 1995, Ms. Strasser was a Senior Vice
President of Deltec Asset Management Corporation, an investment firm. Ms.
Strasser is also a director of Gantos Inc. and Deltec International S.A. Ms.
Strasser has also been a director and member of the compensation committee of
Equitable Bag Co., Inc. from December 1994 to August 1995. Equitable Bag Co.,
Inc. filed a petition for relief under Chapter 11 of the United States
Bankruptcy Code on May 19, 1995, in United States Bankruptcy Court for the
District of Delaware.
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<PAGE> 59
JOSEPH COLONNETTA (age 36; Director since 1996). Mr. Colonnetta has been
the Managing Partner of The RMP Group, a management services firm to the
foodservice industry, since July 1994. Before July, 1994, he was the Chief
Financial Officer of TRC, Inc., a $1 billion foodservice holding company. Mr.
Colonnetta is currently the acting President of Del Monte -- Latin America,
Chairman of the Board of Triangle Foodservice Corporation, and a member of the
Board of Back Yard Burger, Inc.
CLASS 2 DIRECTORS (TERM OF OFFICE EXPIRING IN 1998)
SAMUEL I. BAILIN (age 66; Director since 1993). Mr. Bailin has been
President of Samuel I. Bailin Inc., a consultant to the food industry, since
1977.
BOARD MEETINGS AND COMMITTEES
We had 10 board meetings in fiscal 1996. Each director then in office
attended more than 75% of the combined meetings of the Board and the Committees
on which he or she was a member held during the year.
Our Board has designated an Executive Committee of which only David E.
Jackson is a member. There were no official meetings or actions by the Executive
Committee in fiscal 1996. Except for certain matters, the duties of the
Executive Committee include the exercise of all of the powers and authority of
our Board in managing the business and affairs of Rymer, except for any powers
and authority granted to another committee. The authority of the Executive
Committee is generally limited to acquisitions and dispositions of assets;
personnel matters; guidance to senior management on policy matters;
negotiations, review and analysis of financial needs; litigation matters; and
public or private stock placement or other equity or debt offerings.
The Audit Committee, consisting of Ed Schenk, David Jackson and Hannah
Strasser, held one meeting during fiscal 1996. The Audit Committee reviews the
proposed scope of audit and non-audit services to be performed by our
independent public accountants. It also reviews, and reports on audits and our
accounting policies and controls. The Audit Committee annually recommends
independent public accountants for selection as our independent auditors. The
Audit Committee also monitors the administration of our business ethics and
conflicts of interest policies.
Our Compensation Committee, consisting of Samuel I. Bailin, Chairman, David
E. Jackson and Hannah H. Strasser, did not meet in fiscal 1996. The Compensation
Committee is empowered to review our compensation policies, set the compensation
of our executive officers, set general compensation and benefit levels for all
officers, and recommend to the full Board future compensation of executive
officers. The Compensation Committee administers our employee benefit plans.
If the Exchange Restructuring occurs, all of our current Board members,
including Ed Hebert, if he is elected as a director at the meeting, intend to
serve only until the 1998 annual meeting of stockholders. We expect that Ed
Schenk and Joe Colonnetta and three new nominees will stand for election as
directors in 1998.
If the Bankruptcy Restructuring happens, Messrs. Jackson, Colonnetta, and
Hebert, and Ms. Strasser will serve until the bankruptcy is concluded. At that
time they will be replaced by the three new directors to be designated.
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EXECUTIVE OFFICERS
We have four executive officers, who are as follows:
<TABLE>
<CAPTION>
NAME AND AGE POSITION(S)
------------ -----------
<S> <C>
P. Edward Schenk (59)....................... Chairman, President and Chief Executive Officer
Edward M. Hebert (46)....................... Senior Vice President and Chief Financial Officer
Jose Muguerza (34).......................... Vice President of Operations and Technical Services
Barbara McNicholas (61)..................... Secretary
</TABLE>
ED HEBERT was appointed Chief Financial Officer on October 6, 1995. Mr.
Hebert has been our Senior Vice President-Finance since January 1990 and our
Treasurer since January 1993. From December 1988 to January 1993, Ed Hebert
served as Controller of Rymer.
JOSE MUGUERZA became our Vice President of Operations and Technical
Services in December 1995. Before then, Mr. Muguerza was Vice
President-Technical Services of a Rymer subsidiary.
BARBARA MCNICHOLAS has been our Secretary since 1988. She has been a Rymer
administrative employee since 1953.
ED HEBERT and BARBARA MCNICHOLAS served as executive officers of the
Company during its 1993 Restructuring.
COMPENSATION COMMITTEE REPORT
In fiscal 1996, the Company's philosophy on executive compensation was to
attempt to provide a compensation package competitive with comparable companies
in the food industry and which linked the amount of compensation provided to the
achievement of business objectives while recognizing the economic factors then
affecting the Company. In this regard, individual base salaries were established
for the Chief Executive Officer and others based generally on the Board of
Directors' perception of competitive, industry-wide salaries, the executive's
experience and seniority, as well as his or her performance, while considering
the overall level of spending which the Board deemed appropriate for officers'
salaries in light of these economic factors.
In fiscal 1996 there were two programs of direct executive officer
compensation: the Base Salary Program and the Incentive Compensation Program. In
addition, executives were awarded stock options as part of a compensation
package.
Base Salary Program
Base salary for fiscal 1996 for Messrs. Schenk and Hebert was determined
based on their respective employment agreements. See "Certain Transactions and
Related Transactions."
Incentive Compensation Program
The Incentive Compensation Program provides opportunities for executives to
receive incentive compensation if specific performance goals, proposed by
management and approved by the Board, are met. No awards of incentive
compensation to executive officers were made for fiscal 1996 since objectives
for the year were not achieved. Awards for prior years were based primarily on
achievement of corporate goals and individual performance.
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<PAGE> 61
Stock Options
In fiscal 1996, under the Rymer Stock Option Plan, options to purchase
175,000 shares of the Common Stock were granted.
Respectfully submitted,
Compensation Committee
Samuel I. Bailin, Chairman
David E. Jackson
Hannah H. Strasser
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<PAGE> 62
EXECUTIVE COMPENSATION
The following table summarizes the salary, bonus and long-term compensation
paid or awarded to Ed Schenk, the Chief Executive Officer, and Ed Hebert, the
one other Rymer officer that received compensation in excess of $100,000 in
fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------------------------
AWARDS
----------------------- PAYOUTS
OTHER RESTRICTED SECURITIES ----------------------
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) ($) ($)(2) ($) (#) ($) ($)
------------------ ------- ------- ------ ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
P. E. Schenk(3)......... 1996 197,808 -- 6,050 -- -- -- --
Chairman and Chief
Executive Officer... 1995 -- -- -- -- 750,000 -- --
Edward M. Hebert........ 1996 135,665 -- 6,000 -- 50,000 -- 6,5874(4)
Senior V.P. 1995 120,975 -- 6,400 -- 7,000 -- 7,500
Treasurer and CFO 1994 113,035 43,500 8,400 -- 4,000 -- 13,470
</TABLE>
- ---------------
(1) For fiscal year ended on the last Saturday of October in each year.
(2) Reimbursement allowance for automobile use and maintenance.
(3) Ed Schenk joined Rymer on November 8, 1995. He was issued a warrant to
acquire 750,000 shares of Common Stock at $1.00 per share. See "Certain
Transactions and Related Transactions -- Employment Agreements."
(4) Represents vested amount from the Company's 401(K) Plan.
The following table sets forth selected information concerning options granted
in fiscal 1996 to Ed Hebert, the only officer named in the Summary Compensation
table who was granted an option to purchase shares of Common Stock:
OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE OR -------------------
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Edward M. Hebert......................... 50,000 29% $1.50 1/04/2006 N/A(A) N/A(A)
</TABLE>
- ---------------
(A) No potential realizable value has been assumed since the option exercise
price remains greater than the assumed realizable share price for the
duration of the option grant. Mr. Hebert holds options to buy a total of
61,000 shares of common stock. At the end of fiscal 1996, his options were
exercisable as to 40,000 shares of common stock. He did not exercise any
options during fiscal 1996. All of the options held by Mr. Hebert have
exercise prices well above the fair market value of Rymer common stock.
All outstanding stock options and warrants will be cancelled as part of the
restructuring. Under both the exchange and bankruptcy restructurings, Ed Schenk
and Ed Hebert, our senior management, will be given new employment agreements
under which they will be issued 430,000 shares of New Common Stock and receive
loans to pay their income taxes on the stock grants. See, "Item 4 on Proxy
Card -- New Common Stock Issuance," above.
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<PAGE> 63
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG RYMER FOODS INC., THE RUSSELL 2000 INDEX AND THE S&P FOODS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RYMER FOODS,
(FISCAL YEAR COVERED) INC. RUSSELL 2000 S&P FOODS
<S> <C> <C> <C>
10/91 100 100 100
10/92 30 110 116
10/93 49 145 110
10/94 86 145 118
10/95 27 171 142
10/96 12 200 175
</TABLE>
- ---------------
* $100 invested on October 31, 1991 in stock or index -- including reinvestment
of dividends. Fiscal year ending October 31.
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<PAGE> 64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS
P. Edward Schenk. On November 8, 1995, Ed Schenk became our President and
Chief Executive Officer and entered into a two year employment agreement with us
providing for a salary of $200,000 a year, subject to mandatory annual increases
for inflation. We also granted Ed Schenk a warrant to purchase 750,000 shares of
common stock at an exercise price of $1.00 per share. The warrant expires
November 7, 1999. Under the employment agreement, Mr. Schenk gets an automobile
allowance of $550 per month, and other customary executive benefits. We can
terminate Ed Schenk for "cause" only, including conviction of a felony,
intentional acts that materially impair our business and failure to perform his
material duties.
Edward M. Hebert. Since June 1, 1991 we have had an employment agreement
with Ed Hebert, our Senior Vice President, Treasurer and Chief Financial
Officer. The Agreement's original one-year term automatically extends for
successive one-year periods unless either we or Mr. Hebert notifies the other
before May 1 of any year that the Agreement will end on June 1 of such year. In
the first year of the agreement we paid Ed Hebert a salary of $100,000. His
salary has gone up based on increases in the Consumer Price Index limited to 6%
of the amount in effect for the prior year. In the 1993 restructuring, Mr.
Hebert's salary was set at $112,200.
If we terminate Ed Herbert without cause he will continue to receive his
compensation and employee benefits for the remainder of the current one-year
term of the agreement or (in the event of a change of control) nine months, if
longer. If Mr. Hebert is fired without cause or if we do not continue the term
of the agreement, the noncompletion provision of the agreement will lapse unless
we pay the salary and employee benefits Mr. Hebert would have received had he
continued working for us (in addition to any continuation of pay and benefits
for the remainder of the term of the agreement, if applicable) for the lesser of
a period elected by us not to exceed one year or the period Mr. Hebert remains
unemployed. Under such circumstances, the noncompetition provision in his
employment agreement will be effective for two months following his termination
of employment for each month we commit to pay severance to him, even if we stop
paying because he found a new job. Mr. Hebert's employment agreement provides a
death benefit equal to six months salary to be paid to his estate.
The employment agreements described above will be replaced with the new
employment agreements discussed under "Item 4 of Proxy Card -- New Common Stock
Issuance," above.
General. All of our executive officers generally receive participation in
benefit plans, life insurance programs, an automobile expense reimbursement
allowance or use of an automobile, bonuses at the discretion of the Board of
Directors, reimbursement of business-related expenses, and certain fringe
benefits.
REGISTRATION RIGHTS AGREEMENT
Under a Registration Rights Agreement dated April 7, 1993, we granted to
the holders of Senior Notes who either (i) had designees on our Board or were
otherwise affiliates (as defined by Rule 405 promulgated under the Securities
Act of 1933) of Rymer or (ii) received stock equal to or in excess of 5% of the
common stock to be outstanding upon the consummation of the 1993 Restructuring,
together with the Company's counsel in the 1993 Restructuring, the right to
demand the filing of a shelf registration of the securities issued to them in
the 1993 Restructuring. Upon their demand, the Company filed a shelf
registration statement on Form S-2, which was declared effective by the
Securities and Exchange Commission in
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<PAGE> 65
December 1994. The registration statement related to the offering by Deltec
Asset Management Corporation and Oppenheimer & Co., Inc. of a total of 2,242,088
shares of common stock and $10,617,815 principal amount of Senior Notes.
STOCK PURCHASE AGREEMENTS AND CERTAIN ADDITIONAL COMPENSATION -- PRIOR
MANAGEMENT
Jeffrey Rymer. On February 24, 1989, Mr. Jeffrey Rymer, then the President
of Rymer, purchased 10,000 shares of common stock from the Company for a
purchase price of $9.00 per share paid by his recourse 9.5% promissory note in
the amount of $90,000. In September 1991, Mr. Rymer had an employment agreement
with the Company. Under his employment agreement Mr. Rymer was entitled to
receive additional compensation for Rymer Meat's fiscal years ending in 1992 and
1993 in the aggregate amount of $188,000. In September 1991, Mr. Rymer owed the
Company $40,850 under his promissory note. In September 1991 Mr. Rymer released
all claims for the $188,000 in additional compensation and in return the Company
reduced the stock purchase price to $1.00 per share (the then fair market value)
and agreed to pay him (i) $11,000 on January 4, 1993 with 9.5% annual interest
and (ii) $131,000 on April 1, 1993 without interest. Concurrently Mr. Rymer
issued a replacement promissory note due January 4, 1993 in the amount of
$10,850 on the same terms as his prior note. The Company and Mr. Rymer had
rights of offset with respect to the $10,850 note due from Mr. Rymer and the
$11,000 obligation. Mr. Rymer subsequently agreed to defer the maturity of the
$11,000 and $131,000 amounts to January 1, 1996 and January 2, 1996,
respectively. In connection therewith, Mr. Rymer's promissory note in the amount
of $10,850 was cancelled and extinguished and Mr. Rymer issued a new promissory
note due January 1, 1996 on the same terms as his prior note. These notes, plus
accrued interest thereon, were offset by the Company on January 1, 1996. The
Company did not pay the note due to Jeffrey Rymer on January 2, 1996. The
Company deferred payment of this debt in order to preserve cash for use in the
operation of its business. In March 1996, the Company and Jeffrey Rymer agreed
on revised payment terms whereby one-half of the principal ($65,000) and accrued
interest on the entire debt at 9.5% per share through March 13, 1996 (amounting
to $1,395) was paid to Jeffrey Rymer by the Company on March 13, 1996. The
Company and Jeffrey Rymer agreed that interest would be paid on the remaining
principal at a rate of 9.5% on a monthly basis and that the remaining principal
will be paid in installments. At the end of fiscal 1996, no further amounts were
due to Mr. Rymer. Jeffrey Rymer resigned as a Director and officer of the
Company on November 8, 1995.
Barry Rymer. On February 24, 1989, Barry Rymer purchased 150,000 shares of
common stock from the Company for a purchase price of $9.00 per share paid by
his recourse 9.5% promissory note in the amount of $1,350,000. In September
1991, Mr. Rymer had an employment agreement with the Company under which he was
entitled to receive additional compensation at the annual rate of $465,000 per
year for fiscal years 1991 through 1995 and $455,000 for the fiscal year 1996.
As of September 18, 1991, the total additional compensation due Mr. Rymer
aggregated $2,323,750, and Mr. Rymer owed the Company $1,391,400 under his
promissory note. As agreed upon between Mr. Rymer and the Company, Mr. Rymer
released all claims for $2,323,750 in additional compensation, and in exchange
the Company reduced the stock purchase price to $6.00 per share (the then fair
market value) and agreed to pay him (i) $942,000 on January 4, 1993 with 9.5%
annual interest and (ii) $445,000 (which was guaranteed by Rymer Meat) on April
1, 1993, without interest. Mr. Rymer's note of February 24, 1989 (and interest
thereon) was cancelled and Mr. Rymer issued to the Company a new promissory note
due January 4, 1993 in the amount of $941,400 on the same terms as his
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<PAGE> 66
prior note. The Company and Mr. Rymer had rights of offset with respect to the
$941,400 note due from Mr. Rymer and the Company's $942,000 obligation to him.
In October and December 1992, the Company agreed to further reduce the
purchase price for the 150,000 shares to $1.25 per share, an amount in excess of
the then fair market value of the shares and by reason of this reduction, Mr.
Rymer contemporaneously reduced the amount ($1,387,000) due from the Company to
(i) $229,500 bearing 9.5% annual interest from the date of the reduction and
(ii) $124,000 bearing no interest. Mr. Rymer's note for $941,400 and interest
thereon was cancelled and Mr. Rymer issued a new promissory note to the Company
on the same terms as his prior note, except that it was due and payable on
January 1, 1996 in the amount of $228,900. Of the Company's note, $229,500 was
due January 1, 1996 and $124,000 was due January 2, 1996. The Company and Mr.
Rymer had rights of offset with respect to the $228,900 note due from Mr. Rymer
and the Company's $229,500 obligation to him. These notes, plus accrued interest
thereon, were offset by the Company on January 1, 1996. The Company did not pay
the $124,000 note due to Barry Rymer on January 2, 1996. The Company deferred
payment of this debt in order to preserve cash for use in operation of its
business. The payment terms of the note were revised so that Mr. Rymer was paid
in installments. At the end of fiscal 1996, no further amounts were due to Mr.
Rymer. Mr. Barry Rymer resigned as a Director of the Company on November 6,
1995.
We believe that the terms of the transaction with Barry Rymer and Jeffrey
Rymer were as favorable to us as we could have achieved in comparable
transactions with third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe that during fiscal 1996 all reports for our executive officers
and directors that were required to be filed under Section 16 of the Securities
Exchange Act of 1934 were timely filed.
OTHER MATTERS
We do not know of any other business which may properly come before the
annual meeting. If any new business is considered, the persons that hold proxies
will use their best judgment in voting on those new matters.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any stockholder proposal to be considered for inclusion in our proxy
solicitation materials for our 1998 annual meeting must be received at our
executive offices, 4600 South Packers Avenue, Suite 400, Chicago, Illinois
60609, not later than November 30, 1997. If the 1998 annual meeting is not held
on April 1, 1998, (the currently anticipated meeting date) and is held either
(i) before March 2, 1998 or (ii) on or after June 30, 1998 then we will tell you
of the change and the new date by which stockholder proposals must be received.
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<PAGE> 67
APPENDIX A
RYMER FOODS INC. 1997 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Rymer Foods Inc. 1997 Stock Option Plan
("Plan") is to attract and retain certain individuals as key employees and
directors of Rymer Foods Inc., a Delaware corporation ("Company") and its
subsidiaries and affiliates (Company and its subsidiaries and affiliates
collectively or individually, "Rymer"), and to provide incentives for such key
employees and directors to expand and improve the profits and achieve the
objectives of Rymer by providing to such individuals nonqualified stock options
("Options") to acquire shares of Rymer common stock, $0.04 par value per share,
("Shares"), and thereby provide such key employees and directors with a greater
proprietary interest in and closer identity with Rymer and its financial
success.
2. ADMINISTRATION. This Plan will be administered by a committee
("Committee") which shall be comprised of such persons as the Board of Directors
of the Company ("Board") may from time to time designate and to the extent
deemed appropriate by the Board shall be constituted as to permit this Plan to
comply with Rule 16b-3 promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended ("Exchange Act") or any successor provision.
The Committee shall interpret this Plan, prescribe, amend and rescind rules
relating thereto and make all other determinations necessary or advisable for
the administration of this Plan. Any such action by the Committee shall be final
and conclusive on all persons having any interest in the Options to which such
action relates. A majority of the members of the Committee shall constitute a
quorum and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under this Plan may be made
without notice of meeting of the Committee by a writing signed by a majority of
the Committee members.
Except as specified in Section 5, the Committee shall determine within the
limits of the express provisions of this Plan, those key employees and directors
to whom Options shall be granted, the time or times at which Options shall be
granted, the number of Shares to be subject to each Option and the restrictions
applicable to each Option. In making such determinations, the Committee may take
into account the nature of the services rendered by the Participants, their
present and potential contributions to Rymer and such other factors as the
Committee in its discretion deems relevant.
3. PARTICIPANTS. Participants in the Plan ("Participants") shall consist
of such key employees and directors as the Committee in its sole discretion from
time to time designates within the limits of the express provisions of this
Plan. The Committee's designation of a Participant in any year shall not require
the Committee to designate such person in any other year. Subject to the terms
and conditions of this Plan, the Committee shall consider such factors as it
deems pertinent in selecting Participants and in determining the terms of the
Options.
4. TERMS AND CONDITIONS OF OPTIONS.
(a) Option Exercise Price
As used in this Plan, the "Exercise Price" of an Option shall mean the
price at which one share of Common Stock may be purchased upon exercise
of the Option.
