<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 27, 1999 (September 20, 1999)
------------------------------------------------
Date of Report (Date of earliest event reported)
PHILIP SERVICES CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ontario 0-20854 Not Applicable
- ----------------------------- ---------------- -------------------
(State or other jurisdiction) (Commission File (IRS Employer
of incorporation) Number) Identification No.)
100 King Street West, P.O. Box 2440, LCD1, Hamilton, Ontario, Canada L8N 4J6
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (905) 521-1600
NOT APPLICABLE
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(Former name or former address, if changed since last report.)
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ITEM 3. BANKRUPTCY AND RECEIVERSHIP
On June 25, 1999, Philip Services Corp. (the "Company") filed a voluntary
application to reorganize under the Companies' Creditors Arrangement Act
(Canada) ("CCAA") with the Ontario Superior Court of Justice in Toronto, Canada,
and voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code ("Chapter
11") with the U.S. Bankruptcy Court for the District of Delaware. On June 27,
1999, the Company obtained First Day Orders under Chapter 11 of the U.S.
Bankruptcy Code from the U.S. Bankruptcy Court for the District of Delaware.
On September 17, 1999 the Company filed an Amended and Restated Plan of
Compromise and Arrangement under the CCAA with the Ontario Superior Court of
Justice in Toronto, Canada, and an Amended Joint Plan of Reorganization and a
Disclosure Statement under Chapter 11 with the U.S. Bankruptcy Court for the
District of Delaware.
On September 21, 1999 the Company filed an Amended and Restated Plan of
Compromise and Arrangement (the "Amended Canadian Plan") under the CCAA with the
Ontario Superior Court of Justice in Toronto, Canada, and an Amended Joint Plan
of Reorganization (the "Amended U.S. Plan") and a Disclosure Statement under
Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware.
A confirmation hearing to confirm the Company's plan of reorganization is
scheduled for October 13, 1999 at the U.S. Bankruptcy Court for the District of
Delaware.
The Amended Canadian and U.S. Plans provide that the claims of Canadian
creditors against the Company will be dealt with in Canada under the CCAA
proceedings. The Amended Canadian Plan provides that in the event that certain
conditions are not satisfied or Canadian unsecured creditors vote to reject the
Amended Canadian Plan, the Company can implement an alternative means of
restructuring by which the restructuring of the Company and its Canadian
subsidiaries would be accomplished by the transfer of their business as a going
concern to one or more direct or indirect subsidiaries of Philip Services
(Delaware), Inc.
The Company's lending syndicate has confirmed its support of the Amended
Canadian and U.S. Plans. The official committee of unsecured creditors appointed
under Chapter 11 has confirmed its support of the Amended U.S. Plan and has
urged holders of unsecured claims to vote in favour of the Amended U.S. Plan.
2
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\
A copy of the Disclosure Statement filed under Chapter 11 is attached
hereto as Exhibit 2.1. A copy of the Amended U.S. Plan is attached as Appendix A
to the Disclosure Statement. A copy of the Amended Canadian Plan is attached as
Exhibit D to the Amended U.S. Plan which is attached as Appendix A to the
Disclosure Statement. A copy of the press release announcing the filings of the
Canadian Plan, the U.S. Plan and the Disclosure Statement is attached hereto as
Exhibit 99.1.
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Exhibit
Number Description
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2.1 Disclosure Statement under Chapter 11 of the U.S. Bankruptcy Code
filed with the U.S. Bankruptcy Court for the District of Delaware
on September 21, 1999
2.2 Notice to creditors and present and former equity security
holders dated September 22, 1999
99.1 Press release announcing the filings of the amended restructuring
plans dated September 20, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILIP SERVICES CORP.
By: /s/ Colin H. Soule
-----------------------------
Executive Vice President,
General Counsel and
Corporate Secretary
Date: September 27, 1999
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EXHIBIT INDEX
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Exhibit
Number Description
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2.1 Disclosure Statement under Chapter 11 of the U.S. Bankruptcy Code
filed with the U.S. Bankruptcy Court for the District of Delaware
on September 21, 1999
2.2 Notice to creditors and present and former equity security
holders dated September 22, 1999
99.1 Press release announcing the filing of the amended restructuring
plans dated September 20, 1999
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Exhibit 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - - - - - X
:
IN RE :
: CHAPTER 11
PHILIP SERVICES (DELAWARE), INC., ET AL. : CASE NO. 99-02385 (MFW)
: (JOINTLY ADMINISTERED)
DEBTORS. :
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - X
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
JOINT PLAN OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., ET AL.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
David S. Kurtz
Jeffrey W. Linstrom
J. Gregory St. Clair
Timothy R. Pohl
333 W. Wacker Drive
Chicago, Illinois 60606-1285
(312) 407-0700
-and-
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Gregg M. Galardi (I.D.#2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
Attorneys for Philip Services (Delaware), Inc., et al.
Dated: September 21, 1999
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DISCLAIMER
PHILIP SERVICES CORP. ("PSC"), PHILIP SERVICES (DELAWARE), INC. ("PSI")
AND CERTAIN OF THEIR SUBSIDIARIES LISTED ON EXHIBIT A TO THE PLAN (THE
"SUBSIDIARY DEBTORS" AND, TOGETHER WITH PSC AND PSI, THE "DEBTORS") ARE
FURNISHING THIS DISCLOSURE STATEMENT AND THE APPENDICES HERETO, THE ACCOMPANYING
BALLOTS AND THE RELATED MATERIALS DELIVERED HEREWITH PURSUANT TO SECTION 1125 OF
THE UNITED STATES BANKRUPTCY CODE, 11 U.S.C. ss.ss. 101-1330, AS AMENDED (THE
"BANKRUPTCY CODE"), IN CONNECTION WITH THEIR SOLICITATION (THE "SOLICITATION")
FROM HOLDERS OF CERTAIN CLAIMS IN CLASSES 6 AND 7 (THE "HOLDERS OF CLASS 6 AND 7
CLAIMS") OF ACCEPTANCES OF THE PROPOSED JOINT PLAN OF REORGANIZATION DESCRIBED
HEREIN (THE "PLAN," A COPY OF WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS
APPENDIX A). IN THE EVENT THAT HOLDERS OF CLASS 7 CLAIMS VOTE TO REJECT THE
PLAN, THE DEBTORS INTEND TO SEEK CONFIRMATION OF THE PLAN NOTWITHSTANDING SUCH
REJECTION PURSUANT TO THE CRAMDOWN PROVISION OF SECTION 1129(b) OF THE
BANKRUPTCY CODE.
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS APPOINTED IN THESE CASES
SUPPORTS CONFIRMATION OF THE PLAN OF REORGANIZATION DETAILED HEREIN AND
URGES HOLDERS OF CLASS 7 TO VOTE IN FAVOR OF THE PLAN.
PSC IS A COMPANY AMALGAMATED UNDER THE LAWS OF THE PROVINCE OF ONTARIO
AND WITH PROPERTY IN THE UNITED STATES, CANADA AND OTHER INTERNA TIONAL SITES.
PSI IS A CORPORATION ESTABLISHED IN THE UNITED STATES UNDER THE LAWS OF THE
STATE OF DELAWARE.
PSC AND CERTAIN OF ITS OTHER SUBSIDIARIES THAT ARE NOT DEBTORS IN THESE
REORGANIZATION CHAPTER 11 CASES (THE "CANADIAN DEBTORS") HAVE ALSO COMMENCED
CASES IN THE SUPERIOR COURT OF JUSTICE IN TORONTO, ONTARIO, CANADA UNDER THE
COMPANIES' CREDITORS ARRANGEMENT ACT (THE "CCAA") (THE "CANADIAN CASES"). PSC
AND THE OTHER CANADIAN DEBTORS HAVE FILED IN THE CANADIAN CASES AN AMENDED PLAN
OF COMPROMISE AND ARRANGEMENT CONSISTENT WITH THE PLAN (THE "CANADIAN PLAN").
THE CANADIAN REORGANIZATION PLAN PROVIDES FOR THE REORGANIZATION OF PSC AND THE
OTHER CANADIAN DEBTORS AND THEIR EMERGENCE FROM THE CANADIAN CASES AS OPERATING
ENTITIES.
IN THE EVENT THE CANADIAN REORGANIZATION PLAN IS NOT SANCTIONED, THE
REORGANIZATION OF PSC AND THE OTHER CANADIAN DEBTORS WILL BE ACCOMPLISHED
THROUGH THE TRANSFER OF THEIR BUSINESSES AS A GOING CONCERN TO ONE OR MORE
DIRECT OR INDIRECT SUBSIDIARIES OF REORGANIZED PSI, AS THE RESULT OF THE LENDERS
ENFORCING REMEDIES UNDER CANADIAN LAW (THE "ALTERNATE CANADIAN TRANSACTIONS").
IF THE ALTERNATE CANADIAN TRANSACTIONS ARE IMPLEMENTED, CLAIMS OF CANADIAN
CREDITORS WILL NOT BE COMPROMISED; HOWEVER, IT IS EXPECTED THAT NO DISTRIBUTIONS
WILL BE MADE TO CANADIAN CREDITORS OTHER THAN THE LENDERS.
THE PLAN PROVIDES THAT IF THE CANADIAN REORGANIZATION PLAN IS NOT
SANCTIONED, HOLDERS OF CANADIAN IMPAIRED UNSECURED CLAIMS AGAINST THE CANADIAN
DEBTORS MAY PARTICIPATE IN DISTRIBUTIONS PROVIDED UNDER THE PLAN AS IF THEY WERE
UNITED STATES CREDITORS IF THEY VOLUNTARILY SUBMIT TO THE PERSONAL AND SUBJECT
MATTER JURISDICTION OF THE BANKRUPTCY COURT AND HAVE THEIR CLAIMS ALLOWED AND
DETERMINED IN ACCORDANCE WITH THE BANKRUPTCY CODE AND APPLICABLE NONBANKRUPTCY
LAWS OF THE UNITED STATES, BY FILING A FORM TO BE PROVIDED TO THEM
BY THE DEBTORS. ANY SUCH DISTRIBUTIONS WILL BE MADE FROM DISTRIBUTIONS THAT
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WOULD OTHERWISE HAVE BEEN MADE TO HOLDERS OF CANADIAN IMPAIRED UNSECURED CLAIMS
IF THE CANADIAN REORGANIZATION PLAN WAS SANCTIONED.
PSC AND THE OTHER CANADIAN DEBTORS WILL SEEK TO HAVE THE CANADIAN
REORGANIZATION PLAN SANCTIONED BY THE CANADIAN COURT ONLY IF CERTAIN CONDITIONS
ARE MET INCLUDING THE RESOLUTION OF CLAIMS INVOLVING THE DEBTORS' AUDITORS AND
UNDERWRITERS. IF THESE CONDITIONS ARE NOT MET PRIOR TO THE VOTE ON THE CANADIAN
PLAN, THEN PSC AND THE OTHER CANADIAN DEBTORS MAY SEEK TO HAVE THE ALTERNATE
CANADIAN TRANSACTIONS IMPLEMENTED.
THE DEBTORS DO NOT BELIEVE THAT THERE WILL BE A MATERIAL ECONOMIC
IMPACT ON THE NATURE OR VALUE OF THE DISTRIBUTIONS TO BE MADE UNDER THE PLAN TO
HOLDERS OF CLAIMS OR INTERESTS AS A RESULT OF WHETHER THE CANADIAN
REORGANIZATION PLAN IS SANCTIONED OR THE ALTERNATE CANADIAN TRANSACTIONS ARE
IMPLEMENTED.
THIS DISCLOSURE STATEMENT IS TO BE USED BY HOLDERS OF CLASS 6 AND 7
CLAIMS SOLELY IN CONNECTION WITH THEIR EVALUATION OF THE PLAN; USE OF THE
DISCLOSURE STATEMENT FOR ANY OTHER PURPOSE IS NOT AUTHORIZED.
THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR UNDER ANY STATE SECURITIES
OR "BLUE SKY" LAWS, NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE
STATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE
PURCHASING, SELLING OR TRANSFERRING SECURITIES OR CLAIMS OF ANY OF THE DEBTORS
SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE
FOR WHICH THEY WERE PREPARED.
IN MAKING A DECISION, HOLDERS OF CLASS 6 AND 7 CLAIMS MUST RELY ON
THEIR OWN EXAMINATION OF THE DEBTORS AND THE TERMS OF THE PLAN, INCLUDING THE
MERITS AND RISKS INVOLVED. HOLDERS OF CLASS 6 AND 7 CLAIMS SHOULD NOT CON STRUE
THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS,
FINANCIAL, OR TAX ADVICE. EACH HOLDER OF CLASS 6 AND 7 CLAIMS SHOULD CONSULT
WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS WITH RESPECT TO ANY
SUCH MATTERS CONCERNING THIS DISCLOSURE STATEMENT, THE SOLICITATION, THE PLAN
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO MATERIAL
CONDITIONS PRECEDENT. SEE ARTICLE II.M OF THE DISCLOSURE STATEMENT, ENTITLED
"SUMMARY OF THE PLAN OF REORGANIZATION -- CONDITIONS TO CONFIRMATION AND/OR
CONSUMMATION." THERE CAN BE NO ASSURANCE THAT THOSE CONDITIONS WILL BE
SATISFIED.
THIS DISCLOSURE STATEMENT CONTAINS CERTAIN PROJECTED FINANCIAL INFORMA
TION RELATING TO THE REORGANIZED DEBTORS, AS WELL AS CERTAIN OTHER STATEMENTS
THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH PROJECTIONS AND STATEMENTS ARE
BASED ON CERTAIN ESTIMATES AND ASSUMPTIONS MADE BY AND INFORMATION AVAILABLE TO
THE DEBTORS. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE" AND "EXPECT" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE DEBTORS
AND THEIR MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS REFLECT THE
CURRENT VIEWS OF THE DEBTORS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
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ASSUMPTIONS. MANY FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE DEBTORS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY SUCH PROJECTED
FINANCIAL INFORMATION AND FORWARD-LOOKING STATEMENTS, INCLUDING, AMONG OTHERS,
THE RISKS DISCUSSED IN ARTICLE VII OF THE DISCLOSURE STATEMENT, ENTITLED
"CERTAIN FACTORS TO BE CONSIDERED" AND RISKS DISCUSSED FROM TIME TO TIME IN
FILINGS MADE BY THE DEBTORS WITH THE SEC AND OTHER REGULATORY AUTHORITIES.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL INFORMATION OR OTHER
FORWARD-LOOKING STATEMENTS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. THE
DEBTORS DO NOT INTEND, AND DO NOT ASSUME ANY OBLIGATIONS, TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.
EXCEPT AS SET FORTH IN ARTICLE XIII.I OF THIS DISCLOSURE STATEMENT,
ENTITLED "THE SOLICITATION; VOTING PROCEDURES -- FURTHER INFORMATION" BELOW, NO
PERSON HAS BEEN AUTHORIZED BY THE DEBTORS IN CONNECTION WITH THE PLAN OR THE
SOLICITATION OF ACCEPTANCES TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT AND THE
APPENDICES AND EXHIBITS ANNEXED HERETO OR INCORPORATED BY REFERENCE OR REFERRED
TO HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEBTORS.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF
THE DATE HEREOF, AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY
EXCHANGE OF EXISTING SECURITIES MADE PURSUANT TO THE PLAN WILL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF. ANY ESTIMATES OF CLAIMS AND
INTERESTS SET FORTH IN THIS DISCLOSURE STATEMENT MAY VARY FROM THE AMOUNTS OF
CLAIMS OR INTERESTS ULTIMATELY ALLOWED BY THE BANKRUPTCY COURT.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING, BUT
NOT LIMITED TO, THE INFORMATION REGARDING THE HISTORY, BUSINESSES AND OPERATIONS
OF THE DEBTORS, THE HISTORICAL AND PROJECTED FINANCIAL INFORMATION OF THE
DEBTORS (INCLUDING THE PROJECTED RESULTS OF OPERATIONS OF THE REORGANIZED
DEBTORS) AND THE LIQUIDATION ANALYSIS RELATING TO THE DEBTORS IS INCLUDED HEREIN
FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN. AS TO CONTESTED MATTERS,
HOWEVER, SUCH INFORMATION IS NOT TO BE CONSTRUED AS ADMISSIONS OR STIPULATIONS
BUT RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS.
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TABLE OF CONTENTS
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TABLE OF APPENDICES....................................................................................................-ix-
ARTICLE I.
INTRODUCTION.....................................................................................................1
ARTICLE II.
SUMMARY OF THE PLAN OF REORGANIZATION............................................................................2
A. OVERALL STRUCTURE OF THE PLAN....................................................................................2
B. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING IMPAIRED CLAIMS...............................................4
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.............................................................5
1. Classified Claims and Interests.......................................................................6
2. Unclassified Claims..................................................................................17
D. EFFECT OF VOTING ON DISTRIBUTIONS...............................................................................19
1. If the Canadian Reorganization Plan Is Sanctioned....................................................19
2. If the Alternate Canadian Transactions Are Implemented...............................................19
E. SUMMARY OF DEBT TO BE INCURRED AND SECURITIES TO BE ISSUED IN
CONNECTION WITH THE PLAN........................................................................................20
1. If the Canadian Reorganization Plan Is Implemented...................................................20
2. If the Alternate Canadian Transactions are Implemented...............................................22
F. SUMMARY OF RELEASES UNDER THE PLAN..............................................................................24
G. TREATMENT OF DIRECTOR AND OFFICER INDEMNIFICATION OBLIGATIONS UNDER THE PLAN....................................25
H. POST-CONSUMMATION OPERATIONS OF THE DEBTORS.....................................................................27
1. Continued Corporate Existence........................................................................27
2. Revesting of Assets..................................................................................27
I. DISTRIBUTIONS UNDER THE PLAN....................................................................................28
1. Distributions for Claims Allowed as of the Effective Date............................................28
2. Resolution and Treatment of Disputed, Contingent, and Unliquidated Claims
and Disputed Interests...............................................................................31
J. OTHER MATTERS...................................................................................................32
1. Treatment of Executory Contracts and Unexpired Leases................................................32
2. Administrative Claims................................................................................33
3. Professional Fee Claims..............................................................................34
4. Interest on Claims...................................................................................34
5. Withholding and Reporting Requirements...............................................................34
6. Setoffs..............................................................................................35
7. Shareholder Rights Plan..............................................................................35
8. Reverse Stock Split..................................................................................36
K. PRESERVATION OF RIGHTS OF ACTION................................................................................37
L. RELEASES UNDER THE PLAN.........................................................................................38
1. Releases by Debtors..................................................................................38
2. Releases by Holders of Lender Claims, Claims and Interests...........................................39
3. Reinstatement of Releases............................................................................41
M. CONDITIONS TO CONFIRMATION AND/OR CONSUMMATION..................................................................41
1. Requirements for Confirmation of the Plan............................................................41
2. Conditions to Confirmation and Consummation..........................................................42
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3. Modifications and Amendments.........................................................................45
N. WAIVER OF CONDITIONS TO CONFIRMATION AND/OR CONSUMMATION........................................................45
O. EFFECT OF WAIVER OF CANADIAN PLAN CONDITION RELATING TO SANCTIONING OF CANADIAN
REORGANIZATION PLAN.............................................................................................45
P. EFFECTS OF CONFIRMATION.........................................................................................46
1. Binding Effect.......................................................................................46
2. Discharge of the Debtors.............................................................................46
3. Permanent Injunction.................................................................................47
4. Exculpation and Limitation on Liability; Indemnity...................................................47
Q. RETENTION OF JURISDICTION.......................................................................................48
ARTICLE III.
TREATMENT OF TRADE CREDITORS, CUSTOMERS AND EMPLOYEES...........................................................49
A. TRADE CREDITORS.................................................................................................49
B. CUSTOMERS/CLIENTS...............................................................................................49
C. EMPLOYEES .....................................................................................................49
ARTICLE IV.
HISTORY OF THE DEBTORS AND EVENTS LEADING TO
CHAPTER 11 FILING AND PLAN......................................................................................49
A. OVERVIEW OF BUSINESS OPERATIONS.................................................................................49
1. Business Segments....................................................................................49
2. Accompanying Financial Data..........................................................................50
3. Certain Legal Proceedings............................................................................50
B. CAPITAL STRUCTURE OF THE DEBTORS................................................................................53
1. The Pre-Petition Credit Agreement....................................................................53
2. Recapitalization/Equity..............................................................................53
3. Debentures...........................................................................................54
C. EVENTS CONTRIBUTING TO THE NEED FOR RESTRUCTURING...............................................................55
1. Acquisition Strategy and Restatement of Financials...................................................55
2. Discontinued Operations and Divestitures.............................................................58
3. Employee Retention Program...........................................................................59
4. Negotiations with Unsecured Creditors................................................................59
5. Other Pre-Petition Settlement Negotiations...........................................................59
ARTICLE V.
CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTORS...............................................................60
A. CURRENT CORPORATE STRUCTURE.....................................................................................60
B. BOARD OF DIRECTORS..............................................................................................60
C. SENIOR OFFICERS.................................................................................................62
D. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS...............................................................65
E. UNAUDITED PROJECTED FINANCIAL INFORMATION AND BUSINESS AND OPERATING STRATEGIES.................................65
ARTICLE VI.
CHAPTER 11 CASES/CCAA...........................................................................................66
A. COMMENCEMENT OF THE CHAPTER 11 CASES............................................................................66
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1. First Day Relief Granted by the Bankruptcy Court.....................................................66
2. Appointment of Official Committee of Unsecured Creditors.............................................69
3. Other Matters Occurring in the Cases.................................................................69
4. Negotiations with Allen Fracassi.....................................................................70
5. Management Stock Options Plan........................................................................70
B. POST-PETITION OPERATIONS AND LIQUIDITY..........................................................................71
C. THE COMPANIES' CREDITORS ARRANGEMENT ACT (THE "CCAA") OF CANADA.................................................71
1. Stay of Proceedings..................................................................................72
2. Payment of Trade Creditors...........................................................................72
3. Operations...........................................................................................72
4. Authority to Borrow and Charging of Property.........................................................72
5. Appointment of Ernst and Young Inc. as Monitor.......................................................72
6. Cross-Border Insolvency Protocol.....................................................................73
ARTICLE VII.
CERTAIN FACTORS TO BE CONSIDERED................................................................................73
A. GENERAL CONSIDERATIONS..........................................................................................73
B. CERTAIN BANKRUPTCY/CCAA CONSIDERATIONS..........................................................................73
1. General..............................................................................................73
2. Effect on Non-Filing Subsidiaries....................................................................73
3. Failure to Confirm the Plan..........................................................................74
4. Failure to Consummate the Plan.......................................................................74
5. Certain Provisions of the Amended Certificate of Incorporation, the By-Laws
and Other Agreements.................................................................................74
C. CERTAIN TAX CONSIDERATIONS......................................................................................74
D. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS...................................................................74
E. RISKS ASSOCIATED WITH EXIT FACILITY.............................................................................75
F. RISKS ASSOCIATED WITH NEW COMMON SHARES/REORGANIZED PSI COMMON SHARES;
CHANGE IN CONTROL...............................................................................................75
G. RISKS ASSOCIATED WITH NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES AND NEW
UNSECURED CONVERTIBLE NOTES.....................................................................................76
H. DISRUPTION OF OPERATIONS DUE TO BANKRUPTCY FILING...............................................................77
I. FINANCIAL UNCERTAINTY...........................................................................................77
J. ACQUISITION STRATEGY; INTEGRATION ISSUES........................................................................77
K. BUSINESS AND COMPETITION........................................................................................78
L. ENVIRONMENTAL MATTERS...........................................................................................79
M. LENDER LOCK-UP AGREEMENT........................................................................................81
N. UNIMPAIRED CLAIMS...............................................................................................81
O. UNSECURED CLAIMS................................................................................................81
P. CLAIMS ESTIMATES................................................................................................82
Q. AFFILIATE STATUS................................................................................................83
R. RELIANCE ON KEY PERSONNEL.......................................................................................83
S. YEAR 2000 ISSUE.................................................................................................83
ARTICLE VIII.
NEW DEBT AND SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN.............................................84
A. NEW COMMON SHARES/PSC COMMON SHARES/REORGANIZED PSI COMMON SHARES...............................................84
1. If the Canadian Reorganization Plan is Implemented...................................................84
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2. If the Alternate Canadian Transactions are Implemented...............................................84
B. NEW SENIOR SECURED TERM DEBT....................................................................................85
C. NEW SECURED PIK DEBT............................................................................................85
D. NEW UNSECURED PIK NOTES.........................................................................................87
E. NEW UNSECURED CONVERTIBLE NOTES.................................................................................88
ARTICLE IX.
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS..............................................................89
A. OFFER AND SALE OF NEW COMMON SHARES, NEW SECURED PIK DEBT, NEW UNSECURED PIK
NOTES AND NEW UNSECURED CONVERTIBLE NOTES PURSUANT TO THE PLAN: BANKRUPTCY CODE
EXEMPTION FROM REGISTRATION REQUIREMENTS........................................................................89
B. SUBSEQUENT TRANSFERS OF NEW COMMON SHARES, NEW SECURED PIK DEBT,
NEW UNSECURED PIK NOTES AND NEW UNSECURED CONVERTIBLE NOTES.....................................................90
1. Federal Securities Laws: Section 1145(c) of the Bankruptcy Code......................................90
2. Subsequent Transfers of New Common Shares, New Secured PIK Debt, New
Unsecured PIK Notes and New Unsecured Convertible Notes Under State
Securities Laws......................................................................................91
C. REGISTRATION RIGHTS AGREEMENT...................................................................................91
D. CANADIAN SECURITIES LAWS........................................................................................92
ARTICLE X.
INCOME TAX CONSEQUENCES OF THE PLAN.............................................................................92
A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS..................................................................94
1. Discharge of Indebtedness............................................................................94
2. Deductions of Accrued Interest and Original Issue Discount by
PSI and Affiliates...................................................................................94
B. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLASS 6 AND
ALLOWED CLASS 7 CLAIMS .........................................................................................94
1. Allowed Class 6 Claims...............................................................................94
2. Allowed Class 7 Claims...............................................................................98
3. Importance of Obtaining Professional Tax Assistance.................................................102
C. CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN...................................................102
1. Certain Federal Income Tax Consequences to PSC......................................................103
2. Certain Federal Income Tax Consequences to Holders..................................................103
ARTICLE XI.
FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS........................................................107
A. FEASIBILITY OF THE PLAN........................................................................................107
B. ACCEPTANCE OF THE PLAN.........................................................................................108
C. BEST INTERESTS TEST............................................................................................109
D. LIQUIDATION ANALYSIS...........................................................................................109
E. VALUATION OF THE REORGANIZED DEBTORS...........................................................................110
F. APPLICATION OF THE "BEST INTERESTS" TEST TO THE LIQUIDATION ANALYSIS AND THE
VALUATION OF THE REORGANIZED DEBTORS...........................................................................110
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES:
THE "CRAMDOWN" ALTERNATIVE.....................................................................................110
</TABLE>
-vii-
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN......................................................111
A. ALTERNATIVE PLAN(S) OF REORGANIZATION..........................................................................112
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11......................................................................112
ARTICLE XIII.
THE SOLICITATION; VOTING PROCEDURE.............................................................................113
A. SOLICITATION OF VOTES..........................................................................................113
B. VOTING DEADLINE................................................................................................113
C. VOTING PROCEDURES..............................................................................................113
D. FIDUCIARIES AND OTHER REPRESENTATIVES..........................................................................114
E. PARTIES IN INTEREST ENTITLED TO VOTE...........................................................................114
F. CLASSES IMPAIRED UNDER THE PLAN................................................................................114
G. WAIVERS OF DEFECTS, IRREGULARITIES, ETC........................................................................114
H. WITHDRAWAL OF BALLOTS; REVOCATION..............................................................................115
I. FURTHER INFORMATION; ADDITIONAL COPIES.........................................................................115
ARTICLE XIV.
RECOMMENDATION AND CONCLUSION..................................................................................116
</TABLE>
-viii-
<PAGE> 10
TABLE OF APPENDICES
<TABLE>
<CAPTION>
APPENDIX NAME
<S> <C>
A Joint Plan of Reorganization of Philip Services
(Delaware), Inc., et al.
B Corporate Structure of Philip Services Corp.,
Philip Services (Delaware), Inc. and Subsidiaries
C List of Canadian Debtors
D-1 10-K for Year Ended December 31, 1998
D-2 10-Q for Quarter Ended June 30, 1999
E Liquidation Analysis
F Projected Financial Information
G Valuation Analysis
H-1 List of Impaired Unsecured Claims
H-2 List of U.S. Creditors Not Responding to August 13, 1999 Bar Date
H-3 List of U.S. Creditors Added to Exhibit B After July 22, 1999
H-4 List of Canadian Impaired Unsecured Claims
</TABLE>
-ix-
<PAGE> 11
ARTICLE I.
INTRODUCTION
This Disclosure Statement sets forth certain information regarding the
Debtors' prepetition operating and financial history, the need to seek Chapter
11 protection, significant events that have occurred or are expected to occur
during the Chapter 11 Cases, and the anticipated organization, operations and
financing of the Debtors upon successful emergence from Chapter 11 (the
"Reorganized Debtors"). This Disclosure Statement also describes terms and
provisions of the Plan, including certain alternatives to the Plan, certain
effects of confirmation of the Plan, certain risk factors associated with
securities to be issued under the Plan, and the manner in which distributions
will be made under the Plan. In addition, this Disclosure Statement discusses
the confirmation process and the voting procedures that holders of Claims
entitled to vote under the Plan must follow for their votes to be counted.
Except as otherwise provided herein, capitalized terms not otherwise
defined in this Disclosure Statement have the meanings ascribed to them in the
Plan. Unless otherwise noted herein, all dollar amounts provided in this
Disclosure Statement and in the Plan are given in United States dollars.
FOR A DESCRIPTION OF THE PLAN AND VARIOUS RISKS AND OTHER FACTORS
PERTAINING TO THE PLAN AS IT RELATES TO HOLDERS OF CLASS 6 AND 7 CLAIMS, PLEASE
SEE ARTICLE II OF THE DISCLOSURE STATEMENT, ENTITLED "SUMMARY OF THE PLAN OF
REORGANIZATION," AND ARTICLE VII OF THE DISCLOSURE STATEMENT, ENTITLED "CERTAIN
FACTORS TO BE CONSIDERED."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF
THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATING TO THE PLAN,
CERTAIN EVENTS EXPECTED TO OCCUR IN THE CHAPTER 11 CASES AND CERTAIN FINANCIAL
INFORMATION. ALTHOUGH THE DEBTORS BELIEVE THAT THE PLAN AND RELATED DOCUMENT
SUMMARIES ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT
THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY
THE DEBTORS' MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE DEBTORS
DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDING THE
FINANCIAL INFORMATION, IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION.
THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO SUCCESS
FULLY REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE
OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THE HOLDERS OF CLASS 6
CLAIMS AND CLASS 7 CLAIMS. THE DEBTORS URGE HOLDERS OF CLASS 6 AND 7 CLAIMS TO
VOTE TO ACCEPT THE PLAN.
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS APPOINTED IN THESE CASES
SUPPORTS CONFIRMATION OF THE PLAN OF REORGANIZATION DETAILED HEREIN AND URGES
HOLDERS OF CLASS 7 CLAIMS TO VOTE IN FAVOR OF THE PLAN.
THE PLAN PROVIDES THAT IF CLASS 7 VOTES TO REJECT THE PLAN, THEN
HOLDERS OF CLASS 7 CLAIMS WILL RECEIVE NO DISTRIBUTIONS UNDER THE PLAN ON
ACCOUNT OF THEIR CLASS 7 CLAIMS. IN ADDITION, IN SUCH EVENT, THE PLAN PROVIDES
THAT NO DISTRIBUTIONS WILL BE MADE TO CLASSES 8A, 8B OR 8C.
1
<PAGE> 12
THE DEBTORS BELIEVE THAT THE PLAN AND THIS DISCLOSURE STATEMENT ARE
CONSISTENT WITH THE LETTER AGREEMENT DATED JUNE 21, 1999 AS AMENDED (THE "LENDER
LOCK-UP AGREEMENT"), AMONG PSC AND CERTAIN CONSENTING LENDERS PARTY THERETO, AND
THAT THE PLAN IS CONSISTENT WITH THE TERMS OF THE PLAN DESCRIBED IN THE TERM
SHEET TO THE LENDER LOCK-UP AGREEMENT. THEREFORE, IN ACCORDANCE WITH THE TERMS
OF THE LENDER LOCK-UP AGREEMENT THE CONSENTING LENDERS PARTY THERETO HAVE AGREED
TO VOTE TO ACCEPT THE PLAN. THESE CONSENTING LENDERS CONSTITUTE HOLDERS IN
EXCESS OF SEVENTY-SIX PERCENT (76%) IN AMOUNT OF CLASS 6 CLAIMS.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT
THE PLAN, SEE ARTICLE XIII OF THE DISCLOSURE STATEMENT, ENTITLED "THE
SOLICITATION; VOTING PROCEDURES."
ARTICLE II.
SUMMARY OF THE PLAN OF REORGANIZATION
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE, CLASSIFICATION,
TREATMENT AND IMPLEMENTATION OF THE PLAN AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN, WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT, AND TO THE
EXHIBITS ATTACHED THERETO.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN WILL CONTROL THE
TREATMENT OF CREDITORS AND EQUITY SECURITY HOLDERS UNDER THE PLAN AND WILL, UPON
THE EFFECTIVE DATE, BE BINDING UPON HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN,
THE DEBTORS, THE REORGANIZED DEBTORS AND OTHER PARTIES IN INTEREST.
A. OVERALL STRUCTURE OF THE PLAN
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of its creditors and shareholders. Upon the filing of a
petition for relief under chapter 11, section 362 of the Bankruptcy Code
provides for an automatic stay of substantially all acts and proceedings against
the debtor and its property, including all attempts to collect claims or enforce
liens that arose prior to the commencement of the chapter 11 case.
The consummation of a plan of reorganization is the principal objective
of a chapter 11 case. A plan of reorganization sets forth the means for
satisfying claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Bankruptcy Court makes the plan binding upon the debtor,
any issuer of securities under the plan, any person or entity acquiring property
under the plan, and any creditor of or equity security holder in the debtor,
whether or not such creditor or equity security holder (i) is impaired under or
has accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan, and
terminates all rights and interests of equity security holders.
The terms of the Plan are based upon, among other things, the Debtors'
assessment of their ability to achieve the goals of their business plan, make
the distributions contemplated under the Plan and pay certain of their
continuing obligations in the ordinary course of the Reorganized Debtors'
businesses as approved by the Bankruptcy Court. Under the Plan, Claims
against, and Interests in, the Debtors are divided into Classes according to
their seniority and other criteria.
2
<PAGE> 13
If the Plan is confirmed by the Bankruptcy Court and consummated, (i)
the Claims in certain Classes will be reinstated or modified and receive
distributions equal to the full amount of such Claims, and (ii) the Claims
and/or Interests in other Classes will be modified and receive distributions
constituting a partial recovery on such Claims and/or Interests. On the
Effective Date and at certain times thereafter, the Reorganized Debtors will
distribute Cash, securities and other property in respect of certain Classes of
Claims as provided in the Plan. The Classes of Claims against the Debtors
created under the Plan, the treatment of those Classes under the Plan and the
securities and other property to be distributed under the Plan are described
below.
The Plan provides for alternative treatment of Claims and Interests
depending upon which of the two alternative restructurings are implemented in
the Canadian Cases for PSC and the other Canadian Debtors.
Generally, if the Canadian Reorganization Plan is sanctioned, the Plan
provides that PSC will reorganize and remain the ultimate parent company of the
Debtors. Alternatively, if the Alternate Canadian Transactions are implemented,
the reorganization of the Canadian Debtors will be accomplished through the
transfer of the businesses of the Canadian Debtors as going concerns to one or
more direct or indirect subsidiaries of Reorganized PSI, with certain claims and
causes of action and other assets being retained by PSC and the other Canadian
Debtors, subject to the Lenders' security interests, and Reorganized PSI will
emerge from chapter 11 as the ultimate parent company of the Reorganized
Debtors. The assets of PSC and the other Canadian Debtors that would not be
acquired through the implementation of the Alternate Canadian Transactions,
which would include any claim, rights or causes of action, suits and
proceedings, whether in law or equity, whether known or unknown, that PSC and/or
the other Canadian Debtors may hold, including claims against Deloitte & Touche
and Robert Waxman, would remain assets of PSC and the other Canadian Debtors and
subject to the Lenders' security interests to the extent such Lender Claims
secured by such security interests have not been satisfied in full prior
thereto. The Lenders will retain their security interests and deficiency claims
against PSC and the other Canadian Debtors and would likely be the sole
beneficiaries of any recovery on such assets unless the recoveries cause their
debt to have been repaid in full.
If the Canadian Reorganization Plan is implemented, the Plan provides
that as of the Effective Date, if Class 7 votes to accept the Plan: (i)
ninety-one percent (91%) of the common stock of Reorganized PSC (the common
shares of Reorganized PSC as of the Effective Date and after giving effect to
the New Common Shares to be issued under the Plan and a reverse stock split
described below are referred to as "PSC Common Shares") will be owned by the
holders of the Secured Lender Claims, (ii) five percent (5%) of PSC Common
Shares will be owned by the holders of Allowed Class 7 Claims and holders of
Canadian Impaired Unsecured Claims (as defined herein), (iii) two percent (2%)
of PSC Common Shares will be owned by the holders of Interests under Class 8A,
(iv) one-half of one percent (0.5%) of PSC Common Shares will be owned by the
holders of Claims under Class 8C, and (v) one and one-half percent (1.5%) will
be owned by the holders of Class 8B Claims and members of the Canadian Class
Action settlement class. If Class 7 votes to reject the Plan, then the holders
of Secured Lender Claims will receive ninety-five percent (95%) of PSC Common
Shares plus the PSC Common Shares that would have been available for
distribution to Class 7 had Class 7 voted to accept the Plan and no PSC Common
Shares will be owned by the holders of Interests in Class 8A, holders of Claims
in Class 8B or the holders of Claims in Class 8C. All of these percentages of
ownership of PSC Common Shares are subject to dilution subsequent to the
Effective Date (a) to the extent necessary to give effect to the convertibility
of the New Secured PIK Debt, the New Unsecured Convertible Notes and the
exercise of the Management Options or (b) otherwise as a result of the issuance
of common shares, implementation of other management incentive programs or other
action taken by the board of directors of Reorganized PSC, all as described in
more detail subsequently in this Disclosure Statement. If the Canadian
Reorganization Plan is implemented after the Effective Date, the New Securities
to be distributed as described above will be issued by Reorganized PSI as
opposed to Reorganized PSC.
If the Alternate Canadian Transactions are implemented and if Class 7
votes to accept the Plan, (i) the holders of the Secured Lender Claims will own
ninety-one percent (91%) of Reorganized PSI Common Shares plus an amount of
Reorganized PSI Common Shares equivalent to the amount of New Common Shares that
would have been distributed to the class of holders of Canadian Impaired
Unsecured Claims if the Canadian Reorganization Plan
3
<PAGE> 14
was sanctioned (based on the Debtors' estimate of the allowed amount of
such claims) less an amount of New Common Shares equivalent to the amount of
Reorganized PSI Common Shares distributed to the holders of Canadian Impaired
Unsecured Claims who make the U.S. Plan Election (as described below under the
heading "Summary of the Plan of Reorganization - - Classification and Treatment
of Claims and Interests - - The U.S. Plan Election and Distributions on Account
Thereof"), (ii) the holders of Allowed Class 7 Claims (including holders of
Allowed Canadian Impaired Unsecured Claims that make the U.S. Plan Election as
described below) will own five percent (5%) of Reorganized PSI Common Shares,
less the aggregate number of Reorganized PSI Common Shares that would have been
distributed to those holders of Canadian Impaired Unsecured Claims if the
Canadian Reorganization Plan was sanctioned and, (iii) two percent (2%) of
Reorganized PSI Common Shares will be owned by the holders of Interests under
Class 8A, (iv) one-half of one percent (0.5%) of Reorganized PSI Common Shares
will be owned by the holders of Claims under Class 8C (including residents of
Canada that make the U.S. Plan Election) and (v) one and one-half percent (1.5%)
of Reorganized PSI Common Shares will be owned by the holders of Class 8B Claims
(including residents of Canada that make the U.S. Plan Election). If Class 7
votes to reject the Plan, one hundred (100%) of Reorganized PSI Common Shares
will be owned by the holders of the Secured Lender Claims. All of these
percentages of ownership of Reorganized PSI Common Shares are subject to
dilution subsequent to the Effective Date (a) to the extent necessary to give
effect to the convertibility of the New Secured PIK Debt, the New Unsecured
Convertible Notes and the exercise of the Management Options or (b) otherwise as
a result of the issuance of common shares, implementation of other management
incentive programs or other action taken by the board of directors of
Reorganized PSI, all as described in more detail subsequently in this Disclosure
Statement.
B. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING IMPAIRED CLAIMS
The Plan is premised upon the substantive consolidation of the Debtors
only for purposes of treating Class 6, 7 and 8 Claims under the Plan, including
voting, confirmation and distribution purposes. The Plan does not contemplate
the substantive consolidation of the Debtors with respect to other Classes of
Claims or Interests set forth in the Plan. Substantive consolidation of Classes
6, 7 and 8 solely for purposes of the Plan is appropriate in this case. As of
the Petition Date, the Debtors were, and remain, indebted, jointly and
severally, to the prepetition Lenders in the principal amount of approximately
$1 billion, together with accrued and unpaid interest and other fees, costs and
expenses. The Debtors have undertaken a preliminary review of liens and
guarantees in favor of the Lenders and believe that there are no viable causes
of action under applicable fraudulent conveyance law to avoid obligations or
liens of the Debtors to the Lenders. The going concern enterprise value of the
Debtors' consolidated businesses has been established by Ernst & Young Corporate
Finance at between $500 million and $600 million, rendering the Lenders
substantially undersecured. Because significantly all of the assets of the
Debtors are pledged to secure the obligations of the Lenders, under section 1141
of the Bankruptcy Code unsecured creditors and interest holders in Classes 7 and
8 would not be entitled to any distribution on account of their Claims. Thus any
distribution is purely as a result of the agreement of the Lenders to pass value
to those impaired classes. Accord ingly, there exists no reason in connection
with the solicitation, balloting and distribution processes to observe the
formalities of separateness among the Debtors for purposes of the solicitation
and distributions to Classes 6, 7 and 8 Claims, nor should the Debtors and these
creditors incur the additional wholly unnecessary costs that would result absent
the limited substantive consolidation proposed in the Plan.
Pursuant to the limited substantive consolidation, on the Effective
Date (a) all guaranties of any Debtor of the payment, performance or collection
of another Debtor with respect to Class 6, 7 and 8 Claims shall be deemed
eliminated and canceled; (b) any obligation of any Debtor and all guaranties
with respect to Class 6, 7 and 8 Claims thereof executed by one or more of the
other Debtors shall be treated as a single obligation and any obligation of
two or more Debtors, and all multiple Impaired Claims against such entities on
account of such joint obligations shall be treated and Allowed only as a single
Impaired Claim against the consolidated Debtors; and (c) each Class 6, 7 and 8
Claim filed in the Chapter 11 Cases of any Debtors shall be deemed filed against
the consolidated Debtors and shall be deemed one Class 6, 7 and 8 Claim against
and obligation of the consolidated Debtors. Such substantive consolidation shall
not (other than for purposes related to the Plan) (a) affect the legal and
corporate structures of the
4
<PAGE> 15
Reorganized Debtors, subject to the right of the Debtors or Reorganized
Debtors to effect the Restructuring Transactions as provided in the Plan, (b)
cause any Debtor to be liable for any Impaired Claim or Unimpaired Claim under
the Plan, for which it otherwise is not liable and the liability of any Debtor
for any such Claim shall not be affected by such substantive consolidation, (c)
affect Intercompany Claims of Debtors against Debtors and (d) affect Interests
in the Debtors which are Subsidiaries of PSC. On the Effective Date, except as
specifically set forth in the Plan, the Intercompany Claims of Debtors against
Debtors shall be reinstated or discharged and satisfied, at the option of PSC or
PSI with the consent of the Required Lenders, by contributions, distributions or
otherwise. On the Effective Date, to the extent a Debtor which is a Subsidiary
is not dissolved or merged as part of the Restructuring Transactions, the
Interests in such Debtor shall remain outstanding.
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization must classify the claims and interests of a debtor's creditors
and equity interest holders. In accordance with section 1123, the Plan divides
Claims and Interests into Classes and sets forth the treatment for each Class
(other than DIP Facility Claims, Administrative Claims and Priority Tax Claims
which, pursuant to section 1123(a)(1), do not need to be classified). The
Debtors also are required, under section 1122 of the Bankruptcy Code, to
classify Claims against and Interests in the Debtors into Classes that contain
Claims and Interests that are substantially similar to the other Claims and
Interests in such Class. The Debtors believe that the Plan has classified all
Claims and Interests in compliance with the provisions of section 1122, but it
is possible that a holder of a Claim or Interest may challenge the Debtors'
classification of Claims and Interests and that the Bankruptcy Court may find
that a different classification is required for the Plan to be confirmed. In
that event, the Debtors intend, to the extent permitted by the Bankruptcy Code,
the Plan and the Bankruptcy Court, to make such reasonable modifications of the
classifications under the Plan to permit confirmation and to use the Plan
acceptances received in this Solicitation for purposes of obtaining the approval
of the reconstituted Class or Classes of which each accepting holder ultimately
is deemed to be a member. Any such reclassification could adversely affect the
Class in which such holder initially was a member, or any other Class under the
Plan, by changing the composition of such Class and the vote required of that
Class for approval of the Plan. Furthermore, a reclassification of a Claim or
Interest after approval of the Plan could necessitate a resolicitation of
acceptances of the Plan.
The amount of any Impaired Claim that ultimately is allowed by the
Bankruptcy Court may vary from any estimated allowed amount of such Claim and
accordingly the total Claims ultimately allowed by the Bankruptcy Court with
respect to each Impaired Class of Claims may also vary from any estimates
contained herein with respect to the aggregate Claims in any Impaired Class.
Thus, the value of the property that ultimately will be received by a particular
holder of an Allowed Claim under the Plan may be adversely or favorably affected
by the aggregate amount of Claims ultimately allowed in the applicable Class.
Additionally, distributions to holders of Claims in Classes 8B and 8C will
ultimately be determined by the number and amount of Allowed Claims in such
Classes as well as the number and amount of holders of Canadian Class 8B and 8C
Claims that execute the Canadian Proof of Claim and Election. There can be no
assurance that the actual aggregate amounts of Allowed Claims in Impaired
Classes will not materially exceed the aggregate amounts estimated by the
Debtors. Thus, no representation can be or is being made with respect to the
accuracy of the expected percentage recovery by the holder of an Allowed Claim
in any particular Class.
The classification of Claims and Interests and the nature of
distributions to members of each Class are summarized below. The Debtors believe
that the consideration, if any, provided under the Plan to holders of Claims
and Interests reflects an appropriate resolution of their Claims and Interests,
taking into account the differing nature and priority (including applicable
contractual and statutory subordination) of such Claims and Interests and the
fair value of the Debtors' assets. In view of the deemed rejection by Class 9,
however, as set forth below, the Debtors will seek confirmation of the Plan
pursuant to the "cramdown" provisions of the Bankruptcy Code. Specifically,
section 1129(b) of the Bankruptcy Code permits confirmation of a Chapter 11 plan
in certain circumstances even if the plan has not been accepted by all impaired
classes of claims and interests. See Article II.O of the Disclosure
5
<PAGE> 16
Statement, entitled "Summary of the Plan of Reorganization -- Conditions to
Confirmation and/or Consummation." Although the Debtors believe that the Plan
could be confirmed under section 1129(b), there can be no assurance that the
requirements of such section would be satisfied.
1. Classified Claims and Interests
Under the Plan, classified Claims against and Interests in
the Debtors are divided into nine Classes (and three defined subclasses), and
are summarized in the following table.
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
CLASS 1 - OTHER PRIORITY CLAIMS Class 1 consists of all Claims entitled to priority pursuant to section 507(a)
of the Bankruptcy Code other than DIP Facility Claims, Priority Tax Claims or
Administrative Claims ("Other Priority Claims"). Under the Plan, on, or as soon as
reasonably practicable after, the latest of (i) the Distribution Date, (ii) the
date such Class 1 Other Priority Claim becomes an Allowed Class 1 Other Priority
Claim, or (iii) the date such Class 1 Other Priority Claim becomes payable
pursuant to any agreement between a Debtor and the holder of such Class 1 Other
Priority Claim, each holder of an Allowed Class 1 Other Priority Claim will
receive in full satisfaction, settlement, release and discharge of and in exchange
for such Allowed Class 1 Other Priority Claim (a) Cash equal to the unpaid portion
of such Allowed Class 1 Other Priority Claim or (b) such other treatment as to
which a Debtor, with the consent of the Required Lenders, and such holder shall
have agreed upon in writing. Class 1 Other Priority Claims are Unimpaired and
therefore not entitled to vote on the Plan.
CLASS 2 - OTHER SECURED CLAIMS Class 2 consists collectively of all Claims that are secured by a Lien upon
property in which the Estate has an interest or that is subject to setoff under
section 553 of the Bankruptcy Code, to the extent of the value of the Claim
holders' interest in the Estate's interest in such property or to the extent of
the amount subject to setoff, as applicable, as determined pursuant to section
506(a) of the Bankruptcy Code ("Secured Claims") against the Reorganized Debtors
other than the Secured Claims included in Class 6 below ("Other Secured Claims").
Each holder of a Class 2 Other Secured Claim shall be treated as a separate class
for all purposes under the Plan and the Bankruptcy Code, and each holder of an
Allowed Class 2 Other Secured Claim will receive the treatment summarized below in
Option A or B. Under the Plan, except as to the Liens and security interests of
the Account Intermediaries, the Debtors specifically reserve all rights to
challenge the validity, nature and perfection of any purported liens and security
interests of the holders of Other Secured Claims.
Option A: Allowed Class 2 Other Secured Claims with respect to which
the applicable Debtor or the applicable Reorganized Debtor selects Option A,
subject to the consent of the Required Lenders, will be paid in cash, in full,
by the Reorganized Debtors,
</TABLE>
6
<PAGE> 17
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
unless the holder of such Claim agrees to less favorable treatment.
Option B: Allowed Class 2 Other Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor selects Option B will be
Reinstated.
The applicable Debtor or Reorganized Debtor will be deemed to have elected Option
B in respect of the Other Secured Claims of the Account Intermediaries and all
other Allowed Class 2 Other Secured Claims except the other Allowed Class 2
Secured Claims which the applicable Debtor or Reorganized Debtor, with the consent
of the Required Lenders, elects Option A in writing prior to the Confirmation
Hearing. Class 2 Other Secured Claims are Unimpaired and therefore not entitled to
vote on the Plan.
CLASS 3 - GENERAL UNSECURED CLAIMS Class 3 consists of all Claims against the Debtors that are not DIP
Facility Claims, Administrative Claims, Priority Tax Claims, Other Priority
Claims, Other Secured Claims, Intercompany Claims of non- Debtors, Lender Claims,
Impaired Unsecured Claims, Securities Claims, Other Securities Claims or Excluded
Indemnification Obligations. Under the Plan, each holder of an Allowed Class 3
General Unsecured Claim shall, at the option of the Debtors, with the consent of
the Required Lenders (a) have its Claim Reinstated or (b) receive such other
treatment as to which the applicable Debtor or Reorganized Debtor and such holder
shall have agreed upon in writing. Class 3 General Unsecured Claims are Unimpaired
and therefore not entitled to vote on the Plan.
CLASS 4 - INTERCOMPANY CLAIMS OF NON- Class 4 consists of all intercompany claims of Non-Debtors (the
DEBTORS "Intercompany Claims," as defined in the Plan). Under the Plan, each
holder of an Allowed Class 4 Intercompany Claim (except for the Intercompany
Claims of Phencorp against PSI, Luntz Acquisition (Delaware) Corporation, and RESI
Acquisition (Delaware) Corporation, in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed Class 4 Intercompany Claim, will, in
the sole discretion of the applicable Debtor as Reorganized Debtor, with the
consent of the Required Lenders (a) have its Claim Reinstated or (b) receive such
other treatment as the applicable Debtor as Reorganized Debtor and such holder
have agreed upon in writing. In the event the Canadian Reorganization Plan is not
sanctioned and the Alternate Canadian Transactions are implemented, Phencorp will
be liquidated and its receivables distributed to its sole shareholder, Philip
Enterprises, Inc., which will in turn contribute the receivables as a capital
contribution to its wholly-owned subsidiary, PSI. Phencorp has agreed to accept
the Plan. Class 4 Intercompany Claims of Non-Debtors are Unimpaired and therefore
not entitled to vote on the Plan.
</TABLE>
7
<PAGE> 18
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
CLASS 5 - SUBSIDIARY INTERESTS Class 5 consists of the issued and outstanding shares of stock of the
Subsidiaries directly or indirectly owned by PSC, as of the Petition Date (the
"Subsidiary Interests"). Under the Plan, subject to the Restructuring
Transactions, all Class 5 Subsidiary Interests will be deemed Allowed Interests
and Reinstated on the Effective Date, but the holders of Class 5 Subsidiary
Interests shall receive no distribution under the Plan on account of such
Interests; provided, however, if the Alternate Canadian Transactions are
implemented, then the Interests in PSI and the Luntz Corporation owned by Philip
Enterprises, Inc. shall be deemed cancelled and extinguished as of the Effective
Date. Class 5 Subsidiary Interests are Unimpaired and therefore not entitled to
vote on the Plan.
CLASS 6 - SECURED LENDER CLAIMS Class 6 consists of all Secured Claims of Lenders (the "Secured Lender
Claims") arising under or as a result of the Pre-Petition Credit Agreement, the
Credit Documents and the Lender Lock-up Agreement (the "Pre-Petition Credit
Facility Agreements"). Under the Plan, regardless whether the Canadian
Reorganization Plan is sanctioned or the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived, on the Effective Date, the
Pre-Petition Credit Facility Agreements shall be amended and restated by the
Amended and Restated Term Credit Agreement without any further action by any
party.
Treatment if the Canadian Reorganization Plan is Sanctioned: Subject to the
adjustment described in the immediately succeeding sentence, each holder of an
Allowed Class 6 Secured Lender Claim, in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed Class 6 Secured Lender Claim,
will receive on or as soon as practicable after the Distribution Date, its pro
rata share of (A) the Net Asset Sale Proceeds Pool (See Article VIII.B "New Debt
and Securities to Be Issued and Transferred under the Plan - New Senior Secured
Term Debt" (describing the Net Asset Sale Proceeds Pool)); (B) the New Secured PIK
Debt (See Article VIII.C "New Debt and Securities to Be Issued and Transferred
under the Plan - New Secured PIK Debt"); (C) the New Senior Secured Term Debt (See
Article VIII.B "New Debt and Securities to Be Issued and Transferred under the
Plan - New Senior Secured Term Debt"); and (D)(i) if Class 7 votes to accept the
Plan, 5,967,052,592 shares of the New Common Shares (See Article VIII.A "New Debt
and Securities to be Issued and Transferred under the Plan - New Common Shares/PSC
Common Shares/Reorganized PSI Common Shares") which shall be ninety-one percent
(91%) of the PSC Common Shares issued and outstanding as of the Effective Date
(which shall equal 21,840,000 shares of the PSC Common Shares issued and
outstanding as of the Effective Date, after giving effect to the Reverse Stock
Split) subject to Dilution; or (ii) if Class 7 votes to reject the Plan,
22,800,000 shares of the PSC Common
</TABLE>
8
<PAGE> 19
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
Shares which shall be ninety-five percent (95%) of the PSC Common Shares
issued and outstanding as of the Effective Date, subject to Dilution, plus an amount
of the PSC Common Shares equal to the aggregate number of the New Common Shares that
would have been distributed to Class 7 had Class 7 voted to accept the Plan (based
on the Debtors' estimate of the aggregate Allowed amount of such claims), subject to
Dilution, and an amount of New Unsecured PIK Notes equal to the amount that would
have been available for distribution to Class 7 had Class 7 voted to accept the
Plan (based on the Debtors' estimate of the aggregate Allowed amount of such
Claims).
Each LC Lender will fund its pro rata share of the Unfunded LC Claim (a) in Cash,
or (b) by forgoing distributions that it would otherwise receive in respect of a
Claim in the amount of its pro rata share of the Unfunded LC Claim. If the
distributions that would otherwise be received by an LC Lender are insufficient
to fund its pro rata share of the Unfunded LC Claim, such deficiency may be paid by
foregoing distributions by any Lender that is an Affiliate of such LC Lender.
Any such Cash paid or distributions forgone shall be reallocated among the
holders of Allowed Class 6 Secured Lender Claims.
Treatment if the Alternate Canadian Transactions are Implemented: Subject to the
adjustment described in the immediately succeeding paragraph, each holder of an
Allowed Class 6 Secured Lender Claim, in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed Class 6 Secured Lender Claim against
the Debtors other than PSC and in exchange for the assignment of its right as a
secured creditor to receive certain proceeds of the Alternate Canadian Transactions,
shall receive on or as soon as practicable after the Distribution Date its pro rata
share of (A) the Net Asset Sale Proceeds Pool, (B) the New Secured PIK Debt, (C) the
New Senior Secured Term Debt and (D) (i) if Class 7 votes to accept the Plan,
ninety-one percent (91%) which shall equal 21,840,000 shares of the Reorganized PSI
Common Shares as of the Effective Date, plus the Class 6 Additional Distribution (or
(ii) if Class 7 votes to reject the Plan, one hundred percent (100%) which shall
equal 24,000,000 shares of the Reorganized PSI Common Shares as of the Effective
Date (See Article II.C "Summary of the Plan of Reorganization -- Classification and
Treatment of Claims and Interests -- The U.S. Plan Election and Distributions on
Account Thereof") subject to Dilution and no New Unsecured PIK Notes will be issued.
In addition, the holders of Allowed Class 6 Secured Lender Claims shall retain such
claims against PSC and the other Canadian Debtors and security interests in assets
of PSC and the other Canadian Debtors retained and not transferred pursuant to the
terms of the Alternate Canadian Transactions.
Each LC Lender will fund its pro rata share of the Unfunded LC Claim
</TABLE>
9
<PAGE> 20
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
(a) in Cash, or (b) by forgoing distributions that it would otherwise receive in
respect of a Claim in the amount of its pro rata share of the Unfunded LC Claim. If
the distributions that would otherwise be received by an LC Lender are insufficient
to fund its pro rata share of the Unfunded LC Claim, such deficiency may be paid by
the foregoing of distributions by any Lender that is an Affiliate of such LC Lender.
Any such Cash paid or distributions forgone shall be reallocated pro rata among the
holders of Allowed Class 6 Secured Lender Claims.
CLASS 7 - ALL IMPAIRED UNSECURED Class 7 consists collectively of all Claims as set forth on Exhibit B to the Plan,
CLAIMS the Unsecured Lender Claims, the Old Debenture Claims, the Impaired Trade Claims
and Claims of parties to executory contracts and leases that are rejected in the
Chapter 11 Cases (the "Impaired Unsecured Claims").
Treatment if the Canadian Reorganization Plan is Sanctioned: On, or as soon as
reasonably practicable after, the later of (i) the Distribution Date or (ii) the
date a Class 7 Claim becomes an Allowed Class 7 Claim, (a) if the holders of Allowed
Class 7 Claims vote to accept the Plan, then each holder of an Allowed Class 7 Claim
shall receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 7 Claim, its pro rata share of (i) subject to the
Class 7 Election, $60 million of New Unsecured PIK Notes (See Article VIII.D "New
Debt and Securities to Be Issued Under the Plan New Unsecured PIK Notes"), and (ii)
327,860,033 shares of the New Common Shares which shall be five percent (5%) of the
PSC Common Shares issued and outstanding as of the Effective Date (which shall equal
1,200,000 PSC Common Shares after giving effect to the Reverse Stock Split) subject
to Dilution, which distribution shall be shared pro rata with those holders of
allowed Canadian Impaired Unsecured Claims. The holders of Unsecured Lender Claims
shall be deemed to have waived any and all distributions to which they would be
entitled under the Plan as holders of Unsecured Lender Claims including the benefits
of any and all contractual subordination provisions in respect of the Old
Debentures; or (b) if the holders of Class 7 Claims vote to reject the Plan, then
the holders of such Claims shall not receive or retain any property on account of
such Claims.
Treatment If the Alternate Canadian Transactions are Implemented: If the holders of
Allowed Class 7 Claims vote to accept the Plan then each holder of an Allowed Class
7 Claim shall receive in full satisfaction, settlement, release and discharge of and
in exchange for such Allowed Class 7 Claim, its pro rata share of (a) subject to the
Class 7 Election (See Article II.C "Summary of the Plan of Reorganization -
Classification and Treatment of Claims and Interests -- The Class 7 Election"), $60
million of New Unsecured PIK Notes and (b) five percent (5%) which shall equal
1,200,000 Reorganized PSI Common
</TABLE>
10
<PAGE> 21
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
Shares as of the Effective Date, subject to Dilution, which distributions
shall be shared pro rata with holders of Canadian Impaired Unsecured Claims that
make the U.S. Plan Election and the holders of Class 6 Claims on account of the
Class 6 Additional Distribution. The holders of Unsecured Lender Claims shall be
deemed to have waived any and all distributions to which they would be entitled
under the Plan as holders of Unsecured Lender Claims, including the benefits of any
and all contractual subordination provisions in respect of the Old Debentures and
shall receive no distributions on account of such Unsecured Lender Claims; provided,
however, that the holders of the Allowed Unsecured Lender Claims shall retain such
Claims against PSC and the Subsidiaries other than the Debtors. If the holders of
Allowed Class 7 Claims vote to reject the Plan, then the holders of such Claims
shall not receive or retain any property on account of such Claims.
Canadian dollar ("CDN") Claims will be converted to United States Dollars for
purposes of distributions by applying the June 25, 1999 Dow Jones Canadian to United
States exchange rate of .68254855.
CLASS 8A - OLD COMMON SHARES Class 8A consists of all Interests of holders of the common shares of
PSC issued and outstanding as of the Petition Date (the "Old Common
Shares").