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<PAGE> 68
(b) Vesting of Options
Options granted to a Participant under this Plan vest (herein called
"Time Vest") at the rate of twenty-five percent (25%) per full year of
service with Rymer following the date of the Option grant ("Grant
Date"). A full year of service shall be completed on the day immediately
preceding each anniversary of the Grant Date, provided the Participant
remains in the service of Rymer through such date. In addition, for
purposes of determining the Time Vested percentage, the year in which
the Participant's death or disability occurs shall be counted as a full
year of service with Rymer and the period through the end of the term of
the Participant's employment and/or consulting agreement(s) in existence
on the date of termination of the Participant's service shall be treated
as service with Rymer for purposes of determining the Time Vested
percentage if termination of service was by Rymer other than for Cause
(as defined below) or by the Participant other than as a result of death
or disability, which termination does not constitute a breach of the
Participant's obligations under such agreement. The Options granted to a
Participant who remains in the service of Rymer through the day
immediately preceding the fourth anniversary of the Grant Date will be
one hundred percent (100%) Time Vested. A Participant will be considered
in the service of Rymer if the Participant is either employed by Rymer
or engaged (pursuant to a written agreement) as a consultant to Rymer
either directly or through an entity controlled by the Participant.
Employment with Rymer will be deemed continuous through any period of
absence due to authorized leave, disability, vacation, or other period
of temporary absence, until the Participant's employment has been
formally terminated by the written notice of either the Participant or
Rymer. Subject to the foregoing provisions of this Section, engagement
as a consultant to Rymer will be treated as continuous service through
the entire term of the consulting agreement regardless of the actual
time spent by the Participant performing the consulting services.
(c) Vesting Upon Certain Events
If the Company is merged or consolidated with an unaffiliated entity
when the other entity is the survivor, or all or substantially all of
the property or stock of Rymer on a consolidated basis is acquired by an
unaffiliated entity or in the case of a liquidation of the Company or
other significant reorganization event as determined by the entire Board
acting upon majority vote, Options granted under the Plan to
Participants in continuous service with Rymer from the Grant Date to
immediately before such event shall either become one hundred percent
(100%) Time Vested or shall be equitably adjusted pursuant to Section 9.
(d) Exercise Price
If Shares are listed or admitted to trading on any exchange or quoted
through NASDAQ or any similar organization, the closing price per Share
on the trading day immediately preceding the Grant Date shall be the
Exercise Price. The closing price shall be the last sale price regular
way or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case on the New York
Stock Exchange, or, if Shares are not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities
exchange on which the Shares are listed or admitted to trading, or if
the Shares are not so listed or admitted to
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<PAGE> 69
trading, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or through a similar organization if NASDAQ is no longer
reporting such information. If Shares are not listed or admitted to trading on
any exchange or quoted through NASDAQ or any similar organization, the fair
value thereof determined in good faith by an independent brokerage firm or
Standard & Poor's Corporation as of a date which is within fifteen (15) days of
the date as of which the determination is to be made (the fees and expenses of
any such independent brokerage firm or other firm engaged pursuant to this
section to be paid by the Company).
(e) Option Exercisability
For purposes of this Section 4, changing from employment with Rymer to
engagement as a consultant to Rymer shall not be considered a voluntary
termination of the Participant's employment.
Notwithstanding any provisions in this Section 4(e) to the contrary, any
exercise by a Participant of an Option after the Participant's
involuntary termination for Cause shall be invalid unless a Final
Arbitration determination finds that the involuntary termination was not
for Cause.
(f) Cause
Cause shall mean (i) with respect to any Participant who is party to an
employment or consulting agreement, "Cause" as defined in such agreement
(as such term may be determined in accordance with the terms thereof,
including, if applicable, pursuant to arbitration provisions set forth
therein) or (ii) with respect to any Participant who is not a party to
an employment or consulting agreement, "Cause" as may be determined by
applicable law. Any dispute, disagreement or controversy as to whether
the termination of a Participant's employment by Rymer was for Cause
shall be determined in accordance with the applicable provisions of the
Participant's employment or consulting agreement or, if no such
agreement is in effect, shall be submitted for arbitration held in
accordance with the rules then in force of the American Arbitration
Association and the determination of such arbitration ("Final
Arbitration Determination") shall be conclusive and binding on the
parties and shall not be appealable. To the extent the Participant's
employment or consulting agreement includes an arbitration provision,
such provision shall be followed to the extent not inconsistent with the
rules then in force of the American Arbitration Association. To the
extent the Participant does not have an employment or consulting
agreement which includes arbitration procedures, Rymer and the
Participant will each choose one arbitrator within ten (10) business
days of the Participant's written request for arbitration, which written
request must be given no later than ten (10) business days after
notification from Rymer of the termination. Within ten (10) business
days after the second arbitrator is chosen, the arbitrators chosen by
Rymer and the Participant will choose a third arbitrator. The third
arbitrator will conduct the arbitration. Such arbitration shall be
conducted in Chicago, Illinois. The Company and the Participant will
each pay its own attorneys' fee and will share equally the arbitration
costs. If the parties enter into a settlement agreement after the
arbitration process has commenced but prior to the determination of such
arbitration, such settlement agreement shall be deemed a Final
Arbitration Decision and as such shall be considered rendered on the
II-20
<PAGE> 70
date the settlement agreement is signed or such other date the parties designate
in the settlement agreement.
(g) Option Term
Subject to the provisions of Section 4(e) hereof, the term of each
Option granted under this Plan shall be for a period of no more than ten
(10) years from the Grant Date.
(h) Method of Exercise
Options may be exercised by giving written notice to Rymer's Treasurer
stating the number of Shares with respect to which the Option is being
exercised and tendering payment in cash or check therefor.
The award of any Option may be subject to other provisions (whether or not
applicable to the Option awarded to any other Participant) as the Committee, in
its sole discretion, determines appropriate, including, without limitation,
restrictions on resale or other disposition and such provisions as may be
appropriate to comply with federal or state securities laws and stock exchange
requirements.
5. INTENTIONALLY OMITTED.
6. SHARES. The total number of Shares allocated to this Plan and
available to designated Participants under this Plan is 430,000 Shares, except
as such number of Shares shall be adjusted in accordance with the provisions of
Section 9. Each Option when granted shall state the number of Shares to which it
pertains. Such Shares may be either authorized but unissued Shares or treasury
Shares.
7. NOTICES. Options granted pursuant to this Plan shall be authorized by
the Committee and shall be evidenced by notices ("Option Notices") in such form
as the Committee shall from time to time determine. Such Option Notices shall
state: (i) the number of Shares with respect to which the Option is granted and
(ii) the terms and conditions of the Option consistent with this Plan. The terms
and conditions of each Option Notice must be consistent with the provisions of
this Plan and will be applicable only to the grant that it announces.
8. NONTRANSFERABILITY. During the lifetime of a Participant, any Option
granted to the Participant shall be exercisable only by the Participant or by
the Participant's guardian or legal representative. No Option shall be
assignable or transferable, except by will or by the laws of descent and
distribution. The granting of an Option shall impose no obligation upon the
Participant to purchase Shares pursuant to the exercise of the Option.
9. ADJUSTMENTS.
(A) Capital Adjustments
If the shares should, as a result of any stock dividend, stock split, or
subdivision or combination of Shares, or any reclassification,
recapitalization or otherwise, be increased or decreased, the number of
Shares covered by each outstanding Option, the Option exercise price
under each outstanding Option, and the total number of Shares reserved
for issuance under this Plan shall be adjusted proportionately as
determined by the entire Board, acting by majority vote, to reflect such
action. Any new shares or other securities issued with respect to Shares
shall be deemed Shares.
II-21
<PAGE> 71
(B) Transactional Adjustments
If Rymer is merged or consolidated with another unaffiliated entity when
the other entity is the survivor, or if all or substantially all of the
property or stock of Rymer on a consolidated basis is acquired by
another unaffiliated entity, or in the case of a liquidation of the
Company or other significant reorganization event as determined by the
entire Board acting upon majority vote, the Committee shall have the
right to provide for the continuation of Options or for other equitable
adjustments as determined by it.
10. LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to
deliver Shares pursuant to Options granted under this Plan shall be subject to
all applicable laws, regulations, rules and approvals, including, but not by way
of limitation, the effectiveness of a registration statement under the
Securities Act of 1933, if deemed necessary or appropriate by the Committee,
covering the Shares reserved for issuance upon exercise of Options. A
Participant shall have no rights as a stockholder with respect to any Shares
covered by Options granted to or exercised by the Participant until the date of
delivery of a stock certificate to the Participant for such Shares. Shares
issued hereunder may be legended as the Committee shall deem appropriate to
reflect the restrictions imposed under this Plan or by securities laws
generally. No adjustment other than pursuant to Section 9 hereof shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is delivered.
11. TAX WITHHOLDING. Rymer shall comply with the obligations imposed upon
Rymer under applicable tax withholding laws, if any, with respect to Options
granted hereunder, and shall be entitled to do any act or thing to effectuate
any such required compliance, including, without limitation, withholding from
amounts payable by Rymer to a Participant and including making demand on a
Participant for the amounts required to be withheld.
12. NO CONTRACT OF EMPLOYMENT. Neither the adoption of this Plan, nor the
grant of any Options, nor ownership of Shares shall be deemed to obligate Rymer
to continue the appointment, employment, or engagement of any eligible person
for any particular period.
13. INDEMNIFICATION OF COMMITTEE. The members of the Committee shall be
indemnified by the Company to the fullest extent permitted by Delaware law, the
Company's Certificate of Incorporation and the Company's by-laws.
14. AMENDMENT AND TERMINATION OF PLAN. The Plan may be amended at any
time and from time to time by the Board, but no amendment without the approval
of the stockholders of the Company shall:
(a) increase the number of shares as to which Options may be granted
under the Plan;
(b) expand or change the class of persons eligible to receive Options;
(c) permit the purchase price of shares subject to an Option granted
under the Plan to be less than the Fair Market Value of such
Shares at the time the Option is granted;
(d) extend the term of the Plan;
(e) materially increase the benefits to the Participants under the
Plan.
Notwithstanding anything to the contrary contained herein, no amendment or
cancellation of the Plan or any Option granted under the Plan shall alter or
impair any of the rights or
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<PAGE> 72
obligations of any person, without his consent, under any Option theretofore
granted under the Plan.
The Company may terminate this Plan at any time, but no such action shall
reduce the number of Shares subject to the then outstanding Options granted to
any Participant or, adversely to a Participant, change the terms and conditions
of outstanding Options without the Participant's consent. Section 5 of this Plan
may not be amended. No Option may be granted after five years from the effective
date of this Plan.
15. DELAWARE LAW TO GOVERN. This Plan shall be governed by and construed
in accordance with the laws of the State of Delaware.
16. EFFECTIVE DATE OF PLAN. This Plan shall become effective upon the
consummation of the Restructuring of the Company provided such consummation
occurs on or before December 31, 1997.
II-23
<PAGE> 73
IMPORTANT: A BANKRUPTCY CASE HAS NOT BEEN COMMENCED AS OF THE DATE OF THE
DISTRIBUTION OF THIS DOCUMENT
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
IN RE:
RYMER FOODS INC.,
FORMERLY KNOWN AS THE
RYMER COMPANY,
DEBTOR.
TAXPAYER IDENTIFICATION NUMBER: 36-1343930
CHAPTER 11
DISCLOSURE STATEMENT IN CONNECTION WITH PRE-PETITION SOLICITATION OF BALLOTS TO
RYMER FOODS INC.'S PREPACKAGED PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE
UNITED STATES BANKRUPTCY CODE
<PAGE> 74
Rymer Foods Inc., a Delaware corporation ("the Debtor"), has not filed a
case under the bankruptcy code at this time. However, it may be necessary for
the Debtor to file a case under Chapter 11 of the Bankruptcy Code to restructure
its financial obligations. This Disclosure Statement solicits your advance
acceptance of the attached Prepackaged Plan of Reorganization and contains
information relevant to your decision. Please read this Disclosure Statement and
the Prepackaged Plan together with the Accompanying Prospectus (and which is
incorporated herein by reference) completely and carefully. The Debtor believes
that acceptance of this Prepackaged Plan is in the best interests of its
creditors and stockholders and accordingly recommends that both impaired classes
vote to accept the Prepackaged Plan.
During the Solicitation Period and the bankruptcy proceedings the Debtor
intends to operate its business as usual and pay in full its trade creditors and
employees. The Debtor intends that its operating subsidiary, Rymer Meat Inc.,
will not file under Chapter 11 of the Bankruptcy Code. Accordingly, Rymer Meat
is not part of the Prepackaged Plan and its creditors are not affected by the
Prepackaged Plan (except to the extent they may hold claims against the Debtor).
The information in this Disclosure Statement is made as of May 30, 1997 and
neither the delivery of this Disclosure Statement nor any exchange of Notes made
under the Prepackaged Plan implies that the information is correct after the
date of this Disclosure Statement.
Each creditor and stockholder should review with his, her or its legal,
business, financial and tax advisors how the Prepackaged Plan affects him, her
or it.
This Disclosure Statement is not an offer to sell or the solicitation of an
offer to buy securities. No sale of Debtor securities will be made in any state
in which an offer, solicitation or sale would be unlawful prior to registration
or qualification under the state's securities laws.
The voting deadline to accept or reject the Prepackaged Plan is July 7,
1997, unless extended.
The information in the Disclosure Statement is written in a style and uses
defined terms apparently preferred by bankruptcy counsel to best assure
compliance with the Bankruptcy Code disclosure requirements. It is a more formal
and detailed presentation of information included in the Prospectus and Proxy
Statement that accompany this Disclosure Statement and are part of the total
disclosure package of information.
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ III-1
SUMMARY OF THE PREPACKAGED PLAN............................. III-3
BACKGROUND, PURPOSE AND ADVANTAGES OF THE BANKRUPTCY
RESTRUCTURING............................................. III-7
RISK FACTORS................................................ III-7
GENERAL INFORMATION CONCERNING THE DEBTOR................... III-8
FINANCIAL INFORMATION....................................... III-9
THE PLAN OF REORGANIZATION.................................. III-9
CONFIRMATION AND CONSUMMATION PROCEDURE..................... III-21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... III-25
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PREPACKAGED PLAN.......................................... III-25
VOTING INSTRUCTIONS......................................... III-27
BANKRUPTCY RESTRUCTURING ACCOUNTING TREATMENT............... III-28
DESCRIPTION OF CREDIT FACILITY AND NEW CREDIT FACILITY...... III-29
DESCRIPTION OF CAPITAL STOCK................................ III-29
CONCLUSION.................................................. III-29
CHAPTER 7 LIQUIDATION ANALYSIS FOR RYMER FOODS INC.......... III-30
</TABLE>
<PAGE> 76
INTRODUCTION
This Disclosure Statement is being furnished by Rymer Foods Inc., a
Delaware corporation ("Rymer" or the "Debtor"), under Section 1126(b) of the
United States Bankruptcy Code ("Bankruptcy Code") and Rule 3018(b) of the
Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), to the Debtor's
creditors (collectively, "Creditors") holding claims in an impaired class of
claims (as identified herein) and to holders of the Debtor's Common Stock
("stockholders") as of May 23, 1997 ("Record Date") in connection with the
solicitation prior to the commencement of a case under Chapter 11 of the
Bankruptcy Code of acceptances of the Debtor's Prepackaged Plan of
reorganization dated May 23, 1997 ("Prepackaged Plan" or "Plan"). The Plan is
attached as Exhibit B hereto.
Available Information
A Prospectus of which this Disclosure Statement is a part has been filed
with the Securities and Exchange Commission. However, none of the Prospectus,
this Disclosure Statement or the Prepackaged Plan has been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission. Neither the Securities and Exchange Commission nor any state
securities commission has passed upon the fairness or merits of the Prepackaged
Plan or upon the accuracy or adequacy of the information contained in the
Prospectus or this Disclosure Statement. Any representation to the contrary is a
criminal offense. No United States Bankruptcy Court has approved this Disclosure
Statement or the merits of the Prepackaged Plan.
The Prospectus and the Proxy Statement that is included with the Prospectus
are incorporated by reference into, and are a part of, this Disclosure
Statement. Each creditor and stockholder should read the Disclosure Statement
and the Prepackaged Plan, together with the Prospectus and Proxy Statement, in
full before voting on the Prepackaged Plan. Other information about the Debtor
is publicly available. See the Prospectus, "Available Information".
The Debtor believes that the Disclosure Statement contains information of a
kind, and in sufficient detail, to enable a hypothetical reasonable investor
typical of holders of claims and interests of the classes of claims and
interests being solicited to make an informed judgment whether to accept or
reject the prepackaged plan.
Voting Instructions
Under the Bankruptcy Code, only classes of claims or interests which are
"impaired" (as described by the Bankruptcy Code) are entitled to vote to accept
or reject the Prepackaged Plan. The following Classes of claims and interests
are impaired under the Prepackaged Plan and are entitled to vote on the
Prepackaged Plan: Claims of unsecured Creditors with claims greater than $2,500,
which primarily includes the holders of Senior Notes ("Noteholders") and holders
of shares of common stock ("stockholders");
NOTEHOLDERS:
To Accept or Reject the Prepackaged Plan
Beneficial Owner of Notes -- Complete and sign the BLUE Ballot. Beneficial
Owners who are also record holders should forward their Blue Ballots directly to
ChaseMellon Shareholder Services, L.L.C. in the Yellow Envelope. Beneficial
Owners who are not record holders should forward their Blue Ballot to their
record holder which is the broker, bank, dealer, trust company or other nominee
in whose name the Beneficial Owner's Note is held of record in the envelope
provided by the record holder.
III - 1
<PAGE> 77
- Record Owners of Notes -- Complete and sign the GREY Master Ballot.
Return your Master Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
STOCKHOLDERS:
-- To accept or Reject the Prepackaged Plan:
- Beneficial Owners -- Complete and sign the GREEN Ballot. Beneficial
Owners who are also record holders should forward their Green Ballots
directly to ChaseMellon Shareholder Services, LLC in the Yellow Envelope.
Beneficial Owners who are not record holders should forward their Green
Ballot to their record holder which is the broker, bank, dealer, trust
company or other nominee in whose name the Beneficial Owner's Note is held
of record.
- Record Owners -- Complete and sign the WHITE Master Ballot. Return your
Ballot or Master Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
Any person who holds claims and/or interests in more than one Class is
required to vote separately with respect to each Claim and Interest. Please use
a separate ballot of the appropriate form to vote each class of claim and/or
interest you hold. See "Voting Instructions" below.
After carefully reviewing this Disclosure Statement and the Prepackaged
Plan, each creditor and stockholder should vote and return (in the yellow
envelope provided) the appropriate ballot. To be counted, your ballot, must be
received by 5:00 p.m., Eastern Standard Time on July 7, 1997 or such later date
to which this solicitation is extended by the Debtor (the "Expiration Date").
The filing of a Chapter 11 case under the Bankruptcy Code after the
Expiration Date will not entitle noteholders or stockholders to vote again on
the Prepackaged Plan unless there is a resolicitation of acceptances by the
Debtor. The Debtor reserves the right to extend this solicitation for such
period or periods as it determines in its sole discretion. The Debtor will
publicly announce any extensions over the Dow Jones News Service prior to 9
a.m., Eastern Standard Time, on the business day following the previously
scheduled Expiration Date. Only ballots that indicate either an acceptance or a
rejection of the Prepackaged Plan will be counted.
Ballots to accept or reject the Prepackaged Plan may be revoked up to the
earlier of (a) the filing of the Debtor's Chapter 11 case and (b) 5:00 p.m.,
Eastern Standard Time, on the Expiration Date. Thereafter, ballots may be
revoked only with the approval of the Bankruptcy Court.
III - 2
<PAGE> 78
If you have questions concerning the procedure for voting, or if you did
not receive the appropriate ballot or ballots, received a damaged ballot, need
an additional ballot or lost your ballot, or if you have questions about the
Disclosure Statement, please contact:
Hill & Knowlton
3rd Floor
466 Lexington Avenue
New York, New York 10017
(800) 755-3002
The Debtor believes that the Prepackaged Plan provides equal or greater
value to its creditors and stockholders than other available alternatives. The
Debtor, therefore, believes that acceptance of the plan is in the best interests
of each and every class of Creditors and stockholders and recommends that you
vote to accept the Prepackaged Plan.
SUMMARY OF THE PREPACKAGED PLAN
THE DEBTOR
Rymer is a holding company for its direct, wholly owned subsidiary Rymer
Meat Inc. (Rymer Meat and its subsidiaries are collectively referred to herein
as the "Subsidiaries"; the Debtor is "Rymer.") Rymer's principal asset is the
stock of Rymer Meat. Through its Subsidiaries, Rymer is engaged in the
production of portion-controlled meat entrees for restaurants, major food
service distributors, food processors and retail customers. See "General
Information Concerning the Debtor -- Business and Properties," below.