On the Effective Date, in full satisfaction, settlement, release and discharge of
and in exchange for Class 8A Interests, holders of Allowed Class 8A Interests shall
be entitled to (a) if the Canadian Reorganization Plan is sanctioned, retain their
Old Common Shares, which after giving effect to the issuance of New Common Shares
shall be two percent (2.0%) of the PSC Common Shares issued and outstanding as of
the Effective Date (which shall equal 480,000 PSC Common Shares after giving effect
to the Reverse Stock Split) subject to Dilution or (b) if the Alternate Canadian
Transactions are implemented or the Canadian Plan Condition is waived, receive two
percent (2.0%) or 480,000 Reorganized PSI Common Shares as of the Effective Date,
subject to Dilution.
Notwithstanding any provision contained herein to the contrary, if Class 7 votes to
reject the Plan, then the holders of Class 8A Interests shall not receive or retain
any property on account of such Interests. In such case, the Reorganized Debtors
will take all such corporate actions as are necessary or required on and after the
Effective Date to cancel such Interests.
CLASS 8B - SECURITIES CLAIMS IN THE Class 8B consists of all Claims, excluding Other Securities Claims, in
SECURITIES ACTIONS the U.S. Class Action and the Canadian Class Action (collectively the
"Securities Actions") or Claims arising out of the ownership of Old
Common Shares.
</TABLE>
11
<PAGE> 22
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
Treatment if the Canadian Reorganization Plan is Sanctioned: On or as soon as
reasonably practicable after the later of the Distribution Date or the date such
Class 8B Claim becomes an Allowed Class 8B Claim, in full satisfaction, settlement,
release and discharge thereof and in exchange for Class 8B Claims, each holder of an
Allowed Class 8B Claim will receive its pro rata share of 98,358,010 shares of the
New Common Shares, which shall be in the aggregate one and one-half percent (1.5%)
of the PSC Common Shares issued and outstanding as of the Effective Date (which
shall equal 360,000 PSC Common Shares after giving effect to the Reverse Stock
Split), subject to Dilution, which distributions shall be shared with members of the
Canadian Class Action class if the settlement of the Canadian Class Action is
approved and implemented.
Treatment if the Alternate Canadian Transactions are Implemented: On or as soon as
reasonably practicable after the later of the Distribution Date or the date such
Class 8B Claim becomes an Allowed Class 8B Claim, in full satisfaction, settlement,
release and discharge and in exchange for Class 8B Claims, each holder of an Allowed
Class 8B Claim will receive its pro rata share of one and one-half percent (1.5%)
which shall equal 360,000 Reorganized PSI Common Shares as of the Effective Date,
subject to Dilution, which distributions shall be shared with members of the
Canadian Class Action class if the settlement of the Canadian Class Action is
approved and implemented, and subject to the provisions of Article III.F of the Plan
which allow Canadian Class 8B Holders that make the U.S. Election to share in the
pro rata distribution to Class 8B.
If Class 7 votes to reject the Plan, then holders of Class 8B Claims shall not
receive or retain any property under the Plan. Class 8B Claims are Impaired and
therefore entitled to vote on the Plan, unless the Bankruptcy Court enters the Class
8 Solicitation Order.
CLASS 8C - OTHER SECURITIES CLAIMS Class 8C consists of (a) the Chazen Claims, Liff Claims, Claims arising out
of the Great Plains Action and any and all Claims arising from the recission or
right of recission of a purchase or sale of a security or Interest of any Debtor or
of an affiliate of any Debtor, or for damages arising from the purchase or sale of
such a security or Interest (excluding the Securities Claims classified in Class
8B); (b) claims for reimbursement, indemnification or contribution allowed under
section 502 of the Bankruptcy Code on account of (i) such Claims, (ii) the
Securities Actions, (iii) any actions initiated after the Petition Date that may be
subordinated pursuant to section 510(b) or 510(c) of the Bankruptcy Code or (iv) any
actions associated with or arising out of the facts or alleged facts relating to any
of the aforementioned claims or actions in each case that may be subordinated
pursuant to section 510(b) or 510(c) of the Bankruptcy Code; and (c) claims relating
to
</TABLE>
12
<PAGE> 23
<TABLE>
<CAPTION>
CLASS DESCRIPTION TREATMENT UNDER PLAN
<S> <C>
Excluded Indemnification Obligations, in each case to the extent not disallowed
pursuant to Article IV.K; provided, however, that "Other Securities Claims" shall
not include Assumed Indemnification Obligations or Claims against PSC held by
Canadian residents.
Treatment if the Canadian Reorganization Plan is Sanctioned: On the Effective Date,
in full satisfaction, settlement, release and discharge of and in exchange for Class
8C Claims, each holder of an Allowed Class 8C Claim shall receive its pro rata share
of 32,786,003 shares of the New Common Shares, which shall be one-half of one
percent (0.5%) of the PSC Common Shares issued and outstanding as of the Effective
Date (which shall equal 120,000 PSC Common Shares after giving effect to the Reverse
Stock Split), subject to Dilution.
Treatment if the Alternate Canadian Transactions are Implemented: On or as soon as
reasonably practicable after the later of the Distribution Date or the date such
Class 8C Claim becomes an Allowed Class 8C Claim, in full satisfaction, settlement,
release and discharge and in exchange for Class 8C Claims, each holder of an Allowed
Class 8C Claim will receive its pro rata share of one-half of one percent (0.5%)
which shall equal 120,000 Reorganized PSI Common Shares as of the Effective Date,
subject to Dilution and subject to the provisions of Article III.F of the Plan which
allow Canadian Class 8C Holders that make the U.S. Election to share in the pro rata
distribution to Class 8C.
If Class 7 votes to reject the Plan, then holders of Class 8C Claims shall not
receive or retain any property under the Plan. Class 8C Other Securities Claims are
Impaired and therefore entitled to vote on the Plan, unless the Bankruptcy Court
enters the Class 8 Solicitation Order.
CLASS 9 - OTHER EQUITY SECURITIES Class 9 consists of all Other Equity Securities. Under the Plan, the holders
of Other Equity Securities shall not receive or retain any property under the Plan
on account of such Interests. On the Effective Date, all of the Other Equity
Securities shall be deemed cancelled and extinguished. Class 9 Interests are
Impaired and will receive no distribution under the Plan and are therefore deemed to
reject the Plan and are not entitled to vote on the Plan.
</TABLE>
(a) The Class 7 Election
Qualifying Class 7 Creditors are holders of Class 7
Impaired Unsecured Claims that, as of the Voting Deadline, are holders of
Allowed Impaired Unsecured Claims in a liquidated amount entitled to a
distribution. The Class 7 Election entitles Qualifying Class 7 Creditors to
elect to forgo their pro rata distribution of New Unsecured PIK Notes for New
Unsecured Convertible Notes (See Article VIII.E "New Debt and Securities to Be
Issued Under the Plan - New Unsecured Convertible Notes") subject to certain
terms and limitations. Qualifying Class 7 Creditors shall have the right to make
the Class 7 Election if Class 7 votes to accept the Plan. If Class 7
13
<PAGE> 24
votes to accept the Plan, Qualifying Class 7 Creditors electing
New Unsecured Convertible Notes shall receive, in exchange for every $1.00 in
face amount of New Unsecured PIK Notes that such Qualifying Class 7 Creditor
would have received under the Plan, $1.50 in face amount of New Unsecured
Convertible Notes. The aggregate of New Unsecured Convertible Notes shall not
exceed $18 million. Holders of Old Debentures that do not make an affirmative
Class 7 Election or that do not vote on the Plan shall be deemed to have elected
to receive the New Unsecured Convertible Notes. All other Qualifying Class 7
Creditors that do not make an affirmative Class 7 Election or that do not vote
on the Plan shall be deemed to have elected to receive the New Unsecured PIK
Notes.
If Qualifying Class 7 Creditors elect to convert more
than $12 million in aggregate face amount of New Unsecured PIK Notes into New
Unsecured Convertible Notes, then each Qualifying Class 7 Creditor shall be
entitled to its pro rata share of $18 million in face amount of New Unsecured
Convertible Notes (with such pro rata determination to include only Claims of
the Qualifying Class 7 Creditors electing the New Unsecured Convertible Notes),
and such holders shall be deemed not to have made the Class 7 Election with
respect to the balance of their Class 7 Claims.
On the Effective Date, the Old Debentures, the Old
Indenture and any agreement with respect to Impaired Unsecured Claims shall
be terminated automatically without any further action by any party and shall no
longer be of any force or effect, except that, as between the Indenture Trustee
and the holders of the Old Debentures, provisions relating to any
indemnification of the Indenture Trustee by the holders of Old Debentures, any
payment of the Indenture Trustee's compensation, expenses (including, but no
limited to, the Indenture Trustee's professional fees and expenses),
disbursements and advances, and for any lien prior to the claims of holders of
Old Debentures to secure such compensation, fees, expenses, disbursements and
advances, shall remain in full force and effect.
The following is a numerical example illustrating
the effect of a hypothetical Class 7 Election on distributions of New
Unsecured PIK Notes and New Unsecured Convertible Notes under the Plan, assuming
both Class 7 votes to accept the Plan and the class of holders of Canadian
Impaired Unsecured Claims votes to accept the Canadian Reorganization Plan. This
numerical example is provided for illustrative purposes only and is not a
prediction of any amount that actually will be used in making, or result from
making, any such calculation.
Hypothetical Numbers:
(i) Aggregate Allowed Amount of Class 7 Claims - $100,000,000
(ii) Aggregate Amount of Canadian Impaired Unsecured Claims -
$30,000,000
(iii) Aggregate Amount of Allowed Class 7 Claims of Qualifying Creditors
- $80,000,000
(iv) Aggregate Amount of Allowed Class 7 Claims of Qualifying Creditors
electing New Unsecured Convertible Notes - $50,000,000
Under this hypothetical example, holders of Allowed
Class 7 Claims of Qualifying Creditors electing the New Unsecured Convertible
Notes are entitled to $23.07 million of New Unsecured PIK Notes. This amount is
determined by multiplying such creditors' pro rata share of aggregate Allowed
Amount of Class 7 Claims plus the aggregate Amount of Canadian Impaired
Unsecured Claims ($50 million divided by $130 million) by the maximum amount of
New Unsecured PIK Notes to be issued before taking into consideration the Class
7 Election ($60 million) ($50 million divided by $130 million x $60 million =
$23.07 million). However, such creditors have elected to forgo $12 million in
New Unsecured PIK Notes in favor of $18 million in New Unsecured Convertible
Notes. Therefore, such creditors have reduced their distribution of New
Unsecured PIK Notes to $11.07 million ($23.07 million - $12 million = $11.07
million). Such creditors would share pro rata as a group in $18 million of the
New Unsecured Convertible Notes (which would be in satisfaction of approximately
$26 million in Claims) and
14
<PAGE> 25
would also be entitled to have the balance of their Claims (approximately $24
million) share in the distribution of $11.07 million of New Unsecured PIK Notes.
Under the above-described hypothetical numerical
example, the holder of an Allowed Class 7 Claim in the amount of $3,000,000 that
is not a Qualifying Class 7 Creditor or a Qualifying Class 7 Creditor that does
not elect the Unsecured Convertible Notes in the Class 7 Election would receive
(i) 27,692 shares of PSC Common Shares (after giving effect to Reverse Stock
Split) (2.3% of the 1,200,000 PSC Common Shares) (2.3% = $3,000,000 divided by
$130,000,000) (2.3% x 1,200,000 = 27,692); and (ii) $1,384,875 in New Unsecured
PIK Notes. This amount of New Unsecured PIK Notes is determined as follows:
($130 million (aggregate Allowed Amount of Class 7 Claims plus aggregate Amount
of Canadian Impaired Unsecured Claims) - $50 million (aggregate Amount of
Allowed Class 7 Claims of Qualifying Creditors electing New Unsecured
Convertible Notes claims) = $80 million); such creditors' pro rata share of $80
million is $3 million/$80 million = .0375; .0375 x New Unsecured PIK Notes for
non-electing creditors ($36,930,000) ($48,000,000 - $11,070,000); .0375 x
$36,930,000 = $1,384,875.
Under the above-described hypothetical numerical
example, a holder of an Allowed Class 7 Claim in the amount of $3,000,000 that
is a Qualifying Class 7 Creditor and elects the New Unsecured Convertible Notes
will receive (i) 27,692 shares of PSC Common Shares (after giving effect to
Reverse Stock Split) (2.3% of the 1,200,000 PSC Common Shares) ($3,000,000
divided by $130,000,000) (2.3% x 1,200,000 = 27,692); (ii) $664,200 in New
Unsecured PIK Notes determined as follows: ($3,000,000 divided by $50,000,000=
.06; .06 x New Unsecured PIK Notes for electing creditors ($11,070,000) =
$664,200); and (iii) $1,080,000 in New Unsecured Convertible Notes determined as
follows: $3,000,000 divided by $50,000,000 = .06; .06 x $18,000,000 =
$1,080,000.
(b) Special Provision Regarding Unimpaired Claims
Except as otherwise provided in the Plan, nothing
shall affect the Debtors' or Reorganized Debtors' rights and defenses,
both legal and equitable, with respect to any Unimpaired Claims, including, but
not limited to, all rights with respect to legal and equitable defenses to
setoffs or recoupments against Unimpaired Claims. Notwithstanding the
substantive consolidation of the Debtors, the Unimpaired Claims of any
particular Debtor shall remain the obligations solely of such Debtor and shall
not become obligations of any other Debtor or Reorganized Debtor. Letters of
credit issued pursuant to the Pre-Petition Credit Agreement that remain
outstanding and undrawn on the Effective Date shall be replaced or, with the
consent of the issuers of such letters of credit, supported by letters of credit
issued under the Exit Facility.
(c) Special Provision Regarding Canadian Class 8B and
Class 8C Holders
If the Alternate Canadian Transactions are
implemented, and in the event that a Canadian Class 8B or 8C Holder that
makes the U.S. Plan Election obtains an order of the Bankruptcy Court
determining that such claim is improperly classified or that such claim is not
subject to subordination pursuant to section 510(b) or 510(c) of the Bankruptcy
Code or disallowance pursuant to section 502(e)(1)(B) of the Bankruptcy Code,
such claim shall be deemed to be a Canadian Impaired Unsecured Claim that has
filed the Canadian Proof of Claim and Election. The Debtors shall have 30 days
to file objections to the Proof of Claim, if any. Only if no objection to the
Proof of Claim is filed within the required time period, including any
extensions granted by the Bankruptcy Court or agreed to by the Debtors and the
holder, or if the Bankruptcy Court enters an order allowing such a claim as
other than a subordinated claim, shall such claim be deemed an Allowed Canadian
Impaired Unsecured Claim that has filed the U.S. Plan Election. In no event
shall the holder of such Claim be a Qualifying Class 7 Creditor.
(d) The U.S. Plan Election and Distributions on Account
Thereof
The Plan allows each holder of a Canadian Impaired
Unsecured Claim and each Canadian Class 8B or 8C Holder to make an election
to participate in the Plan by filing the Canadian Proof of Claim and Election
form. This election will only be effective if the Alternate Canadian
Transactions are implemented. By
15
<PAGE> 26
executing the Canadian Proof of Claim and Election form, the Canadian
creditors (a) voluntarily and irrevocably elect to submit to the personal and
subject matter jurisdiction of the Bankruptcy Court for purposes of
participating in distributions under the Plan, (b) voluntarily and irrevocably
consent to have the allowance and priority of such holder's claim determined in
accordance with the provisions of the Bankruptcy Code, (c) voluntarily and
irrevocably agree to be bound by the provisions of the Plan in all respects and
(d) assert the amount of such holder's claim. A copy of the Canadian Proof of
Claim and Election shall be included in the solicitation materials distributed
to holders of Canadian Impaired Unsecured Claims and Canadian Class 8C Holders,
with a subsequent mailing being made to Canadian Class 8B Holders.
The U.S. Plan Election entitles such holder to
receive distributions as provided in Article III.F of the Plan if the
Alternate Canadian Transactions are implemented. If the Alternate Canadian
Transactions are implemented, any holder of an Allowed Canadian Impaired
Unsecured Claim that makes the U.S. Plan Election shall receive a distribution
of New Unsecured PIK Notes and Reorganized PSI Common Shares identical to that
which a holder of an Allowed Class 7 Claim of equal amount would be entitled. If
the Alternate Canadian Transactions are implemented, any Canadian Class 8B or 8C
Holder that make the U.S. Plan Election shall receive the distribution to which
such holder would be entitled pursuant to Article III.C.4 or III.C.5 of the
Plan, as applicable, if such holder's claim were a Class 8B or 8C Claim,
respectively. Any distribution to which a holder of a Canadian Impaired
Unsecured Claim or a Canadian Class 8B or 8C Holder is entitled under Article
III.F of the Plan is subject to the application of the provisions of the Plan
governing distributions generally and application of the provisions of the Plan,
the Bankruptcy Code and other laws of the United States regarding the
determination of allowance and priority of such claims.
If the Alternate Canadian Transactions are
implemented, the Lenders will enforce remedies available to them against
PSC and the other Canadian Debtors. The proceeds paid on the transfer of the
assets of PSC and the other Canadian Debtors will be distributed pursuant to the
priorities under Canadian law of the claims against such assets. Canadian
Impaired Unsecured Claims will not be compromised pursuant to the Alternate
Canadian Transactions, but it is expected that no distributions will be made to
the holders of such claims. The distributions that would have been made
available under the Canadian Reorganization Plan if the Canadian Reorganization
Plan had been sanctioned, for distribution to the holders of Canadian Impaired
Unsecured Claims that do not make the U.S. Plan Election, will instead comprise
the "Class 6 Additional Distribution" and be distributed to the holders of Class
6 Lender Claims pursuant to Article III.C.1 of the Plan. Holders of Canadian
Impaired Unsecured Claims entitled to receive a distribution pursuant to Article
III.F of the Plan shall not be entitled to vote on the Plan.
(e) Distributions to Classes 6, 7, 8B and 8C if Canadian
Plan Condition Is Waived
The Plan also provides the Debtors with the right
to waive the condition to the Plan's Effective Date that the Canadian
Reorganization Plan or Alternate Canadian Transactions be implemented by the
Effective Date. In such events, the Debtors may emerge from chapter 11 before
the outcome of the Canadian Cases has been determined. New Securities
distributed under the Plan will be issued by Reorganized PSI.
If the Canadian Plan Condition is waived,
distributions to holders of Claims in Classes 6 and 7 shall initially be
made pursuant to the provisions of Articles III.C.1.(b) and III.C.2.(b) of the
Plan, respec tively. If the Canadian Plan Condition is waived, an amount of New
Unsecured PIK Notes and the amount of Reorganized PSI Common Shares equivalent
to the amount of New Common Shares that would be distributed to the holders of
Canadian Impaired Unsecured Claims under the Canadian Reorganization Plan
(assuming all such Claims will be allowed) shall be held by the Disbursing Agent
pending the implementation of the Canadian Reorganization Plan or the Alternate
Canadian Transactions. If the Canadian Reorganization Plan is implemented, such
securities shall be deposited into the Disputed Distribution Reserve and shall
be distributed to holders of Allowed Class 7 Claims under the Plan and Allowed
Canadian Impaired Unsecured Claims in accordance with the Canadian
Reorganization Plan. If the Alternate Canadian Transactions are implemented,
such securities shall be distributed to
16
<PAGE> 27
holders of Canadian Impaired Unsecured Claims that made the U.S. Plan
Election and to the holders of Class 6 Claims as the Class 6 Additional
Distribution pursuant to Articles III.F and III.C.1.(b) of the Plan
respectively, subject to the provisions of the Plan governing distributions
generally. The time, nature and amount of distributions to holders of Claims in
Classes 8B and 8C and Canadian Class 8B and 8C Holders that make the U.S. Plan
Election shall be determined upon the approval of the Canadian Reorganization
Plan or the Alternate Canadian Transactions, respectively.
2. Unclassified Claims
(a) DIP Facility Claims (Unimpaired)
DIP Facility Claims consist of the Claims arising
under or as a result of the debtor-in- possession credit facility (the "DIP
Facility") provided to the Debtors during the Chapter 11 Cases, pursuant to the
credit agreement (the "DIP Facility Agreement"), between PSC and PSI as
borrowers, the Subsidiary Debtors and the Canadian Debtors as subsidiary
guarantors, Bankers Trust Company ("BTCo") as DIP agent, Canadian Imperial Bank
of Commerce ("CIBC") and BTCo as co-arrangers (the "DIP Co-Arrangers"), and
other various persons from time to time parties thereto. DIP Facility Claims are
Unimpaired under the Plan.
Under the Plan, on the Effective Date or the date
such DIP Facility Claim becomes payable pursuant to any agreement between
the Debtors and the holder of such DIP Facility Claim, each holder of an Allowed
DIP Facility Claim shall receive in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed DIP Facility Claim (a) Cash equal
to the unpaid portion of such Allowed DIP Facility Claim or (b) such other
treatment as to which the Debtors, with the consent of the Required Lenders and
the Account Intermediaries, and such holder shall have agreed upon in writing.
(b) Administrative Claims (Unimpaired)
The Plan provides that Administrative Claims are
Unimpaired. Administrative Claims consist of the actual and necessary costs
and expenses of the Chapter 11 Cases that are allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code. They include, among other things, the cost of
operating the Debtors' businesses following the Petition Date (e.g., the
post-petition salaries and other benefits for the Debtors' employees which the
Debtors have obtained an order allowing them to pay in the ordinary course of
business, post-petition rent, amounts owed to vendors providing goods and
services to the Debtors during the Chapter 11 Cases, tax obligations incurred
after the Petition Date, certain statutory fees and charges assessed under 28
U.S.C. ss. 1930) and the actual, reasonable fees and expenses of the
professionals retained by the Debtors and the creditors' committee. All payments
to professionals in connection with the Chapter 11 Cases for compensation and
reimbursement of expenses and all payments to reimburse expenses of members of
the creditors' committee would be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules and would be subject
to approval of the Bankruptcy Court as being reasonable.
Except as otherwise provided in and subject to the
requirements of the Plan, the Plan provides that on, or as soon as
reasonably practicable after the latest of (i) the Distribution Date, (ii) the
date such Administrative Claim becomes an Allowed Administrative Claim, or (iii)
the date such Administrative Claim becomes payable pursuant to any agreement
between a Debtor and the holder of such Administrative Claim, each holder of an
Allowed Administrative Claim will receive in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Administrative Claim
(a) Cash equal to the unpaid portion of such Allowed Administrative Claim or (b)
such other treatment as to which the applicable Debtor, with the consent of the
Required Lenders, and such holder shall have agreed upon in writing; provided,
however, that Allowed Administra tive Claims with respect to liabilities
incurred by a Debtor in the ordinary course of business during the Chapter 11
Cases will be paid in the ordinary course of business in accordance with the
terms and conditions of any agreements relating thereto.
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<PAGE> 28
Holders of Administrative Claims based on liabilities
incurred by the Debtors in the ordinary course of their businesses will not be
required to file or serve any request for payment of such Claims, as these
liabilities will be assumed by the applicable Reorganized Debtor and paid,
performed or settled when due in accordance with the terms and conditions of the
particular agreements governing such obligations.
The Debtors therefore anticipate that Administrative
Claims against the Debtors will be paid as they come due during the Chapter 11
Cases and that the Administrative Claims after the Administrative Bar Date will,
for the most part, consist of the allowed but unpaid fees and expenses incurred
by professionals retained in the Chapter 11 Cases.
(c) Priority Tax Claims (Unimpaired)
Priority Tax Claims are Unsecured Claims asserted by
federal and state governmental authorities for taxes specified in section
507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes,
excise taxes, and employment and withholding taxes. These Unsecured Claims are
given a statutory priority in right of payment. The Plan provides that Priority
Tax Claims, if any, are Unimpaired.
Under the Plan, except to the extent that a holder of
an Allowed Priority Tax Claim has been paid by the Debtors prior to the
Distribution Date or has agreed in writing to a different treatment, each holder
of an Allowed Priority Tax Claim will be paid, at the sole discretion of the
Reorganized Debtors, (a) with the consent of the Required Lenders, Cash equal to
the unpaid portion of such Allowed Priority Tax Claim, (b) Cash payments over
time in an aggregate principal amount equal to the amount of such Allowed
Priority Tax Claim plus simple interest on the unpaid portion thereof at the
rate of seven percent (7%) per annum from the Effective Date through the date of
payment thereof, or (c) such other treatment as to which a Debtor, with the
consent of the Required Lenders, and such holder shall have agreed upon in
writing. Cash payments of principal will be made in annual installments equal to
ten percent (10%) of such Allowed Priority Tax Claim plus accrued and unpaid
interest, with the first payment to be due on or before the first anniversary of
the Effective Date, or as soon thereafter as is practicable, and subsequent
payments to be due on the anniversary of the first payment date or as soon
thereafter as is practicable; provided, however, that any installments remaining
unpaid on the date that is six years after the date of assessment of the tax
that is the basis for the Allowed Priority Tax Claim will be paid on the first
Business Day following such date, or as soon thereafter as is practicable
together with any accrued and unpaid interest to the date of payment; and
provided further that the Debtors reserve the right to pay any Allowed Priority
Tax Claim, or any remaining balance of any Allowed Priority Tax Claim, in full
at any time on or after the Distribution Date without premium or penalty; and
provided further that no holder of an Allowed Priority Tax Claim will be
entitled to any payments on account of any pre-Effective Date interest accrued
on or penalty arising after the Petition Date with respect to or in connection
with such Allowed Priority Tax Claim.
D. EFFECT OF VOTING ON DISTRIBUTIONS
1. If the Canadian Reorganization Plan Is Sanctioned
If Class 7 votes to accept the Plan, then holders of Allowed
Class 6 Claims shall receive, along with other New Securities, 5,967,052,592
shares of New Common Shares, which shall be ninety-one percent (91%) of the PSC
Common Shares issued and outstanding as of the Effective Date, (which shall
equal 21,840,000 shares of the PSC Common Shares issued and outstanding as of
the Effective Date after giving effect to the Reverse Stock Split) in any case
subject to Dilution. Class 7 Claim holders will receive the distributions of New
Unsecured PIK Notes, New Unsecured Convertible Notes and New Common Shares, and
holders of Claims and Interests in Class 8 will receive or retain PSC Common
Shares, as described above.
Alternatively, if Class 7 votes to reject the Plan, then the
holders of an Allowed Class 6 Claims shall receive, along with other New
Securities, 22,800,000 shares of PSC Common Shares, which shall be ninety-
18
<PAGE> 29
five percent (95%) of the PSC Common Shares issued and outstanding as of the
Effective Date, plus an amount of PSC Common Shares equivalent to the aggregate
amount of PSC Common Shares that would have been distributed to Class 7 (based
on the Debtors' estimate of the aggregate amount of Allowed Class 7 Claims),
subject to Dilution, (as well as an amount of New Unsecured PIK Notes equal to
the amount that would have been distributed to Class 7 had Class 7 voted to
accept the Plan (based on the Debtors' estimate of the aggregate amount of
Allowed Class 7 Claims)). Holders of Class 7 Claims will receive no
distributions under the Plan and no distributions will be made to Classes 8A, 8B
or 8C or to the holders of Canadian Impaired Unsecured Claims.
2. If the Alternate Canadian Transactions Are Implemented
If Class 7 votes to accept the Plan, then holders of Allowed
Class 6 Claims shall receive, along with other New Securities, ninety-one
percent (91%) which shall equal 21,840,000 shares of the Reorganized PSI Common
Shares as of the Effective Date, plus the Class 6 Additional Distribution (See
Article II.C "Summary of the Plan of Reorganization - - Classification and
Treatment of Claims and Interests - - The U.S. Plan Election and Distributions
on Account Thereof"), subject to Dilution. Class 7 Claim holders will receive
the distributions of New Unsecured PIK Notes, New Unsecured Convertible Notes
and New Common Shares, as described above. Such distributions will be shared
with holders of Canadian Impaired Unsecured Claims and Canadian Class 8B and 8C
Holders that make the U.S. Plan Election, as described above.
Alternatively, if Class 7 votes to reject the Plan, holders
of Allowed Class 6 Claims shall receive, along with other New Securities, one
hundred percent (100%) which shall equal 24,000,000 shares of the Reorganized
PSI Common Shares as of the Effective Date, subject to Dilution, and no New
Unsecured PIK Notes will be issued to any Claim holder. The holders of Allowed
Class 6 Secured Lender Claims shall retain such claims against PSC and security
interests in assets of PSC and the other Canadian Debtors retained and not
transferred in connection with the transactions pursuant to the terms of the
Alternate Canadian Transactions. Holders of Class 7 Claims will receive no
distributions under the Plan nor will Canadian creditors that make the U.S. Plan
Election, and no distributions will be made to Classes 8A, 8B or 8C.
E. SUMMARY OF DEBT TO BE INCURRED AND SECURITIES TO BE ISSUED IN
CONNECTION WITH THE PLAN
The Debtors anticipate that they will finalize the material terms of a
new senior secured facility (the "Exit Facility") prior to the Confirmation
Date, pursuant to which the Reorganized Debtors would have access to sufficient
working capital to maintain their operations, as well as the operations of the
Subsidiaries. Pursuant to the Lender Lock-up Agreement, the credit availability
under the Exit Facility is anticipated to be approximately $125 million. The
Exit Facility would be secured by guaranties and charges over the accounts
receivable and inventory and, if required, substantially all other assets of
Reorganized PSC and its subsidiaries, senior to all other security including the
security for the New Senior Secured Term Debt. The Debtors anticipate that the
Exit Facility would be used to (a) fund repayment of the DIP Facility, (b)
provide short-term working capital needs, and (c) fund letters of credit within
a sub-limit of the Exit Facility. The maturity of the Exit Facility is
contemplated as two years from Plan implementation, but may be refinanced in
whole but not in part by a replacement facility with the same priority. The
parties continue to negotiate the terms of the Exit Facility, and there can be
no assurances that the terms of such a Facility will not differ materially from
the description in the Lender Lock-up Agreement or that the parties will be able
to reach a final agreement.
1. If the Canadian Reorganization Plan Is Implemented.
Pursuant to the Plan, on or prior to the Effective Date, PSC
shall issue New Common Shares, New Secured PIK Debt and depending upon the votes
of Class 7 on the Plan and the class of holders of Canadian Impaired Unsecured
Claims on the Canadian Plan, New Unsecured PIK Notes and, if Class 7 votes to
accept the Plan and a Qualifying Class 7 Creditor elects New Unsecured
Convertible Notes in the Class 7 Election, the New Unsecured Convertible Notes,
the principal terms of which are summarized below.
19
<PAGE> 30
<TABLE>
<CAPTION>
NOTES AND
SECURITIES AMOUNT DIVIDENDS VOTING OTHER
- ---------- ------ --------- ------ -----
<S> <C> <C> <C> <C>
New Up to 6,552,000,000 shares Authorized 1 vote/share Each 273 shares of New
Common but not antici- (non-cumula- Common Shares will be
Shares pated in the tive) converted into one PSC
foreseeable Common Share in the Re-
future verse Stock Split. If Class 7
votes to reject the Plan, there
will be no Reverse Stock Split.
New Se- $100 million Not Applica- Not Applicable Term of 5 years; Interest at
cured PIK ble 10% per annum; the origi-
Debt nal amount issued shall be convertible
until maturity at the option of the
holders into 25% of the New Common
Shares, in the aggregate on a fully
diluted basis as of the Effective
Date, guaranteed by other Debtors,
Canadian Debtors and Restricted
Subsidiaries; to contain the usual
anti-dilution provisions applicable
in a public offering of convertible debt.
New $250 million minus an amount Not Applica- Not Applicable Term of 5 years; interest at
Senior equal to the Net Asset Sale Pro- ble 9% per annum; guaranteed
Secured ceeds Pool by other Debtors, Canadian
Term Debt Debtors and Restricted
Subsidiaries.
New Unse- Subject to the Class 7 Election, Not Applica- Not Applicable Term of 10 years;
cured PIK between $48 million and $60 ble Interest at 6% per annum;
Notes million the pro rata distribution to Lenders
holding Class 7 Claims will be waived
if Class 7 votes to accept the Plan.
</TABLE>
20
<PAGE> 31
<TABLE>
<CAPTION>
NOTES AND
SECURITIES AMOUNT DIVIDENDS VOTING OTHER
- ---------- ------ --------- ------ -----
<S> <C> <C> <C> <C>
New Up to $18 million Not Applica- Not Applicable Term: 20 years from the
Unsecured ble Effective Date;
Convertible Interest: 3% per annum
Notes commencing on the third anniversary
of the Effective Date; convertible
into PSC Common Shares at a price
of $30 per share (every $30 of
face amount of notes is convertible
into one PSC Common Share);
subject to a put right in the event
of a change of control.
</TABLE>
2. If the Alternate Canadian Transactions are Implemented
If the Alternate Canadian Transactions are implemented, on
or prior to the Effective Date, Reorganized PSI will issue Reorganized PSI
Common Shares, New Secured PIK Debt, and depending upon the vote of Class 7 on
the Plan, New Unsecured PIK Notes, and if Class 7 votes to accept the Plan and a
Qualifying Class 7 Creditor elects New Unsecured Convertible Notes in the Class
7 Election, the New Unsecured Convertible Notes, the principal terms of which
are summarized below.
<TABLE>
<CAPTION>
NOTES AND
SECURITIES AMOUNT DIVIDENDS VOTING OTHER
- ---------- ------ --------- ------ -----
<S> <C> <C> <C> <C>
Reorganized 24,000,000 shares Authorized but 1 vote/share
PSI not anticipated (non-cumu-
Common Shares in the foresee- lative)
able future
</TABLE>
21
<PAGE> 32
<TABLE>
<CAPTION>
NOTES AND
SECURITIES AMOUNT DIVIDENDS VOTING OTHER
- ---------- ------ --------- ------ -----
<S> <C> <C> <C> <C>
New Secured $100 million Not Applicable Not Applica- Term of 5 years; Interest at
PIK Debt ble 10% per annum; the original amount
issued shall be convertible until
maturity at the option of the holders
into 25% of the Reorganized PSI Common
Shares, in the aggregate on a fully
diluted basis as of the Effective Date,
guaranteed by other Debtors, and
Restricted Subsidiaries; to contain
the usual anti-dilution provisions
applicable in a public offering
of convertible debt.
New Senior $250 million minus an amount Not Applicable Not Applica- Term of 5 years; interest at
Secured equal to the Net Asset Sale Pro- ble 9% per annum; guaranteed
Term Debt ceeds Pool by other Debtors, and Re-
stricted Subsidiaries.
New Subject to the Class 7 Election, Not Applicable Not Applica- Term of 10 years;
Unsecured between $48 million and $60 ble Interest at 6% per annum;
PIK Notes million the pro rata distribution to Lenders
holding Class 7 Claims will be waived
if Class 7 votes to accept the Plan.
New Up to $18 million Not Applicable Not Applica- Term: 20 years from the
Unsecured ble Effective Date;
Convertible Interest: 3% per annum
Notes commencing on the third anniversary
of the Effective Date; convertible into
Reorganized PSI Common Shares at a price
of $30 per share (every $30 of face
amount of notes is convertible into
one Reorganized PSI Common Share);
subject to a put right in the event
of a change of control.
</TABLE>
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<PAGE> 33
Pursuant to the Pre-Petition Credit Agreement, the Lenders
have a security interest in the proceeds from the sale of the assets of PSC and
its Subsidiaries. The proceeds from the sale of certain assets of PSC and its
Subsidiaries were held by CIBC, as Administrative Agent, for the benefit of the
Administrative Agent and the Lenders. Pursuant to a Proceeds Agreement, dated as
of April 5, 1999, between PSC, PSI (and each of the direct and indirect
subsidiaries of PSC) and CIBC and the Lenders (the "Proceeds Agreement"), as has
been supplanted by the provisions of that certain approved Stipulation and Order
Authorizing and Restricting Use of Cash Collateral and Granting Adequate
Protection of Secured Claims (the "Cash Collateral Order"), the Lenders agreed
to release up to $93,000,000 of net proceeds from the sale of certain assets of
PSC and its Subsidiaries to the Debtors in accordance with a budget approved by
the Lenders and subject to certain conditions. CIBC transferred the funds not
released prior to the Petition Date to BTCo, as agent under the DIP Facility, in
accordance with the Cash Collateral Order.
In the event of any sale of the U.S. Ferrous Division of the
Debtors (the "US Ferrous Division"), the proceeds of such sale as well as the
net proceeds from asset sales in excess of the $93,000,000 deposited into the
Proceeds Account, shall be maintained in a separate interest-bearing account
(the "Excess Proceeds Account") during the Chapter 11 Cases. On the Distribution
Date, funds held in the Excess Proceeds Account shall be divided between the
Reorganized Companies and the holders of the Secured Lender Claims. As set forth
in Article III.C of the Plan, on the Distribution Date, the holders of the Class
6 Secured Lender Claims will receive from any funds in the Excess Proceeds
Account (i) to the extent any funds in the Excess Proceeds Account represent the
net proceeds from any sale of the US Ferrous Division, sixty-six and two-thirds
percent (66 2/3%) of the first $200,000,000 of such funds, and (ii) seventy-five
percent (75%) of all other funds held in the Excess Proceeds Account.
On the Effective Date, the Reorganized Debtors (in existence
after giving effect to the Restructuring Transactions) and the other Restricted
Subsidiaries shall also enter into the New Guaranties to guaranty and secure the
New Senior Secured Term Debt and the New Secured PIK Debt.
F. SUMMARY OF RELEASES UNDER THE PLAN
The Plan contains releases of claims and causes of action of various
parties. These releases are described below and set forth in greater detail in
Article II.N of this Disclosure Statement. Pursuant to the Plan, as of the
Effective Date, the Debtors and Reorganized Debtors, in their individual
capacities and as debtors in possession and the Subsidiaries will be deemed to
have released all claims and causes of action related to the Debtors and the
Subsidiaries, the Chapter 11 Cases or the Plan (other than the rights of the
Debtors or the Reorganized Debtors to enforce the Plan and all agreements
thereunder) that are based on events occurring on or prior to the Effective Date
against (i) directors, officers and employees of the Debtors or Subsidiaries in
each case as of the Petition Date (subject to revocation described in Article
II.N hereof) and agents and professionals (excluding Deloitte & Touche and any
insurance brokers retained by the Debtors) of the Debtors and the Subsidiaries,
(ii) the Lenders (other than any entity specifically excluded from the releases
granted in Article IV.I.1 of the Plan that has become a Lender), (iii) the ad
hoc steering committee and any other committee of holders of Lender Claims, (iv)
CIBC, as Administrative Agent and co-arranger under the Pre-Petition Credit
Agreement, (v) BTCo as Syndication Agent and co-arranger under the Pre-Petition
Credit Agreement, (vi) any official committees appointed in the Chapter 11
Cases, (vii) the DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility
Claims (other than any entity specifically excluded from the releases granted in
Article IV.I.1 of the Plan that has become a holder of a DIP Facility Claim),
(viii) the Security Agent, (ix) the Account Intermediaries, (x) any individual
corporation or other entity that was at any time formerly one of the foregoing
released parties identified in subclauses (ii) - (viii), and (xi) the respective
affiliates, current and former officers, directors, employees, agents,
shareholders and professionals (excluding Deloitte & Touche, Robert Waxman, Greg
Madesker, Rik Barrese and any insurance brokers retained by the Debtors) of the
entities set forth in (ii) - (vii). Under the Plan, any rights of setoff of
Deloitte & Touche and any rights of setoff of other parties not released against
the Debtors are preserved.
In addition, as of the Effective Date, the holders of Lender Claims,
the ad hoc steering committee or any other committee of holders of Lender
Claims, CIBC as Administrative Agent and co-arranger under the Pre-Petition
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<PAGE> 34
Credit Agreement, BTCo as Syndication Agent and co-arranger under the
Pre-Petition Credit Agreement, the DIP Agent, the DIP Co-Arrangers and the
holders of DIP Facility Claims, the Security Agent, the Account Intermediaries,
and any individual, corporation or other entity that was at any time formerly
one of the foregoing releasing parties will be deemed to have released all
claims and causes of action (other than the right to enforce the Debtors or the
Reorganized Debtors' obligations under the Plan and any agreement thereunder)
arising from an event occurring on or prior to the Effective Date relating to
the Debtors, the Subsidiaries, the Reorganized Debtors, the Chapter 11 Cases,
the Lender Lock-up Agreement or the Plan against (i) the Debtors, the
Subsidiaries and the Reorganized Debtors; provided, however, if the Canadian
Reorganization Plan is not sanctioned, the holders of Allowed Secured Lender
Claims and Allowed Unsecured Lender Claims shall not be deemed to have released
PSC or any Subsidiary other than the Debtors from such claims or their security
interests against any assets of PSC or any Subsidiary other than the Debtors
retained and not transferred in connection with the Alternate Canadian
Transactions, provided further, however, any such claims the Lenders hold shall
be reduced by the value of any distributions the Lenders receive by the Lenders
pursuant to the Plan, provided, further, that this release in this clause (i)
shall not be given by any Account Intermediary who is a current Bank Account
Service Provider, (ii) the directors, officers and employees of the Debtors or
the Subsidiaries in each case as of the Petition Date (and in addition, those
who become officers and/or directors thereafter prior to the Effective Date),
(iii) the Lenders (other than any entity specifically excluded from the releases
granted in Article IV.I.2.(a) of the Plan that has become a Lender), (iv) the ad
hoc steering committee and any other committee of holders of Lender Claims, (v)
CIBC, as Administrative Agent and co-arranger under the Pre-Petition Credit
Agreement, (vi) BTCo as Syndication Agent and co-arranger under the Pre-Petition
Credit Agreement, (vii) any official committees appointed in the Chapter 11
Cases, (viii) the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims (other than any entity specifically excluded from the releases
granted in Article IV.I.2.(a) of the Plan that has become a holder of a DIP
Facility Claim), (ix) the Security Agent, (x) the Account Intermediaries, (xi)
any individual, corporation or other entity that was at any time formerly one of
the foregoing released parties identified in subclauses (i) - (ix), and (xii)
the respective current and professionals of the entities in subclauses
(i) - (ix) (excluding & Touche and any insurance brokers retained by the
Debtors) (including current and former officers, directors, employees,
shareholders and of the released professionals), acting in such capacity.
Further, as of the Effective Date, all holders of Claims and Interests
will be deemed to have released all claims and causes of action (other than the
right to enforce the Debtor or the Reorganized Debtors' obligations under the
Plan and any agreement thereunder) arising from an event occurring on or prior
to the Effective Date relating to the Debtors, the Subsidiaries, the Reorganized
Debtors, the Chapter 11 Cases, the Lender Lock-up Agreement or the Plan against
(i) the Debtors, the Subsidiaries and the Reorganized Debtors, (ii) the Lenders
as of September 15, 1999 or an entity that subsequently becomes a Lender subject
to the Debtors' consent, the ad hoc steering committee or any other committee of
holders of Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
the Pre-Petition Credit Agreement, any official committees appointed in the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims as of September 15, 1999 or an entity that subsequently becomes
a holder of a DIP Facility Claim subject to the Debtors' consent, and the
Security Agent, (iii) the Account Intermediaries, (iv) any individual,
corporation or other entity that was at any time formerly one of the foregoing
released parties identified in subclause (ii), and (v) the respective
affiliates, current and former officers, directors, employees, agents,
shareholders and professionals of the entities listed in subclause (ii) of
Article IV.I.2.(b) of the Plan (excluding Deloitte & Touche and any insurance
brokers retained by the Debtors) acting in such capacity. Under the Plan,
holders of Claims (other than the Lenders) and Interests are not deemed to have
released any non-Debtor third party other than the Lenders and those parties
explicitly listed in subsections (ii), (iii), (iv) and (v) above.
24
<PAGE> 35
G. TREATMENT OF DIRECTOR AND OFFICER INDEMNIFICATION OBLIGATIONS UNDER
THE PLAN
Pursuant to the Plan, indemnification obligations as to the Reorganized
Debtors' directors and officers are divided into two categories: Excluded
Indemnification Obligations and Assumed Indemnification Obligations. Excluded
Indemnification Obligations are (i) the obligations of the Debtors to indemnify
any current or former officers, directors or employees solely as to claims
actually asserted as of the Petition Date, or claims asserted after the Petition
Date in the following actions or in actions initiated after the Petition Date,
in each case arising out of or related to the same nucleus of operative facts
alleged in the following actions as of the Petition Date or when such actions
were filed: (A) the consolidated, putative class action entitled In re Philip
Services, Corp. Securities Litigation, 98 CV 835 (MBM), previously pending
against PSC in the United States District Court for the Southern District of New
York, and the putative class action entitled Menegon v. Philip Services Corp.,
et al., File No. 4166 CP 98 (Ontario Court, General Division), (B) the action
filed by a group of former shareholders of the Steiner-Liff Metals group of
companies on October 6, 1998, with the American Arbitration Association
captioned In re Liff Arbitration, Case No. 39 Y 1680012 98 and the litigation
styled Liff v. Chodos, Case No. 99 Civ. 1322 (dismissed and pending appeal), (C)
the actions filed by a group of former shareholders of the Southern-Foundry
Supply group of companies captioned Gary D. Chazen, Robert G. Chazen, Julius L.
Chazen and Ruth E. Chazen v. Philip Metals Inc., et al., Case No:99 Civ. 2797
(MBM) (S.D.N.Y.) (dismissed); and Stephen M. Chazen v. Philip Metals Inc.,
previously known as Philip Metals (Ohio) Inc., Philip Services Corp., Allen
Fracassi, and Robert Waxman, No: CV9801642, in the Circuit Court of Jefferson
County, Alabama (subsequently dismissed in favor of arbitration) and (D) the
action captioned Great Plains Trust Company and Kornitzer Capital Management,
Inc. v. Robert M. Christe, R.L. Nelson, Jr., T. Wayne Wren, Jr., Michael W.
Ramirez, David E. Fanta, James E. Rief, William L. Fiedler, Michael A. Baker,
John U. Clarke, Frank A. Rossi, Thomas J. Tierney and T. Michael Young, No.
1999-38771, in the District Court of Harris County, Texas; (ii) any claims for
reimbursement, contribution or indemnity that may be asserted by Robert Waxman,
Greg Madesker, Rik Barrese, Drew Luntz, Andrew Luntz and John Luntz; (iii) any
claims for reimbursement, contribution or indemnity asserted by present or
former professionals or advisors of the Debtors or Subsidiaries, including,
without limitation, Deloitte & Touche, any insurance brokers retained by the
Debtors, accountants, auditors, financial consultants, underwriters or attorneys
as to claims arising out of the matters alleged in the Securities Actions, the
Chazen Actions, the Liff Actions, the Great Plains Action, or in any
action initiated after the Petition Date based upon similar factual allegations
or alleging similar causes of action and any indemnification obligation of such
professionals or advisors of the kind described in section 510(b) of the
Bankruptcy Code or subject to subordination pursuant to section 510(c) of the
Bankruptcy Code and (iv) any reimbursement, contribution or indemnity
obligations to current or former directors or officers of any Debtor that are
more expansive than those contained in section 7.02 of PSC's bylaws or which are
not permissible under the applicable governing corporate statute of the
applicable Debtor; provided, however, that "Excluded Indemnification
Obligations" shall not impact the setoff rights, if any, of any party, and shall
not include Assumed Indemnification Obligations in connection with any
governmental, regulatory or enforcement investigation or action or Assumed
Indemnification Obligations to pay the reasonable defense costs of any
individual who was a director, officer or employee of a Debtor as of the
Petition Date in connection with any third party complaint or claim by Deloitte
& Touche against such officer, director or employee in connection with any
action commenced by the Debtors, the Reorganized Debtors or the Lenders against
Deloitte & Touche and/or Robert Waxman arising out of the same nucleus of
operative facts alleged in the Securities Actions, the Chazen Actions or the
Liff Actions.
Assumed Indemnification Obligations are (i) the obligations of PSC
pursuant to section 7.02 of its bylaws to indemnify current and former directors
and officers, on the terms and subject to the limitations described therein, if
and to the extent that such indemnification is permissible under the Ontario
Business Corporations Act or such other applicable governing corporate statute
and (ii) the obligations of the Debtors other than PSC to indemnify current and
former directors and officers under their respective bylaws to the extent such
indemnification obligations are not more expansive than those of PSC under
section 7.02 of its bylaws if and to the extent such indemnification is
permissible under the applicable governing corporate statute of the applicable
Debtor; in each case, including any affirmative obligation of the Debtors to
indemnify current and former directors and officers in connection with any
governmental, regulatory or enforcement investigation or action and in each case
solely with respect to such officer
25
<PAGE> 36
or director actions subsequent to becoming an officer or director of
PSC or of a direct or indirect subsidiary or affiliate of PSC. Assumed
Indemnification Obligations shall not include any Excluded Indemnification
Obligations.
Under the Plan, any Claim other than the Assumed
Indemnification Obligations against any Debtor for reimbursement, contribution,
indemnity or setoff that is subject to section 510(b) and/or 510(c) of the
Bankruptcy Code or related to or arising from the facts surrounding, allegations
or actions resulting in a Claim that is subject to section 510(b) and/or 510(c)
of the Bankruptcy Code, and any Excluded Indemnification Obligation, shall be
deemed rejected for all purposes under the Plan and shall be deemed disallowed
under the Plan upon entry of the Confirmation Order pursuant to section
502(e)(1)(B) of the Bankruptcy Code to the fullest extent permitted by law;
provided, however, to the extent that any such Claim is not so disallowed and
becomes an Allowed Claim against any Debtor, then such Allowed Claim shall be
treated as an Allowed Class 8C Claim pursuant to sections 510(b) and/or 510(c)
of the Bankruptcy Code.
Under the Plan, the Assumed Indemnification Obligations
shall be deemed assumed by the Reorganized Debtors as of the Effective Date
without any further action by any party and in the event the Alternate Canadian
Transactions are implemented or the Canadian Plan Condition is waived, the
Assumed Indemnification Obligations of PSC shall be deemed assumed by
Reorganized PSI.
Any and all rights of the directors and officers to the
proceeds of the Debtors' relevant directors and officers insurance policies
whether for Excluded Indemnification Obligations or Assumed Indemnification
Obligations will be unaffected by and survive the Chapter 11 Cases.
H. POST-CONSUMMATION OPERATIONS OF THE DEBTORS
1. Continued Corporate Existence
Following confirmation and consummation of the Plan, subject
to the Restructuring Transactions, each of the Debtors and the other
Subsidiaries will continue to exist as separate corporate entities in accordance
with the laws of their respective states of incorporation and pursuant to their
respective certificates or articles of incorporation and bylaws in effect prior
to consummation, except (i) to the extent such certificates or articles of
incorporation and bylaws are amended under the Plan or (ii) if the Canadian
Reorganization Plan is sanctioned, Reorganized PSC, with the consent of the
Required Lenders, may be continued under the laws of the Province of New
Brunswick, which continuance is expressly authorized by the Plan, or if the
Alternate Canadian Transactions are implemented, PSC is subject to the Alternate
Canadian Transactions. The certificate or articles of incorporation and bylaws
of each of the Debtors will be amended as necessary to satisfy the provisions of
the Plan and the Bankruptcy Code and will include, among other things, pursuant
to section 1123(a)(6) of the Bankruptcy Code, a provision prohibiting the
issuance of non-voting equity securities, but only to the extent required by
section 1123(a)(6) of the Bankruptcy Code.
Except as otherwise provided in the Plan, nothing shall
affect the Debtors' rights and defenses both legal and equitable, with respect
to any Unimpaired Claims, including, but not limited to, all rights with respect
to legal and equitable defenses to setoff or recoupments against Unimpaired
Claims. Notwithstanding the limited substantive consolidation of the Debtors
under the terms of the Plan, the Unimpaired Claims of any particular Debtor
shall remain the obligations solely of such Debtor and shall not become
obligations of any other Reorga nized Debtor.
2. Revesting of Assets
Pursuant to section 1141(b) of the Bankruptcy Code, all
property of each Debtor's Estate, together with any property of each Debtor that
is not property of its Estate and that is not specifically disposed of pursuant
to the Plan, shall revest in the applicable Reorganized Debtor on the Effective
Date. Thereafter, the
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Reorganized Debtors may operate their businesses and may use, acquire
and dispose of property free of any restrictions of the Bankruptcy Code, the
Bankruptcy Rules and the Bankruptcy Court. As of the Effective Date, all
property of each Reorganized Debtor shall be free and clear of all Liens, Claims
and Interests, except as specifically provided in the Plan or the Confirmation
Order. Without limiting the generality of the foregoing, each Reorganized Debtor
may, without application to or approval by the Bankruptcy Court, pay fees that
it incurs after the Effective Date for professional services and expenses.
Notwithstanding anything to the contrary set forth in the
foregoing paragraph, if the Alternate Canadian Transactions are implemented then
the vesting of the property of PSC shall occur pursuant to the Alternate
Canadian Transactions and any order of the Canadian Bankruptcy Court or other
applicable Canadian Court.
On the Effective Date, if the Alternate Canadian
Transactions are implemented, PSC, the other Canadian Debtors and PSI shall take
any and all steps necessary on their part to implement the Alternate Canadian
Transactions and the Lenders shall retain all of their rights as secured
creditors with respect to any assets that remain in PSC or the other Canadian
Subsidiaries. PSC, PSI and the Reorganized Debtors are expressly authorized to
take any and all steps necessary to implement the Alternate Canadian
Transactions, including without limitation, PSC obtaining approval of the
Alternate Canadian Transactions by the Canadian Bankruptcy Court, entering into
any and all agreements necessary on their part to effectuate the Alternate
Canadian Transactions, and directing the other Canadian Debtors to obtain
approval of the Alternate Canadian Transactions by the Canadian Bankruptcy Court
and to enter into any and all agreements necessary to effectuate the Alternate
Canadian Transactions. The automatic stay of section 362(a) of the Bankruptcy
Code shall be deemed lifted on the Date so that the Alternate Canadian
Transactions may be effectuated to permit any required notices to be issued
or proceedings to be taken which be necessary so that the transfers of
assets pursuant to the Alternate Transactions may be made in compliance with
applicable law.
I. DISTRIBUTIONS UNDER THE PLAN
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned),
Reorganized PSI (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived) or their authorized Disbursing Agent shall
make all distributions required under the Plan (subject to the provisions of
Articles III, VII and IX of the Plan). Distributions provided for in the Plan on
account of Allowed Old Debenture Claims shall be made to the indenture trustee,
as Disbursing Agent for Old Debenture Claims, for distribution to holders of
Allowed Old Debenture Claims. Any such further distributions shall be made
pursuant to the Old Indenture and the Plan, particularly to the Indenture
Trustee (i) to itself as Indenture Trustee for application of any unpaid fees,
compensation, expenses (including the Indenture Trustee's professional fees and
expenses) disbursements and advances; (ii) to itself as escrow agent holding an
expense fund of approximately $92,000 (such amount determined exclusively by the
Indenture Trustee) for the Great Plains Action, and thereafter (iii) on account
of Allowed Claims of holders of Old Debentures.
If the Disbursing Agent is an independent third party designated by the
Reorganized Debtors to serve in such capacity, such Disbursing Agent shall
receive, without further Bankruptcy Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services from
the Reorganized Debtors on terms acceptable to the Reorganized Debtors. No
Disbursing Agent shall be required to give any bond or surety or other security
for the performance of its duties unless otherwise ordered by the Bankruptcy
Court.
Cash payments made pursuant to the Plan will be in U.S. funds for
creditors located in the United States and in Canadian funds for creditors
located in Canada, unless such creditors in Canada have previously agreed, or
contracted for, payment in U.S. funds, by means agreed to by the payor and the
payee, including by check or wire transfer, or, in the absence of an agreement,
such commercially reasonable manner as the payor shall determine in its sole
discretion.
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Except as otherwise provided in the Plan, any ancillary documents
entered into in connection therewith, or the Confirmation Order, the Debtors,
with the consent of the Required Lenders, shall have the right to prepay,
without penalty, all or any portion of an Allowed Claim at any time; provided,
however, that any such prepayment shall not violate, or otherwise prejudice, the
relative priorities among the classes of Claims.
On the Effective Date, Reorganized PSC (if the Canadian Reorganization
Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions
are implemented or the Canadian Plan Condition is waived) shall issue or
distribute in accordance with the provisions of the Plan all of the New Secured
PIK Debt, New Unsecured PIK Notes, New Unsecured Convertible Notes and New
Common Shares. On the Effective Date, Reorganized PSC shall take all steps to
provide that holders of Allowed Class 6 Claims are the holders of record on the
Effective Date of the New Common Shares to be distributed to such holders under
the Plan.
1. Distributions for Claims Allowed as of the Effective Date
(a) Distribution Date
Except as otherwise provided herein or as ordered by
the Bankruptcy Court, distributions to be made on account of Claims that are
Allowed Claims as of the Effective Date shall be made not later than the
Distribution Date. Distributions on account of Claims that first become Allowed
Claims after the Effective Date shall be made pursuant to Articles III, VII and
IX of the Plan. Notwithstanding the date on which any distribution of securities
is actually made to a holder of a Claim or Interest that is an Allowed Claim or
Allowed Interest on the Effective Date, as of the date of the distribution such
holder shall be deemed to have the rights of a holder of such securities
distributed as of the Effective Date.
(b) Record Date for Distributions to Holders of Lender
Claims and Old Debentures
At the close of business on the Distribution Record
Date, the transfer records for the Old Debentures and Lender Claims shall be
closed, and there shall be no further changes in the record holders of the Old
Debentures or Lender Claims. The Reorganized Debtors, the Disbursing Agent, and
the Administrative Agent for the Lenders shall have no obligation to recognize
any transfer of such Old Debentures or Lender Claims occurring after the
Distribution Record Date and shall be entitled instead to recognize and deal for
all purposes hereunder with only those record holders as of the close of
business on the Distribution Record Date.
(c) Calculation of Distribution Amounts of New Common
Shares
No fractional shares of New Common Shares or
Reorganized PSI Common Shares shall be issued or distributed under the Plan.
Each Person entitled to receive New Common Shares will receive the total number
of whole shares of New Common Shares or Reorganized PSI Common Shares to which
such Person is entitled. Whenever any distribution to a particular Person would
otherwise call for distribution of a fraction of a share of New Common Shares or
Reorganized PSI Common Shares, the actual distribution of shares of such stock
shall be rounded to the next higher or lower whole number as follows: (a)
fractions 1/2 or greater shall be rounded to the next higher whole number, and
(b) fractions of less than 1/2 shall be rounded to the next lower whole number.
The total number of shares of New Common Shares to be distributed to a Class of
Claims or Interests shall be adjusted as necessary to account for the rounding
provided for in Article VII.F of the Plan. No consideration shall be provided in
lieu of fractional shares that are rounded down.
(d) Calculation of Distribution Amounts of New Debt
Securities
Notwithstanding any other provision of the Plan, New
Debt Securities, other than the New Secured PIK Debt, will be issued in primary
denominations of $1,000 and such fractions thereof as necessary.
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(e) Delivery of Distributions
Distributions to holders of Allowed Claims shall be
made by the Disbursing Agent (a) at the addresses set forth on the Proofs of
Claim filed by such holders (or at the last known addresses of such holders if
no Proof of Claim is filed or if the Debtors have been notified of a change of
address), (b) at the addresses set forth in any written notices of address
changes delivered to the Disbursing Agent after the date of any related Proof of
Claim, (c) at the addresses reflected in the Schedules if no Proof of Claim has
been filed and the Disbursing Agent has not received a written notice of a
change of address, (d) in the case of the holder of an Allowed Old Debenture
Claim, at the addresses contained in the official records of the Indenture
Trustee under the Old Indenture, or (e) at the addresses set forth in a properly
completed letter of transmittal accompanying securities properly remitted to the
Debtors. If any holder's distribution is returned as undeliverable, no further
distributions to such holder shall be made unless and until the Disbursing Agent
is notified of such holder's then current address, at which time all missed
distributions shall be made to such holder without interest. No undeliverable
distributions will go back to the Reorganized Debtors. All claims for
undeliverable distributions in respect of Allowed Class 7 Claims (or Canadian
Impaired Unsecured Claims for which the U.S. Plan Election is made if the
Alternate Canadian Transactions are implemented) must be made on or before the
expiration of the eighteenth (18th) month following the Effective Date, after
which date all unclaimed property shall be distributed pro rata to the holders
of the other Allowed Class 7 Claims (and Canadian Impaired Unsecured Claims for
which the U.S. Plan Election is made if the Alternate Canadian Transactions are
implemented) and the claim of any holder or successor to such holder with
respect to such property shall be discharged and forever barred, notwithstanding
any federal or state escheat laws to the contrary. Nothing contained in the Plan
shall require the Debtors, Reorganized Debtors, any Disbursing Agent or the
Indenture Trustee to attempt to locate any holder of an Allowed Claim or Allowed
Interest. All distributions pursuant to the Plan shall be at the Reorganized
Debtors' expense.
(f) Notes and Old Debentures
Except as provided in the Plan for lost, stolen,
mutilated or destroyed notes or Old Debentures, each holder of an Allowed Claim
evidenced by a note or Old Debenture shall tender such note or Old Debenture to
the Disbursing Agent in accordance with written instructions to be provided in a
letter of transmittal to such holders by the Disbursing Agent as promptly as
practicable following the Effective Date. Such letter of transmittal shall
specify that delivery of such notes or Old Debentures will be effected, and risk
of loss and title thereto will pass, only upon the proper delivery of such notes
or Old Debentures with the letter of transmittal in accordance with such
instructions. Such letter of transmittal shall also include, among other
provisions, customary provisions with respect to the authority of the holder of
the applicable note or Old Debenture to act and the authenticity of any
signatures required on the letter of transmittal. All surrendered notes and Old
Debentures shall be marked as canceled and delivered to the Reorganized Debtors.
(g) Lost, Mutilated or Destroyed Notes or Old Debentures
In addition to any requirements under the applicable
certificate or articles of incorpora tion or bylaws of the applicable Debtor,
any holder of a Claim or an Interest evidenced by a note or Old Debenture that
has been lost, stolen, mutilated or destroyed shall, in lieu of surrendering
such note or Old Debenture, deliver to the Disbursing Agent (a) evidence
satisfactory to the Disbursing Agent of the loss, theft, mutilation or
destruction; and (b) such indemnity as may be required by the Disbursing Agent
to hold the Disbursing Agent harmless from any damages, liabilities or costs
incurred in treating such individual as a holder of a note or Old Debenture.