Rymer has continuously considered a variety of possible strategic
alternatives for its business including a sale of the company, seeking an equity
investment or other capital infusion. It engaged Kirkland Messina, an investment
banking firm, to advise management as to the various possible alternatives. None
of the strategic alternatives were feasible because of the intense competitive
conditions in the meat industry and Rymer's capital structure and financial
condition. Because of the amount of Senior Notes outstanding and the pledge of
assets to secure the LaSalle National Bank credit facility, we recognized that
it would be unlikely that we could attract new capital. For the same reasons, we
determined that a sale of the business would not produce enough money to pay the
Senior Notes and nothing would be paid to the stockholders. Therefore, the best
strategic alternative is to stabilize Rymer's financial position and to grow our
business. We decided that after the Exchange Restructuring our best alternative
is the Prepackaged Plan.
THE RESTRUCTURING
The proposed restructuring involves the issuance of the Debtor's New Common
Stock in exchange for Senior Notes and other unsecured debts over $2,500 in
amount, a 25 into 1 reverse stock split, the issuance of New Common Stock to
senior management, adoption of a new Stock Option Plan for employees, and the
election of new directors. Rymer is proposing two alternative restructurings:
the "Exchange Restructuring" and the "Bankruptcy Restructuring." The Exchange
Restructuring is designed to accomplish the restructuring outside of bankruptcy.
It is described in detail in the Prospectus. To increase the likelihood of
completing a restructuring, the Debtor is also proposing the Bankruptcy
Restructuring which, if both impaired Classes accept, involves substantially the
same economic consideration as the Exchange Restructuring but would be
accomplished under the supervision of a Bankruptcy Court.
III - 3
<PAGE> 79
The proposed restructuring is designed to eliminate the financial pressures
on the Debtor arising from its debt structure. It does not, however, directly
affect the continuing business operations of Rymer or Rymer Meat. The
Restructuring will not have a direct effect on the Subsidiaries other than as
co-parties to a new credit which will refinance or extend the maturity of the
indebtedness owed under the Debtor's line of credit.
The net effect of the proposed restructuring would be to eliminate having
to service approximately $24.1 million of debt, rebalance equity ownership among
creditors (80%), stockholders (10%) and senior management (10%), reconfigure the
board of directors and incentivize employees.
The Prepackaged Plan. It is very possible that the conditions to implement
the Exchange Restructuring may not be met. These conditions include tender of
95% (in principal amount) of the Notes and, indirectly, the approval by a
majority of the stockholders. The Bankruptcy Restructuring is offered as an
alternative to accomplish the restructuring. Under the Bankruptcy Restructuring,
the Debtor needs acceptances by Creditors, including noteholders, and
stockholders of the Prepackaged Plan prior to filing a case under Chapter 11 of
the Bankruptcy Code, and confirmation of the Prepackaged Plan shortly after the
filing.
No Subsidiary will seek relief under the Bankruptcy Code in the Bankruptcy
Restructuring. Creditors and employees of the Subsidiaries will not be directly
affected by the filing of a Chapter 11 case by the Debtor or by the Prepackaged
Plan except to the extent they also hold Claims against the Debtor, including
those arising out of guaranties by the Debtor.
Treatment of Claims and Interests Under the Prepackaged Plan. The following
table briefly summarizes the classification and treatment of claims and
interests under the Prepackaged Plan. This summary is qualified in its entirety
by reference to the provisions of the Prepackaged Plan which is described in
greater detail under "The Plan of Reorganization".
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
----------------- ------------------------
<S> <C>
ADMINISTRATIVE EXPENSES. Costs and - UNIMPAIRED (Non-voting)
expenses of administration and expenses of - Paid in full on the Effective Date of the Bankruptcy
operations, and Claims of the kind Restructuring or as the parties otherwise agree.
specified under Section 507(a)(1) of the
Bankruptcy Code.
CLASS 1. Allowed Priority Claims under the - UNIMPAIRED (non-voting)
Bankruptcy Code, other than Administrative - Paid in full on the Effective Date of the Bankruptcy
Expenses. The Debtor currently estimates Restructuring or, if later, 11 days after being
that about $110,000 will be paid to about finally allowed by the Bankruptcy Court, except that,
4 creditors on Allowed Priority Claims. at the Debtor's option allowed priority tax claims
(together with accrued interest) may be paid over a
period up to six years after assessment.
CLASS 2. Allowed Secured Claims. This - UNIMPAIRED (non-voting)
class includes LaSalle National Bank, as a - On the Effective Date of the Bankruptcy
secured creditor. Restructuring, all defaults other than those specified
in Section 365(b)(2) of the Bankruptcy Code shall be
cured; all claims will be reinstated to maturity; and
otherwise secured creditors shall retain their legal,
equitable and contractual rights.
</TABLE>
III - 4
<PAGE> 80
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
----------------- ------------------------
<S> <C>
CLASS 3. Allowed Unsecured Claims other - IMPAIRED (voting)
than Class 5 Claims. Claims in Class 3 as - Allowed Class 3 Claims shall be fully settled and
of January 25, 1997, aggregate satisfied by receiving a pro rata distribution of
approximately $24.1 million, including the 3,440,000 newly-issued shares of common stock, par
noteholders and the deferred compensation value $0.04 per share.
claimant. There are approximately 15
holders of Class 3 claims.
CLASS 4. Holders of the Common Stock. The - IMPAIRED (voting)
number of issued and outstanding shares of - If, but only if, Class 3 accepts the Bankruptcy
Common stock is 10,754,093. The number of Restructuring Plan, stockholders will receive a pro
holders of record of Class 4 Interests is rata distribution from 430,000 newly issued shares of
approximately 750. New Common Stock that gives effect to a twenty-five
(25) into one (1) reverse stock split and dilutes the
ownership interest in the Debtor represented by the
Common Stock outstanding prior to the Effective Date
of the Bankruptcy Restructuring to 10%. If the Plan is
not accepted by Class 4, all outstanding common stock
may be cancelled and the stockholders will receive no
distribution with respect to their Interests.
CLASS 5. Allowed General Unsecured Claims - UNIMPAIRED (non voting)
either less than $2,500 or voluntarily - Paid in full or assumed in full on the Effective
reduced to $2,500 prior to the Effective Date of the Bankruptcy Restructuring.
Date by the holder of such Claim. This is
a convenience category for small general
unsecured claims. For example, a $1,000
death benefit is payable to certain
retired employees. Debtor estimates that
about $150,000 will be paid to about 150
creditors in this class.
</TABLE>
III - 5
<PAGE> 81
Effect of Bankruptcy Restructuring. The following table summarizes the
change that will be made if the Bankruptcy Restructuring happens:
<TABLE>
<CAPTION>
CURRENTLY AFTER THE BANKRUPTCY RESTRUCTURING
--------- ----------------------------------
<S> <C> <C>
Noteholders and Deferred
Compensation Claimants...... $24,100,000 of claims 3,440,000 shares of New Common
Stock
Stockholders.................. 10,754,053 shares of Common 430,000 shares of New Common Stock
Stock
Senior Management............. Out-of-the money options 430,000 shares of New Common
(61,000 shares) and warrants Stock, Loans to pay income tax,
(750,000 shares) Employment New Employment Agreements
Agreements
Board Members................. Ed Schenk Ed Schenk
David E. Jackson Joe Colonnetta
Hannah H. Strasser 3 designees
Joe Colonnetta
Samuel I. Bailin
Employees..................... Stock Option Plan out-of-the- New option plan for 430,000 shares
money options of New Common Stock
Secured Lender................ $4,000,000 revolving credit $4,000,000 revolving credit
facility expiring July 31, facility expiring April 1, 1998
1997
</TABLE>
If the Prepackaged Plan is not approved by the stockholders but is
confirmed by the Bankruptcy Court, all outstanding Common Stock may be
cancelled. If this happens, none of the existing stockholders, even those that
voted for the Prepackaged Plan, will receive anything.
Voting. It is important that all noteholders, other creditors and
stockholders vote to accept or reject the Prepackaged Plan. Votes will be
counted by Class. Under the Bankruptcy Code, for purposes of determining whether
a Class has accepted the Plan, the vote will be tabulated based on the ratio of
accepting holders in the Class to all voting holders of the Class. In each case,
only the votes of Holders of Allowed Claims and Interests are counted. See
"Voting Instructions". Abstentions, non-votes, ballots received after the
Expiration Date, and incomplete and unsigned ballots will not be counted as
votes for or against the Prepackaged Plan. The filing of a Chapter 11 case after
the Expiration Date will not entitle stockholders or creditors to vote
thereafter on the Prepackaged Plan unless there is a resolicitation of
acceptances or rejections by the Debtor.
Acceptance of the Plan. All persons holding Claims in unimpaired Classes
are conclusively presumed to have accepted the Prepackaged Plan.
All holders of Allowed Claims or Interests in an impaired Class are
entitled to vote on the Prepackaged Plan. Class 3, which includes the
noteholders, shall have approved the Prepackaged Plan if it is accepted by
holders of at least 66.67% in amount and more than 50% in number of the Allowed
Claims of Class 3 voted on the Prepackaged Plan.
All stockholders (Class 4) shall have accepted the Prepackaged Plan if it
is approved by the stockholders that hold at least 66.67% in number of the total
shares of Common Stock voted on the Prepackaged Plan.
Conditions to Effectiveness. Confirmation of the Prepackaged Plan is
conditioned on acceptance by Class 3, which includes the noteholders.
Consummation of the Prepackaged Plan
III - 6
<PAGE> 82
is conditioned on the signing of a new $4,000,000 credit facility with LaSalle
National Bank or another lender, and the other documents, agreements and
instruments required for consummation of the Plan and governance of the Debtor
and its Subsidiaries being in form or substance satisfactory to the Debtor;
(See, Plan, Article XIV, "Conditions Precedent.")
Effective Date. The Effective Date of the Plan means the later of (a) a
date within 30 days following the date on which the Confirmation Order is
entered or (b) if the Confirmation Order is appealed and a stay pending appeal
is granted, the second business day following the date on which the Confirmation
Order shall become final and nonappealable or no longer subject to a stay;
provided however, that, if the Confirmation Order is appealed but not stayed,
the Debtor may consummate the Plan at its sole discretion.
BACKGROUND, PURPOSE AND ADVANTAGES
OF THE BANKRUPTCY RESTRUCTURING
The background on the restructuring, the purpose of and effect of the
restructuring, the reasons for and advantages of the restructuring and the
alternatives to the restructuring are discussed in the Prospectus under the
headings "Background of the Restructuring", "The Restructuring", "The Bankruptcy
Restructuring", and "The Restructuring Plan". See also "Alternatives to
Confirmation and Consummation of the Prepackaged Plan" below and Exhibit A --
"Chapter 7 Liquidation Analysis for Rymer."
Rymer's Board of Directors has authorized this solicitation but has not at
this time approved a bankruptcy filing. The Board of Directors reserves the
right not to pursue the bankruptcy restructuring or seek confirmation of the
Prepackaged Plan regardless of the acceptances or rejections of the Prepackaged
Plan by the various impaired classes. It may, in its discretion, choose to
pursue other alternatives if the exchange restructuring is not consummated,
including the implementation of a new restructuring plan outside of bankruptcy
or the filing of Chapter 11 proceedings to implement a plan of reorganization
other than the Prepackaged Plan, even if sufficient votes to accept the
Prepackaged Plan are received.
RISK FACTORS
An investment in the New Common Stock involves a high degree of risk. Prior
to voting to accept or reject the Prepackaged Plan, all noteholders and all
stockholders should read and carefully consider the risk factors in the
Prospectus under the caption "Risk Factors" as well as the information in this
Disclosure Statement.
III - 7
<PAGE> 83
GENERAL INFORMATION CONCERNING THE DEBTOR
BUSINESS AND PROPERTIES
Rymer is the holding company for its direct, wholly owned subsidiary, Rymer
Meat. Through this subsidiary, Rymer is primarily engaged in the development and
production of frozen, pre-seasoned, portion-controlled meat entrees for
restaurants, food distributors, food processors and retail customers.
Rymer was incorporated under the laws of the State of Delaware in 1969. Its
principal offices are located at 4600 South Packers Avenue, Suite 400, Chicago,
IL 60609 (telephone no. 773-927-7777). Additional information concerning Rymer
and its business, financial position and results of operations, is included on
the Prospectus sections "Rymer's Business" and "Rymer's Financial Condition."
Rymer's recent operating results have been adversely affected by a number
of factors including consolidation among mid-scale family restaurant chains and
intense price competition in certain food market segments. In recent years,
Rymer withdrew from both the chicken and seafood markets and is now
concentrating on the beef market. Rymer has not paid a dividend on its common
stock in the last 14 years. See "Rymer's Business".
The main liabilities are the approximately $23.1 million of Senior Notes
issued in its 1993 Restructuring and unpaid accrued interest thereon. The
December 15, 1996 interest payment on the Senior Notes was made by issuing to
the noteholders more Senior Notes equal to the interest payment then due. A cash
interest payment of approximately $1.3 million is due on June 15, 1997. Rymer
does not expect to have the cash to make this payment. Also, this payment cannot
be made by issuing additional Notes. Failure to make the June 1997 interest
payment would be a serious default under the Indenture.
Rymer has a $4,000,000 revolving working capital and letter of credit
facility with LaSalle National Bank under an annually renewable Credit
Agreement. The Credit Agreement recently has been extended to July 31, 1997.
Rymer is currently in default with respect to the Minimum Tangible Net Worth and
Minimum Consolidated Net Income covenants in the Credit Agreement. LaSalle
National Bank has waived past defaults as of the period ended March 22, 1997.
However, there can be no assurance that LaSalle National Bank will continue to
waive future defaults or renew or extend the Credit Agreement after July 31,
1997. If the proposed restructuring is successful, Rymer expects that it will be
able to enter into a new Credit Agreement with LaSalle National Bank or another
lender.
MANAGEMENT
Board of Directors. The present members of the Debtor's Board of Directors
are: P.E. "Ed" Schenk, David E. Jackson, Hannah H. Strasser, Joseph Colonnetta,
and Samuel I. Bailin.
As part of the Bankruptcy Restructuring, Rymer anticipates that a new Board
of Directors will assume office on the Effective Date. This Board will consist
of Ed Schenk, Joseph Colonnetta and three additional directors to be designated.
The current directors will continue to serve on the Debtor's Board of
Directors until they resign or are replaced. Confirmation of the Prepackaged
Plan is a condition precedent to the assumption of office by the new directors.
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Executive Officers. The Debtor's present executive officers are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
P.E. (Ed) Schenk..................... Chairman of the Board, Chief Executive Officer, President,
Chief Operating Officer
Edward M. Hebert..................... Senior Vice President, Treasurer and Chief Financial Officer
Jose Muguerza........................ Vice President of Operations and Technical Services
Barbara McNicholas................... Secretary
</TABLE>
Except as the Debtor may subsequently notify the Bankruptcy Court, these
officers will continue to serve as executive officers after the effective date
of the Bankruptcy Restructuring.
Additional information about the Debtor's directors and officers, including
age and experience, compensation, and employment agreements, is included in the
Proxy Statement.
PRINCIPAL STOCKHOLDERS
The principal stockholders of the Debtor are identified in the table
included in the Proxy Statement.
FINANCIAL INFORMATION
HISTORICAL FINANCIAL INFORMATION
Unaudited consolidated financial statements of Rymer at January 25, 1997
are included in the Prospectus. Audited consolidated financial statements of
Rymer are incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended October 26, 1996.
FINANCIAL INFORMATION GIVING EFFECT TO THE BANKRUPTCY RESTRUCTURING
Unaudited consolidated financial statements giving effect to the Bankruptcy
restructuring are included in the Prospectus under the Bankruptcy Restructuring.
PROJECTIONS
Projections prepared by the Debtor to illustrate the effects of the
Restructuring are included in the Prospectus under "Financial Projections."
THE PLAN OF REORGANIZATION
CHAPTER 11 OVERVIEW
A proceeding for voluntary reorganization under Chapter 11 of the
Bankruptcy Code is begun by filing a petition with the Bankruptcy Court. The
filing of the Chapter 11 petition creates a bankruptcy estate comprised of all
legal or equitable interests of the debtor in property as of the filing of the
Chapter 11 case, wherever located and by whomever held. Upon the filing of the
voluntary petition, an order for relief is automatically entered.
The entry of the order for relief causes the stay pursuant to Section 362
of the Bankruptcy Code to become effective automatically. The automatic stay is
one of the fundamental protections afforded a debtor in a bankruptcy case. The
automatic stay is a pervasive statutory injunction which provides that, with
limited exceptions, no creditor or other entity may continue or commence any
action against a debtor, its property or property in its possession unless the
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creditor of the other entity first obtains permission from the bankruptcy court.
The exceptions to the automatic stay are based, for the most part, on
governmental entities' authority to regulate a debtor's effect on the health and
welfare of the persons within its jurisdiction. Creditors and other entities may
be entitled to relief from the automatic stay if certain statutory criteria are
met, e.g;, (i) cause, including the lack of adequate protection of an entity's
interest in property, or (ii) the debtor's lack of equity in property and the
property not being necessary for the debtor's effective reorganization.
Upon the automatic entry of an order for relief simultaneously with the
filing of the voluntary petition, a debtor becomes a "debtor-in-possession". A
debtor-in-possession, unless otherwise ordered by the bankruptcy court,
automatically is authorized to retain possession of its assets and manage its
business in the ordinary course, without the need for any specific bankruptcy
court approval. A debtor-in-possession may use, sell or lease property of the
estate in the ordinary course of business without specific bankruptcy court
approval with the exception of the use of cash and cash equivalents in which a
secured creditor or other entity has an interest, which the debtor-in-possession
may not use absent secured creditor consent or court authority.
In general, a Chapter 11 plan of reorganization (i) divides claims and
interests into separate classes, (ii) specifies the treatment of any class
including the property that each class is to receive under the plan, (iii)
provides adequate means for implementation of the plan of reorganization, and
(iv) contains other provisions concerning the reorganization of the debtor.
Under the Bankruptcy Code, "claims" and "interests" are classified rather than
"creditors" and "shareholders" because persons may hold claims or interests in
more than one class. For purposes of this Disclosure Statement, the terms
"creditor" and "stockholder" refer to the holder of a claim or interest,
respectively, in a particular Class under the Prepackaged Plan.
A Chapter 11 plan may specify that certain classes of claims or interests
are either to be paid in full upon effectiveness of the plan or are to remain
unchanged by the reorganization. These classes are referred to as "unimpaired"
and are deemed to accept the plan because of their favorable treatment.
Accordingly, it is not necessary to solicit votes from the holders of claims in
unimpaired classes. A Chapter 11 plan also may specify that certain classes will
not receive any distribution of property or retain any claim against a debtor.
These classes are deemed to reject the plan and, therefore, need not be
solicited to vote to accept or reject the plan. In other words, only those
persons who will receive distribution or retain claims but whose claims or
interest will change as a result of the Bankruptcy Reorganization vote on the
adoption of the Plan.
FORMATION OF COMMITTEES AND STANDING TO BE HEARD
As soon as practicable after the filing of the case, the United States
Trustee will appoint a committee to represent the unsecured creditors in the
bankruptcy case. The United States Trustee may appoint additional committees of
creditors or of equity security holders as the United States Trustee deems
appropriate. Section 1102 authorizes the court, upon request of a party in
interest, to order appointment of additional committees of creditors or of
equity security holders if necessary to assure adequate representation of
creditors or equity security holders.
With the court's approval, an official committee may engage its own
attorneys, accountants, or other agents. Under Section 1103(c) of the Bankruptcy
Code, a committee may (1) consult with the trustee or Debtor-in-Possession
concerning the administration of the case; (2) investigate the acts, conduct,
assets, liabilities, and financial condition of the debtor, the operation of the
debtor's business and the desirability of the continuance of such business and
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any other matter relevant to the case or to the formulation of a plan; (3)
participate in the formulation of a plan, advise those represented by such
committee of such committee's determinations as to any plan formulated, and
collect and file with the court acceptances or rejections of a plan; (4) request
the appointment of a trustee or examiner under Section 1104 of the Bankruptcy
Code; and (5) perform such other services as are in the interests of those
represented.
Any party in interest, including the Debtor, a creditors' committee, an
equity security holders' committee, a creditor, a stockholder or any indenture
trustee, may raise and may appear and be heard on any issue in the bankruptcy
case.
GENERAL
The following summary is qualified in its entirety by reference to the
provisions of the Prepackaged Plan.
For the Prepackaged Plan to be confirmed by the Bankruptcy Court (i) Class
3 creditors including the noteholders who cast votes to accept the plan must
hold (a) at least 66 2/3% in dollar amount and (b) more than 50% in number of
the Allowed Claims voting in such Class, and (ii) stockholders who vote to
accept the plan must hold at least 66 2/3% in dollar amount of the Allowed
Interests voting in such Class. If the stockholders fail to accept the
Prepackaged Plan, at the Debtor's request, the Bankruptcy Court may still
confirm the Prepackaged Plan if minimum treatment standards are met with respect
to the stockholders.
The terms proposed by the Debtor for the payment of and distribution to
Allowed Claims and Interests under the Prepackaged Plan are based upon the
Debtor's discussions with the Restricted Noteholder and on the Debtor's
assessment of its ability to fulfill its obligations under the Prepackaged Plan.