Upon compliance with Article VII.H.2 of the Plan by a holder of a Claim or an
Interest evidenced by a note or Old Debenture, such holder shall, for all
purposes under the Plan, be deemed to have surrendered a note or Old Debenture,
as applicable.
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(h) Failure to Surrender Canceled Note or Old Debentures
Any holder of a note or Old Debenture that fails to
surrender or be deemed to have surrendered such note or Old Debenture on or
before the second anniversary of the Effective Date shall have its claim for a
distribution pursuant to the Plan on account of such note or Old Debenture
discharged and shall be forever barred from asserting any such claim against any
Reorganized Debtor or their respective property.
(i) Distribution to Holders of Class 8 Claims and Interests
A description of the procedure for the distribution
to holders of Class 8 Claims and Interests, as well as the procedure for the
establishment of a reserve for the benefit of holders of Disputed Class 8 Claims
and Interests, if any, after such Claims or Interests become Allowed Claims or
Interests will be included in the Plan Supplement.
2. Resolution and Treatment of Disputed, Contingent, and
Unliquidated Claims and Disputed Interests
(a) Prosecution of Objections
After the Confirmation Date, only the Debtors, the
Reorganized Debtors (subject to Article XIV.G of the Plan), the Creditors'
Committee and the Indenture Trustee shall have the authority to file objections,
settle, compromise, withdraw or litigate to judgment objections to Claims (and
Canadian Impaired Unsecured Claims the holders of which have made the U.S. Plan
Election if the Alternate Canadian Transactions are implemented) and Interests.
From and after the Effective Date, the Reorganized Debtors may settle or
compromise any Disputed Class 7 Claim, Disputed Canadian Impaired Unsecured
Claim the holder of which has made the U.S. Plan Election if the Alternate
Canadian Transactions are implemented or Disputed Interest, without approval of
the Bankruptcy Court.
(b) No Distributions Pending Allowance
Notwithstanding any other provision of the Plan, no
payments or distributions shall be made with respect to all or any portion of a
Disputed Class 7 Claim or Disputed Canadian Impaired Unsecured Claim unless and
until some portion thereof has become an Allowed Claim or Allowed Canadian
Impaired Unsecured Claim, respectively.
(c) Disputed Distribution Reserve; Reserve for Subsequent
Distributions to Qualifying Class 7 Creditors
On the Effective Date (or as soon thereafter as is
practicable) if holders of Allowed Class 7 Claims are to receive distributions
in accordance with Article III.C, the Disbursing Agent shall establish the
Disputed Distribution Reserve by withholding from the initial distribution on
account of Allowed Class 7 Claims, Allowed Canadian Impaired Unsecured Claims
and the Class 6 Additional Distribution (as applicable) an amount of New
Unsecured PIK Notes and New Common Shares (or Reorganized PSI Common Shares as
applicable) calculated as if all Class 7 Claims and Canadian Impaired Unsecured
Claims were Allowed Class 7 Claims and Allowed Canadian Impaired Unsecured
Claims as of such date, in an amount equal to one hundred percent (100%) of
their Disputed Class 7 and Disputed Canadian Impaired Unsecured Claim Amount.
The Disbursing Agent shall also establish a reserve for subsequent distributions
to Qualifying Class 7 Creditors containing the maximum amount of New Unsecured
Convertible Notes distributable under the Plan, if necessary, less the amount of
New Unsecured Convertible Notes distributed to Qualifying Class 7 Creditors on
the Distribution Date.
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(d) Distributions After Allowance of Class 7 Claims and
Canadian Impaired Unsecured Claims
The Disbursing Agent shall make payments and
distributions from the Disputed Distribution Reserve to each holder of a
Disputed Class 7 Claim that has become an Allowed Class 7 Claim and each holder
of a Disputed Canadian Impaired Unsecured Claim that has become an Allowed
Canadian Impaired Unsecured Claim, in each case in accordance with the
provisions of the Plan or the Canadian Reorganization Plan, respectively. On the
next succeeding interim distribution date after the date that the order or
judgment of the Bankruptcy Court or the Canadian Bankruptcy Court allowing such
Claim or claim becomes a Final Order, the Disbursing Agent shall distribute to
the holder of such Claim or claim any New Unsecured PIK Notes and New Common
Shares (or Reorganized PSI Common Shares, as applicable) in the Disputed
Distribution Reserve that would have been distributed on the Distribution Date
had such Claim been an Allowed Class 7 Claim or an Allowed Canadian Impaired
Unsecured Claim on the Distribution Date. After a Final Order has been entered,
or other final resolution has been reached, with respect to each of the Disputed
Class 7 Claims and Disputed Canadian Impaired Unsecured Claims, any New
Unsecured PIK Notes, New Unsecured Convertible Notes, and New Common Shares or
Reorganized PSI Common Shares that remain in the Disputed Distribution Reserve
and the reserve for subsequent distributions to Qualifying Class 7 Creditors
shall be distributed, as applicable, pro rata to holders of (i) Allowed Claims
in Class 7, (ii) Allowed Canadian Impaired Unsecured Claims and (iii) holders of
the Class 6 Secured Lender Claims on account of the Class 6 Additional
Distribution, if applicable (based on an estimate of the allowed Canadian
Impaired Unsecured Claims of holders who did not make the U.S. Plan Election);
provided however, that only Qualifying Class 7 Creditors shall be entitled to
receive distributions of New Unsecured Convertible Notes from the reserve for
subsequent distributions to Qualifying Class 7 Creditors. All distributions made
under Article IX.D of the Plan on account of an Allowed Class 7 Claim and
Allowed Canadian Impaired Unsecured Claim, shall be made together with any
payments or other distributions made on account of, as well as any obligations
arising from, the distributed property, as if such Allowed Class 7 Claim or
Allowed Canadian Impaired Unsecured Claim had been an Allowed Class 7 Claim or
Allowed Canadian Impaired Unsecured Claim on the Distribution Date.
Notwithstanding the foregoing, the Disbursing Agent shall not be required to
make distributions under Article IX.D more frequently than once every 180 days
or to make any individual payments in an amount less than $25.00.
Notwithstanding anything herein to the contrary, if the Canadian Reorganization
Plan is sanctioned, disbursements to holders of Canadian Impaired Unsecured
Claims shall be made in compliance with the Canadian Reorganization Plan.
(e) Distributions Procedures for Class 8 Claims and
Interests
A description of the procedure for the distribution
to holders of Class 8 Claims and Interests, as well as the procedure for the
establishment of a reserve for the benefit of holders of Class 8 Claims and
Interests that have not become Allowed, if any, and the procedure for
distribution to holders of Class 8 Claims and Interests that have not become
Allowed, if any, after such Claims or Interests, become Allowed Claims or
Interests will be included in the Plan Supplement.
J. OTHER MATTERS
1. Treatment of Executory Contracts and Unexpired Leases
Under section 365 of the Bankruptcy Code, the Debtors have
the right, subject to Bankruptcy Court approval, to assume or reject any
executory contracts or unexpired leases. If the Debtors reject an executory
contract or unexpired lease that was entered into before the Petition Date, the
contract or lease will be treated as if it had been breached on the date
immediately preceding the Petition Date, and the other party to the agreement
will have an Impaired Unsecured Claim for damages incurred as a result of the
rejection. In the case of rejection of employment severance agreements and real
property leases, damages are subject to certain limitations imposed by sections
365 and 502 of the Bankruptcy Code.
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(a) Assumed Contracts and Leases; Related Payments
Except as otherwise provided in the Plan, or in any
contract, instrument, release, indenture or other agreement or document entered
into in connection with the Plan, as of the Effective Date each of the Debtors
will be deemed to have assumed each executory contract and unexpired lease to
which it is a party, unless such contract or lease (i) was previously assumed or
rejected by one of the Debtors, (ii) previously expired or terminated pursuant
to its own terms, or (iii) as otherwise set forth in the schedule to be provided
in the Plan Supplement as being an executory contract or unexpired lease to
reject which schedule shall be included in the Plan Supplement, provided
however, that the Debtors reserve their right, at any time prior to the
Confirmation Date, to amend the schedule to be provided in the Plan Supplement
to delete an unexpired lease or executory contract therefrom or add any
unexpired lease or executory contract thereto. The Confirmation Order will
constitute an order of the Bankruptcy Court under section 365 of the Bankruptcy
Code approving the contract and lease assumptions described above, as of the
Effective Date.
Each executory contract and unexpired lease that is
assumed and relates to the use, ability to acquire, or occupancy of real
property will include (a) all modifications, amendments, supplements,
restatements, or other agreements made directly or indirectly by any agreement,
instrument, or other document that in any manner affect such executory contract
or unexpired lease and (b) all executory contracts or unexpired leases
appurtenant to the premises, including all easements, licenses, permits, rights,
privileges, immunities, options, rights of first refusal, powers, uses,
usufructs, reciprocal easement agreements, vaults, tunnel or bridge agreements
or franchises, and any other interests in real estate or rights in rem related
to such premises, unless any of the foregoing agreements has been rejected
pursuant to an order of the Bankruptcy Court or is the subject of a motion to
reject filed on or before the Confirmation Date.
Any monetary amounts by which each executory contract
and unexpired lease to be assumed pursuant to the Plan is in default will be
satisfied, under section 365(b)(1) of the Bankruptcy Code, at the option of the
Debtors, or an assignee of the Debtors assuming such contract or lease, by Cure.
If there is a dispute regarding (i) the nature or amount of any Cure, (ii) the
ability of a Reorganized Debtor or any assignee to provide "adequate assurance
of future performance" (within the meaning of section 365 of the Bankruptcy
Code) under the contract or lease to be assumed, or (iii) any other matter
pertaining to assumption, Cure will occur following the entry of a Final Order
resolving the dispute and approving the assumption or assumption and assignment,
as the case may be.
(b) Rejected Contracts and Leases; Bar to Rejection
Damages
Except as otherwise provided in the Plan and subject
to Article VIII.A thereof or as otherwise provided in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, none of the executory contracts and unexpired leases to which the
Debtors, or any of them, are a party shall be rejected under the Plan.
(c) Compensation and Benefit Programs
Except and to the extent previously assumed or
rejected by an order of the Bankruptcy Court on or before the Confirmation Date,
all employment agreements and employee compensation and benefit programs of the
Debtors, including programs subject to sections 1114 and 1129(a)(13) of the
Bankruptcy Code, entered into before or after the Petition Date and not since
terminated, shall be deemed to be, and shall be treated as though they are,
executory contracts that are assumed under Article VIII.A of the Plan and in the
event the Alternate Canadian Transactions are implemented or the Canadian Plan
Condition is waived, assumed and assigned to PSI, except for (i) executory
contracts or plans specifically rejected pursuant to the Plan (to the extent
such rejection does not violate sections 1114 and 1129(a)(13) of the Bankruptcy
Code) and (ii) executory contracts or plans as have previously been rejected,
are the subject of a motion to reject, or have been specifically waived by the
beneficiaries
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of any plans or contracts; provided, however, that Debtors' obligations, if
any, to pay all "retiree benefits" as defined in 1114(a) of the Bankruptcy
Code shall continue.
2. Administrative Claims
The Confirmation Order will establish an
Administrative Claims Bar Date for filing of Administrative Claims that have not
been paid, released or otherwise settled (excluding Administrative Claims
arising from the sale of goods or services to a Debtor, after the Petition Date,
in the ordinary course of business), including Substantial Contribution Claims
(but not including claims for Professional Fees or the expenses of the members
of any creditors' committee), which date will be 45 days after the Confirmation
Date. Holders of asserted Administrative Claims, other than claims for
Professional Fees or the expenses of the members of any creditors' committee,
not paid prior to the Confirmation Date must submit proofs of Administrative
Claim on or before such Administrative Claims Bar Date or forever be barred from
doing so. The notice of Confirmation to be delivered pursuant to Fed. R. Bankr.
P. 3020(c) and 2002(f) will set forth such date and constitute notice of this
Administra tive Claims Bar Date. The Debtors or Reorganized Debtors, as the case
may be, shall have 45 days (or such longer period as may be allowed by order of
the Bankruptcy Court) following the Administrative Claims Bar Date to review and
object to such Administrative Claims before a hearing for determination of
allowance of such Administrative Claims.
3. Professional Fee Claims
All final requests for compensation or reimbursement of
Professional Fees pursuant to sections 327, 328, 330, 331, 503(b) or 1103 of the
Bankruptcy Code for services rendered to the Debtors or any creditors' committee
prior to the Effective Date (other than Substantial Contribution Claims under
section 503(b)(4) of the Bankruptcy Code) must be filed and served on the
Reorganized Debtors and their counsel no later than 45 days after the Effective
Date, unless otherwise ordered by the Bankruptcy Court. Objections to
applications of such Professionals or other entities for compensation or
reimbursement of expenses must be filed and served on the Reorganized Debtors
and their counsel and the requesting Professional or other entity no later than
45 days (or such longer period as may be allowed by order of the Bankruptcy
Court) after the date on which the applicable application for compensation or
reimbursement was served.
4. Interest on Claims
Interest and fees and expenses, if any, with respect to
Class 2 Other Secured Claims, shall be paid when due under the contract,
agreement, or other instrument governing the terms and conditions of the
obligation comprising such Allowed Claim, together with any additional amounts
required to be paid with respect to Unimpaired Claims pursuant to section 1124
of the Bankruptcy Code. Except as otherwise specifically provided for in the
Plan or Confirmation Order, or required by applicable bankruptcy law or an order
of the Bankruptcy Court, no holder of an Allowed Claim that is not an Other
Secured Claim will be entitled to interest accruing on or after the Petition
Date on account of such Claim for any purpose. In addition, interest will
neither accrue nor be paid upon any Disputed Claim in respect to the period from
the Petition Date to the date a final distribution is made thereon if and after
such Disputed Claim becomes an Allowed Claim.
5. Withholding and Reporting Requirements
In connection with the Plan and all distributions hereunder,
the Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state,
provincial, local or foreign taxing authority, and all distributions hereunder
shall be subject to any such withholding and reporting requirements. The
Disbursing Agent shall be authorized to take any and all actions that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan (i) each holder of
an Allowed Claim or Interest that is to receive a distribution of New
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Securities to the Plan shall have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution, and (ii) no distribution shall be made to or on behalf of
such holder pursuant to the Plan unless and until such holder has made
arrangements satisfactory to the Disbursing Agent for the payment and
satisfaction of such tax obligations. Any New Securities to be distributed
pursuant to the Plan shall, pending the implementation of such arrangements, be
treated as an undeliverable distribution pursuant to Article VII.G of the Plan.
It is the Debtors' intent that distributions under the Plan to holders of Claims
are in respect of, and to be applied to principal first and then interest.
6. Setoffs
The Reorganized Debtors may, but shall not be required to,
set off against any Claim (or Canadian Impaired Unsecured Claim the holder of
which has made the U.S. Plan Election if the Alternate Canadian Transactions are
implemented), and the payments or other distributions to be made pursuant to the
Plan in respect of such Claim, claims of any nature whatsoever that the Debtors
or Reorganized Debtors may have against the holder of such Claim (or Canadian
Impaired Unsecured Claim the holder of which has made the U.S. Plan Election if
the Alternate Canadian Transactions are implemented); provided, however, that
neither the failure to do so nor the allowance of any Claim (or Canadian
Impaired Unsecured Claim the holder of which has made the U.S. Plan Election if
the Alternate Canadian Transactions are implemented) hereunder shall constitute
a waiver or release by the Reorganized Debtors of any such claim that the
Debtors or Reorganized Debtors may have against such holder. Notwithstanding
anything to the contrary, the Debtors and Reorganized Debtors will not exercise
any right of setoff against any Lender, any agents under the Pre-Petition Credit
Agreement or the DIP Facility Agreement, the Account Intermediaries or the DIP
Lenders.
7. Shareholder Rights Plan
The Plan provides that a Shareholder Rights Plan will be
implemented on the Effective Date. The specific Shareholder Rights Plan to be
implemented will depend upon whether the Canadian Reorganization Plan is
sanctioned or the Alternate Canadian Transactions are implemented. If the
Canadian Reorganization Plan is sanctioned, then the Shareholder Rights Plan
will be for Reorganized PSC and governed by Canadian law. If the Alternate
Canadian Transactions are implemented, then the Shareholder Rights Plan will be
for Reorganized PSI and will be governed by United States law.
On the Effective Date, Reorganized PSC shall
implement the Shareholder Rights Plan. Pursuant to the Shareholder Rights Plan,
in the event that a person shall become an Acquiring Person (as defined in the
Shareholder Rights Plan) (such event being a "Flip-in Event"), each Right will
entitle the registered holder to receive, upon payment of the exercise price
stated in the Shareholder Rights Plan, that number of shares that has a market
value at the date of the Flip-in Event equal to twice the exercise price. The
Rights are not exercisable prior to the Flip-in Event. The Rights expire on the
termination of the annual meeting of shareholders of Reorganized PSC in the year
2003 unless terminated earlier by the board of directors of Reorganized PSC.
Until the Separation Time (as defined in the
Shareholder Rights Plan), the Rights will be evidenced only by outstanding
common share certificates. The Shareholder Rights Plan provides that, until the
Separation Time, the Rights will be transferred with and only with the
associated common shares. Until the Separation Time, or earlier termination or
expiration of the Rights, each new share certificate issued after the Record
Time (as defined in the Shareholder Rights Plan), upon transfer of existing
common shares or the issuance of additional common shares, will have printed
thereon a legend incorporating the terms of the Shareholder Rights Plan by
reference. As soon as practicable following the Separation Time, separate
certificates evidencing the Rights will be mailed to the holders of record of
common shares as of the close of business at the separation time, and thereafter
the rights certificates alone will evidence the Rights. The Rights will separate
and trade apart from the common shares after the separation time.
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<PAGE> 45
The board of directors of Reorganized PSC may, prior
to a Flip-in Event, waive the dilution effects of the Shareholder Rights Plan in
respect of a particular Flip-in Event that would result from a take-over bid (as
defined in the Shareholder Rights Plan) made by way of a take-over bid circular
to all holders of common shares. In such case, such waiver would be deemed also
to be a waiver, on the same terms and conditions, in respect of any other
Flip-in Event which occurs by reason of another take-over bid made by way of a
take-over bid circular to all holders of common shares and prior to the
expiration of the first take-over bid for which the initial waiver was given.
The board of directors of Reorganized PSC may also waive the Shareholder Rights
Plan in respect of a particular Flip-in Event that has occurred through
inadvertence. Additionally, the board of directors of Reorganized PSC may, at
its option, redeem all, but not less than all, of the outstanding Rights at a
nominal value at any time.
An Acquiring Person is, generally, a person who
becomes the Beneficial Owner of twenty percent (20%) or more of the outstanding
common shares of PSC pursuant to (a) purchases or other acquisitions, direct or
indirect, from non-residents of Canada or from persons whose securities are
registered on the books of PSC with a non-Canadian address; (b) purchases or
other acquisitions, direct or indirect, that are exempt from the Take-over Bid
circular requirements of the Securities Act (Ontario) pursuant to certain
exemptions; or (c) purchases or other acquisitions, direct or indirect, made
pursuant to a take-over bid that is not a Permitted Bid.
The Shareholder Rights Plan excludes from the
definition of Acquiring Person a Person who acquires twenty percent (20%) or
more of the outstanding common shares through a Permitted Bid or a Person who is
an Investment Manager, Trust Company or Plan Trustee (each as defined in the
Shareholder Rights Plan), provided they are not making or proposing to make a
Take-Over Bid.
A Flip-in Event does not occur if a Take-Over Bid is
a Permitted Bid. A Permitted Bid is a Take-Over Bid, made by means of a
Take-over Bid circular, which also:
(i) is made to all registered holders of common
shares (other than the Offeror);
(ii) contains, and the provisions for the take-up
and payment for common shares tendered or
deposited is subject to, an irrevocable and
unqualified condition that no common shares
will be taken up or paid for pursuant to the
Take-Over Bid prior to the close of business
on a date which is not less than 45 days
following the date of the Take-Over Bid; and
(iii) contains an irrevocable and unqualified
provision that unless the Take-Over Bid is
withdrawn, all common shares may be
deposited pursuant to the Take-Over Bid at
any time prior to the close of business on
the date of first take-up or payment for
common shares under the bid and that all
common shares deposited pursuant to the
Take-Over Bid may be withdrawn at any time
prior to the close of business on such date.
The Shareholder Rights Plan also provides for a
Competing Permitted Bid, which is a Take-Over Bid made during the pendency of
another Permitted Bid that satisfies all of the requirements of a Permitted Bid
except that, provided it is outstanding for a minimum period of 21 days, it may
expire on the same date as the initial Permitted Bid. A Competing Permitted Bid
must contain, and the provisions for the take-up and payment for common shares
tendered or deposited is subject to, an irrevocable and unqualified provision
that no common shares will be taken up and paid for pursuant to the Competing
Take-Over Bid prior to the close of business on the date on which common shares
may be taken up under the Permitted Bid that preceded the Competing Permitted
Bid.
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<PAGE> 46
In the event the Alternate Canadian Transactions are
implemented, the Shareholder Rights Plan will be revised as necessary to be
implemented by PSI and governed by United States law.
8. Reverse Stock Split
If the Canadian Reorganization Plan is sanctioned by
the Effective Date, and if Class 7 has voted to accept the Plan, on the
Effective Date, Reorganized PSC shall take all steps necessary to implement the
Reverse Stock Split. If the Alternate Canadian Transactions are implemented or
the Canadian Plan Condition is waived, no Reverse Stock Split will occur.
On the Effective Date, if the Canadian Reorganization Plan
has been sanctioned and Class 7 has voted to accept the Plan, Reorganized PSC
will hold a meeting of shareholders at which time, among other things,
Reorganized PSC shall request shareholder approval of the Reverse Stock Split.
The Reverse Stock Split will provide that every 273 shares of New Common Shares
become one PSC Common Share. The exchange of certificates representing New
Common Shares will be affected for PSC Common Shares pursuant to an exchange
mechanism to be implemented through Reorganized PSC's stock transfer agent. The
Reverse Stock Split is to be implemented only if the Canadian Reorganization
Plan has been sanctioned and Class 7 votes to accept the Plan. After giving
effect to the proposed Reverse Stock Split, Reorganized PSC will have
approximately 24,000,000 shares of PSC Common Shares issued and outstanding.
As an illustration of the effect of the Reverse Stock Split,
set forth below, is the number of New Common Shares to be distributed under the
Plan for each Class and the resulting number of PSC Common Shares for each Class
after giving effect to the Reverse Stock Split. This illustration assumes that
the Canadian Reorganization Plan is sanctioned, Class 7 votes to accept the
Plan and the class of holders of Canadian Impaired Unsecured Claims votes to
accept the Canadian Reorganization Plan.
<TABLE>
<CAPTION>
Class New Common Shares PSC Common Shares
- ----- ----------------- -----------------
<S> <C> <C>
Class 6 5,967,052,592 21,840,000
Class 7 and the Class 327,860,033 1,200,000
of Canadian Impaired
Unsecured Claims
Class 8A None (Old Common Shares 480,000
will be retained and diluted
by issuance of New Common
Stock)
Class 8B (shared with 98,358,010 360,000
certain other creditors)
Class 8C (shared with 32,786,003 120,000
certain other creditors)
</TABLE>
K. PRESERVATION OF RIGHTS OF ACTION
Except as otherwise provided Articles IV.F and IV.I.1 of the Plan or
the Confirmation Order, or in any contract, instrument, release, indenture or
other agreement entered into in connection with the Plan, in accordance with
section 1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and
may enforce, sue on, settle or compromise (or decline to do any of the
foregoing) all claims, rights or causes of action, suits and proceedings,
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<PAGE> 47
whether in law or in equity, whether known or unknown, that the Debtors or the
Estates may hold against any Person or entity. Each Debtor or its successor(s)
may pursue such retained claims, rights or causes of action, suits or
proceedings as appropriate, in accordance with the best interests of the
Reorganized Debtor or its successor(s) who hold such rights.
However, if the Alternate Canadian Transactions are implemented, then
any rights, causes of action, suits and proceedings, whether in law or equity,
whether known or unknown, that PSC and/or the Canadian Debtors may
hold, including claims or causes of action, against Deloitte & Touche, Robert
Waxman, Greg Madesker and/or Rik Barrese shall remain the property of PSC and
the Canadian Debtors and shall remain subject to the Lenders' Claims to the
extent such Claims have not been satisfied in full as a result of distributions
pursuant to the Plan. The Reorganized Debtors will not own, control, prosecute
or receive any proceeds from the successful prosecution or settlement of these
causes of action. These causes of action will be prosecuted by PSC and the
Canadian Debtors. Under the Alternate Canadian Transactions, the Lenders will
retain their security interests and deficiency claims against all remaining
assets of PSC and the Canadian Debtors after giving effect to the Alternate
Canadian Transactions. The prosecution of the causes of action against Deloitte
& Touche and Robert Waxman shall be governed by the terms of the Alternate
Canadian Transactions and applicable Canadian law and any recoveries shall be
for the benefit of the Lenders on account of their Claims against the Canadian
Debtors. In the event such proceeds satisfy the Lenders' deficiency claims in
full, then any excess proceeds would be distributed to creditors of PSC in
accordance with applicable Canadian law. The proceeds will not be distributed to
the Reorganized Debtors and the Reorganized Debtors will have no economic stake
in the prosecution of the causes of action against Deloitte & Touche and Robert
Waxman.
Claims against Deloitte & Touche have been asserted in the U.S. and
Canadian Class Actions alleging that Deloitte & Touche was negligent in
performing its duties as auditors for PSC by failing to discover and disclose
certain information in the Debtors' financial statements. The Debtors may have
similar claims or causes of action against Deloitte & Touche for breach of its
duties to the Debtors in connection with Deloitte & Touche audits. The Debtors
have not finalized an analysis of such claims and are not prepared to undertake
any estimate of the value of any such claims or the likelihood of recovery.
If the Canadian Reorganization Plan is implemented, then the causes of
action against Deloitte & Touche and Robert Waxman will constitute causes of
action retained by the Reorganized Debtors and will be prosecuted or settled by
the Reorganized Debtors. Any proceeds obtained from the prosecution or
settlement of these causes of action would inure to the benefit of the
stockholders of the Reorganized Debtors.
The failure of the Debtors to specifically list any claim, right of
action, suit, or proceeding herein or in the Plan does not, and will not be
deemed to, constitute a waiver or release by the Debtors of such claim, right of
action, suit, or proceeding, and the Reorganized Debtors will retain the right
to pursue additional claims, rights of action, suits or proceedings. In
addition, at any time before the Effective Date, notwithstanding anything in the
Plan to the contrary, the Debtors or the Reorganized Debtors may settle some or
all of the Litigation Claims with the approval of the Bankruptcy Court pursuant
to Fed. R. Bankr. P. 9019.
L. RELEASES UNDER THE PLAN
1. Releases by Debtors
Under the Plan, as of the Effective Date, the Debtors and
Reorganized Debtors in their individual capacities and as debtors in possession
and the Subsidiaries will be deemed to release forever, waive and discharge all
claims, obligations, suits, judgments, damages, demands, debts, rights, causes
of action and liabilities (other than the rights of the Debtors or Reorganized
Debtors to enforce the Plan and the contracts, instruments, releases, indentures
and other agreements or documents delivered thereunder) whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter
37
<PAGE> 48
arising, in law, equity or otherwise that are based in whole or part on
any act, omission, transaction, event or other occurrence taking place on or
prior to the Effective Date in any way relating to the Debtors, the Reorganized
Debtors or their Subsidiaries, the parties released pursuant to Article IV.I.1
of the Plan, the Chapter 11 Cases, the Lender Lock-up Agreement or the Plan, and
that could have been asserted by or on behalf of the Debtors or their Estates,
the Reorganized Debtors or their Subsidiaries against (i) the directors,
officers and employees of the Debtors or the Subsidiaries in each case as of the
Petition Date or that have become officers and/or directors thereafter but prior
to the Effective Date (other than for indebtedness owed by any such directors,
officers or employees to any of the Debtors or their Subsidiaries) and the
Debtors' or Subsidiaries' agents and professionals (excluding Deloitte & Touche
and any insurance brokers retained by the Debtors), (ii) the Lenders (other than
any entity specifically excluded from the releases granted in Article IV.I.1 of
the Plan that has become a Lender), (iii) the ad hoc steering committee and any
other committee of holders of Lender Claims, (iv) CIBC, as Administrative Agent
and co-arranger under the Pre-Petition Credit Agreement, (v) BTCo as Syndication
Agent and co-arranger under the Pre-Petition Credit Agreement, (vi) any official
committees appointed in the Chapter 11 Cases, (vii) the DIP Agent, the DIP
Co-Arrangers and the holders of DIP Facility Claims (other than any entity
specifically excluded from the releases granted in Article IV.I.1 of the Plan
that has become a holder of a DIP Facility Claim), (viii) the Security Agent,
(ix) the Account Intermediaries, (x) any individual, corporation or other entity
that was at any time formerly one of the foregoing released parties identified
in subclauses (ii) - (viii), and (xi) the respective affiliates, current and
former officers, directors, employees, agents, shareholders and professionals
(excluding Deloitte & Touche, Robert Waxman, Greg Madesker, Rik Barrese and any
insurance brokers retained by the Debtors) (including the current and former
officers, directors, employees, agents, shareholders and professionals of the
released professionals) of the entities released in subclauses (ii) - (viii)
acting in such capacity; provided, however, that the releases provided to any
director, officer or employee of the Debtors described in clause (i) may be
revoked by the Reorganized Debtors if the Canadian Reorganization Plan is
sanctioned or by the Administrative Agent if the Alternate Canadian Transactions
are implemented, by written notice to such director, officer or employee in the
event that the Reorganized Debtors reasonably determine that such director,
officer or employee has failed to provide factual information as reasonably
requested by the Reorganized Debtors or by the Administra tive Agent in
connection with any claim against Deloitte & Touche, Robert Waxman, Greg
Madesker and/or Rik Barrese arising out of or related to the same nucleus of
operative facts alleged as of the Petition Date in the Securities Actions, the
Chazen Actions or the Liff Actions, including, without limitation, providing
information and documents, attendance at meetings and interviews, assisting
counsel, attendance at discoveries, if required, assistance in pre-trial
preparation and attendance at trial, including as a witness, but subject in the
case of any person who is at the relevant time no longer a director, officer or
employee of any of the Reorganized Debtors, to reimbursement of that person's
foregone income and reasonable expenses.
2. Releases by Holders of Lender Claims, Claims and Interests
(a) Holders of Lender Claims.