In conjunction with the Prepackaged Plan, the Debtor has made financial
projections of earnings and cash flow for each of the fiscal years ending in
1998 through 2000. See Prospectus, "The Restructuring Plan -- Financial
Projections".
Payments and other distributions to be made under the Prepackaged Plan will
be made on the Effective Date or as soon thereafter as is practicable, or at
such other time or times as are specified in the Prepackaged Plan.
The Debtor believes that (i) under the Prepackaged Plan, each creditor and
stockholder will obtain a recovery from the Debtor equal to or greater than the
recovery which otherwise would be obtained if the assets of the Debtor were
liquidated under Chapter 7 of the Bankruptcy Code (see Exhibit A "Chapter 7
Liquidation Analysis for Rymer Foods Inc.") and (ii) the Prepackaged Plan will
enable the Company to continue its business operations as a viable going concern
without bankruptcy proceedings for its Subsidiaries and enhance the Debtor's
ability to service its debt obligations and fund its capital expenditures in the
future. See Prospectus, "Illustrative Unaudited Financial Information."
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The Prepackaged Plan treats Allowed Claims and Interests of the Debtor's
creditors and stockholders. An Allowed Claim or Interest is one that is (i)
listed by the Debtor in schedules supplied to the Bankruptcy Court and not
designated as "contingent", "unliquidated" or "disputed", or (ii) as to which a
proof of claim or interest has been filed, and, in both cases, as to which no
objection has been made by the Debtor or any other party in interest. If an
objection is made, the validity and amount of the Claim or Interest will be
determined by the
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Bankruptcy Court. Any person seeking to assert a Claim or Interest that is not
scheduled by the Debtor, that is in an amount larger than the amount scheduled
by the Debtor, that is scheduled by the Debtor as contingent, unliquidated or
disputed, or that is different from that which is shown in the Debtor's
schedules must file a proof of claim with the Bankruptcy Court.
The Prepackaged Plan designates four Classes of Claims and one Class of
Interests. These Classes take into account the differing nature and priority
under the Bankruptcy Code of the various Claims and Interests.
Administrative Expense
Administrative Expenses are Claims against the Debtor constituting a cost
or expense of administration of the Reorganization Case including any actual and
necessary costs and expenses of preserving the Debtor's estate, any actual and
necessary costs and expenses of operating the Debtor's businesses, loans or
other advances to the Debtor as the Debtor-in-Possession, all allowances of
compensation and reimbursement of expenses to professionals to the extent
allowed by the Bankruptcy Court, and any fees or charges assessed against the
Debtor's bankruptcy estates under Section 1930, Chapter 123, Title 28, United
States Code.
Under the Prepackaged Plan, Administrative Expenses will be paid in full on
the later of the date on which such Claim is Allowed or the Effective Date,
unless the creditor consents to other treatment. However, Administrative
Expenses representing liabilities incurred in the ordinary course of business by
the Debtor (including amounts owed to vendors and suppliers which have sold
goods or furnished services to the Debtor after the commencement of the
bankruptcy case) or liabilities arising under loans or advances to the Debtor
will be paid by the Debtor in accordance with the terms and conditions of the
particular transactions.
Class 1 -- Allowed Priority Claims
Priority Claims include (i) unsecured claims for accrued employee
compensation earned within 90 days prior to the filing of the Chapter 11
petition, up to $4,000 per employee, (ii) certain contributions to employee
benefit plans arising from services rendered within 180 days prior to the filing
of the Chapter 11 petition, and (iii) certain unsecured claims of governmental
units for taxes. Under the Prepackaged Plan, holders of Allowed Priority Claims
are to be paid in cash in full on the later of the Effective Date or the date on
which such claim is allowed. However, Allowed Priority Claims incurred in the
ordinary course of business may be paid on the date any such claim is due by its
terms. Also, any Allowed Priority Claims that are by law subject to alternative
repayment over a period of time may be paid in a manner consistent with such
law, and allowed priority tax claims plus interest accrued thereon (at amounts
and a rate to be agreed upon between the Debtor and the holder of the subject
claim, or, in the absence of such agreement, as determined by the Bankruptcy
Court) may be paid over a period not exceeding six (6) years after the date of
assessment of the Claims.
Class 1 is unimpaired and holders of Class 1 Claims are conclusively
presumed to have accepted the Prepackaged Plan. Since the Debtor principally
operates as a holding company, the amount of Class 1 Claims is not expected to
be significant.
Class 2 -- Secured Claims
Class 2 consists of all Allowed Secured Claims. On the Effective Date, the
Debtor will cure substantially any default that occurred before or after the
commencement of the bankruptcy case, the occurrence of which entitles a holder
of a Class 2 claim, under any contractual
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provision or applicable law, to demand or receive accelerated payment of such
claim. The Plan will not alter the legal, equitable or contractual rights of the
holders of secured claims, including, but not limited to, rights in any
collateral securing such claims as of the commencement of the bankruptcy case.
Included in Class 2 are Claims held by LaSalle National Bank under the
Credit Agreement which is secured by security interests in the stock of Rymer
Meat. The Debtor will either enter into a New Credit Facility with LaSalle
National Bank or enter into a New Credit Facility with a different lender and
use the proceeds of the New Credit Facility to repay LaSalle National Bank.
Class 2 is unimpaired and LaSalle National Bank is conclusively presumed to
have accepted the Prepackaged Plan.
Class 3 -- Allowed Other General Unsecured Claims
Class 3 consists of all Allowed Unsecured Claims other than claims included
in Classes 1, 2 and 5. Class 3 is impaired.
Class 3 claims include the Notes and deferred compensation claimant in the
approximate amount of $24.1 million, plus accrued interest to the Effective
Date. Also included are (i) trade claims greater than $2,500 for goods and
services provided to the Debtor before filing the Chapter 11 bankruptcy case;
(ii) claims for damages arising from the rejection of executory contracts and
unexpired leases; (iii) any unknown damage claims; and (iv) any Allowed Claims
arising under deferred compensation agreements and retirement policies.
The Debtor is liable to Robert Rittmaster, a former officer and director,
pursuant to a Deferred Compensation Agreement dated August 29, 1986, to pay
$77,000 per year in monthly installments for the rest of his life. Under the
Deferred Compensation Agreement, if Mr. Rittmaster does not live to receive 240
monthly payments, then the remainder of such 240 monthly payments shall be paid
to his designated beneficiary or to his estate. The Debtor began making payments
under the Deferred Compensation Agreement at the beginning of its fiscal year
1989 and has continued making all such payments. The Debtor believes the
Deferred Compensation Agreement is an executory contract within the meaning of,
and subject to rejection under, Section 365 of the Bankruptcy Code. The Debtor
further believes that the claim for damages for rejection of the Deferred
Compensation Agreement is limited to one year under Section 502(b)(7) of the
Bankruptcy Code. In the event that the Debtor files a bankruptcy petition, it
intends to file a motion seeking to reject the Deferred Compensation Agreement
and to limit the claim from such rejection. If the Debtor were to succeed on
that motion, then the Class 3 Claim under the Deferred Compensation Agreement
would be limited to approximately $77,000. If the Debtor were not to succeed,
then the claim would not be capped at one year and probably would be the amount
of the payments provided under the agreement discounted to present value. The
Debtor estimates the present value of such payments is approximately $570,000,
although the figure could be determined to be higher or lower.
The Debtor will reject options to purchase Common Stock which were issued
under the Debtor's 1993 Restated Stock Option Plan and 1982 Incentive Stock
Option Plan. The exercise price for such options exceeds the per share value of
Common Stock. The Debtor may also reject certain compensation or consulting
agreements entered into prior to the commencement of the bankruptcy case. In the
event of such rejection, the Debtor will contend that the allowance of any
damage Claims asserted by such persons arising out of such rejections will be
subject to Section 502(b)(7) of the Bankruptcy Code which provides that the
claim of an employee for
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damages resulting from termination of an employment agreement may not be allowed
to the extent such claim exceeds (i) the compensation provided by such contract,
without acceleration following the earlier of the petition date or the date the
employee was directed to or did terminate performance under the contract; and
(ii) any unpaid compensation due under such contract, without acceleration, on
the earlier of such dates.
Under the Prepackaged Plan, Class 3 claimants will receive a pro rata share
of 3,440,000 shares of New Common Stock in full satisfaction of their claims.
Class 3 is impaired and holders of Class 3 claims are entitled to vote on
the Prepackaged Plan.
Class 4 -- Allowed Interests of the Stockholders
Class 4 consists of the Allowed Interests of the holders of common stock.
As of January 25, 1997, there were 10,754,093 shares of common stock issued and
outstanding held of record by approximately 750 persons. The Debtor estimates
that there also are about 750 beneficial owners of Common Stock.
If both Class 3 and Class 4 vote to accept the Plan, stockholders will
receive a pro rata distribution of 430,000 shares of New Common Stock to be
distributed on the Effective Date, which will be approximately one share of
common stock for each 25 existing shares. As of the Effective Date, accordingly,
the ownership interest in the Debtor represented by the shares of Common Stock
outstanding on January 25, 1997 will be reduced from 100% to approximately 10%.
If the Plan is not accepted by both Class 3 and Class 4, and the Prepackaged
Plan is nonetheless approved by the Bankruptcy Court, then all outstanding
Common Stock may be cancelled and stockholders may receive no New Common Stock.
The Debtor believes that the Plan could be approved as fair and equitable under
Section 1129(b)(2)(C) of the Bankruptcy Code notwithstanding that stockholders
may receive nothing because no holder of any interest junior to the interests of
Class 4 is receiving any property under the Plan.
Class 4 is impaired and the stockholders are entitled to vote on the
Prepackaged Plan.
Class 5 -- Allowed General Unsecured Claims less than $2,500
Class 5 consists of all allowed unsecured claims that either are less than
$2,500 or are voluntarily reduced prior to the Effective Date by the holder of
such claim to $2,500. All Allowed Claims in Class 5 will be paid in full or
assumed in full on the Effective Date of the Plan. Class 5 is not impaired and
creditors included in this Class are not entitled to vote on the Plan.
CLAIMS, INDEMNIFICATION AND RIGHTS AND IMMUNITIES OF INDENTURE TRUSTEE
All claims of the Indenture Trustee for trustee's fees and other reasonable
compensation for pre-petition or post-petition (including post-confirmation)
services, costs and expenses shall constitute Administrative Expenses and shall
not be impaired. With the Bankruptcy Court's approval, the Indenture Trustee
will be paid in cash on the Effective Date. If the Indenture Trustee asserts a
claim that is not paid on the Effective Date, then the amount of such asserted
claim shall be deposited in a segregated escrow account and shall be paid to the
Indenture Trustee when and to the extent determined by a final order of the
Bankruptcy Court.
On the Effective Date, the Indenture will be deemed to be satisfied and
discharged in full. However, the rights and immunities of the Indenture Trustee
including, without limitations, its
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rights to indemnification, and the rights and obligations of the Indenture
Trustee that are expressly provided under the Plan, shall survive the
satisfaction and discharge of the Indenture. With the Bankruptcy Court's
approval the Debtor shall also: (i) continue to pay the Indenture Trustee's fees
and other reasonable compensation (in amounts to which the Indenture Trustee
would have been entitled had the Indenture remained in full force and effect)
until the completion of both the distribution of shares of New Common Stock to
the noteholders and the Indenture Trustee's performance of all actions
contemplated by or otherwise in connection with the Plan; (ii) pay or reimburse
the Indenture Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee on or after
the Effective Date in taking any actions contemplated by or otherwise in
connection with the Plan (including, without limitation, the reasonable fees and
expenses of its counsel and any other professionals retained by the Indenture
Trustee or its counsel), except any such expense, disbursement or advance as may
arise from the negligence or bad faith of the Indenture Trustee; and (iii)
indemnify the Indenture Trustee for, and hold it harmless against, any loss,
liability or expense (including, without limitation, attorneys' fees and other
costs of defending itself against any claim of liability) which is incurred by
the Indenture Trustee without negligence or bad faith on its part, and arises
out of or in connection with the Plan or any action or inaction by it in
connection therewith.
EMPLOYEE CLAIMS AND COMPENSATION AND BENEFIT PROGRAMS
The Debtor does not have many employees or a significant amount of employee
claims. Most of the Debtor's employees are employed by Rymer Meat which is not a
debtor and is not participating in the Prepackaged Plan. Rymer Meat employees
will continue to receive their compensation in the normal course of business.
Similarly, no collective bargaining agreements covering Rymer Meat employees
will be affected by the Prepackaged Plan.
Claims for employees as of the filing date owed by the Debtor that accrued
pre-petition in respect of salaries or wages, paid vacation, health related
benefits, severance benefits and similar employee benefits will be unimpaired
under the Prepackaged Plan. To ensure the continuity of the Debtor's management,
the Debtor intends to seek the approval of the Bankruptcy Court to honor payroll
checks issued by the Debtor outstanding as of the date of filing (or to issue
replacement checks), to permit employees to use their paid vacation time which
accrued prior to the commencement of the bankruptcy case (so long as they remain
employees of the Debtor), and to continue paying medical benefits under the
applicable health plans. The Allowed Priority Claims of employees not paid or
benefits not honored, prior to the Effective Date will be paid in cash in full
or honored in full on the Effective Date or as soon thereafter as such payment
or other obligation becomes due or performable.
The Debtor intends to confirm and continue its employment and severance
policies, and the related compensation and benefit plans (other than existing
stock option plans), contracts, agreements, and policies, including retirement,
health care, disability, life and other insurance plans. The Prepackaged Plan
provides that the Debtor will continue to pay retiree benefits as prescribed in
the Bankruptcy Code for the duration of the period the Debtor has obligated
itself to provide such benefits.
EMPLOYMENT AND CONSULTING ARRANGEMENTS AND STOCK OPTION PLAN
An integral part of the success of the restructuring is the ability of the
Debtor to retain existing senior management to implement the operating plan. The
Debtor believes that in the absence of the restructuring it will be difficult to
retain key members of senior management or
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attract new management to replace them. To secure the continued services of
management, the Debtor expects to enter into new Employment Agreements with its
two key executives, Ed Schenk and Ed Hebert. The Employment Agreements, among
other things, will grant 258,000 and 172,000 fully vested shares of New Common
Stock, respectively, to Messrs. Schenk and Hebert and provide to them interest
free loans to fund various income tax liabilities. These loans will be forgiven
at a rate of 50% after the first full year of employment, then 25% for each of
the second and third year of employment. Each new Employment agreement will be
for a term of 3 years and will provide for a base salary of $250,000 to Mr.
Schenk and $140,000 to Mr. Hebert. The new Employment Agreements are also
described in the Proxy Statement.
Further, as part of the Prepackaged Plan, in order to retain senior
management, and other employees and provide appropriate incentives, the Debtor
is proposing to implement a new stock option program (the "1997 Stock Option
Plan"). The Debtor will reject all outstanding options to purchase Common Stock
which were issued under the 1993 Stock Option Plan or the 1994 Stock Plan, and
will cancel such option plans. The 1997 Stock Option Plan, as set forth in
Appendix A to the Proxy Statement, will permit the grant of options to key
employees and directors to purchase up to 430,000 shares of New Common Stock.
All options granted under the 1997 Stock Option Plan will be for a term of up to
five years and be at an initial exercise price equal to the fair market value of
the New Common Stock on the date of grant. The 1997 Stock Option Plan is further
described in the Proxy Statement under the caption "1997 Stock Option Plan".
OTHER EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Bankruptcy Code gives the Debtor the power after the filing of the
bankruptcy case subject to the approval of the Bankruptcy Court, to assume or
reject executory contracts and unexpired leases. The Prepackaged Plan provides
for the assumption of all executory contracts and unexpired leases that are not
expressly rejected by the Debtor on or before the Effective Date or which are
subject to pending notice to reject or are listed on a schedule filed with the
Bankruptcy Court prior to the Confirmation Date to be rejected. If an executory
contract or unexpired lease is rejected, the other party to the agreement may
file a claim for damages by reason of the rejection. The Prepackaged Plan
provides that a claim for damages must be filed within 30 days of the approval
by the Bankruptcy Court of the rejection of the executory contract or unexpired
lease. Each claim for damages shall constitute a Class 3 Claim to the extent the
claim is finally allowed by the Bankruptcy Court.
The Debtor has a limited number of unexpired leases of personal property
and executory insurance contracts providing life, health, directors and officers
liability and property and casualty coverage. The Debtor occupies its premises
in Chicago, Illinois under a month-to-month, unwritten lease arrangement with
the owner of the building. The lease is expected to be continued after the
filing of the Prepackaged Plan. The Debtor currently intends to assume such
leases and insurance policies. The Debtor reserves the right to reject any or
all of the unexpired leases and executory contracts.
AGREEMENTS WITH FINANCIAL ADVISORS
The Debtor will seek the approval of the Bankruptcy Court to assume and
perform its agreement with Kirkland Messina, under which that firm has been
engaged as financial advisor to the Debtor in the restructuring. The Debtor will
pay Kirkland Messina all unpaid balances that are due and payable under the
agreement. The Debtor believes that approximately 80% of
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the services to be rendered by Kirkland Messina will have been rendered by the
date on which the Debtor files its bankruptcy case.
DISPUTED CLAIMS
The Debtor may object to the allowance of claims filed with the Bankruptcy
Court. Objections will be litigated to a Final Order. However, the Debtor may
compromise and settle any objections to claims, and may seek Bankruptcy Court
estimation of any disputed, contingent or unliquidated claim, the fixing or
liquidation of which would unduly delay the administration of the bankruptcy
case.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
The Prepackaged Plan provides that the Debtor's obligations to indemnify
its present and former directors pursuant to the Debtor's Charter, its bylaws,
applicable state law, or specific agreement will survive confirmation of the
Prepackaged Plan, remain unaffected thereby, and not be discharged, regardless
of whether indemnification is owed in connection with an event occurring prior
to, upon or after the date of filing of the bankruptcy case. In addition, the
Debtor will fully indemnify any director, officer, employee or agent of the
Debtor or any other person who is or was serving at the request of the Debtor as
a director, officer, employee or agent of another corporation, partnership,
joint venture or other enterprise, against any liabilities, actions, suits,
damages, fines, judgments or expenses (including reasonable attorneys' fees),
arising during the course of, or otherwise in connection with or in any way
related to, the preparation and consummation of the Prepackaged Plan and related
transactions. It is the Debtor's intention that this contractual and
administrative claim indemnification apply to the fullest extent permitted by
the Bankruptcy Code. This indemnification is in addition to, and does not
supersede, the "safe harbor" from liability for violation of applicable laws
governing the solicitation of votes on a plan or the offer, issuance, sale or
purchase of securities under the Bankruptcy Code.
RELEASES
As of the Effective Date, each stockholder and creditor that votes in favor
of the Prepackaged Plan and consents in their executed Ballot to the release
provided for in Section 15.10 of the Prepackaged Plan shall have fully and
forever released any and all claims, debts and actions of whatever nature
arising prior to the Effective Date which he, she or it has or may have against
(1) the directors, officers, employees, controlling persons, professional
advisers (including the financial advisor, accountants and legal counsel) of the
Debtor or any Subsidiary, arising from the released party's agreements with or
for the benefit of, or actions or inactions with respect to, the Debtor or any
Subsidiary, or the creditors or stockholders in their capacity as such, (2) the
Indenture Trustee and the directors, officers, employees, controlling persons
and professional advisors (including legal counsel) of the Indenture Trustee,
arising from such person's agreement with or for the benefit of (or actions or
inactions with respect to) the Debtor or any Subsidiary or the creditors or
stockholders in their capacity as such, and (3) the Restricted Noteholder and
members of the creditors' committee, if any, and their respective directors,
officers, employees, controlling person and professional advisors (including
legal counsel), as well as the professional advisors and legal counsel of the
creditors' committee and of the Restricted Noteholder arising from such persons'
or entities' agreement with or for the benefit of (or actions or inactions with
respect to) the Debtor or any Subsidiary or the Creditors or stockholders in
their capacity as such.
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<PAGE> 93
As of the Effective Date, the Debtor shall be deemed to have fully and
forever released any and all claims arising prior to the Effective Date which
the Debtor has or may have against the members of the creditors' committee and
the Restricted Noteholder and their respective directors, officers, employees,
controlling persons, and professional advisors including legal counsel.
If any releasing noteholder, stockholder or other creditor brings a lawsuit
against any third party, which results in a third party claim against a released
party, which third-party claim (i) arises out of the subject matter of the
releasing holder's claim, (ii) arises and exists solely by reason of the filing
of the releasing holder's claim, and (iii) depends for its success on the
success of the releasing holder's claim, then the releasing holder shall, upon
(A) the entry of final non-appealable judgment, or (B) the settlement of such
claim, be deemed to have released such judgment or releasing holder's claim to
whatever extent is necessary to relieve the released party from any liability to
the third party.