Under the Plan, as of the Effective Date, in
consideration for the obligations of the Debtors, the Reorganized Debtors and
the Subsidiaries under the Plan and the Lender Lock-up Agreement and the Cash,
securities, contracts, instruments, releases and other agreements or documents
to be delivered in connection with the Plan, each of the holders of Lender
Claims, the ad hoc steering committee and any other committee of holders of
Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
the Pre-Petition Credit Agreement, the DIP Agent, the DIP Co-Arrangers, the
holders of DIP Facility Claims, the Security Agent, the Account Intermediaries,
and any individual, corporation or other entity that was at any time formerly
one of the foregoing releasing parties will be deemed to forever release, waive
and discharge all claims, obligations, suits, judgments, damages, demands,
debts, rights, causes of action and liabilities (other than the rights to
enforce the Debtors' or the Reorganized Debtors' obligations under the Plan and
the securities, contracts, instruments, releases and other agreements and
documents delivered thereunder), whether liquidated or unliquidated, fixed or
contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then
existing or thereafter arising, in law, equity or otherwise that are based in
whole or in
38
<PAGE> 49
part on any act, omission, transaction, event or other occurrence
taking place on or prior to the Effective Date in any way relating to the
Debtors or Subsidiaries, the Reorganized Debtors, the Chapter 11 Cases, the
Lender Lock-up Agreement or the Plan against (i) the Debtors, the Subsidiaries
and the Reorganized Debtors; provided, however, if the Canadian Reorganization
Plan is not sanctioned, the holders of Allowed Secured Lender Claims and Allowed
Unsecured Lender Claims shall not be deemed to have released PSC or any
Subsidiary other than the Debtors from such claims or their security interests
against any assets of PSC or any Subsidiary other than the Debtors retained and
not transferred in connection with the Alternate Canadian Transactions, provided
further, however, any such claims the Lenders hold shall be reduced by the value
of any distributions the Lenders receive by the Lenders pursuant to the Plan,
provided further, that this release in clause (i) shall not be given by any
Account Intermediary who is a current Bank Account Service Provider, (ii) the
directors, officers and employees of the Debtors or the Subsidiaries in each
case as of the Petition Date (and in addition, those who become officers and/or
directors thereafter prior to the Effective Date), (iii) the Lenders (other than
any entity specifically excluded from the releases granted in Article IV.I.2.(a)
of the Plan that has become a Lender), (iv) the ad hoc steering committee and
any other committee of holders of Lender Claims, (v) CIBC, as Administrative
Agent and co-arranger under the Pre-Petition Credit Agreement, (vi) BTCo as
Syndication Agent and co-arranger under the Pre-Petition Credit Agreement, (vii)
any official committees appointed in the Chapter 11 Cases, (viii) the DIP Agent,
the DIP Co-Arrangers and the holders of DIP Facility Claims (other than any
entity specifically excluded from the releases granted in Article IV.I.2.(a) of
the Plan that has become a holder of a DIP Facility Claim), (ix) the Security
Agent, (x) the Account Intermediaries, (xi) any individual, corporation or other
entity that was at any time formerly one of the foregoing released parties
identified in subclauses (iii) - (ix) and (xii) the respective current and
former professionals of the entities in subclauses (i) - (ix) (excluding
Deloitte & Touche and any insurance brokers retained by the Debtors) (including
the current and former officers, directors, employees, shareholders and
professionals of the released professionals), acting in such capacity; provided,
however, that the releases provided to any director, officer or employee of the
Debtors described in clause (ii) may be revoked by the Administrative Agent, or
its successor, by written notice to such director, officer or employee, in the
event that the Administrative Agent or its successor reasonably determines that
any such director, officer or employee has failed to provide factual information
reasonably requested by the Administrative Agent or its successor in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or related to the same nucleus of operative facts
alleged as of the Petition Date in the Securities Actions, the Chazen Actions or
the Liff Actions, including, without limitation, providing information and
documents, attendance at meetings and interviews, assisting counsel, attendance
at discoveries, if required, assistance at pre-trial preparation and attendance
at trial, including as a witness, but subject in the case of any person who is
at the relevant time no longer a director, officer or employee of any of the
Reorganized Debtors, to reimbursement of that person's foregone income and
reasonable expenses, provided further, that nothing contained herein shall
affect the rights and obligations of the parties designated in clauses (iii),
(v), (vi), (ix) and (x) of Article IV.I.2.(a) of the Plan under the Priority and
Subordination Agreement, dated as of December 4, 1998, the Security Sharing
Agreement, dated as of November 30, 1998 and the Intercreditor Agreement, dated
as of June 25, 1999.
(b) Holders of Claims and Interests.
Under the Plan, as of the Effective Date, to the
fullest extent permitted under applicable law, in consideration for the
obligations of the Debtors and the Reorganized Debtors under the Plan and the
Cash, securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, and the benefits provided
by the Lenders and the Account Intermediaries under the Plan, each present and
former holder of a Claim or Interest (other than the releasing parties
identified in Article IV.I.2.(b) of the Plan or any individual, corporation or
other entity that was at any time formerly one of the foregoing releasing
parties) will be deemed to release forever, waive and discharge all claims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
and liabilities (other than the rights to enforce the Debtors' or the
Reorganized Debtors' obligations under the Plan and the securities, contracts,
instruments, releases and other agreements and documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
in law, equity or otherwise that are based in
39
<PAGE> 50
whole or in part on any act, omission, transaction, event or other occurrence
taking place on or prior to the Effective Date in any way relating to the
Debtors or Subsidiaries, the parties released pursuant to Article IV.I.2.(b) of
the Plan, the Reorganized Debtors the Chapter 11 Cases, the Lender Lock-up
Agreement or the Plan against (i) the Debtors, the Subsidiaries and the
Reorganized Debtors, (ii) the Lenders as of September 15, 1999 or an entity that
subsequently becomes a Lender subject to the Debtors' consent, the ad hoc
steering committee or any other committee of holders of Lender Claims, CIBC as
Administrative Agent and co-arranger under the Pre-Petition Credit Agreement,
BTCo as Syndication Agent and co-arranger under the Pre-Petition Credit
Agreement, any official committees appointed in the Chapter 11 Cases, the DIP
Agent, the DIP Co-Arrangers and the holders of DIP Facility Claims as of
September 15, 1999 or an entity that subsequently becomes a holder of a DIP
Facility Claim subject to the Debtors' consent, and the Security Agent, (iii)
the Account Intermediaries, (iv) any individual, corporation or other entity
that was at any time formerly one of the foregoing released parties identified
in subclause (ii), and (v) the respective affiliates, current and former
officers, directors, employees, agents, shareholders and professionals of the
entities listed in subclause (ii) (excluding Deloitte & Touche and any insurance
brokers retained by the Debtors) acting in such capacity. Under the Plan,
holders of Claims (other than the Lenders) and Interests are not deemed to have
released any non-Debtor third party other than the Lenders and those parties
explicitly listed in subsections (ii), (iii), (iv) and (v) above.
3. Reinstatement of Releases
The revocation of any release of any director, officer or
employee pursuant to Article IV.I.1 or Article IV.I.2.(a) of the Plan shall be
void ab initio to the extent that a court of competent jurisdiction, including,
but not limited to the Bankruptcy Court, determines that such director, officer
or employee has provided the factual information reasonably requested by the
Reorganized Debtors if the Canadian Reorganization Plan is sanctioned or by the
Administrative Agent or its successor if the Alternate Canadian Transactions are
implemented.
M. CONDITIONS TO CONFIRMATION AND/OR CONSUMMATION
Described below are certain important considerations under the
Bankruptcy Code in connection with confirmation of the Plan.
1. Requirements for Confirmation of the Plan
The Bankruptcy Court will determine at a hearing on
confirmation of the Plan (the "Confirma tion Hearing") whether the following
requirements for confirmation, set forth in section 1129 of the Bankruptcy Code,
have been satisfied:
(a) The Plan complies with the applicable provisions of
the Bankruptcy Code.
(b) The Debtors have complied with the applicable
provisions of the Bankruptcy Code.
(c) The Plan has been proposed in good faith and not by
any means forbidden by law.
(d) Any payment made or promised by the Debtors or by a
person issuing securities or acquiring property under
the Plan for services or for costs and expenses in,
or in connec tion with, the Chapter 11 Cases, or in
connection with the Plan and incident to the Chapter
11 Cases, has been disclosed to the Bankruptcy Court,
and any such payment made before confirmation of the
Plan is reasonable, or if such payment is to be fixed
after confirmation of the Plan, such payment is
subject to the approval of the Bankruptcy Court as
reasonable.
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<PAGE> 51
(e) The Debtors have disclosed (i) the identity and
affiliations of (x) any individual proposed to serve,
after confirmation of the Plan, as a director,
officer, or voting trustee of the Reorganized
Debtors, (y) any affiliate of the Debtors
participating in a joint plan with the Debtors, or
(z) any successor to the Debtors under the Plan (and
the appointment to, or continuance in, such office of
such individual(s) is consistent with the interests
of Creditors and Interest holders and with public
policy), and (ii) the identity of any insider that
will be employed or retained by the Debtors and
the nature of any compensation for such insider.
(f) With respect to each Class of Claims or Interests,
each Impaired Creditor and Impaired Interest holder
either has accepted the Plan or will receive or
retain under the Plan on account of the Claims or
Interests held by such entity, property of a value,
as of the Effective Date, that is not less than the
amount that such entity would receive or retain if
the Debtors were liquidated on such date under
Chapter 7 of the Bankruptcy Code. (See Article XI.C
of the Disclosure Statement, entitled "Feasibility of
the Plan and the Best Interest of Creditors -- Best
Interests Test.")
(g) The Plan provides that Administrative Claims and
Priority Claims other than Priority Tax Claims will
be paid in full on the Effective Date and that
Priority Tax Claims will receive on account of such
Claims deferred cash payments, over a period not
exceeding six years after the date of assessment of
such Claims, of a value, as of the Effective Date,
equal to the Allowed Amount of such Claims, except to
the extent that the holder of any such Claim has
agreed to a different treatment.
(h) If a Class of Claims is Impaired under the Plan, at
least one Class of Impaired Claims has accepted the
Plan, determined without including any acceptance of
the Plan by insiders holding Claims in such Class.
(i) Confirmation of the Plan is not likely to be followed
by the liquidation, or the need for further financial
reorganization, of the Debtors or any successor to
the Debtors under the Plan, unless such liquidation
or reorganization is proposed in the Plan. (See
Article XI.A of the Disclosure Statement, entitled
"Feasibility of the Plan and the Best Interest of
Creditors -- Feasibility of the Plan.")
(j) The Plan provides for the continuation after the
Effective Date of all retiree benefits, if any, at
the level established pursuant to section
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at
any time prior to confirmation of the Plan, for the
duration of the period the Debtors have obligated
themselves to provide such benefits.
The Debtors believe that, upon receipt of the votes required
to confirm the Plan, the Plan will satisfy all the statutory requirements of
Chapter 11 of the Bankruptcy Code, that the Debtors have complied or will have
complied with all of the requirements of Chapter 11, and that the Plan has been
proposed and submitted to the Bankruptcy Court in good faith.
2. Conditions to Confirmation and Consummation
(a) Conditions to Confirmation
The following are conditions precedent to the
occurrence of the Confirmation Date: (i) an order finding that the Disclosure
Statement contains adequate information pursuant to section 1125 of the
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<PAGE> 52
Bankruptcy Code, and (ii) the proposed Confirmation Order shall be in form and
substance acceptable to the Debtors and the Required Lenders.
(b) Conditions to Consummation
The following are conditions precedent to the
occurrence of the Effective Date, each of which may be satisfied or waived in
accordance with Article X.C of the Plan:
(i) The Confirmation Order confirming the Plan,
as such Plan may have been modified, shall
have been entered and become a Final Order
in form and substance reasonably
satisfactory to the Debtors and the Required
Lenders and shall provide that:
(1) the Debtors and Reorganized Debtors
are authorized and directed to take
all actions necessary or appropriate
to enter into, implement and
consummate the contracts,
instruments, releases, leases,
indentures and other agreements or
documents created in connection with
the Plan or the Restructuring
Transactions;
(2) the provisions of the Confirmation
Order are nonseverable and mutually
dependent;
(3) Reorganized PSC or Reorganized PSI,
or both, as applicable, is
authorized to issue the New
Unsecured PIK Notes, New Unsecured
Convertible Notes, New Common
Shares, Reorganized PSI Common
Shares and Management Options and to
incur the New Senior Secured Term
Debt and New Secured PIK Debt; and
(4) the New Secured PIK Debt, New
Unsecured PIK Notes, New Unsecured
Convertible Notes and New Common
Shares (or Reorganized PSI Common
Shares, as applicable) offered and
sold under the Plan in exchange for
Claims against the Debtors are
exempt from registration under the
Securities Act of 1933 pursuant to
section 1145 of the Bankruptcy Code,
except to the extent that holders of
New Secured PIK Debt, New Unsecured
PIK Notes, New Unsecured Convertible
Notes and New Common Shares (or
Reorganized PSI Common Share, as
applicable) are "underwriters," as
that term is defined in section 1145
of the Bankruptcy Code.
(ii) The Reorganized Debtors shall have credit
availability under the Exit Facility, in
amount, form and substance acceptable to the
Reorganized Debtors and the Required
Lenders, to provide the Reorganized Debtors
and the Subsidiaries with sufficient working
capital to meet ordinary and peak
requirements and borrowings to support
future projects.
(iii) The following agreements, in form
satisfactory to the Reorganized Debtors and
the Required Lenders (and, in addition, the
Creditors' Committee and the Indenture
Trustee shall retain the authority to
approve the specific agreements in
subclauses (3) and (4)), shall have been
executed and delivered, and all conditions
precedent thereto shall have been satisfied:
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<PAGE> 53
(1) Amended Certificates of
Incorporation and Bylaws of the
Debtors and the other Restricted
Subsidiaries;
(2) Amended and Restated Term Credit
Agreement;
(3) New Unsecured PIK Notes Indenture;
(4) New Unsecured Convertible Notes
Indenture;
(5) New Guaranties and related security
documents;
(6) Registration Rights Agreement;
(7) Exit Facility;
(8) Shareholder Rights Plan; and
(9) Agreements evidencing sufficient
bonding to meet the Debtors'
projected bonding requirements.
(iv) The Amended Certificates of Incorporation
and Bylaws of the Reorganized Debtors, as
necessary, shall have been filed with the
applicable authority of each entity's
jurisdiction of incorporation in accordance
with such jurisdiction's corporation laws.
(v) All actions, documents and agreements
necessary to implement the Plan shall have
been effected or executed.
(vi) The Ontario Superior Court of Justice
administering the parallel proceedings under
the CCAA shall have (a) entered an order
under the CCAA sanctioning the Canadian
Reorganization Plan and all conditions to
the effectiveness of the Canadian
Reorganization Plan shall have been
satisfied other than the condition that the
Plan shall have become effective or (b) the
Alternate Canadian Transactions shall have
been authorized to be implemented in
accordance with Canadian law and all
conditions to the implementation of the
Alternate Canadian Transactions shall have
been satisfied or waived by the Required
Lenders other than the condition that the
Plan shall have become effective, and the
Alternate Canadian Transactions shall be
capable of being implemented on the
Effective Date and the only unsatisfied
condition to the transactions shall be the
effectiveness of the Plan.
(vii) The new board of directors of Reorganized
PSC (if the Canadian Reorganization Plan is
sanctioned) or Reorganized PSI (if the
Alternate Canadian Transactions are
implemented or if the Canadian Plan
Condition is waived) shall have been
appointed.
(c) Waiver of Conditions
Each of the conditions set forth in Article X.B of
the Plan may be waived in whole or in part by the Debtors with the written
consent of the Required Lenders, without any other notice to parties in interest
or the Bankruptcy Court and without a hearing. The failure to satisfy or waive
any condition to the Effective Date
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may be asserted by the Debtors or Debtors regardless of the circumstances
giving rise to the failure such condition to be satisfied (including any
action or inaction by a Debtor or Debtor). The failure of a Debtor or
Reorganized Debtor to exercise of the foregoing rights shall not be deemed a
waiver of any other rights, each such right shall be deemed an ongoing right
that may be asserted at any .
If the Canadian Plan Condition is waived, (a) all New
Securities shall be issued by Reorganized PSI, (b) PSC and the other Canadian
Debtors will continue to be managed by PSC's current board of directors and
current management and (c) until either the Canadian Reorganization Plan is
sanctioned or the Alternate Canadian Transactions are implemented, all assets of
PSC and the other Canadian Debtors will continue to be owned and operated by PSC
and the other Canadian Debtors, respectively. If the Canadian Plan Condition is
waived, it is contemplated that substantially all equity interests and/or assets
of PSC and the other Canadian Debtors ultimately will be transferred as going
concerns to Reorganized PSI and/or a newly formed or existing direct or indirect
subsidiary or subsidiaries of Reorganized PSI.
3. Modifications and Amendments
Subject to Article XI of the Plan and the consent of the
Required Lenders, after giving notice to the Creditors' Committee and the
Indenture Trustee, and to the extent of any modification to the treatment of the
Account Intermediaries as holders of Other Secured Claims, the consent of the
Account Intermediaries, the Debtors may alter, amend, or modify the Plan or any
Exhibits thereto under section 1127(a) of the Bankruptcy Code at any time prior
to the Confirmation Date. After the Confirmation Date and prior to "substantial
consummation" of the Plan, as defined in section 1101(2) of the Bankruptcy Code,
the Debtors may, under section 1127(b) of the Bankruptcy Code, institute
proceedings in the Bankruptcy Court to remedy any defect or omission or
reconcile any inconsistencies in the Plan, the Disclosure Statement approved
with respect to the Plan, or the Confirmation Order, and such matters as may be
necessary to carry out the purpose and effect of the Plan so long as they have
obtained prior approval of the Required Lenders and such proceedings do not
adversely affect the treatment of holders of Claims or Interests under the Plan
(it being specifically understood that any settlement of a claim of the Estates
against any party specifically excluded from the releases provided in Article
IV.I of the Plan shall be deemed to have a material adverse affect on the
treatment of holders of Claims and Interests); provided, however, that prior
notice of such proceedings shall be served in accordance with the Bankruptcy
Rules or order of the Bankruptcy Court.
N. WAIVER OF CONDITIONS TO CONFIRMATION AND/OR CONSUMMATION
Each of the conditions set forth in Article X of the Plan may be waived
in whole or in part by the Debtors with the written consent of the Required
Lenders without any other notice to parties in interest or the Bankruptcy Court
and without a hearing. The failure to satisfy or waive any condition to the
Effective Date may be asserted by the Debtors or Reorganized Debtors regardless
of the circumstances giving rise to the failure of such condition to be
satisfied (including any action or inaction by a Debtor or Reorganized Debtor).
The failure of a Debtor or the Reorganized Debtor to exercise any of the
foregoing rights shall not be deemed a waiver of any other rights, and each such
right shall be deemed an ongoing right that may be asserted at any time.
O. EFFECT OF WAIVER OF CANADIAN PLAN CONDITION RELATING TO SANCTIONING OF
CANADIAN REORGANIZATION PLAN
It is anticipated that the Canadian Reorganization Plan can be
sanctioned or the Alternate Canadian Transactions are implemented concurrently
with the Effective Date of the Plan. If, however, it is determined that this
condition to the Plan will unreasonably delay the Effective Date, the Debtors,
with the consent of the Required Lenders may waive this condition. In the event
the Canadian Plan Condition is waived, no distributions will be made to holders
of Claims in Classes 8B or 8C or holders of Canadian Impaired Unsecured Claims
that have made the U.S. Plan Election pending the conclusion of the Canadian
Cases. In that event the distributions that would have been made to such
creditors, as well as any Class 6 Additional will be held by
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Reorganized PSI the Canadian Debtors until such as either a Canadian
Reorganization Plan is or the Alternate Transactions are implemented and then
subsequently distributed as under the Plan.
P. EFFECTS OF CONFIRMATION
1. Binding Effect
The Plan will be binding upon and inure to the benefit of
the Debtors, all present and former holders of Claims against and Interests in
the Debtors, whether or not such holders will receive or retain any property or
interest in property under the Plan, their respective successors and assigns,
including, but not limited to, the Reorganized Debtors, and all
parties-in-interest in the Chapter 11 Cases.
2. Discharge of the Debtors
Except as otherwise provided in the Plan or in the
Confirmation Order, all consideration distributed under the Plan will be in
exchange for, and in complete satisfaction, settlement, discharge, and release
of, all Claims (other than those Reinstated under the Plan) of any nature
whatsoever against the Debtors or any of their assets or properties, and
regardless of whether any property will have been distributed or retained
pursuant to the Plan on account of such Claims, and upon the Effective Date, the
Debtors shall (i) be deemed discharged and released under section 1141(d)(1)(A)
of the Bankruptcy Code from any and all Claims, including, but not limited to,
demands and liabilities that arose before the Confirmation Date, and all debts
of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy
Code, whether or not (a) a Proof of Claim based upon such debt is filed or
deemed filed under section 501 of the Bankruptcy Code, (b) a Claim based upon
such debt is Allowed under section 502 of the Bankruptcy Code, or (c) the holder
of a Claim based upon such debt accepted the Plan and (ii) terminate all
Interests of the holders of (A) Other Equity Securities, and (B) if Class 7
votes to reject the Plan, Old Common Shares.
As of the Confirmation Date, except as provided in the Plan
or the Confirmation Order, all entities shall be precluded from asserting
against the Debtors or the Reorganized Debtors, their successors or their
property any other or further claims, debts, rights, causes of action,
liabilities or equity interests relating to the Debtors based upon any act,
omission, transaction or other activity of any nature that occurred prior to the
Confirmation Date; provided however, that nothing in the Plan shall be deemed to
preclude any third party (other than the releasing parties in Article IV.I.2.(a)
of the Plan to the extent provided therein) from asserting claims, debts,
rights, causes of action, liabilities or equity interests that are not property
of the Estates under section 541 of the Bankruptcy Code against any current or
former officers, directors or employees of the Debtors or Reorganized Debtors;
provided further, that notwithstanding anything contained in the Plan to the
contrary, rights and claims of the United States under environmental laws or
regulations shall not be discharged, impaired or otherwise affected by the Plan
and the Chapter 11 Cases, shall survive the Chapter 11 Cases as if the Chapter
11 Cases had not been commenced and shall be determined in the manner and by the
administrative or judicial tribunals in which such rights or claims would have
been resolved or adjudicated if the bankruptcy cases had not been commenced. In
accordance with the foregoing, except as provided in the Plan or the
Confirmation Order, the Confirmation Order shall be a judicial determination of
discharge of all such Claims and other debts and liabilities against the Debtors
and termination of all Interests of the holders of (i) Other Equity Securities
and (ii) if Class 7 votes to reject the Plan, Old Common Shares, pursuant to
sections 524 and 1141 of the Bankruptcy Code, and such discharge shall void any
judgment obtained against the Debtors at any time, to the extent that such
judgment relates to a discharged Claim or terminated Interest.
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3. Permanent Injunction
Except as provided in the Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Interest or
other right of an equity security holder that is Impaired or terminated pursuant
to the terms of the Plan are permanently enjoined from the taking of any of the
following actions against the Debtors, the Reorganized Debtors or their property
on account of any such discharged Claims, debts or liabilities or terminated
interests or rights: (a) commencing or continuing, in any manner or in any
place, any action or other proceeding: (b) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors and (e) commencing or continuing any action, in
any manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan.
As of the Effective Date, all entities that have held,
currently hold or may hold a claim, demand, debt, right, cause of action or
liability that is released pursuant to Article IV.I or XIV.H of the Plan are
permanently enjoined from taking any of the following actions on account of such
released claims, obligations, suits, judgments, damages, demands, debts, rights,
causes of action or liabilities: (a) commencing or continuing in any manner any
action or other proceeding; (b) enforcing, attaching, collecting or recovering
in any manner any judgment, award, decree or order; (c) creating, perfecting or
enforcing any lien or encumbrance: (d) asserting a setoff, right of subrogation
or recoupment of any kind against any debt, liability or obligation due to any
released entity; and (e) commencing or continuing any action, in any manner, in
any place that does not comply with or is inconsistent with the provisions of
the Plan.
By accepting distribution pursuant to the Plan, each holder
of an Allowed Claim or Allowed Interest receiving distributions pursuant to the
Plan will be deemed to have specifically consented to the injunctions in the
Plan.
4. Exculpation and Limitation on Liability; Indemnity
Neither the Debtors, the Subsidiaries, the Reorganized
Debtors, the Lenders, any individual, corporation or other entity that was at
any time formerly a Lender, the ad hoc steering committee or any other committee
of holders of Lender Claims, CIBC as Administrative Agent and co-arranger under
the Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger
under the Pre-Petition Credit Agreement, any official committees appointed in
the Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims, the Security Agent, and the Account Intermediaries, or any of
their respective present or former members, officers, directors, employees,
advisors, attorneys, or agents, shall have or incur any liability to any holder
of a Claim or an Interest, or any other party in interest, or any of their
respective agents, employees, representatives, financial advisors, attorneys, or
affiliates, or any of their successors or assigns, for any act or omission in
connection with, relating to, or arising out of, the Chapter 11 Cases,
formulating, negotiating or implementing the Plan, the Lender Lock-up Agreement
or the Allwaste Lock-up Agreement, the solicitation of acceptances of the Plan
or the Lender Lock-up Agreement, the pursuit of confirmation of the Plan, the
confirmation of the Plan, the consummation of the Plan, or the administration of
the Plan or the property to be distributed under the Plan, except for their
willful misconduct, and in all respects shall be entitled to rely reasonably
upon the advice of counsel with respect to their duties and responsibilities
under the Plan.
Notwithstanding any other provision of the Plan, no
holder of a Claim or Interest, no other party in interest, none of their
respective agents, employees, representatives, financial advisors, attorneys, or
affiliates, and no successors or assigns of the foregoing, shall have any right
of action against any Debtor, Subsidiary or Reorganized Debtor, any Lender or
any individual, corporation or other entity that was at any time formerly a
Lender, the ad hoc steering committee or any other committee of holders of
Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
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the Pre-Petition Credit Agreement, any official committees appointed in the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims, the Security Agent, and the Account Intermediaries, or any of
their respective present or former members, officers, directors, employees,
advisors, attorneys, affiliates, or agents, for any act or omission in
connection with, relating to, or arising out of, the Chapter 11 Cases,
formulating, negotiating or implementing the Plan, the Lender Lock-up Agreement
or the Allwaste Lock-up Agreement, the solicitation of acceptances of the Plan
or the Lender Lock-up Agreement, the pursuit of confirmation of the Plan, the
consummation of the Plan, the confirmation of the Plan, or the administration of
the Plan or the property to be distributed under the Plan, except for their
willful misconduct.
The Debtors, the Reorganized Debtors and the Subsidiaries
hereby jointly and severally fully indemnify each of the Lenders, any individual
corporation or other entity that was at any time formerly a Lender, a member of
the ad hoc steering committee or any other committee of holders of Lender
Claims, CIBC as Administrative Agent and co-arranger under the Pre-Petition
Credit Agreement, BTCo as Syndication Agent and co-arranger under the
Pre-Petition Credit Agreement, the DIP Agent, the DIP Co-Arrangers and the
holders of DIP Facility Claims, the Security Agent, and the Account
Intermediaries, and their respective agents, affiliates, directors, officers,
employees, and representatives, including counsel (collectively, the
"Indemnitees") against any manner of actions, causes of action, suits,
proceedings, liabilities and claims of any nature, costs and expenses (including
reasonable legal fees) which may be incurred by such Indemnitee or asserted
against such Indemnitee arising out of or during the course of, or otherwise in
connection with or in any way related to, the negotiation, preparation,
formulation, solicitation, dissemination, implementation, confirmation and
consummation of the Plan, other than any liabilities to the extent arising from
the gross negligence or willful or intentional misconduct of any Indemnitee as
determined by a final judgment of a court of competent jurisdiction. If any
claim, action or proceeding is brought or asserted against an Indemnitee in
respect of which indemnity may be sought from any of the Reorganized Debtors or
any of the Subsidiaries, the Indemnitee shall promptly notify the Reorganized
Debtors in writing, and the Reorganized Debtors may assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnitee,
and the payment of all costs and expenses. The Indemnitee shall have the right
to employ separate counsel in any such claim, action or proceeding and to
consult with the Reorganized Debtors in the defense thereof and the fees and
expenses of such counsel shall be at the expense of the Reorganized Debtors
unless and until the Reorganized Debtors shall have assumed the defense of such
claim, action or proceeding. If the named parties to any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee and any
of the Reorganized Debtors or Subsidiaries, and the Indemnitee reasonably
believes that the joint representation of such entity and the Indemnitee may
result in a conflict of interest, the Indemnitee may notify the Reorganized
Debtors in writing that it elects to employ separate counsel at the expense of
the Reorganized Debtors, and the Reorganized Debtors shall not have the right to
assume the defense of such action or proceeding on behalf of the Indemnitee. In
addition, the Reorganized Debtors shall not effect any settlement or release
from liability in connection with any matter for which the Indemnitee would have
the right to indemnification from the Reorganized Debtors, unless such
settlement contains a full and unconditional release of the Indemnitee, or a
release of the Indemnitee satisfactory in form and substance to the Indemnitee.
Q. RETENTION OF JURISDICTION
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the Effective
Date, subject to the Protocol, the Bankruptcy Court will, to the fullest extent
permitted by law, retain exclusive jurisdiction over all matters arising out of,
and related to, the Chapter 11 Cases and the Chapter 11 Plan, and the Ontario
Superior Court of Justice administrating the parallel CCAA proceedings will
retain exclusive jurisdiction over all matters arising out of, and related to,
the CCAA cases and the CCAA plan, as more fully set forth in Article XII of the
Plan.
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ARTICLE III.
TREATMENT OF TRADE CREDITORS, CUSTOMERS AND EMPLOYEES
A. TRADE CREDITORS
Notwithstanding provisions of the Bankruptcy Code that would otherwise
require payment of such prepetition claims to be deferred until consummation of
the Plan, the Debtors have obtained the approval of the Bankruptcy Court to make
payments on certain prepetition claims of key trade vendors who agree to provide
goods and services on the same terms as those that were in effect prior to the
Petition Date (the "Key Trade Vendor Order"). On July 19, 1999, the Key Trade
Vendor Order was appealed by Republic. Republic's appeal is based on the issue
of the Bankruptcy Court's discretion to enter the Key Trade Vendor Order.
Republic alleges the general unsecured creditors did not receive adequate notice
of the hearing at which the Key Trade Vendor Order was entered and an inadequate
evidentiary record existed upon which to enter the Key Trade Vendor Order. This
appeal is still pending.
B. CUSTOMERS/CLIENTS
It is the intent of the Debtors that the Chapter 11 Cases offer no
disruption of service to the Debtors' customers and clients. The Bankruptcy
Court has authorized the Debtors to honor certain prepetition customer practices
and obligations to customers the Debtors deem necessary, in the same manner such
practices were implemented and such obligations were honored before the
commencement of the Chapter 11 Cases, including but not limited to customer
discounts, credits or deposits, and certain other contractual obligations.
C. EMPLOYEES
The Debtors intend that salaries, wages, accrued vacation pay,
health-related benefits, and similar employee benefits for current employees
will be unaffected. Employee benefit claims that accrue pre-petition, with the
exception of certain severance obligations identified as Impaired Unsecured
Claims, will be Unimpaired under the terms of the Plan. To ensure the continuity
of the Debtors' work force and to further accommodate the Unimpaired treatment
of employee benefits, the Debtors have obtained the approval of the Bankruptcy
Court to honor payroll checks outstanding as of the Petition Date (or to issue
replacement checks), to permit employees to use their accrued vacation time (as
long as they remain employees of the Debtors) and to continue paying medical
benefits under the Debtors' health plan.
ARTICLE IV.
HISTORY OF THE DEBTORS AND EVENTS LEADING TO CHAPTER 11 FILING AND PLAN
A. OVERVIEW OF BUSINESS OPERATIONS
1. Business Segments
PSC's business is organized into two operating divisions,
the Metals Services Group and the Industrial Services Group. The Metal Services
Group's primary business operations are ferrous processing and industrial metals
services. The ferrous metals operations include the collection and processing of
ferrous scrap materials for shipment to steel mills and the provision of
significant brokerage services for scrap materials. The industrial metals
services include on-site services, by-product management and coil processing and
distribution services to steel mills. The Metals Services Group primarily
services the steel, foundry and automotive industries.