EFFECT OF THE PREPACKAGED PLAN
Vesting of Assets. On the Effective Date, all assets of the Debtor's
bankruptcy estate shall vest in the Debtor, as reorganized pursuant to the
Prepackaged Plan, free and clear of all liens, claims, encumbrances and
interests except as provided in the Prepackaged Plan. The Prepackaged Plan
expressly preserves the rights in collateral of Class 2 Claims existing at the
time the Reorganization Case is commenced.
Board of Directors and Officers. Upon the Effective Date, the
post-restructuring board of Ed Schenk, Joe Colonnetta and three designees will
become the Board of Directors of the Debtor. The current officers of the Debtor
shall continue to serve as officers. All such directors and officers shall be
deemed elected pursuant to the Confirmation Order. Directors not continuing in
office shall be deemed removed pursuant to the Confirmation Order.
Operations. After the Effective Date, the Debtor will continue to operate
its business and will implement the Prepackaged Plan.
Effective Date. The Plan will go into effect on the later of (a) 30 days
following the date on which the Confirmation Order is entered or (b) if the
Confirmation Order is appealed and a stay pending appeal is granted, the second
business day following the date on which the Confirmation Order shall become
final and nonappealable or no longer subject to a stay; provided however, that,
if the Confirmation Order is appealed but not stayed, the Debtor may effect the
Plan at its sole discretion.
Cancellation of Notes. On the Effective Date the Notes will be cancelled.
Issuance of New Securities. The Debtor will be deemed to have authorized
the issuance of and, on the Effective Date, will issue 4,300,000 shares of New
Common Stock as provided in the Prepackaged Plan. The shares of New Common Stock
to be issued pursuant to the Prepackaged Plan have been registered under the
Securities Act of 1933, as amended.
Fractional Shares. Fractional Shares of Common Stock which would be
distributed on the basis of the provisions of the Prepackaged Plan will not be
issued or distributed and the number of shares distributed to an entity will be
rounded up to the next whole number.
Surrender of Old Securities. Each noteholder or stockholder must surrender
their Senior Notes or Shares to the Exchange Agent as a condition to receiving
any distribution under the Prepackaged Plan. Delivery instructions will be sent
by the Debtor.
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<PAGE> 94
Charter and By-Law Amendments. The Debtor's Charter will be amended to
reclassify each authorized share of $1.00 par value common stock into New Common
Stock, $0.04 par value per share. The Debtor's Charter already contains a
provision prohibiting the issuance of nonvoting equity securities as required by
Section 1123(a)(6) of the Bankruptcy Code.
Credit Facilities. On the Effective Date, the New Credit Agreement will
become effective. If necessary, monies borrowed under the New Credit Facility
will be used to repay in full the indebtedness owed to LaSalle National Bank.
Employment and Other Agreements. The Debtor will execute the new Employment
Agreements. The Debtor will assume all agreements to be assumed under the
Prepackaged Plan or any amendments to such agreements. The 1997 Stock Option
Plan will be deemed adopted by the Debtor. The outstanding options and warrants
and previously adopted stock option plans will be cancelled.
Unclaimed Property. Any property to be distributed under the Prepackaged
Plan shall remain the property of the Debtor if it is not claimed by the person
entitled thereto before the later of (i) 90 days after the Effective Date and
(ii) 60 days after an order allowing the Claim or Interest of that person
becomes final and non-appealable.
CRAMDOWN OF NON-ACCEPTING CLASS
THE DEBTOR MAY SEEK CONFIRMATION OF THE PREPACKAGED PLAN EVEN IF THE
STOCKHOLDERS REJECT THE PREPACKAGED PLAN.
The Prepackaged Plan can be confirmed even if the stockholders do not
approve it. This can happen if the Debtor can show the Bankruptcy Court that the
Prepackaged Plan (1) recognizes the priorities among unsecured creditors and the
stockholders, and (2) is fair and equitable to the stockholders. The Prepackaged
Plan will be fair and equitable if, under it, each stockholder will get New
Common Stock worth more than the cash value of the common stock if there is no
bankruptcy case.
Because the noteholders have to be paid in full before anything is paid to
the stockholders, Kirkland Messina has told the Debtor that the real value of
the stockholders' interest in the Debtor is zero. This means that if there is no
Prepackaged Plan or Exchange Restructuring, the stockholders would get nothing
from the operation or sale of the Debtor. This conclusion is supported by the
$0.03c per share bid-ask bulletin board quotation. Since the Prepackaged Plan
leaves the stockholders with 10% of the Debtor, the stockholders will be getting
New Common Stock worth more than the cash they could get if there is no
Prepackaged Plan or Exchange Restructuring.
Adopting the Prepackaged Plan without stockholder approval is called a
"cram down." The Debtor will file the bankruptcy case without stockholder
approval if it believes at the time that its only other alternatives -- a
voluntary or involuntary Chapter 11 bankruptcy or a Chapter 7 liquidation --
will take a long time to complete and is likely to provide less recovery to the
noteholders and no recovery to the stockholders.
EFFECTS OF CONFIRMATION
Discharge. The rights afforded in the Prepackaged Plan and the treatment of
all Claims and Interests therein shall be in exchange for and in complete
satisfaction, discharge, and release of Claims and Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
date of filing the bankruptcy case, against the bankruptcy estate, the Debtor
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and the Debtor-in Possession, or any of their assets or properties, except as
otherwise provided in the Prepackaged Plan (including in particular with respect
to claims in Classes 1, 2 and 3) and related agreements. The Prepackaged Plan
will be binding on all holders of Claims and Interests, whether or not they have
accepted the Prepackaged Plan. All persons shall thereafter be precluded from
asserting against the Debtor, its successors, or its assets or properties any
other or further Claims or Interests based upon documents, instruments or any
act or omission, transaction, or other activity of any kind or nature that
occurred prior to the Confirmation Date.
Exculpation. Neither the Debtor (except for duties and obligations
expressly created by the Prepackaged Plan) nor any of its officers, directors,
employees, or agents will be liable to any creditor or stockholder for acts or
omissions associated with the Prepackaged Plan, except for claims arising from
such persons' fraud, gross negligence or willful misconduct.
Rights of Action. Any rights or causes of action under any theory of law
(including without limitation, the Bankruptcy Code) accruing to the Debtor will
remain assets of the Debtor. The Debtor may pursue or refrain from pursuing
those rights of action, as appropriate, in accordance with what is in the best
interests, and for the benefit, of the Debtor.
Revesting. On the Effective Date, the Debtor will be vested with all of the
property of the bankruptcy estate free and clear of all claims of Creditors,
except for the Claims and liens of Creditors holding Class 2 Claims. It may
operate its business and may use and deal with its properties free of any
restrictions imposed by the Bankruptcy Code.
Retention of Jurisdiction. After the Effective Date, the Bankruptcy Court
will retain jurisdiction over all matters arising out of and related to the
bankruptcy case and the Prepackaged Plan including (i) disputes over assets,
(ii) modifications to and interpretations of and enforcement of the Prepackaged
Plan, and (iii) the award and order of payment of costs and expenses.
Term of Injunctions or Stays. Unless otherwise provided, all injunctions or
stays granted in the bankruptcy case under Sections 105 or 362 of the Bankruptcy
Code or otherwise in effect on the Confirmation Date shall remain in full force
and effect until the Effective Date.
Corporate Action. The Confirmation Order will authorize the filing by the
Debtor of the Amended Charter. The Amended Charter will be filed on or about the
Effective Date by the Debtor with the Delaware Secretary of State. On the
Effective Date, the authorization of issuance of the New Common Stock, the
authorization of the approval of the 1997 Stock Option Plan, the election of
directors, the amendments to the Charter, and the other matters provided for
under the Prepackaged Plan involving the corporate structure of the Debtor or
corporate action by the Debtor shall be deemed to have occurred and shall be in
effect from and after the Effective Date pursuant to Section 303 of the Delaware
General Corporation Law without any requirement of further action by the
stockholders or directors of the Debtor.
MODIFICATIONS OF THE PREPACKAGED PLAN
The Debtor may amend or modify the Prepackaged Plan before or after the
Confirmation Date only with the consent of the Creditors' Committee and only
after complying with the notice and hearings requirements under the Bankruptcy
Code and other applicable law. If an amendment or modification is determined to
materially affect a particular class, a resolicitation of that class is
required.
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<PAGE> 96
REVOCATION OF THE PREPACKAGED PLAN
The Debtor may withdraw the Prepackaged Plan at any time before the
Effective Date.
CONDITIONS TO THE EFFECTIVENESS OF THE PREPACKAGED PLAN
The following conditions must be satisfied in order to consummate the
Prepackaged Plan: (i) A New Credit Facility in the principal amount of $4
million shall be in effect; and (ii) all documents, agreements and instruments
required for the consummation of the Prepackaged Plan and the governance of the
Debtor post-restructuring, including, without limitation the new Employment
Agreements and the 1997 Option Plan shall be in form and substance satisfactory
to the Debtor and all of such documents, agreements and instruments shall be in
full force and effect.
CONFIRMATION AND CONSUMMATION PROCEDURE
DISCLOSURE AND SOLICITATION
The Disclosure Statement is presented to the holders of Claims and
Interests in impaired Classes to satisfy the requirements of Sections 1125 and
1126 of the Bankruptcy Code. Section 1125 of the Bankruptcy Code requires that
full disclosure be made to all holders of Claims and Interests in impaired
Classes at the time, or before, solicitation of acceptances of a plan of
reorganization is commenced. Section 1126 of the Bankruptcy Code provides that
the holder of a Claim or Interest who accepts a plan of reorganization before
the filing of a case under Chapter 11 of the Bankruptcy Code is deemed to have
accepted such plan under the Bankruptcy Code so long as the solicitation of such
acceptance was made in accordance with applicable nonbankruptcy laws governing
adequacy of disclosure in the solicitation.
Bankruptcy Rule 3018(b) specifies that a holder of a claim or interest who
accepted or rejected a plan before the filing of a case shall not be deemed to
have accepted or rejected the plan if the Bankruptcy Court finds after notice
and hearing that (1) the plan was not transmitted to substantially all creditors
and equity security holders of the same class, (2) that an unreasonably short
time was prescribed for such persons to accept or reject the plan or (3) that
the solicitation did not comply with Section 1126(b) of the Bankruptcy Code.
Upon filing of the Bankruptcy Case, the Debtor will request that the
Bankruptcy Court find after notice and hearing that the solicitation of
acceptances from holders of Claims and Interests was in compliance with the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the applicable rules and regulations of the Commission, the provisions
of Sections 1125 and 1126 of the Bankruptcy Code, and Bankruptcy Rule 3018(b)
and, therefore, that holders of Claims and Interests that have accepted or
rejected the Prepackaged Plan pursuant to this solicitation are deemed to have
accepted or rejected the Prepackaged Plan for purposes of confirmation of the
Prepackaged Plan under the Bankruptcy Code.
ACCEPTANCE OF THE PREPACKAGED PLAN
Classes 1, 2 and 5 are unimpaired. Therefore, the holders of Claims in
those Classes are conclusively presumed to have accepted the Prepackaged Plan.
Classes 3 and 4 are impaired and, therefore, the holders of Claims and
Interests in those Classes are entitled to vote to accept or reject the
Prepackaged Plan.
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<PAGE> 97
Acceptance of the Prepackaged Plan requires the following approvals:
- Noteholders and other unsecured creditors entitled to vote
- 66 2/3% in dollars amount of claims voted, and
- 50% plus 1 in number of claims actually voted, and
- 66 2/3% in number of shares of commons stock actually voted.
A vote may be disregarded if the Bankruptcy Court determines, after notice
and a hearing, that such acceptance or rejection was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code or
applicable Bankruptcy Law.
Any holder of a Claim or Interest in an impaired Class as of the May 23,
1997 record date is entitled to vote to accept or reject the Prepackaged Plan.
To vote to accept or reject the Prepackaged Plan the holder must follow the
voting instructions on page of this Disclosure Statement. The voting
instructions are also presented on the Summary of the Prospectus. A failure to
vote is not a vote against the Prepackaged Plan.
CLASSIFICATION
The Debtor is required under Section 1122 of the Bankruptcy Code to
classify the Claims and Interests of the creditors and stockholders into Classes
that contain Claims and Interests that are substantially similar to the other
Claims or Interests in such Class. While the Debtor believes that it has
classified all Claims and Interests in compliance with the provisions of Section
1122 of the Bankruptcy Code, it is possible that, once a Chapter 11 proceeding
has begun, a creditor or stockholder may challenge the Debtor's classification
of Claims or Interests, and the Bankruptcy Court may find that a different
classification is required for the Prepackaged Plan to be confirmed. In such
event, it is the present intention of the Debtor to modify the Prepackaged Plan
to provide for whatever reasonable classification might be required by the
Bankruptcy Court for confirmation and to use the acceptances received by the
Debtor under this solicitation, to the extent permitted by the Bankruptcy Court,
for the purpose of obtaining the approval of the Class or Classes of which such
person is ultimately deemed to be a member.
Any reclassification of Claims and/or Interests required by the Bankruptcy
Court could adversely affect the Class in which such Claim or Interest was
initially classified and/or any other Classes under the Prepackaged Plan by
changing the composition of such Classes and the required class vote for
approval of the Prepackaged Plan. A reclassification of Claims and/or Interests
after approval of the Prepackaged Plan could necessitate the resolicitation of a
completely new plan of reorganization.
CONFIRMATION
The Bankruptcy Court, after notice, must hold a confirmation hearing. The
Debtor will ask the court to schedule a confirmation hearing promptly after
filing the bankruptcy case. Under Bankruptcy Rule 2002, all of the Creditors
stockholders and the indenture trustee will be given at least 25 days notice by
mail of the time fixed for filing objections and of the confirmation hearing.
This notice will include the place for filing objections, the persons to whom
service of objections is to be made, and the date, time of day and location of
the confirmation hearing.
The Bankruptcy Court will confirm the Prepackaged Plan only if all the
requirements of Section 1129 of the Bankruptcy Code are met. Among the
requirements for confirmation of the
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<PAGE> 98
Prepackaged Plan are: (i) that the Prepackaged Plan and the Debtor, comply with
the applicable provisions of the Bankruptcy Code, (ii) that the Prepackaged Plan
was proposed in good faith and not by means forbidden by law, (iii) that the
Prepackaged Plan be accepted by all impaired Classes of Claims and Interests or,
if rejected by an impaired Class, that the Prepackaged Plan does not
discriminate unfairly and is fair and equitable as to such Class, (iv) that
there is acceptance by at least one class of Impaired Creditors, (v) that the
Prepackaged Plan is feasible, and (vi) that the Prepackaged Plan is in the best
interests of creditors and stockholders impaired under the Prepackaged Plan.
Acceptance by Impaired Classes
Classes 3 and 4 are impaired under the Prepackaged Plan and, therefore,
must accept the Prepackaged Plan for it to be confirmed without application of
the "fair and equitable" test. The requirements for acceptance by these Classes
are described above, and the fair and equitable test is described above under
"Cramdown of Non-Accepting Class."
Feasibility
For confirmation of a plan, the Bankruptcy Code requires a finding that
confirmation is not likely to be followed by the liquidation or the need for
further financial reorganization of the Debtor. For purposes of determining
whether the Prepackaged Plan meets this requirement, the Debtor analyzed its
ability to meet its obligations under the Prepackaged Plan. As part of this
analysis, the Debtor has prepared projections of its financial performance for
the fiscal years ending 1998 through 2000. These projections, and the
significant assumptions on which they are based, are included in the Prospectus.
See Prospectus, "The Restructuring -- Financial Projections." The Debtor
believes that the Prepackaged Plan provides a feasible means of reorganization
and operation from which there is a reasonable expectation that, subject to the
risks discussed in the Prospectus, the Debtor will be able to make all payments
required to be made pursuant to the Prepackaged Plan.
The Debtor has prepared its financial projections on the basis of certain
assumptions which the Debtor believes to be reasonable in the circumstances,
taking into account the purpose for which the projections were prepared. The
assumptions on which the projections are based are subject to significant
uncertainties and, inevitably, some assumptions will not materialize and
unanticipated events and circumstances beyond the Debtor's control may affect
the actual financial results. Accordingly, the Debtor makes no representation as
to the accuracy of the projections or as to its ability to achieve the projected
results. The actual results will vary from the projected results and the
variations may be material. All of the assumptions and caveats regarding the
projections must be examined carefully in evaluating the prepackaged plan. The
projections were not prepared with a view towards compliance with the published
guidelines of the Securities and Exchange Commission or the American Institute
of Certified Public Accountants regarding projections or forecasts.
BEST INTERESTS TEST
With respect to each impaired Class, confirmation of the Prepackaged Plan
requires that each holder of a Claim or Interest either (a) accept the
Prepackaged Plan or (b) receive or retain, under the Prepackaged Plan, property
of a value, as of the effective date, that is the same or more than the holder
would receive if the Debtor was liquidated under Chapter 7 of the Bankruptcy
Code.
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<PAGE> 99
To determine what impaired creditors and stockholders would get in
liquidation, the Bankruptcy Court must determine the dollar amount that would be
generated from the liquidation of the Debtor's assets and properties in the
context of a Chapter 7 liquidation case. Secured Claims and the costs and
expenses of the liquidation case or resulting from the original bankruptcy case
would be paid in full from the liquidation proceeds before the balance of those
proceeds would be made available to pay pre-petition unsecured Claims and
Interests.
To determine if the Prepackaged Plan is in the best interests of each
impaired Class, the present value of the distributions from the proceeds of the
liquidation of the Debtor's assets (after subtracting the amounts attributable
to the aforesaid Claims) are compared with the present value offered to such
Classes under the Prepackaged Plan.
The Debtor has determined that the Prepackaged Plan will provide each
creditor and stockholder holding a Claim or Interest in an impaired Class with a
recovery equal to or greater than such creditor or stockholder would receive
under a liquidation of the Debtor under Chapter 7 of the Bankruptcy Code. In
arriving at this conclusion, the Debtor considered the effect a Chapter 7
liquidation would have on the ultimate proceeds available for distribution to
creditors and stockholders in the bankruptcy case. These effects include (i)
increased costs and expenses of liquidation under Chapter 7 arising from fees
payable to a trustee in bankruptcy and professional advisors to such trustee,
(ii) the erosion in value of assets in the context of the expedited liquidation
required under Chapter 7 and the forced sale atmosphere that would prevail,
(iii) the potential termination of the Credit Agreement and the need for Rymer
Meat to seek relief under the Bankruptcy Code, (iv) the adverse effects on the
marketability of business segments that could result from the probable departure
of key employees and loss of major customers, (v) the costs attributable to the
time value of money resulting from what is likely to be a more protracted
proceeding, and (vi) the application of the rule of absolute priority to
distributions under a Chapter 7 liquidation.
The Chapter 7 Liquidation Analysis (the "Liquidation Analysis") is attached
hereto as Exhibit A.
The Debtor's estimate of liquidation values of the Debtor's operating
business and the applicable discounts used in the liquidation analysis are based
on analyses prepared by Kirkland Messina, the Debtor's Financial Advisor. In
preparing its analysis Kirkland Messina relied on certain information provided
by the Debtor without independent verification. A description of procedures
followed and the assumptions and qualifications made by Kirkland Messina in
connection with its analysis is presented in the notes to the liquidation
analysis.
The Debtor believes that a Chapter 7 liquidation of the Debtor will very
likely cause Rymer Meat to seek relief under the Bankruptcy Code because of the
difficulty in maintaining adequate working capital financing. The Debtor
believes the filing of bankruptcy petitions by or against Rymer Meat would have
a serious adverse effect on its operations given the uncertainty that would
exist as to its continued viability, the impairment of its ability to maintain
contractual relationships with its customers, including the customers who
purchase goods under long term supply contracts, and the difficulty in retaining
employees. The Debtor believes that the value of Rymer Meat would be
substantially reduced, even if it could continue in operation. The Liquidation
Analysis assumes that Rymer Meat would still be able to operate its business and
could be sold on an "As Is Going Concern" basis, although the proceeds realized
would be less than through sales not involving financially distressed
businesses. Were Rymer Meat unable to continue to obtain sufficient working
capital financing, maintain a sufficient customer level, maintain its employees,
and obtain goods from its suppliers, then it might be unable to continue
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<PAGE> 100
its business operations. If that were to occur, then Rymer Meat could not be
sold on an "As Is Going Concern" basis, and would be liquidated by
"asset-by-asset" sales. In such a circumstance, the Debtor believes the sales
proceeds realized would be significantly lower with the result that any monies
available for distribution to pre-petition unsecured creditors, including the
noteholders, would be substantially less than what is proposed under the
Prepackaged Plan.
CONFIRMATION WITHOUT ACCEPTANCE BY IMPAIRED CLASS
As discussed under "Cramdown of Non-Accepting Class", the Debtor may seek
confirmation of the Prepackaged Plan even if the stockholders reject or fail to
approve the Prepackaged Plan. If this occurs, it is likely that the stockholders
will receive no continuing interest in the Debtor.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the Prepackaged Plan to the Debtor
and the noteholders and stockholders are summarized in the Prospectus under,
"Certain Federal Income Tax Consequences".
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF
THE PREPACKAGED PLAN
If the Debtor commences a bankruptcy proceeding and the Prepackaged Plan is
not confirmed and completed, the theoretical alternatives include, in addition
to dismissal of the proceedings, liquidation of the Debtor under Chapter 7 of
the Bankruptcy Code or an alternative plan of reorganization, which could
include a liquidating plan of reorganization.
LIQUIDATION UNDER CHAPTER 7
If no plan can be confirmed, the Debtor's bankruptcy case may be converted
to a case under Chapter 7 of the Bankruptcy Code in which a trustee would be
brought in to liquidate the assets of the Debtor for distribution to its
Creditors in accordance with priorities established by the Bankruptcy Code. A
discussion of the effect that a Chapter 7 liquidation would have on the recovery
of holders of Claims and Interests is set forth under "Confirmation and
Consummation Procedure -- Best Interests Test". The Debtor believes that
liquidation under Chapter 7 would result in smaller distributions being made to
Creditors than those provided for in the Prepackaged Plan because of (a)
additional administrative expenses involved in the appointment of a trustee,
attorneys and other professionals to assist such trustee, (b) additional
expenses and claims, some of which would be entitled to priority, which would be
generated during the liquidation and from the rejection of leases and other
executory contracts in connection with the cessation of the Debtor's operations,
and (c) failure to realize the greater going-concern value of the Debtor's
assets.
ALTERNATIVE PLAN OF REORGANIZATION
If the Prepackaged Plan is not confirmed, the Debtor or any other party in
interest could propose a different plan. Such a plan might involve either
reorganization or continuation of the Debtor's business or an orderly
liquidation of its assets. In a liquidation under Chapter 11, the Debtor's
assets would be sold in an orderly fashion, probably over a more extended period
of time than is likely in a liquidation under Chapter 7, possibly resulting in
somewhat greater
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recoveries. Further, if a trustee were not appointed, as one is not required
under a Chapter 11 case, the expenses for professional fees may be lower than in
a Chapter 7 case. Although preferable to a Chapter 7 liquidation, the Debtor
believes that a liquidation under Chapter 11 would nonetheless result in a
working capital deficiency and loss of customers that would likely result in
Rymer Meat seeking relief under the Bankruptcy Code. This would cause a longer
proceeding than the proposed bankruptcy case, involve greater administrative
expenses, and an inability to realize the full going-concern value of the
Debtor's assets. Consequently, the Debtor believes that a liquidation under
Chapter 7 is a much less attractive alternative to creditors and stockholders
than the Prepackaged Plan because the Prepackaged Plan provides for a greater
return to creditors and stockholders, than what would likely be realized in a
Chapter 7 liquidation.
Alternatively, a different form of restructuring of the Debtor may be
proposed which would contemplate that the Debtor retain all or a significant
portion of its assets. A substantial delay would occur before an alternative
plan could be confirmed and completed because the proponent of the plan would
need to create and distribute a new disclosure statement and solicit and receive
consents of the various constituencies or face the prospect of a contested, and
perhaps lengthy, confirmation process. The Debtor believes that the delay and
uncertainty and the disputes which may arise would reduce significantly the
value of any distribution to be made to creditors and stockholders even if such
an alternative plan can be consummated.
An alternative plan is likely to reduce the value of any distribution to
creditors and stockholders because of (i) the increased costs of designing and
effecting the plan, (ii) the delay that would be realized before any
distribution could be made, and (iii) the increased likelihood that the Debtor
would not be able to preserve its customer base while the plan is being written
and put into effect.
The Debtor believes that a sale of Rymer Meat, the Company's operating
subsidiary, at the present time will not receive as great a value for creditors
and stockholders as provided by the Prepackaged Plan because (i) the earnings
before interest and taxes of Rymer Meat are low presently and, thus, the
operating businesses would not attract favorable prices, (ii) the offering for
sale of Rymer Meat under the circumstances of a financially distressed seller
are not likely to attract favorable prices, and (iii) the sale of some but not
all, of Rymer Meat's operations would substantially hinder the Company's ability
to operate its remaining operations efficiently.
RECOMMENDATION
The Debtor believes that, if a bankruptcy proceeding commences,
confirmation and implementation of the Prepackaged Plan is preferable to any of
the alternatives because it will provide greater recoveries than those available
in liquidation to all claimants, including noteholders and stockholders. The
Debtor believes that stockholders likely would receive nothing in a liquidation
and that noteholders would receive less value than they would under the
Prepackaged Plan. Other alternatives would involve significant delays,
uncertainties, substantial additional administrative costs, and a substantial
risk that Rymer Meat would be significantly adversely affected. Accordingly, the
Debtor recommends acceptance of the Prepackaged Plan.
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<PAGE> 102
VOTING INSTRUCTIONS
GENERALLY
Classes 3 and 4 are impaired; therefore, all Persons holding Claims or
Interests in such Classes as of the Record Date are entitled to vote to accept
or reject the Prepackaged Plan.
RECORD DATE
Only noteholders, other unsecured creditors in Class 3 and/or stockholders
on May 23, 1997, the record date, can vote. Beneficial interest holders, that
is, persons whose record ownership is held by a broker, dealer, bank, trust
company or other nominee, should receive ballots from the record holder in whose
name the beneficial interest is recorded. The beneficial interest holder should
vote the ballot and return the ballot to the record holder in sufficient time to
deliver the master ballot to the Exchange Agent on or prior to the Expiration
Date. Holders of record should complete and send the master ballots to the
Exchange Agent following the instructions on the master ballot. Beneficial
holders who are also record holders should forward their ballots to the Exchange
Agent. Holders who acquire Notes or Common Stock after the Record Date must
arrange with their seller to receive a proxy to vote.
REVOCATION OF BALLOTS
Ballots may be revoked at any time before the earlier of (1) the filing of
the Debtor's bankruptcy case, and (2) the expiration date. Thereafter, ballots
may be revoked only with the approval of the Bankruptcy Court.
BALLOTS
Separate ballots and master ballots are used for Class 3 (the Notes) and
Class 4 (common stock). The forms of ballot on master ballot are color coded as
follows:
<TABLE>
<CAPTION>
BALLOT COLOR USER
------------ ----
<S> <C>
Blue.................................. Beneficial holder of claims
Green................................. Beneficial interest in common stock
Grey.................................. Record holder of Notes
White................................. Record owner of common stock
</TABLE>
NOTEHOLDERS
-- To Accept or Reject the Prepackaged Plan
Beneficial Owners of Notes -- Complete and sign the BLUE Ballot. Beneficial
Owners who are also record holders should forward their Blue Ballots directly to
ChaseMellon Shareholder Services, LLC in the Yellow Envelope. Beneficial Owners
who are not record holders should forward their Blue Ballot to their record
holder which is the broker, bank, dealer, trust company or other nominee in
whose name the Beneficial Owner's Note is held of record in the envelope
provided by the record holder.
- Record Owners of Notes -- Complete and sign the GREY Master Ballot.
Return your Master Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
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<PAGE> 103
STOCKHOLDERS
-- To accept or Reject the Prepackaged Plan:
- Beneficial Owners -- Complete and sign the GREEN Ballot. Beneficial
Owners who are also record holders should forward their Green Ballots
directly to ChaseMellon Shareholder Services, LLC in the Yellow Envelope.
Beneficial Owners who are not record holders should forward their Green
Ballot to their record holder which is the broker, bank, dealer, trust
company or other nominee in whose name the Beneficial Owner's Note is held
of record.
- Record Owners -- Complete and sign the WHITE Master Ballot. Return your
Ballot or Master Ballot in the YELLOW ENVELOPE to:
ChaseMellon Shareholder Services LLC
111 Founders Plaza
Suite 1100
East Hartford, Connecticut 06108
VOTING MULTIPLE CLAIMS AND INTERESTS
Any person who holds Claims and/or Interests in more than one Class is
required to vote separately with respect to each Class in which such person
holds claims and/or interests. Please use a separate Ballot of the appropriate
form to vote each such Class of Claim and/or Interest.
INCOMPLETE BALLOTS
Any Ballot received which does not indicate either an acceptance or
rejection of the Prepackaged Plan or that is not signed shall be an invalid
Ballot and not counted in the voting.
TIMING FOR VOTING AND EXPIRATION DATE
The solicitation pursuant to this Disclosure Statement will expire on
Monday, July 7, 1997. To be counted, your Ballots must be received by 5:00 p.m.
Eastern Standard Time on Monday, July 7, 1997 unless this solicitation is
extended by the Debtor. The Debtor reserves the right to extend this
solicitation for such period or periods as it may determine in its sole
discretion. The Debtor will make a public announcement of any such extension by
release to the Dow Jones News Service prior to 9 a.m. Eastern Standard Time, on
the next business day following the previously scheduled expiration date. The
commencement of the bankruptcy case by the Debtor after the expiration date will
not entitle noteholders or stockholders to vote again on the Prepackaged Plan
unless there is a resolicitation by the Debtor.
ADDITIONAL INSTRUCTIONS
Other instructions are presented on the ballots. Noteholders and
stockholders should review carefully and follow the instructions on the Ballots.
BANKRUPTCY RESTRUCTURING ACCOUNTING TREATMENT
The accounting treatment for the Bankruptcy Restructuring will be in
accordance with the accounting principles required by the provisions of the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
This accounting treatment differs from the accounting for the
III - 28
<PAGE> 104
Exchange Restructuring. For a description of the principles applied in this
accounting treatment, see the Prospectus under the caption. "Pro-forma Unaudited
Consolidated Financial Statements."
DESCRIPTION OF CREDIT FACILITY AND
NEW CREDIT FACILITY
A condition of the Prepackaged Plan is a renewal or replacement of the
LaSalle National Bank $4 million Credit Facility. The Credit Facility is an
obligation of Rymer Meat guaranteed by the Debtor. It is secured by, among other
things, the inventory and receivables of Rymer Meat and all of the stock in
Rymer Meat owned by the Debtor. It is scheduled to expire on July 31, 1997. Any
New Credit Facility is expected to be a revolving loan with a $4 million maximum
principal balance with draws based on inventory value and current receivables
and a maturity date of April 30, 1998 or later.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Prepackaged Plan, the Debtor's authorized capital
stock will consist of 20,000,000 shares of Common Stock, $0.04 par value per
share, and 400,000 shares of Preferred Stock. Assuming all impaired Classes
accept the Prepackaged Plan, a total of 4,300,000 shares of New Common Stock
will be outstanding of which 3,440,000 shares (80%) will be issued to Class 3
creditors including the noteholders, 430,000 shares (10%) will be issued to
Senior Management, and 430,000 shares (10%) will be held by the stockholders.
For information regarding the beneficial ownership of outstanding stock by the
Debtor's management and certain beneficial holders, see the Proxy "Principal
Stockholders."
CONCLUSION
The Debtor believes that acceptance of the Prepackaged Plan is in the best
interest of each and every Class of creditors and stockholders and recommends
that you vote to accept the Prepackaged Plan.
Respectfully submitted,
RYMER FOODS INC.
By:
Name:
Title:
David N. Missner
Mark P. Naughton
William P. Kovacs
RUDNICK & WOLFE
Suite 1800
203 North LaSalle Street
Chicago, IL 60601-1293
(312) 368-4000
Attorneys for Rymer Foods Inc.
III - 29
<PAGE> 105
EXHIBIT A TO
DISCLOSURE STATEMENT
CHAPTER 7 LIQUIDATION
ANALYSIS FOR RYMER FOODS INC.
As part of the development of the Prepackaged Plan included in the
Disclosure Statement to which this is an Exhibit, Rymer has prepared a
liquidation analysis based on the assumptions discussed below.
The Liquidation Analysis reflects Rymer's estimates of the proceeds that
would be realized if it were to be liquidated under Chapter 7 of the Bankruptcy
Code by a court appointed trustee. The Liquidation Analysis assumed that the
liquidation period would last six months and was based on Rymer's income
statement and balance sheet as of October 31, 1996. The analysis assumed the
assets of Rymer Meat were sold for cash in an orderly liquidation process and
the net proceeds after payments of Rymer's debts would be distributed to the
Shareholders. The liquidation analysis suggested that there would be no
remaining value (after repayment of debt obligations) for the Shareholders upon
liquidation of Rymer's assets.
In addition to the liquidation analysis, Rymer also considered a "going
concern" valuation. The "going concern" is the estimated present value of
Rymer's operations as of the effective date of the valuation. Rymer and its
advisors considered two approaches in determining the range of "going concern"
values: 1) capitalization of earnings using market statistics for comparable
publicly traded companies and 2) discounted cash flow analysis. Both of these
analyses suggested that there would be no remaining value (after repayment of
debt obligations) for the Shareholders upon sale of Rymer as a going concern.
Finally, given that Rymer would be under substantial financial pressure due
to its debt obligations, advisors assumed that any sale would likely be at a
discount to its "going concern" market value. This discounted value reflects the
estimated value that could be realized if the owner of a business were forced to
sell or otherwise dispose of its assets under distressed conditions, for cash or
cash equivalents, within a short period of time. Based upon its experience with
distressed sales, Kirkland Messina anticipated that under such circumstances
buyers would substantially discount the "going concern" value and that the net
value for shareholders and noteholders would be substantially less than that
achieved as part of the Restructuring.
III - 30
<PAGE> 106
The following chart presents the Liquidation Analysis and the Notes
indicate the assumptions used in preparing the analysis.
<TABLE>
<CAPTION>
REALIZATION
ASSETS PROCEEDS: BOOK VALUE LIQUID VALUE FACTOR(5)
---------------- ---------- ------------ -----------
<S> <C> <C> <C>
Net Property, Plant & Equipment.......................... $ 1,620,936 $ 534,909 33.0%
Costs to dispose @(1) 3%............................... 48,628 16,047
------------ ------------
Total Proceeds From Properties.................... 1,572,308 518,862
Receivables.............................................. 2,728,815 2,728,815 100.0%
Inventory(2)............................................. 3,271,714 817,929 25.0%
Prepaid Expenses......................................... 222,103 6,663 3.0%
Other.................................................... 2,720,775 816,233 30.0%
Cash..................................................... -- -- 100.0%
-------
Total Proceeds From Assets........................ 10,515,715 4,888,501
Less: Restructuring/Trustee Fees(3) 15%.................. 1,577,357 733,275
Administrative Expenses(4) 5% 525,786 244,425
------------ ------------
Cash Available for distribution.......................... 8,412,572 3,910,801
Claims Analysis:
Senior Notes & Fees.................................... 21,754,444 21,754,444 100.00%
------------ ------------ -------
Surplus/Deficiency....................................... ($13,341,872) ($17,843,643)
============ ============
</TABLE>
- -------------------------
NOTES:
(1) Costs to dispose general range between 3% and 5% of total assets depending
on the size and complexity of the deal.
(2) Inventory consists of perishable items.
(3) Restructuring/Trustee fees generally range between 7% and 15% depending on
size and complexity of the engagement.
(4) Administrative Expenses range between 5% and 10% of total assets depending
on complexity and number of professionals involved.
(5) Realization factors may be adjusted depending on the complexity of
liquidation.
The trustee may be awarded reasonable compensation for actual, necessary
services based upon the nature, extent, and value of such services, the
time spent on such services, and the cost of comparable services. Such
compensation may not exceed the following percentages of all monies
distributed by the trustee to parties in interest, excluding the debtor:
25% on the first $5,000 or less
10% on any amount above $5,000 up to $50,000
5% on any amount above $50,000 up to
$1,000,000
3% on any amount in excess of $1,000,000
III - 31
<PAGE> 107
EXHIBIT B TO
DISCLOSURE STATEMENT
IMPORTANT: A BANKRUPTCY CASE HAS NOT BEEN COMMENCED AS OF THE DATE OF THE
DISTRIBUTION OF THIS DOCUMENT
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
IN RE:
RYMER FOODS INC.,
FORMERLY KNOWN AS THE
RYMER COMPANY,
DEBTOR.
TAXPAYER IDENTIFICATION NUMBER: 36-1343930
CHAPTER 11
RYMER FOODS INC.'S PREPACKAGED PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE
UNITED STATES BANKRUPTCY CODE
<PAGE> 108
Rymer Foods Inc., a Delaware corporation, proposes the following plan of
reorganization pursuant to Section 1121(a), Title 11, United States Code, as
amended.
ARTICLE I
DEFINITIONS
Terms used herein and not otherwise defined have the respective meanings
given, and rules of construction set forth, in Sections 101 and 102 of the
Bankruptcy Code. In addition, the following terms used herein have the following
respective meanings:
"Administrative Creditors" shall mean any entity entitled to payment of an
Administrative Expense.
"Administrative Expenses" shall mean any cost or expense of administration
of the Reorganization Case allowed under Section 503(b) of the Bankruptcy Code,
including, but not limited to, any actual and necessary costs and expenses of
preserving the Debtor's estate, any actual and necessary expenses of operating
the business including without limitation, loans or other advances to Rymer as
Debtor-In-Possession, all allowances of compensation or reimbursement of
expenses to the extent allowed by the Bankruptcy Court under Section 330 of the
Bankruptcy Code, and any fees or charges assessed against the Debtor's estate
under Section 1930, Chapter 123, Title 28, United States Code.
"Allowed" means a Claim or interest or portion thereof that has not been
objected to within such time as may be prescribed by the Bankruptcy Rules or by
an order of the Bankruptcy Court, and which (a)(i) has been timely filed with
the Clerk of the Court or such other party as the Bankruptcy Court may direct
(or may have directed), or (ii) is listed by the Debtor in its Schedules filed
in the Reorganization Case, but not as contingent, unliquidated or disputed; or
(b) has been timely objected to and subsequently allowed pursuant to a Final
Order.
"Allowed Claim" shall mean any Claim against the Debtor, proof of which was
filed on or before the date designated by the Bankruptcy Court as the last date
for filing proofs of claim (or, if not filed by such dates, any Claim filed with
leave of the Bankruptcy Court, after notice and a hearing), or, if no proof of
claim is filed, which Claim has been or hereafter is listed by the Debtor as
liquidated in amount and not disputed or contingent and, in all cases, a Claim
as to which no objection to the allowance thereof has been interposed within the
applicable period of limitation fixed by the Plan, the Bankruptcy Code, the
Bankruptcy Rules or the Bankruptcy Court, or as to which any objection has been
determined by a Final Order. Unless otherwise specified, "Allowed Claim" shall
not include interest on the principal amount of such Claim maturing or accruing
from and after the Petition Date.
"Allowed Interest" shall mean any Interest in the amount and of the
priority classification set forth in the proof of such Interest that has been
filed or deemed filed timely in the Reorganization Case or filed late, without
objection by Rymer, or in the absence of such proof, as set forth in Rymer's
listing of stockholders filed in the Reorganization Case, unless (i) such
Interest has been listed as disputed, contingent or unliquidated, in which case
such Interest shall be allowed only in such amount and such classification as is
authorized by a Final Order of the Bankruptcy Court, (ii) such Interest has been
objected to or is objected to after Confirmation, in which case such Interest
shall be allowed only in such amount and such classification as is authorized by
a Final Order of the Bankruptcy Court, or (iii) such Interest has been paid in
full, withdrawn or otherwise deemed satisfied in full.
IV - 1
<PAGE> 109
"Ballots" shall mean the ballots accompanying the Disclosure Statement and
the Plan upon which creditors and stockholders shall have indicated their
acceptance or rejection of the Plan including, without limitation, master
ballots.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as amended,
as set forth in Title 11 of the United States Code.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for the
Northern District of Illinois, or any other court duly exercising jurisdiction
over the Reorganization Case.
"Bankruptcy Rules" shall mean the Rules of Bankruptcy Procedure, as amended
and promulgated under Section 2075, Title 28, United States Code.
"Beneficial Interest Holder" shall mean the person holding the beneficial
interest in a Claim or Interest.
"Business Day" shall mean a day of the year on which commercial banks are
not required or authorized to close for business in Chicago, Illinois.
"By-laws" shall mean Rymer's By-laws, as amended.
"Charter" shall mean Rymer's Certificate of Incorporation, as amended.
"Charter Amendment" shall have the meaning set forth in Section 7.6 of the
Plan and shall include the Reverse Stock Split.
"Claim" shall mean (a) any right to payment from the Debtor arising before
the Effective Date of the Plan, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, or (b) any right
arising before the Effective Date of the Plan to an equitable remedy for breach
of performance if such breach gives rise to a right to payment from the Debtor,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured.
"Class" shall mean a class of Claims or Interests as defined in Article III
of the Plan.
"Class 3 Shares" shall mean the 3,440,000 shares of New Common Stock to be
issued and distributed to fully satisfy Allowed Class 3 Claims pursuant to this
Plan.
"Class 4 Shares" shall mean the 430,000 shares of New Common Stock which
may be issued to Holders of Class 4 Interests pursuant to this Plan.
"Common Stock" shall mean the currently authorized common stock, $1.00 par
value, of Rymer.