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The Debtors believe that their Industrial Services Group is
one of the largest integrated providers of by-products recovery and industrial
outsourcing services in North America, with a network of over 200 facilities.
By-products recovery includes solvent distillation, engineered fuel blending,
paint overspray recovery, organic and inorganic waste collection processing and
polyurethane recycling. Industrial outsourcing services include cleaning and
maintenance, waste collection and transportation, container services and tank
cleaning, turnaround and outage services, mechanical contracting, refractory
services, decommissioning and remediation, analytical services and emergency
response services. The Industrial Services Group primarily services the
automotive, refining and petrochemical, oil and gas, pulp and paper, steel,
transportation and utilities industries.
2. Accompanying Financial Data
The financial data contained in PSC's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999 are attached in Appendix D-1 and
D-2 to the Disclosure Statement, respectively, and are herein incorporated by
reference.
3. Certain Legal Proceedings
Certain of the Debtors' facilities are contaminated
primarily as a result of practices at the sites prior to their acquisition by
the Debtors. The Debtors have established procedures to routinely evaluate these
sites giving consideration to the nature and extent of the contamination. The
Debtors have reserved for the remediation of these sites based upon management's
judgment and prior experience. The Debtors have estimated the liability to
remediate these sites to be approximately $68.0 million.
In addition, certain of PSC's subsidiaries have been named
as potentially responsible or liable parties in connection with sites listed on
the Superfund National Priority List ("NPL"). In the majority of situations,
PSC's connection with NPL sites relates to allegations that the Debtors or their
predecessors transported waste to the site in question. PSC has reviewed the
nature and extent of its alleged connection to these sites, the number,
connection and financial ability of the other named and unnamed potentially
responsible parties and the nature and estimated cost of the likely remedy.
Based on its review, PSC has estimated its liability in connection with these
sites to be approximately $20.8 million.
Various class actions have been filed against PSC, certain
of its past and present directors and officers, the underwriters of PSC's 1997
public offering and PSC's auditors. Each action alleges that PSC's financial
disclosures for various time periods between 1995 and 1997 contained material
misstatements or omissions in violation of U.S. federal securities laws
(provisions of the Securities Act of 1933 and of the Securities Exchange Act of
1934) and seeks to represent a class of purchasers of PSC's common shares. On
June 2, 1998, the Judicial Panel on Multidistrict Litigation ordered that the
class actions be consolidated and transferred to the United States District
Court, Southern District of New York. On July 23, 1998, two pre-trial orders of
the District Court were made. Pre-Trial Order No. 1 dealt with various
administrative matters relating to the consolidation of the actions and a
schedule for the plaintiffs to serve and file a consolidated amended class
action complaint and for PSC's response. Pre-Trial Order No. 2 appointed a lead
plaintiff and lead counsel. On November 13, 1998, PSC filed a motion for an
order dismissing the class action on the grounds of forum non conveniens. On May
4, 1999, PSC's motion was granted and the class action was dismissed.
A claim (the "Canadian Class Action") brought under the
Ontario Class Proceedings Act was commenced on May 5, 1998 against PSC, the
underwriters of PSC's 1997 public offering and PSC's auditors. The claim was
brought on behalf of persons in Canada who purchased PSC common shares between
November 6, 1997 and December 18, 1997, and also seeks damages on behalf of
persons in Canada who purchased common shares between May 21, 1996 and April 23,
1998. The plaintiff class in the Canadian Class Action has been certified. The
Canadian Class Action contains various allegations that are similar in nature to
those made in the U.S. class action claims dismissed on May 4, 1999.
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The claims and causes of action against the Debtors held by
United States residents described in the preceding two paragraphs are classified
in the Plan as Class 8B Claims. On June 23, 1999, the Debtors entered into a
Memorandum of Understanding (the "MOU") to settle these claims, as well as such
claims and causes of action held by United States residents. This settlement is
embodied in the Plan providing an aggregate distribution (if Class 7 votes to
accept the Plan) of one and one-half percent (1.5%) of PSC Common Shares to
holders of Allowed Class 8B Claims and Canadian Class action members if the
Canadian Class Action settlement is approved. Additionally, the MOU reflects the
Debtors' commitment to support a joint application for attorneys' fees and
reasonable expenses of plaintiff's counsel not to exceed $575,000, subject to
approval by the Bankruptcy Court, and which shall not be payable until after the
Effective Date.
Under the Plan, the Class 8B Claims will be discharged as of
the Effective Date. Therefore, if the Plan is confirmed and consummated, after
the Effective Date, the Securities Claims in the Securities Actions cannot be
pursued against the Reorganized Debtors.
Similar claims have been asserted against PSC and certain of
its past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies and the Southern-Foundry Supply group of
companies. PSC acquired these companies in October 1997 and issued PSC common
shares in partial payment of the purchase price. The claims allege that PSC's
financial disclosures for various time periods between 1995 and 1997 contain
material misstatements or omissions and that these constitute a breach of
certain representations and warranties made to the former shareholders or,
alternatively, a violation of United States securities laws. Under the Plan,
these claims and causes of action are classified in Class 8C as the Liff Actions
and the Chazen Actions. The Plan provides that the Claims against the Debtors
arising from the Liff Actions and the Chazen Actions will be discharged on the
Effective Date. Therefore, if the Plan is confirmed and consummated, after the
Effective Date, the Claims arising from the Liff Actions and the Chazen Actions
cannot be pursued against the Reorganized Debtors.
Upon the acquisition of Allwaste, Inc. ("Allwaste"), PSC
assumed the pre-existing Indenture with respect to Allwaste's 7 1/4 %
Convertible Subordinated Debentures ("Old Debentures") which are due in 2014.
Effective December 1, 1998, PSC suspended payments of interest on the Old
Debentures which created a default under the Indenture. Following PSC's failure
to cure the payment default within thirty days, on April 22, 1999, First Union
National Bank (the "Indenture Trustee") invoked an acceleration clause and
declared the principal of all the Old Debentures to be immediately due and
payable. On April 27, 1999, the Indenture Trustee filed suit in the 11th
Judicial District Court of Harris County, Texas seeking the full amount due and
owing under the Old Debentures (the "Allwaste Collection Action").
The commencement of the Chapter 11 Cases automatically
stayed the further prosecution of the Allwaste Collection Action pursuant to
section 362(a) of the Bankruptcy Code. Moreover, the Debtors believe that the
Bankruptcy Court has exclusive jurisdiction over the causes of action asserted
in the Allwaste Collection Action and that such matters will be adjudicated in
the Chapter 11 Cases by the Bankruptcy Court. Under the Plan, claims arising out
of the Old Debentures are classified as Class 7 Impaired Unsecured Claims and
will receive the treatment afforded such claims and will be discharged under the
Plan as of the Effective Date. Therefore, if the Plan is confirmed and
consummated, after the Effective Date, the Reorganized Debtors will have no
liability as to the Old Debentures and the Allwaste Collection Action will be
fully resolved and will be dismissed with prejudice.
On May 25, 1999, the Indenture Trustee filed suit
against PSC and the Lenders in the 11th Judicial District Court of Harris
County, Texas (the "Allwaste Avoidance Action") alleging that any and all liens,
security interests, and obligations conveyed or transferred by PSC to its
Lenders were avoidable as fraudulent conveyances. The Debtors believe that the
commencement of the Chapter 11 Cases has vested exclusive standing to prosecute
avoidance actions, including those asserted by the Indenture Trustee against the
defendant Lenders in the Allwaste Avoidance Action, in the Debtors pursuant to
the Bankruptcy Code. Therefore, the Debtors believe that the causes of action
alleged in the Allwaste Avoidance Action are property of the Debtors' Estates
and that further
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prosecution of the Allwaste Avoidance Action is stayed pursuant to section
362(a) of the Bankruptcy Code. Under the terms of the Plan, the causes of action
asserted by the Indenture Trustee against the defendant Lenders will be deemed
to be settled and released as a consequence of the treatment of all Claims and
Interests, including the Claims of the Lenders and the holders of Old Debentures
under the Plan. Therefore, if the Plan is confirmed and consummated, as of the
Effective Date, the Allwaste Avoidance Action will be fully resolved and will be
dismissed with prejudice.
During the pendency of the cases, certain creditors have
asserted that the Debtors could pursue a cause of action against PSC and the
Lenders alleging that any and all liens, security interests, and guarantees
conveyed or transferred by PSC to its Lenders were avoidable as fraudulent
conveyances under applicable state law. The Debtors have reviewed the potential
for such claims and concluded that such claims are without any meaningful value.
Pursuit of such claims would involve lengthy and costly litigation concerning a
number of issues which the Lenders would vehemently contest, and would
undoubtedly delay the Debtors' emergence form Chapter 11 to the detriment of all
parties. The Creditors' Committee has conducted its own evaluation of these
issues and the likely results and has reached the same conclusion. Any such
claims will be released and discharged under the Plan.
On July 30, 1999, Great Plains Trust Company and Kornitzer
Capital Management, Inc. ("Plaintiffs") filed a class action petition against
Robert M. Christe, R.L. Nelson, Jr., T. Wayne Wren, Jr., Michael W. Ramirez,
David E. Fanta, James E. Rief, William L. Fiedler, Michael A. Baker, John U.
Clarke, Frank A. Rossi, Thomas J. Tierney and T. Michael Young (the "Allwaste
Officers and Directors"), in the District Court of Harris County, Texas. These
individuals are all directors and officers of the former Allwaste Inc. The
Plaintiffs manage funds which hold Old Debentures issued under the Debtors' July
30, 1997 Supplemental Indenture entered into at the same time PSC acquired
Allwaste. Plaintiffs allege that the Allwaste Officers and Directors did not
fully investigate the fairness and advisability of the PSC offer to purchase
Allwaste, which acquisition purportedly caused the value of the Plaintiffs' Old
Debentures to substantially decrease from their value prior to or immediately
after PSC's acquisition of Allwaste.
In June 1997, pursuant to a Share Purchase Agreement,
Republic sold certain corporate entities to RESI Acquisition (Delaware), Inc.
("RESI"), for $17 million. As consideration for the transaction, RESI paid $8
million in cash and executed two promissory notes in favor of Republic in a
combined amount of $9 million. PSC, the parent of RESI, signed the notes as
unconditional guarantor and also signed a separate Guaranty Agreement. After the
notes were executed, the parties made several modifications to the payment
schedule, allowing RESI extra time to fulfill its obligations. However, RESI
eventually defaulted and Republic thereafter brought an action in the Superior
Court of the State of Delaware against PSC and RESI to collect on the notes (the
"Republic Action"). In addition to the note involved in the Republic Action,
another note issued by Philip Enterprises Inc. in conjunction with the RESI
acquisition exists and is the subject of litigation in Canada that has now been
stayed in connection with the filing of the Canadian Cases. PSC filed
counterclaims alleging damages from the 1997 Share Purchase Agreement. On June
3, 1999, the court issued judgment granting Republic's Motion for Final Judgment
on the Pleadings as to the Notes and Guaranty, and denying PSC's Motion to
Dismiss. On June 4, 1999, RESI filed a petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. As a result of its Chapter 11 filing, the Republic Action against RESI
is now stayed pursuant to section 362(a) of the Bankruptcy Code. The Claims of
Republic are classified under the Plan as Class 7 Impaired Unsecured Claims,
will receive the treatment afforded such claims, and will be discharged under
the Plan as of the Effective Date. Therefore, if the Plan is confirmed and
consummated, as of the Effective Date, the Reorganized Debtors will have no
liability as to the Republic Action and the Republic Action will be fully
resolved.
Philip Services Corporation and Nortru, Inc., Debtors
herein, are defendants in a civil action pending in the United States District
Court for the Western District of Louisiana captioned Kilntech Environmental
Services, Inc. and Rick W. Davenport v. Philip Environmental, Inc. and Nortru,
Inc., Civil Action No. 98-1186-L. Kilntech and Davenport allege, inter alia,
that Philip Services Corporation and Nortru have willfully infringed, and
continue to willfully infringe, certain patents issued to Davenport covering
Davenport's inventions for a fuel
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blending process that allows for the liquefication of solid hazardous waste and
its dispersion into fuel and the specialized equipment for implementing the fuel
blending process (together, the "Patented Technology"). Kilntech and Davenport
seek damages, including treble damages for willful infringement, and an
injunction permanently enjoining the Debtors from using the Patented Technology.
Additionally, Kilntech and Davenport have filed an administrative claim in the
Debtors' Reorganization Cases requesting payment of an administrative expense
claim of $20 million, plus treble damages, for a total of $60 million, plus
attorneys' fees pursuant to 11 U.S.C. ss. 503(a). Although the Debtors believe
that valid defenses exist to the claims asserted by Kilntech and Davenport, if
the Debtors are unsuccessful in defending against the claims of Kilntech and
Davenport as an administrative liability of the Debtors, the Debtors'
reorganization could be materially and adversely affected and the Debtors' Plan
may not be feasible.
PSC is also named as a defendant in several lawsuits which
have arisen in the ordinary course of business. Management believes that none of
these suits is likely to have a material adverse effect on the Debtors' business
or financial condition.
B. CAPITAL STRUCTURE OF THE DEBTORS
1. The Pre-Petition Credit Agreement
In August 1997, PSC, PSI and certain of their subsidiaries
entered into a five year term, $1.5 billion revolving credit agreement, which
has been subsequently amended on October 31, 1997, February 19, 1998, June 24,
1998, October 20, 1998 and December 4, 1998 (as amended, the "Pre-Petition
Credit Agreement" and the credit issued thereunder, the "Pre-Petition Credit
Facility") with the Lenders, a syndicate of international lenders including
CIBC, as Administrative Agent, BTCo, as Syndication Agent, CIBC and BTCo as
co-arrangers of credit, Dresdner Bank Canada, Dresdner Bank AG New York Branch
and Royal Bank of Canada as documentation agents, and various other persons from
time to time parties to the Pre-Petition Credit Agreement as lenders. The
Pre-Petition Credit Facility replaced the 1996 revolving term loan agreement,
refinanced certain other long-term debt and was also available for working
capital, capital expenditures and acquisitions. The Pre-Petition Credit
Agreement contained certain restrictive covenants and financial covenants
including that PSC was required to meet specified interest coverage ratio, debt
to EBITDA ratio, fixed charge ratio and working capital ratio tests, and
required PSC to maintain a certain level of working capital.
Borrowings under the Pre-Petition Credit Facility are
guaranteed, jointly and severally by certain of PSC's direct and indirect
wholly-owned subsidiaries and are secured by a pledge of all the issued and
outstanding securities of PSC's direct and indirect wholly-owned subsidiaries,
and a charge over substantially all the present and future assets of PSC and its
direct and indirect wholly-owned subsidiaries. The Pre-Petition Credit Facility
bears interest based on a moving grid.
2. Recapitalization/Equity
Prior to April 30, 1996, PSC's common shares were traded on
the Nasdaq National Market System. Thereafter, PSC's common shares were traded
on the New York Stock Exchange (the "NYSE") under the ticker symbol "PHV" until
January 13, 1999, when the common shares were temporarily halted from trading
due to PSC's failure to comply with the NYSE's continued listing criteria. On
April 23, 1999, the NYSE announced that due to then recent developments in PSC's
financial condition, it would suspend the trading of PSC's common shares
on the NYSE prior to the opening on April 26, 1999, and would seek to delist
those shares. PSC continues to seek to have trading of its common shares on the
NYSE resume, but there can be no assurances that PSC will be able to retain such
a listing. PSC's common shares continue to be listed and posted for trading on
the Toronto Stock Exchange and the Montreal Exchange. There can be no assurance
that PSC will be able to obtain or retain such listing.
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PSC used equity offerings in 1996 and 1997 to fund its
acquisition strategy, as well as pay down the Pre-Petition Credit Facility. In
November 1997, PSC issued 23 million common shares at $16.50 per share. The net
proceeds of $362.5 million were used to repay indebtedness outstanding under the
Pre-Petition Credit Facility. In addition, PSC issued 38.2 million common shares
during 1997 for a total consideration of $622.5 million. The common shares were
issued primarily as a result of acquisitions or as the result of the exercise of
employee stock options. The share capital of PSC increased from $363.1 million
at December 31, 1996 to $1,348.1 million at December 31, 1997.
On February 2, 1998, PSC issued 1,381 Common Shares in
connection with the conversion of the Old Debentures assumed by PSC pursuant to
the Allwaste, Inc. acquisition. The transaction was exempt under section 3(a)(9)
of the Securities Act. The number of common shares of PSC outstanding at
November 11, 1998 was 131,144,013.
PSC has allotted and reserved 10,257,149 Common Shares under
its 1991 and 1997 Employee Stock Option Plans, the Serv-Tech Long Term Incentive
Plan, and Serv-Tech Amended and Restated 1989 Incentive Stock Option Plan and
the Allwaste Amended and Restated 1989 Replacement Non-Qualified Stock Option
Plan, including any supplements thereto. The stock options permit the purchase
of common shares of PSC at the then current market price. These options
currently expire five to ten years from the date of grant. In addition, PSC has
allotted and reserved 776,386 common shares in conjunction with the acquisition
of Philip Environmental Corporation and the stock options issued thereunder.
These options expire on November 26, 2000.
It is also contemplated that the Debtors shall enact a
management options program, subject to the approval of the Bankruptcy Courts in
Canada and the United States and the Lenders, in an effort to retain the current
members of management.
Pursuant to the Plan, all allotted and reserved but not
issued Old Common Shares shall be cancelled and terminated on the Effective
Date. In addition, the Old Options are classified in Class 9 under the Plan and
will be cancelled and terminated on the Effective Date.
3. Debentures
The Old Debentures provided for annual mandatory sinking
fund payments equal to five percent (5%) of the aggregate principal amount of
the Old Debentures issued, commencing June 1, 1999. Interest is payable
semi-annually on June 1 and December 1.
PSC's acquisition of Allwaste constituted a 'redemption
event' pursuant to the Allwaste Indenture. Accordingly, each holder of the Old
Debentures had the right to require the redemption of all or any portion of such
holder's Old Debentures for cash to the 90th day following the acquisition.
During the 90-day period, $3.3 million of Old Debentures were redeemed.
In conjunction with the merger, on July 30, 1997, PSC,
Allwaste, Inc. and Texas Commerce Trust Co. of New York executed a supplemental
indenture with respect to the Allwaste Indenture (the "First Supplemental
Allwaste Indenture"). The First Supplemental Allwaste Indenture added PSC as
co-obligor on the Allwaste Indenture and transferred conversion rights of
holders of Old Debentures from Allwaste Common Stock to PSC Common Shares. In
addition, the First Supplemental Allwaste Indenture specified that at any time
up to and including June 1, 2014 the holder of any Debenture will have the right
to convert the principal amount of such Old Debenture into PSC Common Shares
equal to the principal amount of the Old Debenture surrendered for conversion
divided by $19.5376. The Old Debentures are redeemable for cash at the option of
PSC at a variable conversion rate as defined in the indenture. On February 2,
1998, PSC issued 1,381 Common Shares in connection with the conversion of the
Old Debentures. The transaction was exempt under section 3(a)(9) of the
Securities Act. The First
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Supplemental Allwaste Indenture provides that the Old Debentures are
subordinated in priority of payment to the indebtedness owing to the Lenders
under the Pre-Petition Credit Agreement and related documents.
C. EVENTS CONTRIBUTING TO THE NEED FOR RESTRUCTURING
1. Acquisition Strategy and Restatement of Financials
PSC commenced 1998 with the objective of integrating the
businesses it had acquired in 1997. The integration was interrupted by a series
of events which occurred in 1998 that had a material impact on PSC and resulted
in it recording a fiscal loss of $1.6 billion in 1998, including special charges
of $1.2 billion.
The initial event was the discovery and announcement in
January 1998 of a discrepancy between the book and physical inventory values in
PSC's yard copper business. The announcement of the discrepancy raised serious
questions about the integrity of PSC's accounting and the effectiveness of its
control systems, and had a significant negative impact on PSC's business.
Shortly after the announcement, numerous class action lawsuits and related
claims were commenced against PSC in the United States and Canada. An exhaustive
examination of the discrepancy was conducted by PSC, its auditors and special
counsel to a committee of independent directors of PSC's board of directors. As
a result of these examinations, it was determined that, among other things,
unrecorded losses totaling $92 million arising from unauthorized trading of
copper outside PSC's normal business practices had been incurred. PSC commenced
a civil action against the former president of its metals division and others
engaged in the trading in an effort to recover its losses and reported the
activities to criminal and other appropriate authorities. In light of PSC's
findings, PSC restated its previously reported financial results for 1997, 1996
and 1995. In addition, the staff of the SEC initiated a formal investigation of
the circum stances surrounding the 1997, 1996 and 1995 restatements of PSC's
financial statements. The SEC has advised that its investigation should not be
construed as an indication that any violation of law has occurred, nor should it
be considered a reflection upon any person, entity or security. While PSC
believes it has made all adjustments necessary to its financial statements for
1997, 1996 and 1995, there can be no assurance that additional adjustments will
not be required as a result of the SEC investigation.
On February 19, 1998, the Pre-Petition Credit Agreement was
amended to add new covenants regarding adjusted debt and EBITDA ratios and
additional events of default. In connection with the February 1998 amendment to
the Pre-Petition Credit Agreement, on March 16, 1998, PSC and its subsidiaries
that guaranteed the obligations under the Pre-Petition Credit Agreement executed
security agreements whereby each entity granted to the Security Agent for the
benefit of the Lenders a lien upon or security interest in substantially all of
their assets to secure such guarantee obligations and the indebtedness under the
Pre-Petition Credit Agreement.
Starting in late 1997 and continuing throughout 1998, there
was a significant deterioration in PSC's copper and ferrous processing
businesses due to the most significant decline in metals prices in over 20
years. PSC's Industrial Services Group failed to achieve its cost reduction
objectives and its by-products business performed weakly, reflecting industry
wide competitive conditions. In addition, declining crude oil prices, which
resulted in deferred maintenance spending by customers with petrochemical
refinery operations, negatively impacted the revenue and profitability of the
Industrial Services Group's operations. PSC reported a first quarter 1998 loss
of $565,000 and a second quarter 1998 loss of $73 million. Various initiatives
were implemented throughout the year in an effort to improve PSC's operating and
financial performance. Management changes were made, including the appointment
of a new Chairman, President and Chief Executive Officer, Chief Financial
Officer, Chief Administrative Officer and Presidents of PSC's Metals Services
and Industrial Services Groups.
The deterioration in its principal business segments caused
PSC to violate numerous terms of its then $1.5 billion syndicated Pre-Petition
Credit Agreement. As a result of negotiations with PSC's Lenders, on June 24,
1998, the Pre-Petition Credit Agreement was further amended to reduce the credit
capacity from $1.5 billion to $1.2 billion and increase the interest charged by
100 basis points. The amendment allowed PSC to access $60 million of the
proceeds arising from asset dispositions (of which $20 million was allocated to
provide collateral for
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letters of credit) instead of having such proceeds applied to reduce outstanding
debt. In return, PSC agreed to a standstill until September 30, 1998 respecting
the incurrence of additional debt and occurrence of dispositions or
acquisitions. By June 30, 1998, PSC was not in compliance with certain
additional terms in the Pre-Petition Credit Agreement, including the financial
covenants which required PSC to maintain a specified interest coverage ratio,
debt to EBITDA ratio, fixed charge ratio and working capital ratio. Because PSC
was not in compliance with the terms of the Pre-Petition Credit Agreement, the
debt outstanding under the Pre-Petition Credit Agreement was classified as a
current liability on PSC's June 30, 1998 Consolidated Balance Sheet.
As PSC's operating results deteriorated, questions arose as
to its ability to meet its obligations under the Pre-Petition Credit Agreement
and whether PSC had sufficient available cash to satisfy its working capital and
capital expenditure needs. In the third quarter of 1998, a number of factors,
including a continuing downturn in metal markets, a permanent decline in the
value of investments held by PSC, and the decision to exit certain activities or
locations and to divest of PSC's aluminum and US ferrous operations, caused PSC
to take special charges of $357 million and report a net loss of $645 million.
PSC again made management changes including the appointment in October 1998 of a
new Interim Chief Executive Officer and Chief Restructuring Officer.
In connection with the announcement, PSC indicated that its
first priority was to accelerate its ongoing asset disposition and debt
restructuring activities, and refocus its resources on profitable growth. On
October 20, 1998, the Pre-Petition Credit Agreement was further amended to
permit the use of letters of credit under the Pre-Petition Letter of Credit
Facility for general corporate and other purposes and to extend PSC's standstill
on incurrence of additional debt until June 30, 1999. On November 13, 1998, the
same day that PSC announced that it was suspending interest payments on its
Pre-Petition Credit Facility, Carl Icahn, PSC's largest shareholder and debt
holder, together with another lender, announced that they were considering
utilizing involuntary insolvency proceedings to protect their interests unless
PSC met with them to formulate a pre-packaged plan to transfer the ownership and
control of the business to PSC's Lenders. PSC commenced negotiations with Mr.
Icahn and entered into a standstill agreement with him and the other lender on
November 20, 1998. The agreement contemplated a restructuring plan whereby the
debt outstanding under the Credit Agreement would be converted into $200 million
of new secured debt and the distribution of ninety percent (90%) of the equity
of the restructured entity to the Lenders. In accordance with the terms of the
standstill agreement, PSC appointed two new directors nominated by Mr. Icahn to
PSC's board of directors. Also, in November 1998, PSC replaced its then acting
Interim Chief Executive Officer and appointed its Executive Vice Chairman, Allen
Fracassi, as Interim Chief Executive Officer.
After discussions with its Lenders, PSC determined that the
restructuring plan contemplated by the November 20, 1998 standstill agreement
would not be approved by the required number of Lenders. PSC presented an
alternative debt restructuring plan to its Lenders on December 15, 1998 which
provided for the conversion of a smaller portion of the debt outstanding under
the Pre-Petition Credit Agreement into equity in an amount to be negotiated with
its lending syndicate.
On January 11, 1999, PSC announced that it had negotiated a
term sheet with a sub-committee of the steering committee of its Lenders. The
term sheet set forth the principal terms of a restructuring under a pre-packaged
plan of reorganization. Under the January 11, 1999 term sheet, $550 million of
debt outstanding under the Credit Agreement would be restructured into $350
million of senior secured term debt and $200 million of secured payment in-kind
notes. The balance of the debt outstanding under the Credit Agreement of approxi
mately $550 million would be exchanged for ninety percent (90%) of the common
shares of restructured PSC. The term sheet contemplated the execution of a
Lock-up Agreement with respect to the restructuring. Throughout January,
February and March 1999, PSC continued negotiations with its Lenders in an
effort to obtain an agreement on a plan to restructure PSC.
On April 26, 1999, PSC announced that the terms of the
Lock-up Agreement (the "April Lockup Agreement") had been approved by its
Lenders. Under the terms of the April Lock-up Agreement, the then outstanding
secured debt of $1.07 billion would be converted into $300 million of senior
secured debt, $100 million
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of convertible secured payment-in-kind notes, and ninety percent (90%) of the
common shares of Reorganized PSC. The sale of PUMC (as defined below) on May 8,
1999 resulted in a reduction of the restructured senior debt from $300 million
to $250 million. Pursuant to the Lock-up Agreement, the Lenders, subject to
certain conditions, agreed, among other things, (i) to vote their Lender Claims
in favor of the Plan, (ii) not to oppose confirmation of the Plan, (iii) not to
transfer their Lender Claims except subject to the April Lock-up Agreement, (iv)
to consent to the incurrence of the DIP Facility, the granting of security for
the DIP Facility and subordination of their liens to such security, and (v) to
subordinate the security for the New Secured PIK Debt or New Senior Secured Term
Debt to security for the Exit Facility.
The Lenders and PSC also entered into an agreement (the
"Proceeds Agreement") pursuant to which the Lenders agreed to allow PSC access
to the proceeds of certain asset sales for working capital purposes. Between
April 1999 and June 1999, PSC worked to document the restructuring contemplated
by the April Lock-up Agreement with its Lenders. These negotiations and efforts
resulted in an amended and restated Lock-up Agreement dated June 21, 1999 (as
defined previously, the "Lender Lock-up Agreement"). The principal amendments to
the Lender Lock-up Agreement were (a) the elimination of the requirement of a
pre-petition solicitation of the Lenders, (b) an increase in the New Unsecured
PIK Notes to be issued to holders of impaired unsecured claims from $50 million
to $60 million, (c) the approval of the Class 7 Election feature of the Plan,
permitting certain holders of Impaired Unsecured Claims to forego certain of
their New Unsecured PIK Notes for up to $18 million in New Unsecured Convertible
Notes, (d) the addition of an equity distribution of up to five percent (5%) of
the common shares of Reorganized PSC to holders of unsecured claims, (e) the
approval of a settlement reached with counsel for the Securities Claims in the
Securities Actions, and (f) an extension of the timetable to implement the
restructuring through bankruptcy proceedings. Pursuant to the Lender Lock-up
Agreement, holders in excess of seventy-six percent (76%) of the amount of the
syndicated lender debt and more than fifty percent (50%) in number of such
Lenders, have agreed, subject to the terms of the agreement, to vote for and
support the Plan and the Canadian Reorganization Plan. The Lender Lock-up
Agreement contemplates a timely completion of the restructuring in accordance
with the following schedule:
- Approval of a Disclosure Statement for the Plan by August 31, 1999
- Confirmation of the Plan by October 31, 1999; and
- Consummation of the Plan transactions and emergence from Chapter 11
and CCAA proceedings by November 30, 1999.
Failure to achieve any of these events within fifteen (15)
days of the specified deadline constitutes a "Termination Event" under the
Lender Lock-up Agreement. Upon the occurrence of any Termination Event, each
Lender may change or withdraw any votes cast in favor of the Plan and the Lender
Lock-up Agreement may be terminated, upon election, by Lenders holding in the
aggregate at least fifty-one percent (51%) of the aggregate amount of claims
held by the Lenders party to the Lender Lock-up Agreement. As of the date of
this Amended Disclosure Statement, the Debtors had failed to achieve approval of
a Disclosure Statement by the date required in the Lender Lock-Up Agreement.
Accordingly, a "Termination Event" has occurred and the Debtors are in default
under the Lender Lock-Up Agreement.
2. Discontinued Operations and Divestitures
In 1998, in an effort to further implement the restructuring
effort, the Debtors undertook to review the divestiture of certain of its
businesses and investments. In June of 1998, PSC announced its intention to sell
its ferrous and non-ferrous operations and various non-core assets in order to
reduce and restructure its debt. However, weak ferrous market conditions lowered
the value of the remaining assets and PSC subsequently determined that it would
not proceed with the sale of its ferrous businesses.
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On May 21, 1998, PSC sold certain of its spiral weld
pipe operation for a purchase price of $3.9 million.
On July 7, 1998, PSC's Houston, Texas based steel
distribution business was sold for cash proceeds of $95 million, resulting in a
gain on sale of approximately $17 million. The results of operations for the
steel distribution business are included in the Ferrous operations segment of
the Metal Services business. The business generated annual revenue in excess of
$130 million and income from operations of $12.5 million in 1997.