"Committee" shall mean a creditor's committee appointed pursuant to Section
1102 of the Bankruptcy Code or, if no such committee is appointed, the
Restricted Noteholder.
"Confirmation" shall mean the entry of the Confirmation Order by the
Bankruptcy Court pursuant to Section 1129 of the Bankruptcy Code.
"Confirmation Order" shall mean the order of the Bankruptcy Court
confirming the Plan, in accordance with the provisions of Chapter 11 of the
Bankruptcy Code.
"Creditor" shall mean any entity that is the holder of any Claim against
Debtor that arose on or before the Petition Date or a Claim against Debtor's
estate including Claims of a kind specified in Sections 502(g), 502(h), or
502(i) of the Bankruptcy Code.
IV - 2
<PAGE> 110
"Debtor" or "Rymer" shall mean Rymer Foods Inc., a Delaware corporation, as
debtor in the Reorganization Case.
"Debtor-ln-Possession" shall mean the Debtor, when exercising its
respective rights, powers, and duties under Section 1107(a) of the Bankruptcy
Code in the Reorganization Case.
"Disclosure Statement" shall mean (i) Debtor's Disclosure Statement which
is Part III of the Prospectus together with all exhibits and appendices thereto
and (ii) all remaining parts of the Prospectus and all exhibits thereto, as the
same may be amended and supplemented from time to time hereafter.
"Effective Date" means the later of (a) a date within 30 days following the
date on which the Confirmation Order is entered or (b) if the Confirmation Order
is appealed and a stay pending appeal is granted, the second business day
following the date on which the Confirmation Order shall become final and
nonappealable or no longer subject to a stay; provided however, that, if the
Confirmation Order is appealed but not stayed, the Debtor may consummate the
Plan at its sole discretion.
"Exchange Agent" shall mean ChaseMellon Shareholder Services, Inc. or any
other Persons serving as exchange agents pursuant to Section 7.7 hereof for the
distribution of property under the Plan.
"Expiration Date" means 5:00 p.m., New York City Time, on July 7, 1997
unless Rymer, in its sole discretion, extends the period during which Ballots
and master ballots will be accepted by Rymer, in which case the Expiration Date
shall mean the last time and date to which the solicitation of Ballots and
master ballots is extended.
"Final Order" shall mean an order as to which, unless the Debtor shall have
waived (with the written consent of the Committee) the requirement therefor, any
appeal that has been or may be taken has been resolved and as to which the time
for appeal has expired.
"Holder" shall mean any entity holding a Claim or Interest, and with
respect to a vote on the Plan means the Beneficial Interest Holder as of the
Record Date or any authorized Signatory who has completed and executed a Ballot
or on whose behalf a master ballot has been completed and executed in accordance
with the voting instructions.
"Indenture" shall mean the 11% Senior Note Indenture, dated as of April 7,
1993, between Rymer and Continental Stock Transfer and Trust Company of New
York, as trustee.
"Indenture Trustee" shall mean Continental Stock Transfer and Trust Company
of New York, as trustee.
"Interest" shall mean any right, interest or benefit of a Holder of Common
Stock, including without limitation, any right to receive dividends whether
accrued before or after the Petition Date.
"LaSalle Credit Agreement" shall mean the Loan and Security Agreement dated
April 7, 1995 between Rymer Meat Inc. and LaSalle National Bank of Chicago as
Guaranteed by Rymer.
"master ballot" shall mean the master ballots accompanying the Disclosure
Statement and the Plan upon which nominees for Beneficial Interest Holders of
Class 4 claims and Class 5 and Class 6 Interests shall have indicated the
acceptance or rejection of the Plan.
IV - 3
<PAGE> 111
"New Common Stock" shall mean the shares of Rymer Common Stock, par value
$0.04 which are or may be issued on the Effective Date of the Plan.
"New Credit Agreement" shall mean a credit agreement or agreements entered
into among Rymer Meat and Rymer or one or more other subsidiaries of Rymer and
LaSalle National Bank or one or more other financial institutions prior to or on
the Effective Date pursuant to which such financial institution(s) extend $4
million of credit to Rymer, Rymer Meat or any of its subsidiaries.
"Notes" shall mean Rymer's 11% Senior Notes due 2000.
"Person" shall mean an individual, a corporation, a partnership, an
association, a joint stock company, a joint venture, an estate, a trust, an
unincorporated organization, a government or any political subdivision thereof
or other entity.
"Petition Date" shall mean the date upon which there is filed a petition
for relief under Chapter 11 of the Bankruptcy Code with respect to the Debtor.
"Plan" shall mean this Plan of Reorganization as set forth herein as the
same may be amended or modified from time to time pursuant to the Plan or to
applicable provisions of the Bankruptcy Code.
"Priority Claim" shall mean any Claim, other than an Administrative
Expense, to the extent entitled to priority in payment under Section 507(a) of
the Bankruptcy Code.
"Priority Tax Claim" means a claim of a governmental unit of the kind
specified in Section 507(a)(7) of the Bankruptcy Code.
"Pro Rata" means proportionately, so that the ratio of the amount of a
distribution made on account of a particular Claim or Interest to the
distributions made on account of all Allowed Claims or Interests entitled to
such distribution is the same as the ratio of the amount of such particular
Claim or Interest to the total amount of Allowed Claims or Interests entitled to
such distribution.
"Prospectus" shall mean the Proxy Statement/Prospectus contained in the
Registration Statement, as the same may be amended and supplemented from time to
time hereafter.
"Record Date" shall mean the close of business on May 23, 1997
"Registration Statement" shall mean the Registration Statement on Form S-4,
Registration No. 333-27895 filed by the Debtor under the Securities Act of 1933,
as amended, with the Securities Exchange Commission, as the same may be amended
and supplemented from time to time hereafter.
"Reorganization Case" shall mean the Chapter 11 case described in the
caption of this Plan.
"Reorganized Debtor" shall mean the Debtor and the Debtor-in-Possession, or
any successor thereto, by merger, consolidation or otherwise on and after the
Effective Date.
"Released Parties" shall have the meaning set forth in Section 15.10 of the
Plan.
"Releasing Holder" shall mean a Holder of an impaired Claim or Interest who
votes to accept the Plan and who specifically consents in its executed Ballot to
the release provided in Section 15.10 of the Plan.
"Releasing Holder's Claim" shall have the meaning set forth in Section
15.10 of the Plan.
IV - 4
<PAGE> 112
"Rymer Meat" shall mean Rymer Meat Inc., an Illinois corporation and a
wholly-owned subsidiary of Rymer.
"Section" shall refer to a section or sections of the Bankruptcy Code.
"Stockholder" shall mean the Holder of an Allowed Interest based on Rymer
Common Stock, par value $1.00 ("Old Common Stock)".
"Third Party Claim" shall have the meaning set forth in Section 15.10 of
the Plan.
"1997 Stock Option Plan" shall mean the Rymer's 1997 Stock Option Plan
which will be implemented on the Effective Date pursuant to the Plan.
ARTICLE II
ADMINISTRATIVE TREATMENT OF EXPENSES
2.1 Generally. Unless such Administrative Creditor consents to other
treatment, each Administrative Creditor entitled to priority in accordance with
Section 507(a)(1) shall be paid in full on the later of (i) the Effective Date
or (ii) the date such Administrative Expense is allowed by a Final Order;
provided, that Administrative Expenses representing (a) liabilities incurred in
the ordinary course of business by the Debtor or Debtor-In-Possession or (b)
liabilities arising under loans or advances to Debtor or Debtor-In-Possession
shall be paid in accordance with the terms and provisions of the particular
transactions and any agreements relating thereto.
2.2 Indenture Trustee Claims. All Indenture Trustee Claims shall constitute
either Administrative Expenses or Class 3 Claims. Regardless of such
classification of Indenture Trustee Claims, the Indenture Trustee shall submit
to the Debtor and the Committee appropriate statements or invoices prior to the
Effective Date setting forth the amounts of the Indenture Trustee Claims
(including estimated amounts, if necessary). Subject to Bankruptcy Court
approval as reasonable pursuant to Section 1129(c)(4), the Indenture Trustee
Claims shall be paid in full in cash by the Debtor on the Effective Date. The
portion of the amounts set forth in the submitted statements which is not paid
on the Effective Date as provided in the preceding sentences shall be deposited
in a segregated escrow account. The Bankruptcy Court shall hear and decide any
issues regarding the reasonableness or allowance of the unpaid Indenture Trustee
Claims. Upon determination of the amounts to be paid by a Final Order, such
amounts shall be paid to the Old Indenture Trustee from the escrowed funds and
remaining escrowed funds, if any, shall be released to the Reorganized Debtor.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 Class 1 -- Allowed Priority Claims. Class 1 consists of all Allowed
Priority Claims.
3.2 Class 2 -- Allowed Secured Claims. Class 2 consists of the Allowed
Claims of secured Creditors.
3.3 Class 3 -- Allowed General Unsecured Claims. Class 3 consists of all
Allowed Claims of all unsecured Creditors including the noteholders, but
excluding any Claim included in Class 1 or 5.
IV - 5
<PAGE> 113
3.4 Class 4 -- Allowed Interests of the Stockholders. Class 4 consists of
the Allowed Interests of the stockholders.
3.5 Class 5 -- Allowed General Unsecured Claims less than $2,500. Class 5
consists of all Allowed Unsecured Claims that either are less than $2,500 or are
voluntarily reduced prior to the Effective Date by the Holder of such Claim to
$2,500.
ARTICLE IV
TREATMENT OF CLASSES THAT ARE NOT IMPAIRED
UNDER THE PLAN
4.1 Unimpaired Classes. Classes 1, 2 and 5 are unimpaired.
4.2 Class 1. All Allowed Claims in Class 1 shall be paid in full on the
later of the (a) Effective Date, (b) the date on which such Claim is Allowed, or
(c), for Claims incurred in the ordinary course of business, on the date such
Allowed Claim is due; provided, however, at the Debtor's option, the Debtor may
pay Allowed Priority Tax Claims plus interest accrued thereon (at amounts and a
rate to be agreed upon between the Debtor and the Holder of the Claim or, in the
absence of such agreement, as determined by the Bankruptcy Court) over a period
not exceeding six (6) years, after the date of assessment of the Claims, as
provided in Section 1129(a)(9)(C) of the Bankruptcy Code.
4.3 Class 2. On the Effective Date, Debtor shall cure any default (other
than a default of a kind specified in Section 365(b)(2)) that occurred before or
after the Petition Date the occurrence of which entitles a Holder of a Class 2
Claim pursuant to any contractual provision or applicable law to demand or
receive accelerated payment of such Claim; and the maturity of such Claim shall
be reinstated as such maturity existed before such default. The Plan shall not
otherwise alter the legal, equitable or contractual rights to which such Claims
entitle the Holders thereof, including, but not limited to, such rights in any
collateral securing such Claims as of the commencement of the Reorganization
Case.
4.4 Class 5. All Allowed Claims in Class 5 shall be either paid in full or
assumed in full on the Effective Date of the Plan.
ARTICLE V
TREATMENT OF CLASSES THAT ARE IMPAIRED
UNDER THE BANKRUPTCY PLAN
5.1 Impaired Classes. Classes 3 and 4 are impaired. The Holders of Claims
and Interests in such Classes are entitled to vote to accept or reject the Plan.
5.2 Class 3. Allowed Class 3 Claims shall be fully settled and satisfied by
receiving Pro Rata distributions from the Class 3 Shares.
5.3 Class 4. If, both Class 3 and Class 4 accept the Plan, the Holders of
Class 4 Interests shall be fully settled and satisfied by receiving Pro Rata
distributions from the Class 4 Shares, such that such Holders will receive one
newly issued share of New Common Stock in exchange for 25 shares of the
currently issued and outstanding Common Stock. As of the Effective Date, the
ownership interest in Rymer represented by the shares of Common Stock
outstanding as of the Petition Date will be reduced from 100% to approximately
10% assuming that (i) all Notes to the extent provided herein are exchanged or
converted and (ii) all options had been granted
IV - 6
<PAGE> 114
and exercised under the 1997 Stock Option Plan. If the Plan is not accepted by
both Class 3 and by Class 4, no Holder of a Class 4 Interest shall receive or
retain under this Plan for or on account of such Interest any Common Stock, New
Stock, property or interest whatsoever, and all Common Stock held by Holders of
Class 4 Interests shall be cancelled.
ARTICLE VI
MANAGEMENT, WARRANTS AND
STOCK OPTION PLANS
6.1 Existing Options and Warrants. On the Effective Date, all warrants and
all options which had been granted under either Rymer's 1993 Stock Option Plan
or 1994 Stock Option Plan and any rights to acquire securities of the Debtor
either (i) will be forfeited by the holder of the option without the exercise of
such option or (ii) if not forfeited, will be rejected by the Debtor pursuant to
Sections 365(a) and 1123(b). On the Effective Date, the Rymer 1993 Stock Option
Plan and 1994 Stock Option Plan will be terminated and cancelled.
6.2 1997 Stock Option Plan. As of the Effective Date, the 1997 Stock Option
Plan shall become effective. The Confirmation Order shall constitute approval of
the 1997 Stock Option Plan by the stockholders. A total of 430,000 shares of
Common Stock shall be reserved for issuance under the 1997 Stock Option Plan. A
copy of the 1997 Stock Option Plan is attached to the accompanying proxy
statement.
6.3 Issuance of Stock Options. The options will be available for issuance
in the future pursuant to such plan upon determination by a committee of
directors appointed by the Board of Directors, as constituted following the
Effective Date.
6.4 Management, Employment Agreements and Issuance of New Common Stock. As
of the Effective Date, Rymer will enter into new Employment Agreements with its
two key executives, P.E. (Ed) Schenk and Edward M. Hebert. Under the Agreements
Rymer will issue 258,000 and 172,000 fully vested shares of New Common Stock,
respectively, to Messrs. Schenk and Hebert and provide an interest free loan to
each to fund various tax liabilities arising from the issuance of the stock.
These loans will be forgiven at a rate of 50% after the first full year of
employment, then at a rate of 25% for the second and third year thereafter.
ARTICLE VII
MEANS FOR EXECUTION OF PLAN
7.1 Vesting of Assets. Except as provided in the Plan, on the Effective
Date, all assets of the Debtor's bankruptcy estate shall vest in the Reorganized
Debtor free and clear of all liens and other encumbrances. After the Effective
Date, the Reorganized Debtor may operate its business and buy, use, acquire and
dispose of its assets, free of any restrictions contained in the Bankruptcy
Code.
7.2 New Credit Agreement. On or prior to the Effective Date, all
indebtedness owed by Rymer or any of its subsidiaries, to LaSalle National Bank,
including, without limitation, any indebtedness under the LaSalle Credit
Agreement shall either have its maturity extended by LaSalle or be repaid in
full from funds borrowed under a new credit agreement.
7.3 Operations of Rymer. On and after the Effective Date, Rymer will
continue to operate its business and will implement the terms of the Plan. The
operation of Rymer shall become the
IV - 7
<PAGE> 115
general responsibility of the Board of Directors of the Reorganized Debtor,
which shall, thereafter, have the responsibility for the management, control and
operation of Reorganized Debtor. After confirmation, the directors shall be P.E.
(Ed) Schenk, Joseph Colonnetta, and three additional directors to be designated.
Rymer's present officers shall remain in office after the Effective Date. All
such directors and officers shall be deemed elected pursuant to the Confirmation
Order. Those directors not continuing in office shall be deemed removed pursuant
to the Confirmation Order.
7.4 Issuance of New Common Stock. Rymer shall authorize and, on the
Effective Date, issue 4,300,000 shares of the New Common Stock pursuant to the
Plan.
7.5 Cancellation of Notes and Indenture. On the Effective Date, the
respective rights and obligations of the Debtor and each Note Holder shall be
terminated and cancelled and the Indenture shall be deemed to be satisfied and
discharged in full pursuant to Section 1123(a)(5)(F); provided, however, that
the rights and immunities of the Indenture Trustee under the Indenture
including, without limitation, their respective rights to indemnification (other
than their priority lien granted pursuant to Section 8.06 of the Indenture,
which lien is transferred to the escrowed funds referred to in Article II), and
the rights and obligations of the Indenture Trustee, and Reorganized Debtor,
which are expressly provided under this Plan, shall survive the satisfaction and
discharge of the Indenture. Except to the extent that Section 1129(a)(4) of the
Bankruptcy Code would require otherwise or to the extent that the Debtor or the
Committee objects to the reasonableness of the Indenture Trustee's attorneys'
fees, the Reorganized Debtor shall also: (i) continue to pay the Indenture
Trustee its trustee's fees and other reasonable compensation (in amounts to
which the Indenture Trustee would have been entitled had the Indenture remained
in full force and effect) until the completion of the distribution of the
property to the Holders of Class 3 Claims in accordance with the provisions
hereof and the Indenture Trustee's performance of all actions contemplated by or
otherwise in connection herewith; (ii) pay or reimburse the Indenture Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Indenture Trustee on or after the Effective Date in
taking any actions contemplated by or otherwise in connection with this Plan
(including, without limitation, the reasonable fees and expenses of its counsel
and any other professionals retained by the Indenture Trustee or its counsel)
except any such expense, disbursement or advance as may arise from the
negligence or bad faith of the Indenture Trustee; and (iii) indemnify the
Indenture Trustee for, and to hold it harmless against, any loss, liability or
expense (including, without limitation, attorneys' fees and other costs of
defending themselves against any claim of liability) which is incurred by the
Indenture Trustee or without negligence or bad faith on its part, and arises out
of or in connection with this Plan or any action or inaction by it in connection
therewith.
7.6 Charter and By-law Amendments. On the Effective Date, Rymer's Charter
will be amended to contain amendments substantially in the form set forth in the
Proxy Statement part of the Prospectus (the "Charter Amendment"). On the
Effective Date, the amendments to Rymer's Charter shall be deemed to have
occurred and shall be in effect from and after the Effective Date pursuant to
Section 303 of the Delaware General Corporation Law without any further action
by the stockholders or directors of Rymer.
7.7 Distribution of Consideration.
(a) Exchange Agents. ChaseMellon Shareholder Services, Inc. shall
serve as exchange agents and shall distribute all property to be
distributed under this Plan. The Exchange Agents may employ or contract
with other entities to assist in or perform the distribution of
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the property to be distributed. The Exchange Agent shall serve without bond.
Each noteholder (and the participating organizations in the Depository Trust
Company or any clearing house or depository with respect to Notes held by the
Depository Trust Company or any clearinghouse or depository on behalf of such
participating organizations) who is not the beneficial owner of such Note shall
use its best efforts (i) to deliver, as soon as practicable to such beneficial
owner all documents, certificates and other materials intended for distribution
to such beneficial owner in connection with this Plan, (ii) to deliver to the
beneficial owner, as soon as practicable after receipt of same the New Common
Stock and/or net fractional proceeds thereof to which such beneficial owner is
entitled pursuant hereto, and (iii) to take all actions reasonably requested by
the Indenture Trustee, the Exchange Agents or Reorganized Debtor in carrying out
the provisions of this Plan.
(b) Fractional Shares. Fractional Shares of New Common Stock which
would be distributable on the basis of the provisions of the Plan will not
be issued or distributed and the number of shares distributed to an entity
will be rounded down to the next whole number.
(c) Surrender of Notes. As a condition to participation in this Plan,
a noteholder shall surrender such Note to the Exchange Agents or their
designee and shall deliver such other documents as are necessary to
effectuate this Plan. The Exchange Agents shall make subsequent
distributions only to Persons (or their assignees) who surrender for
exchange and the Exchange Agents shall record such holders of Notes as of
the Effective Date.
(d) Unclaimed Property and Unissued New Common Stock. Any property to
be distributed under this Plan shall be returned to and be the property of
the Reorganized Debtor if it is not claimed by the Person entitled thereto
before the later of (i) ninety (90) days after the Effective Date or (ii)
sixty (60) days after the Final Order allowing the Claim or Interest of
that Person is docketed. After issuance on the Effective Date and pending
distribution, New Common Stock shall be held by the Exchange Agents, free
of restrictions upon transfer or cancellation (except those imposed by
securities laws), and all dividends, distributions, interest or other
payments which Rymer becomes obligated to make with respect to any New
Common Stock shall be transferred to and retained by the Exchange Agents
prior to such distribution and the Exchange Agents shall be obligated to
pay or distribute the same to the distributee of such security or
obligation at the time of the distribution thereof, without interest.
ARTICLE VIII
PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT
AND UNLIQUIDATED ADMINISTRATIVE EXPENSES,
CLAIMS AND EQUITY INTERESTS
8.1 Resolution of Disputed Administrative Expenses Disputed Claims and
Disputed Interests. Unless otherwise ordered by the Bankruptcy Court after
notice and a hearing, the Debtor or the Committee shall have the exclusive right
to make and file objections to Administrative Expenses, Claims, and Interests
and shall serve a copy of each objection upon the holder of the disputed
Administrative Expense, disputed Claim, or disputed Interest to which the
objection is made, if any, and to the other of the Debtor or the Committee, as
the case may be, as soon as practicable, but not later than ninety (90) days
after the Effective Date.
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8.2 Reserve for Contested Claims. No distribution shall be made on account
of any contested claim. Instead, distributions that otherwise would have been
disbursed on account of contested Claims had any such contested Claim been an
Allowed Claim on the disbursement date shall be reserved. After a contested
Claim becomes an Allowed Claim, the holder of such Claim shall be entitled to
receive its appropriate Pro Rata distribution(s) as and when such
distribution(s) are otherwise payable. To the extent that a contested Claim
ultimately is not Allowed, shares of New Common Stock reserved on account of
such contested Claim shall become available for distribution to other Creditors
with Allowed Claims as otherwise provided in this Plan as though the contested
Claim had never been asserted.
8.3 No Waiver. Nothing in the Plan, the Confirmation Order or any order in
aid of confirmation of the Plan, shall constitute, or be deemed to constitute, a
waiver or release of any claim, cause of action, right of setoff, or other legal
or equitable defense which the Debtor had immediately prior to the Petition Date
against or with respect to any Claim. During the pendency of the Reorganization
Case and upon confirmation thereof the Debtor shall have, retain, reserve and be
entitled to assert fully all such claims, causes of action, rights of setoff and
other legal or equitable defenses which it had immediately prior to the
commencement of the Reorganization Case (except as released pursuant to Section
15.10 of the Plan) as if the Reorganization Case had not been commenced.
ARTICLE IX
EXECUTORY CONTRACTS, UNEXPIRED LEASES AND OTHER MATTERS
9.1 Executory Contracts and Unexpired Leases. Subject to Section 12.3, all
executory contracts and unexpired leases (other than any options issued
Pre-Petition pursuant to a stock option plan which will be rejected) shall be
deemed assumed by the Debtor (i) unless expressly rejected by the Debtor with
Bankruptcy Court approval on or before the Effective Date, (ii) subject to a
motion to reject pending on the Effective Date or (iii) identified on a list
with the Bankruptcy Court on or before the Confirmation Date as to be rejected.
A Claim under an executory contract or unexpired lease which has been rejected
shall constitute a Class 3 Claim to the extent it is Allowed by the Bankruptcy
Court. Any proof of claim with respect to Claims under an executory contract or
unexpired lease that has been rejected must be filed with the Bankruptcy Court
within 30 days after the rejection by the Debtor of such contract or lease.
9.2 Indemnification Obligations. For purposes of the Plan, the obligations
of the Debtor as of the Petition Date to indemnify its present and former
directors and/or officers, respectively, against any obligations pursuant to the
Charter and any amendments thereto, the By-laws and any amendments thereto,
applicable state law or specific agreement, or any combination of the foregoing,
shall survive confirmation of the Plan, remain unaffected thereby, be assumed
and not be discharged, irrespective of whether indemnification is owed in
connection with an event occurring before, on, or after the Petition Date.
The Debtor shall fully indemnify any Person by reason of the fact that he
or she is or was a director, officer, employee or agent of the Debtor, or is or
was serving at the request of the Debtor as a director, officer, employee or
agent of another corporation, partnership, joint venture or other enterprise,
against any liabilities, actions, suits, damages, fines, judgments or expenses
(including reasonable attorneys' fees), arising during the course of, or
otherwise in connection with or any way related to, the preparation and
consummation of the Plan and the transactions contemplated thereby, except as
may be attributable to any such Person's fraud, gross negligence or willful
misconduct.
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<PAGE> 118
9.3 Compensation and Benefit Programs. Subject to the rejection or
termination and cancellation of any agreement or plan pursuant to Sections 6.1
or 9.1 and subject to any modification or amendment of an agreement as specified
in Section 9.4, all employment contracts, all employment and severance policies,
and all compensation and benefit plans, contracts, agreements, policies,
undertakings and programs of the Debtor including, without limitation, all
savings plans, retirement plans, key employee retention plans, health care
plans, disability plans, severance benefit plans, incentive plans, and life,
accidental death and dismemberment insurance plans are treated as executory
contracts under the Plan and are hereby rejected as of the Effective Date
pursuant to Section 365(a) of the Bankruptcy Code unless (i) expressly assumed
by the Debtor with Bankruptcy Court approval on or before the Effective Date,
(ii) subject to a motion to assume pending on the Effective Date or (iii)
identified on a list to be filed with he Bankruptcy Court on or before the
Confirmation Date, as to be assumed. Notwithstanding the foregoing, on and after
the Effective Date, pursuant to Section 1129(a)(13) of the Bankruptcy Code, the
Debtor will continue to pay all retiree benefits, as that term is defined in
Section 1114 of the Bankruptcy Code, at the level established pursuant to
subsection (e)(1) or (g) of Section 1114, at any time prior to confirmation of
the Plan, for the duration of the period the Debtor has obligated itself to
provide such benefits.
ARTICLE X
DISCHARGE OF DEBTOR
The provisions of the Plan shall bind all creditors and stockholders,
whether or not they accept this Plan, and, except as to Classes which are not
impaired (and except as otherwise provided herein), discharge the Debtor from
all claims that arose before the Petition Date. The distributions provided for
creditors and stockholders shall not be subject to any Claim by another creditor
or stockholder by reason of any assertion of a contractual right of
subordination. In addition, the distributions of New Common Stock provided for
under the Plan shall be in exchange for and in complete satisfaction, discharge
and release of all Claims against and Interests in the Debtor or any of its
assets or properties, including any Claim for interest accruing after the
Petition Date and prior to the Effective Date of the Plan. On and after the
Effective Date of the Plan, except as provided in the Plan, all holders of
Claims and Interests shall be precluded from asserting against the Debtor or its
assets any other or further Claims based on any act or omission, transaction or
other activity of any kind or nature that occurred prior to the Effective Date.
ARTICLE XI
ACCEPTANCE OR REJECTION OF THE PLAN
11.1 Voting by Impaired Classes. Each Holder of a Claim in Class 3, and
each Holder of an Interest in Class 4 (in each case as of the Record Date), is
entitled to vote either to accept or to reject the Plan. Only those votes cast
by Holders of Allowed Claims and/or Allowed Interests and received by the Voting
Agent prior to the Expiration Date shall be counted in determining whether
acceptances have been received sufficient in number and amount to confirm the
Plan. Each Claim or Interest, as applicable, in each of Class 3 and Class 4
shall be deemed to be "Allowed" for purposes of voting on the Plan unless, prior
to the confirmation hearing, the Debtor has filed an objection to any such Claim
or Interest with the Bankruptcy Court.
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<PAGE> 119
If a Reorganization Case is commenced within thirty (30) days of the
Expiration Date, unless the Bankruptcy Court subsequently determines that
Ballots and master ballots may be revoked, such Ballots and master ballots will
remain in full force and effect until the Bankruptcy Court determines whether
such Ballots and master ballots are deemed to constitute acceptances or
rejections of the Plan.
11.2 Acceptance by Impaired Claims Class. Class 3 shall have accepted the
Plan if (i) the Holders (other than any Holder designated under Section 1126(e)
of the Bankruptcy Code) of at least two-thirds in dollar amount of the Allowed
Class 3 Claims actually voting in such Class have voted to accept the Plan and
(ii) the Holders (other than any Holder designated under Section 1126(e) of the
Bankruptcy Code) of more than one-half in number of the Allowed Class 3 Claims
actually voting in such Class have voted to accept the Plan.
11.3 Acceptance by Impaired Interests. An Impaired Class of Interests shall
have accepted the Plan if the Holders (other than any Holder designated under
Section 1126(e) of the Bankruptcy Code) of at least two-thirds in amount of
Allowed Interests actually voting in such Class have voted to accept the Plan.
11.4 Presumed Acceptance of Plan. Class 1, Class 2 and Class 5 are
Unimpaired under the Plan, and, therefore, are conclusively presumed to have
accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code.
11.5 Nonconsensual Confirmation. Notwithstanding anything contained herein
to the contrary, in the event that either Class 3 or Class 4 or both shall fail
to accept the Plan in accordance with Section 1129(a)(8) of the Bankruptcy Code,
the Debtor reserves the right (with the consent of the Restricted Noteholder) to
(i) request that the Bankruptcy Court confirm the Plan in accordance with
Section 1129(b) of the Bankruptcy Code, (ii) designate that the Plan be
automatically modified in accordance with Section 11.5 of the Plan and seek
confirmation of such modified Plan or (iii) amend the Plan pursuant to Section
15.11 of the Plan and seek confirmation of such amended Plan.
11.6 Automatic Modification of Plan. In the event that any impaired Class
shall not accept the Plan and the treatment afforded such nonaccepting class is
determined to be insufficient to meet the requirements of Section 1129(b) of the
Bankruptcy Code with respect to such nonaccepting Class, then upon the written
direction of the Debtor (with the written consent of the Committee) filed with
the Bankruptcy Court, the Plan shall be modified, revised and amended
automatically and without further notice to provide such treatment, as
determined necessary by the Bankruptcy Court, such that the treatment afforded
any nonaccepting Class and any Class adversely affected by such modification is
the minimum treatment necessary to meet the requirements of Section 1129(b) of
the Bankruptcy Code.
ARTICLE XII
RETENTION OF JURISDICTION
12.1 Claims and Actions. The Bankruptcy Court shall retain jurisdiction
over the Reorganization Case, including, without limitation, that necessary to
insure the purpose and intent of this Plan are carried out. The Bankruptcy Court
shall retain jurisdiction to hear and determine all Claims and Interests against
the Debtors and to enforce all causes of action which may exist on behalf of the
Debtors.
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<PAGE> 120
12.2 Objections to Claims. The failure by the Debtor to object to, or
examine, any Claim or Interest for purposes of voting shall not be deemed a
waiver of the Debtor's rights to object to, or reexamine, the Claim, in whole or
in part.
12.3 Retention of Additional Jurisdiction. The Bankruptcy Court shall also
retain jurisdiction until this Plan has been fully consummated for the purpose
of classification of the Claims or Interests of any creditor or stockholder, the
re-examination of Claims and Interests which have been allowed for purposes of
voting and the determination of such objections as may be filed to the Claims
and Interests. The Bankruptcy Court shall further retain jurisdiction for the
following additional purposes:
(1) to determine all questions and disputes regarding title to the
respective assets of the Debtor, all causes of action, controversies or
disputes, whether or not subject to any pending action as of the Effective
Date, between the Debtor and any other party, including, without
limitation, any right to recover assets pursuant to the provisions of the
Bankruptcy Code;
(2) to modify the Plan after the Effective Date pursuant to the
Bankruptcy Code and the Bankruptcy Rules;
(3) to enforce and interpret the terms and conditions of the Plan;
(4) to enter such orders, including, but not limited to, such future
injunctions as are necessary to enforce the respective title, rights and
powers of the Debtor, and to impose such limitations, restrictions, terms
and conditions on such title, rights and powers as the Bankruptcy Court may
deem necessary;
(5) to enter an order closing the Reorganization Case;
(6) to correct any defect, cure any omission or reconcile any
inconsistency in the Plan or the Confirmation Order as may be necessary to
implement the purposes and intent of the Plan;
(7) to determine any and all objections to the allowance of Claims or
Interests;
(8) to determine any and all applications for allowances of
compensation and reimbursement of expenses and the reasonableness of any
fees and expenses authorized to be paid or reimbursed under the Bankruptcy
Code or the Plan;
(9) to determine any applications or motions pending on the Effective
Date for the rejection, assumption or assumption and assignment of any
executory contract or unexpired lease and to hear and determine, and, if
need be, to liquidate any and all Claims arising therefrom;
(10) to determine any and all applications, adversary proceedings and
contested matters that may be pending on the Effective Date;
(11) to consider any modification of the Plan, whether or not the Plan
has been substantially consummated, to remedy any defect or omission or
reconcile any inconsistency in any order of the Bankruptcy Court, to the
extent authorized by the Plan or the Bankruptcy Court;
(12) to determine all controversies, suits and disputes that may arise
in connection with the interpretation, enforcement or consummation of the
Plan;
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<PAGE> 121
(13) to consider and act on the compromise and settlement of any claim
against or cause of action by or against the Debtors arising under or in
connection with the Plan;
(14) to issue such orders in aid of execution of the Plan to the
extent authorized by Section 1142 of the Bankruptcy Code; and
(15) to determine such other matters as may be set forth in any order
or orders confirming the Plan or which may arise in connection with the
Plan or any order or orders confirming the Plan.
ARTICLE XIII
REVOCATION OF PLAN
The Debtor reserves the right to revoke or withdraw this Plan at any time
before the Confirmation Date. If the Debtor revokes or withdraws this Plan prior
to the Confirmation Date, or if the Confirmation Date or the Effective Date does
not occur, then this Plan shall be deemed null and void. In such event, nothing
contained herein shall be deemed to constitute an admission of validity, waiver
or release of any Claims by or against the Debtor or any other Person or
prejudice in any manner the rights of the Debtor or any Person in any proceeding
involving the Debtor.
ARTICLE XIV
CONDITIONS PRECEDENT
14.1 Conditions Precedent to Consummation. Each of the following shall be a
condition precedent to consummation of the Plan:
(1) The Effective Date has occurred;
(2) A new Credit Agreement shall be in effect with LaSalle National
Bank or another financial institution.
14.2 Waiver of Conditions. The Debtor, upon the written consent of the
Committee but otherwise in its sole discretion, may waive any of the conditions
to confirmation of the Plan and/or to Consummation of the Plan at any time,
without notice, without leave or order of the Bankruptcy Court, and without any
formal action other than obtaining such consent from the Restricted Noteholder
and proceeding to confirm and/or consummate the Plan.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. Any notice given in connection herewith shall be as follows:
RYMER FOODS INC.
4600 South Packers Avenue
Suite 400
Chicago, Illinois 60609
Telephone: (773) 927-7777
Attn: P.E. (Ed) Schenk
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<PAGE> 122
with a copy to:
RUDNICK & WOLFE
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Telephone: (312) 368-2170
Attn: David Missner
15.2 Term of Injunctions or Stays. Without in any way limiting the effect
of Section 524 or Section 1141, unless otherwise provided, all injunctions or
stays provided for in the Reorganization Case pursuant to Section 105 or Section
362 or otherwise in effect of the Confirmation Date shall remain in full force
and effect until the Effective Date and unless otherwise provided, shall expire
on the Effective Date.
15.3 Amendment and Restatement of Charter and/or By-Laws. Subject to the
provisions of the Charter, as amended under the Plan, and the provisions of the
law of the State of Delaware, the power to amend, alter or repeal the Charter
and/or the By-Laws and to adopt a new Charter and/or By-Laws may be exercised by
the Board of Directors and/or the stockholders of the Reorganized Debtor.
15.4 Payment of Statutory Fees. All fees payable pursuant to Section 1930
of Title 28 of the United States Code, as determined by the Bankruptcy Court at
the hearing pursuant to Section 1128 of the Bankruptcy Code, shall be paid on or
before the Effective Date.
15.5 Exculpation. Neither the Reorganized Debtor, except for duties and
obligations expressly created by the Plan, nor any of its respective officers,
directors, employees, or agents shall have or incur any liability to any holder
of a Claim or Interest for any act or omission in connection with, or arising
out of, the pursuit of confirmation of the Plan, the consummation of the Plan,
the administration of the Plan or the property to be distributed under the Plan,
except as may be attributable to such Person's fraud, gross negligence or
willful misconduct, and in all respects, shall be entitled to rely upon the
advice of counsel with respect to their duties and responsibilities under the
Plan.
15.6 Rights of Action. Any rights or causes of action under any theory of
law, including, without limitation, under the Bankruptcy Code, accruing to the
Debtor shall remain assets of the estate of the Reorganized Debtor except for
those claims released pursuant to Section 15.10 of the Plan. The Reorganized
Debtor may, in its sole discretion, pursue or may refrain from pursuing those
rights or causes of action, as appropriate, in accordance with what is in the
best interests, and for the benefit, of the Reorganized Debtor.
15.7 Committees. The appointment of all statutory committees shall
terminate on the substantial consummation of the Plan.
15.8 Failure of Bankruptcy Court to Exercise Jurisdiction. If the
Bankruptcy Court abstains from exercising or declines to exercise jurisdiction,
or is otherwise without jurisdiction over any matter arising out of the
Reorganization Case, including any of the matters set forth in the Plan, the
Plan shall not prohibit or limit the exercise of jurisdiction by any other court
of competent jurisdiction with respect to such matter.
15.9 Governing Law. Unless a rule of law or procedure lo supplied by
federal law (including the Bankruptcy Code and Bankruptcy Rules), an agreement,
document or instrument provides otherwise or the Corporation Law of the State of
Delaware is applicable, the internal
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<PAGE> 123
laws of the State of Illinois shall govern the construction and implementation
of the Plan and any agreements, documents and instruments executed in connection
with the Plan, without regard to the conflict of laws provisions of the State of
Illinois.
15.10 Release. As of the Effective Date, provided that the Debtor makes the
distributions to the Holders of Class 3 Claims and Class 4 Interests as provided
in Sections [5.2, 5.3 and 7.7] of the Plan and the Plan is consummated, for good
and valuable consideration, including the benefits of the Plan, and to
facilitate Rymer's expeditious and effective reorganization, each holder of an
impaired Claim of Interest who votes to accept the Plan and who specifically
consents in its executed Ballot to the release herein below (a "Releasing
Holder") who holds a Claim against or Interest in the estate of Rymer, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, disputed, undisputed, legal, equitable, secured, or unsecured, and
the Debtor with respect to the persons referred to in clauses (2) and (3) below,
shall be deemed to have fully and forever released any and all claims, debts,
and actions of whatever nature, whether known or unknown, suspected or
unsuspected, vested or contingent, past or present, arising prior to the
Effective Date, which the Releasing Holders or the Debtor (with respect to the
persons referred to in clause (2) and (3) below) have or may have against (1)
the directors, officers, employees, controlling persons, and professional
advisors (including financial advisors, accountants and legal counsel) of Rymer
or any Rymer subsidiaries arising from Rymer's or its subsidiaries' or their
respective directors', officers', representatives', or agents' agreements with
or for the benefit of or actions or inactions with respect to Rymer or any of
Rymer's subsidiaries or the creditors or stockholders in their capacity as such,
(2) the Indenture Trustee and the directors, officers, employees, controlling
persons, and professional advisors (including legal counsel) of the Indenture
Trustee, arising from such persons' or entities' agreement with or for the
benefit of or actions or inactions with respect to Rymer or the creditors or
stockholders in their capacity as such, and (3) Riverside Capital Advisors,
Inc., the representative of the holders of a majority of the Notes who has
participated in restructuring discussions with Rymer and its directors,
officers, employees, controlling persons, and professional advisors (including
legal counsel), as well as the professional advisors and legal counsel to the
Committee, (if any) arising from such persons' or entities' agreement with or
for the benefit of or actions or inactions with respect to or in connection with
Rymer or the creditors or stockholders in their capacity as such (such parties
to be released, the Released Parties.
Notwithstanding the foregoing, to the extent any Releasing Holder shall
commence any litigation in respect of any claim (the "Releasing Holder's Claim")
against any third party, which results in such third party's commencing any
litigation in respect of any claim (the Third-Party Claims) against a Released
Party, which Third-Party Claim (i) arises out of the subject matter of the
Releasing Holder's Claim, (ii) arises and exists solely by reason of the filing
of the Releasing Holder's Claim and (iii) depends for its success on the success
of the Releasing Holder's Claim, the Releasing Holder shall, upon (A) entry of a
final judgment (meaning a judgment for which all appeals have been exhausted or
for which all periods for further appeals have irrevocably expired) obtained on
the Releasing Holder's Claim or (B) the settlement of the Releasing Holder's
Claim, be deemed to have released such judgment or Releasing Holder's Claim to
whatever extent is necessary, if any, to relieve the Released Party from any
liability on any judgment on or settlement of the Releasing Holder's Claim or
the Third-Party Claim.
15.11 Amendments. Rymer and the Committee shall propose amendments to the
Plan only with the written concurrence of the other party. Rymer, with the
written consent of the holders of more than 50% of the Notes may, with the
approval of the Bankruptcy Court and without notice to all holders of Claims and
Interests, insofar as it does not materially and adversely affect
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<PAGE> 124
holders of Claims and Interests, correct any defect, omission, or inconsistency
in the Plan in such manner and to such extent as may be necessary or desirable.
15.12 Headings. The headings used in the Plan are inserted for convenience
only and neither constitute a portion of the Plan nor in any manner shall affect
the provisions of the Plan.
15.13 Successors and Assigns. The rights, benefits and obligations of any
person or entity named or referred to in the Plan will be binding upon and will
inure to the benefit of, the heirs, executor, administrator, successor or assign
of such person or entity.
Respectfully submitted,
RYMER FOODS INC.
By:
Name:
Title:
David N. Missner
Mark P. Naughton
William P. Kovacs
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, IL 60601
Telephone: 312/368-4000
Attorneys for Rymer Foods Inc.
IV - 17