During the fourth quarter of 1998, PSC divested of its
minority interest in Strategic Holdings Inc. for approximately $6.6 million. In
December 1998, PSC made the decision to discontinue the Non-Ferrous and Copper
Operations of its Metals Services business. A sale of certain of the aluminum
operations included in Non-Ferrous Operations closed on January 11, 1999 for a
total consideration of approximately $69.5 million.
On May 18, 1999, PSC announced that it closed the sale of
its sixty-eight percent (68%) interest in Philip Utilities Management
Corporation ("PUMC") for approximately $70 million. The net proceeds of this
disposition were used to pay down existing indebtedness to the Lenders under the
Pre-Petition Credit Agreement in accordance with the terms of the Lock-up
Agreement.
On May 26, 1999, PSC closed the sale of its Conversion
Resources operations in Bedford, Ohio for $529,610.
In addition, on May 31, 1999, PSC closed the sale of the
operations and the working capital of its Birmingham Excavation Company
Subsidiary, Philip/BEC, Inc. ("BEC"). The sale generated total proceeds of $20.9
million. The net proceeds of this disposition were deposited in the Proceeds
Account and were subject to the Proceeds Agreement and are now subject to the
Cash Collateral Order.
On June 1, 1999, Philip Metals, Inc., one of the Debtors,
sold certain real estate owned by it located in Brook Park, Ohio for $8.5
million to Park Place, Inc. The net proceeds from the sale of this real estate
(approximately $7.9 million) were deposited in the Proceeds Account and were
subject to the Proceeds Agreement and are now subject to the Cash Collateral
Order.
On June 8, 1999, Philip Enterprises Inc., a wholly-owned
subsidiary of PSC, entered into an Asset Purchase Agreement whereby it agreed to
sell its Montreal East transfer station and related industrial services
operations for a purchase price of $3.2 million Canadian Dollars, payable forty
percent (40%) at closing, thirty percent (30%) six months post-closing, and
thirty percent (30%) twelve months post-closing.
3. Employee Retention Program
PSC is in the process of formulating an employee retention
program to allow the Debtors to retain approximately 150 of its key employees in
light of the restructuring of PSC this year, pending approval by the board of
directors and the Lenders. However, the cost of such program has been estimated
in the financial projections of the Plan. PSC is examining its employees'
contributions to the company during the year and determining which employees are
invaluable to the Debtors successful restructuring. In order to retain these key
employees, PSC is developing a bonus program in which the key employees, upon
their continued employment, receive a bonus, depending upon the employee's
position in the company, based on a percentage of their base salary. Payments
under the program will be staggered up to June 30, 2000. PSC is also formulating
an executive retention bonus program pending approval by the board of directors
and Lenders. The Program will provide that the key executives will receive a
retention bonus based on a portion of their salary. Payments under the program
will be staggered up to September 2000.
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4. Negotiations with Unsecured Creditors
In February 1999, the Indenture Trustee for the Old
Debentures informed PSC that an ad hoc committee of holders of Old Debentures
had formed to represent the interest of holders of Old Debentures in connection
with the restructuring. The Indenture Trustee retained counsel to represent the
Indenture Trustee in connection with the restructuring. The Debtors had an
initial meeting with the ad hoc committee of Old Debenture holders and the
Indenture Trustee in February 1999, wherein the Debtors outlined the proposed
restructuring. After that meeting, the Debtors entered into confidentiality
agreements with the Indenture Trustee and members of the ad hoc committee and
provided certain requested information relating to the restructuring. The
Indenture Trustee also retained a financial advisor to assist in the
restructuring negotiations.
During April, May and June 1999, the Debtors had several
meetings and conference calls with the Indenture Trustee, its counsel and
financial advisor in regard to the terms of the restructuring. The Debtors have
also conducted negotiations with certain other large holders of Impaired
Unsecured Claims, including CIBC and Republic. Those negotiations began in early
1999 and have continued through June 1999.
5. Other Pre-Petition Settlement Negotiations
In connection with the restructuring, prior to the Petition
Date, PSC attempted to resolve various parties' claims. PSC has succeeded in
resolving certain claims including various severance claims in an amount of
$290,000 to three former senior executives to settle severance obligations
totaling $1.7 million. In addition, one former senior executive is entitled to
receive bi-weekly severance payments totaling $138,000 over a 30 week period to
settle a severance obligation of $960,000. Of the $10.8 million in current
severance obligations to senior executives, PSC has negotiated settlements
totaling approximately $242,000 with 5 senior executives to reduce the company's
severance obligations by $1.1 million.
On April 16, 1999, PSC settled a lease obligation with
Mellon Bank, N.A. for a payment of approximately $152,000, representing two
months rent. The lease, which would have expired in November 2002, related to
vacant office space in Pennsylvania, which previously held the PSC's U.S.
corporate headquarters.
Certain litigation was settled by PSC over the past year.
The settlements include the case of National Copper & Smelting v. Allworth in
which National Copper claimed that the trichloroethylene it purchased from
Allworth was contaminated causing National Copper's machine damage. The case was
settled in an amount less than expected legal fees for the defense. The second
case settled was U.S. Environmental Protection Agency v. Solvent Recovery
Corporation. This case concerned a June 19, 1998 complaint by the EPA alleging
three violations of federal law. The Debtors settled the complaint by agreement
to pay $4,000 in fines. A third settlement concerned Remry v. Allwaste
Environmental Services wherein the Plaintiff, a former PSC employee, succeeded
on his claim of a bonus under the employee incentive program in effect from
September through December 1996.
On June 23, 1999, the Debtors entered into a settlement
agreement with GalvPro L.P. pursuant to which the Debtors paid $2,000,000 in
exchange for complete, valid and binding mutual releases arising from or in any
way relating to either party's performance under a certain Design/Build
Agreement dated March 9, 1998 and entered into by D&L Corp. and GalvPro.
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ARTICLE V.
CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTORS
A. CURRENT CORPORATE STRUCTURE
PSC was amalgamated under the laws of the Province of Ontario as Philip
Environmental Inc. pursuant to a Certificate and Articles of Amalgamation dated
April 15, 1991. On May 22, 1997, a Certificate and Articles of Amendment under
the Business Corporations Act (Ontario) were issued changing the name from
Philip Environ mental Inc. to Philip Services Corp.
PSC is a holding company with over 200 wholly-owned Subsidiaries in
Canada, the United States, Barbados, and throughout Europe. The Debtors,
together with the aforementioned Subsidiaries, their wholly and majority-owned
Subsidiaries, and their direct and indirect Subsidiaries, consist of over 200
corporations, limited liability companies, partnerships, limited partnerships
and other forms of business entities. The Debtors' primary base of operation is
in the United States.
PSI is a corporation established in the United States under the laws of
the State of Delaware. PSI is a wholly-owned direct subsidiary of Philip
Enterprises Inc., a Canadian company, which in turn is wholly-owned directly by
PSC.
A more complete description of the Debtors' current corporate structure
including the relationship of PSC and PSI to the Subsidiary Debtors, presented
in organizational chart form, is presented in Appendix B to the Disclosure
Statement. The Appendix also includes an organizational chart showing the
anticipated corporate structure of the Debtors and the Subsidiaries if the
Alternate Canadian Transactions are implemented.
B. BOARD OF DIRECTORS
Following is a list as of August 1999, of the names and ages of each of
the Directors of PSC.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------- -------- --------------------------
<S> <C> <C>
Robert L. Knauss 68 Chairman and Director
Houston, Texas
Allen Fracassi 46 Director
Ancaster, Ontario
Roy Cairns 74 Director
St. Catharines, Ontario
Harold First 62 Director
Fairlawn, New Jersey
Peter Green 61 Director
Campbellville, Ontario
William E. Haynes 55 Director
Houston, Texas
Felix Pardo 61 Director
Cambridge, Massachusetts
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------- -------- --------------------------
<S> <C> <C>
Harland A. Riker 70 Director
Palm Beach, Florida
Derrick Rolfe 44 Director
Toronto, Ontario
Arnold S. Tenney 56 Director
Downsview, Ontario
Herman Turkstra 65 Director
Hamilton, Ontario
</TABLE>
Mr. Knauss has been a director of PSC since August 6, 1997, and was
appointed Chairman of PSC on May 6, 1998. From March 1988 until July 31, 1997,
he was a director of Allwaste, Inc. He is the Chairman and Chief Executive
Officer of Baltic International U.S.A., Inc., an aviation investment company,
and a director of the Mexico Fund, Inc., an investment fund based in Mexico
City, and Equus II, Inc., an investment fund based in Houston, Texas. Mr. Knauss
served for twelve years as the Dean and Distinguished University Professor at
the University of Houston Law Center and Dean of Vanderbilt Law School.
Mr. Fracassi, appointed Executive Vice Chairman of PSC on May 6, 1998,
was the President, Chief Executive Officer and a director of PSC since December
1990. He was appointed Interim Chief Executive Officer of PSC on November 20,
1998 and resigned from the position of Executive Vice Chairman on September 14,
1999. Mr. Fracassi is a co-founder of PSC with his brother Philip Fracassi.
Mr. Cairns has been a director of PSC since December 1990. Mr. Cairns
has been counsel to, and was previously a partner with, Chown, Cairns, a law
firm. Mr. Cairns is a director of Jumbo Video Limited.
Mr. First has been a director of Philip since November 1998. From
December 1990 to January 1993, Mr. First was the Chief Financial Officer of
Icahn Holding Corp. He is currently on the boards of directors of Tel Save.com,
PANACO Inc. and Cadus Pharmaceuticals Corporation.
Mr. Green was elected to the board of directors on June 25, 1998. He
has more than 25 years of experience as chief executive or chief operating
officer of major companies in North America and Europe. Mr. Green has served on
27 Boards of Directors for companies based in Canada, the U.S., the U.K., and
elsewhere. Mr. Green is Chairman of the board of directors of Patheon Inc., a
Canadian public pharmaceutical manufacturing services company, and also Chairman
of the Board of Trustees of the Superior Propane Income Fund. He was appointed
to both positions in 1996.
Mr. Haynes has been a director of PSC since August 6, 1997. From June
1996 until July 31, 1997, Mr. Haynes was a director of Allwaste, Inc. He is the
Chairman, Chief Executive Officer and director of Innovative Valve Technologies,
Inc., a publicly traded industrial valve repair and distribution company in
which Philip owns a minority equity interest. He served as the President and
Chief Executive Officer of Lyondell-Citgo Refining Company Ltd. from July 1992
to December 1995.
Mr. Pardo has been a director of PSC since March 1994. From May 1992 to
March 1998, Mr. Pardo was the President and Chief Executive Officer of
Ruhr-American Coal Corporation. Until recently he was Chairman of Newalta
Corporation, an oil field waste management company, where he continues to serve
as a director. Mr. Pardo was Chief Executive Officer of Newalta Corporation
during its restructuring and, from 1992, a partner and director
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<PAGE> 71
of Quorum Funding, an investment company. Mr. Pardo also serves on the Boards of
Directors of Dyckerhoff Inc., PANACO Inc., and Innovative Valve Technologies,
Inc.
Mr. Riker was elected to the board of directors on June 25, 1998. He is
a former Senior Vice President of Arthur D. Little, Inc. and Chairman of Arthur
D. Little International, Inc. He has served as a director of Arthur D. Little
Ltd., and for twenty years was Chairman of Cambridge Consultants, Ltd., the
firm's science and technology affiliate in the UK. He has more than thirty years
of international experience, both as a management consultant in the areas of
management development, organization planning and industrial development, and as
builder and executive manager of the firm's international business.
Mr. Rolfe has been a director of PSC since January 1991. Since 1992,
Mr. Rolfe has been the President and Chief Executive Officer of RM Capital
Corporation, an investment company. Mr. Rolfe is also a director of Consolidated
Envirowaste Inc., an organic waste processing company.
Mr. Tenney has been a director of Philip since November 1998. For more
than five years, he has been the President, Chief Executive Officer and director
of ARC International Corporation, a company which develops, constructs, and
operates ice rink facilities. Mr. Tenney is Chairman of Ballantyne of Omaha,
Inc. and Chairman of Cabletel Communications Corp.
Mr. Turkstra has been a director of PSC since September 1996 and has
been a member of Turkstra, Mazza, Associates, a law firm, since 1959.
C. SENIOR OFFICERS
Following is a list as of August 25, 1999, of the names and ages of the
executive officers and the positions with PSC held by each officer.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE DEBTORS
- ----------------------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Anthony G. Fernandes 54 President and Chief Executive Officer
California
Antonio Pingue 49 Executive Vice-President,
Niagara Falls, Ontario Corporate and Regulatory Affairs
Colin Soule 43 Executive Vice-President, General
Toronto, Ontario Counsel and Corporate Secretary
Phillip C. Widman 44 Executive Vice-President and
West Simsbury, Connecticut Chief Financial Officer
Gene Iannazzo 52 President, Metal Services Group
Cleveland, Ohio
Alec Thomas 51 President, Industrial Services Group
Houston, Texas
William Humenuk 57 Executive Vice President and Chief Administra-
Philadelphia, Pennsylvania tive Officer
Ayman Gabarin 34 President and Chief Executive Officer,
London, United Kingdom Philip Services (Europe) Ltd.
</TABLE>
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<PAGE> 72
Mr. Fernandes is employed as President and Chief Executive Officer of
the Debtors and his employment has been approved by the Bankruptcy Courts in
Canada and the United States. Mr. Fernandes replaced Mr. Allen Fracassi,
co-founder of Philip Services, who was the CEO of PSC for over 18 years. Mr.
Fracassi will assist in providing an orderly transition in leadership.
Mr. Fernandes has over thirty years of management experience with
Atlantic Richfield Company ("ARCO"), and is eminently qualified to assume the
position of CEO. More importantly, Mr. Fernandes has valuable experience in a
variety of turn-around situations. Most recently, Mr. Fernandes served as
Executive Vice President and a member of the board of directors of ARCO, where
he participated in or ran a wide variety of businesses including metals and
mining, chemicals, pipelines, as well as an environmental remediation group.
Notably, although many of these operations initially were troubled, Mr.
Fernandes managed to transform them into productive and profitable operations.
As Executive Vice President, Mr. Fernandes reported directly to the
chief executive officer of ARCO, and was responsible for a number of diverse
operations in non-oil exploration and producing activities with a total revenue
of approximately $10 billion. Mr. Fernandes has recently been elected to the
board of directors of Lubricants Specialty Company, and is currently on the
board of directors of Black & Veatch, a Kansas City-based engineering company.
The salient terms of the employment agreement between Mr. Fernandes and
PSC are as follows:
1. Mr. Fernandes will serve an initial two year term (which
shall automatically renew for addi tional one year terms
unless PSC provides thirty (30) days notice of nonrenewal),
report to the board of directors of PSC, and exercise such
powers as may from time to time be assigned or vested in him
by the board of directors of PSC, including, inter alia,
leadership of the efforts of PSC in achieving business plans
as may be in effect.
2. Mr. Fernandes will receive an annual base salary of $500,000
(U.S.) (the "Base Salary"). Under certain circumstances,
an annual bonus of up to $500,000 (U.S.) will be paid to
Mr. Fernandes. The salary and available bonus payments to
Mr. Fernandes reflect his unique knowledge of and
experience with the Debtors' businesses and the vital
role he will play in the Debtors' restructuring efforts
and thereafter.
3. On the Grant Date (as defined in the proposed employment
agreement), subject to Toronto Stock Exchange approval, Mr.
Fernandes shall be granted three groups of options in
respect of that number of common shares of PSC equal to: (i)
two percent (2%) ("Group I"), (ii) one
percent (1%) ("Group II"), and (iii) one percent (1%)
("Group III"), of the total number of common shares of PSC
issued and outstanding at the time of the conclusion of
these Chapter 11 Cases, after giving effect to the exercise
of all of Mr. Fernandes' options (whether or not actually
exercised). The strike price shall be the Base Option Price
(as defined in the employ ment agreement) for Group I, 125
percent of the Base Option Price for Group II, and 145.8
percent of the Base Option Price for Group III. Subject to
the other terms of the employment agreement, the options
shall become exercisable as follows: the Group I options
shall become vested fifty percent (50%) on each of the first
and second anniversaries of the Grant Date, the Group II
options shall become vested on the third anniversary of the
Grant Date, and the Group III options shall become vested on
the fourth anniversary of the Grant Date; and all unvested
options will immediately vest in the event of a change of
control of PSC (as defined in the employment agreement).
Additionally, at the conclusion of these Chapter 11 Cases,
Mr. Fernandes may purchase up to $250,000 (U.S.) of common
shares of PSC at the per-share reorganized equity value of
PSC as described in the employment agreement.
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<PAGE> 73
Mr. Pingue joined PSC in 1990 from the Ministry of the Environment,
where he held various positions beginning in 1973. In 1985 he became part of the
Ministry's newly formed Investigations and Enforcement Branch responsible for
conducting and coordinating investigations involving environmental infractions
and assisting prosecutors at court proceedings. He became Senior Vice President,
Environmental Services and Regulatory Affairs of PSC in 1994, and was promoted
to his current position in 1996. Mr. Pingue is a graduate of Ryerson
Polytechnical Institute's Environmental Health Program.
Mr. Soule joined PSC as General Counsel in October 1991. He was
appointed Corporate Secretary in January 1992 and in this capacity provides
administrative and legal support to PSC's board of directors. Mr. Soule was
appointed to the position of Senior Vice President in May 1994 and Executive
Vice President in May 1997. Prior to Philip he served as Legal Counsel for
Laidlaw Inc. Mr. Soule earned his law degree in 1983 from the Osgoode Hall Law
School of York University in Toronto.
Mr. Widman joined PSC as Chief Financial Officer in July 1998, bringing
over 23 years experience in a variety of financial and operational management
positions with two major North American corporations. For the past 11 years he
has worked with Asea Brown Boveri Inc. ("ABB Inc."), the international
electrical engineering company with its United States headquarters in Norwalk,
Connecticut. During the past two years Mr. Widman served as ABB Inc.'s Vice
President and Chief Financial Officer. Prior to ABB Inc., he held various
financial management positions with UNISYS Corporation. Mr. Widman earned an MBA
in Finance from Eastern Michigan University in 1979 and has also completed
Executive Management Programs at Motorola University (1991) and Duke University
(1997).
Mr. Iannazzo joined PSC in 1997 as Executive Vice President of the
Aluminum Division. Prior to PSC he was founder, President and Chief Executive
Officer of Allmet Technologies, a metals recovery business and recycler of waste
oxides for the steel industry. Mr. Iannazzo was Vice President of Corporate
Marketing for EnviroSource, Inc. and Senior Vice President of International Mill
Services, a subsidiary of EnviroSource. He has nearly 30 years of experience in
the metals services and recycling industry. Mr. Iannazzo holds a bachelor of
science in business administration from West Virginia University and completed
certificate programs at the American Management Association and the Wharton
School of Finance & Economics.
Mr. Thomas has 30 years experience in the waste management and
industrial services industries. He has owned and operated a number of industrial
and environmental companies including Thomas Environmental Management Inc. from
1969 to 1995. In 1995 he sold this business to PSC, and joined the company in
charge of remediation services. He became Chief Operating Officer of PSC's
Environmental Services Group in 1996 and Senior Vice President of the Northeast
Region in charge of environmental and by-products management integration in
1997. Mr. Thomas served as Chief Operating Officer of the Industrial Services
Group from January 1998 until he was appointed its President on August 1, 1998.
He has completed the Executive Management Program at Harvard University.
Mr. Humenuk has been the Executive Vice President and Chief
Administrative Officer of PSC since June 1998. Prior to that he was a partner
with Dechert, Price and Rhoads, a law firm that Mr. Humenuk was a member of from
1967. Mr. Humenuk is a director of the UAM Fund, Inc., UAM Funds Trust and UAM
Funds II, Inc.
Mr. Gabarin has been with PSC since 1992 when his family's company,
Corundol Environmental Limited, was sold to Philip Services. He had served as
Corundol's President for five years. Mr. Gabarin has held various senior
positions at PSC including Vice President of Operations for the Chemical Group
and Vice President of Research and Development. In 1994 he became Senior Vice
President of Philip Utilities Management Corporation and later Vice President of
Business Development. In December 1996 he relocated to the United Kingdom when
promoted to his current position. Mr. Gabarin holds a bachelor of applied
science degree (mechanical engineering) from the University of Toronto.
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D. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS
Subject to the requirements of section 1129(a)(5) of the Bankruptcy
Code, the Debtors intend to announce prior to the Confirmation Date the
identities of the individuals proposed to serve as officers of the Reorganized
Debtors and the directors of Reorganized PSC (if the Canadian Reorganization
Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions
are implemented or the Canadian Plan Condition is waived). To the extent
possible, the identities of such individuals will be announced by inclusion of a
list of proposed directors and/or officers in the Plan Supplement, which will be
filed with the Bankruptcy Court at least five (5) Business Days prior to the
commencement of the Confirmation Hearing. The new board of directors for
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or if
the Canadian Plan Condition is waived) will consist of nine (9) directors, who
will be nominated by holders of Lender Claims. The nominees of the holders of
Lender Claims shall include two (2) members of the existing PSC board of
directors and will include two (2) members nominated by High River Limited
Partnership ("High River") provided that High River and any holders of Lender
Claims acting in concert with it beneficially own at least 25% of the Lender
Claims. If one or both of the nominees from the existing board is a nominee on
that board of High River or persons acting in concert with it, that person will
be counted as a High River nominee on the slate for the new board of directors.
The boards of directors of the Reorganized Debtors shall have the responsibil
ity for the management, control, and operation of the Reorganized Debtors on and
after the Effective Date; provided, however, (i) if the Alternate Canadian
Transactions are implemented, then PSC shall be governed pursuant to the terms
of the Alternate Canadian Transactions or as otherwise determined by the
Canadian Bankruptcy Court and (ii) if the Canadian Plan Condition is waived, PSC
shall continue to be governed in accordance with its existing bylaws and by its
existing board of directors. It is anticipated that Mr. Fernandes will be
selected as a member of the board of directors of Reorganized PSC (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the
Alternative Canadian Transactions occur).
E. UNAUDITED PROJECTED FINANCIAL INFORMATION AND BUSINESS AND OPERATING
STRATEGIES
The Debtors' new business plan (around which the plan of reorganization
was developed) provides for the Debtors to exit from Chapter 11 with a new board
of directors and a revised capital structure. Upon emergence from Chapter 11,
the Reorganized Debtors will be more focused and efficient with an enhanced
balance sheet and access to capital pursuant to the Exit Facility, and better
positioned to meet the needs and expectations of the Reorganized Debtors'
customers going forward.
The terms of the Debtors' new business plan are set forth in greater
detail in the pro forma financial projections contained in Appendix F to the
Disclosure Statement.
ARTICLE VI.
CHAPTER 11 CASES/CCAA
A. COMMENCEMENT OF THE CHAPTER 11 CASES
On June 25, 1999 (the "Petition Date"), the Debtors filed their
voluntary petitions for relief pursuant to Chapter 11 of the Bankruptcy Code.
Since the Petition Date, the Debtors have continued in possession of their
property and are operating and managing their businesses as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
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1. First Day Relief Granted by the Bankruptcy Court
(a) Applications for Retention of Debtors' Professionals;
Ordinary Course Professionals
The Bankruptcy Court authorized the Debtors to retain
certain professionals to represent them and assist them in connection with the
Chapter 11 Cases. Some of these professionals were intimately involved with the
negotiation and development of the Plan and include, among others: (i) Skadden,
Arps, Slate, Meagher & Flom (Illinois) and its affiliated law practices, as
United States counsel for the Debtors; and (ii) Logan & Company, Inc., as
solicitation and noticing agents for the Debtors. Additionally, the Bankruptcy
Court authorized the Debtors to retain, employ and pay certain professionals,
including a number of attorneys, accoun tants, consultants, financial advisors,
investment bankers and brokers, who have rendered services to the Debtors
unrelated to the Chapter 11 Cases (collectively defined in the Motion as the
"Ordinary Course Professionals"), to assist with the operations of their
businesses in the ordinary course.
(b) Motion to Continue Using Existing Cash Management
Systems
The Bankruptcy Court authorized the Debtors to
continue to utilize their existing centralized cash management systems, bank
accounts, business forms and to engage in intercompany transactions in the
ordinary course of the Debtors' businesses.
(c) Motion for Authority to Pay Pre-Petition Employee
Wages, Salaries and Benefits and Directing All Banks
to Honor Prepetition Checks for Payment of
Prepetition Employee Obligations
The Bankruptcy Court authorized the Debtors to pay or
otherwise honor the prepetition wages, salaries and employee benefits earned or
arising before the Petition Date of all currently active employees and
independent contractors, and the Court directed all banks to honor prepetition
checks for payment of all such prepetition employee obligations.
(d) Motion to Enter Workers' Compensation Insurance
Program and Related Agreements
The Bankruptcy Court authorized the Debtors to enter
into their workers' compensation insurance program and related agreements, to
pay all obligations due under the insurance program and related program
documents and to provide all cash and letters of credit required under the
insurance program in the ordinary course of their businesses.
(e) Motion Prohibiting Utilities From Altering, Refusing
or Discontinuing Services and Establishing
Procedures for Determining Requests for Additional
Adequate Assurance
The Bankruptcy Court granted the Debtors' request and
prohibited the Debtors' utility service providers from altering, refusing or
discontinuing services on account of prepetition invoices. In addition, the
Bankruptcy Court approved the Debtors' proposed procedures for determining
requests by the utility service providers for additional adequate assurance.
(f) Motion Confirming Authority to Pay Prepetition Sales,
Use and Other Taxes
The Bankruptcy Court confirmed the Debtors' authority
to pay prepetition sales, use and other taxes collected by the Debtors from
their customers or incurred in the ordinary course of their businesses to the
appropriate taxing authorities.
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(g) Motion for Authority to Pay Certain Prepetition
Shipping, Warehousing and Distribution Charges and
Brokers' Fees.
The Bankruptcy Court authorized the Debtors to pay
certain prepetition shipping, warehousing and distribution charges and broker's
fees as the Debtors determine, in the exercise of their business judgment, are
necessary or appropriate to obtain and/or ensure the transport, delivery or
release of the Debtors' goods and to satisfy the liens, if any, held by the
shippers, warehouses, distributors or brokers, in respect of such goods.
(h) Motion Confirming Grant of Administrative Expense
Status to Obligations Arising From Postpetition
Delivery of Goods and For Certain Holders of Valid
Reclamation Claims, Prohibiting Third Parties from
Interfering with Delivery of Goods to Debtors, and
for Authority to Pay Certain Expenses in the Ordinary
Course of Business
The Bankruptcy Court granted the Debtors' request for
an order confirming that the Debtors' undisputed obligations (arising directly
and indirectly from the shipment or delivery by suppliers and vendors of scrap
metals, chemical by-products, and related items accepted by the Debtors
postpetition) will have administrative expense priority status, granting
administrative expense treatment for certain holders of valid reclamation
claims, and establishing authority to pay certain expenses in the ordinary
course of business.
(i) Motion for Authority to Honor Certain Prepetition
Obligations to Customers and to Continue Customer
Programs and Practices
The Bankruptcy Court authorized the Debtors to honor
certain prepetition customer practices and obligations to customers the Debtors
deem necessary, in the same manner such practices were implemented and such
obligations were honored before the commencement of the Chapter 11 Cases,
including but not limited to customer discounts, credits or deposits, and
certain other contractual obligations.
(j) Motion for Authority to Pay Certain Contractors in
Satisfaction of Perfected or Potential Mechanics',
Materialmen's, or Similar Liens and Interests in the
Ordinary Course of Business
The Bankruptcy Court authorized the Debtors to pay
certain prepetition obligations owed to mechanics, materialmen and other such
entities potentially holding liens that the Debtors deem necessary, including
but not limited to certain contractors in satisfaction of perfected or potential
liens and interests.
(k) Motion Authorizing Payment of Certain Prepetition
Claims of Key Trade Vendors
The Bankruptcy Court authorized the Debtors, as may
be appropriate, to pay prepetition claims of vendors who agree to provide
continuing trade credit on the terms provided prepetition to the Debtors.
(l) Motion Authorizing Debtors to Obtain Postpetition
Surety Bonds and to Enter Indemnity Agreement and
Inter-Creditor Agreement
The Debtors sought and obtained a stipulation and
order from the Bankruptcy Court authorizing the Debtors to obtain postpetition
surety bonds and to enter approved indemnity agreements dated as of June 28,
1999 and an approved inter-creditor agreement dated June 28, 1999 regarding the
treatment of the obligations of the Debtors with respect to bonds the ("Bonding
Lien Order"). The indemnity agreement generally provides that the Debtors shall
indemnify the parties to the indemnity agreement from any loss, cost, and damage
from the failure of the Debtors to perform obligations, including reimbursement
obligations, and grants security interests in assets related to bonded projects.
The Bonding Lien Order and the intercreditor agreements established
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the priority of the surety participant's security and claims. The Debtors
anticipate that the surety bonds will remain in place post-confirmation on the
same terms.
(m) Motion Approving Stipulation and Order Authorizing
and Restricting Debtors' Use of Cash Collateral and
Granting Adequate Protection
The Bankruptcy Court granted the Debtors' request for
an order approving a stipulation and order authorizing and restricting the
Debtors' use of cash collateral and granting adequate protection of certain
secured claims. Pursuant to the terms of the stipulation and order, the Debtors
were granted permission to use the cash collateral on a consensual and
negotiated basis, and adequate protection was granted to prepetition lenders and
holders of certain liens.
(n) Motion Approving Cross-Border Insolvency Protocol
The Bankruptcy Court approved the Debtors' proposed
protocol between the United States Bankruptcy Court for the District of Delaware
and the Ontario Superior Court of Justice to govern the resolution of
administrative issues anticipated to arise in coordinating the insolvency
proceedings. This protocol is designed to coordinate activities in the two
insolvency proceedings, protect the rights of parties thereto, and ensure the
maintenance of each court's jurisdiction and comity.
(o) Motion Establishing Disclosure Statement Hearing
Date, a Confirmation Hearing Date, and Certain
Other Critical Dates
The Bankruptcy Court granted the Debtors' request for
an expeditious confirmation timetable, scheduling hearings on the approval of
the Disclosure Statement for August 23, 1999 and confirmation of the Plan on
October 13, 1999 respectively. These dates were continued to September 21, 1999
and November 3, 1999, respectively.
(p) Motion Establishing Bar Date for Filing Proofs of
Impaired Unsecured Claims and Approving Forms and
Manner of Notice Thereof
The Bankruptcy Court approved the Debtors' proposed
form and manner of notice of the Bar Date and authorized the Debtors to provide
such notice, along with a Proof of Claim form, to all parties listed on a
certain impaired unsecured creditors list.
2. Appointment of Official Committee of Unsecured Creditors
On July 12, 1999, the Office of the United States Trustee
appointed seven members to the official committee of unsecured creditors (the
"Official Committee") to represent the interests of unsecured creditors of the
Debtors. Since its formation, the Debtors have consulted with the Official
Committee concerning the administration of the Chapter 11 Cases. The Debtors
have kept the Official Committee informed about their operations and have sought
the concurrence of the Official Committee for actions and transactions taken
outside of the ordinary course of the Debtors' business. The Official Committee
has participated actively, together with the Debtors' management and
professionals, in connection with negotiation of the Plan.
The Official Committee consists of seven members: the U.S.
Trustee, Great Plains Trust Company, Kornitzer Capital Management, Inc.,
Republic Environmental Systems, Inc., Siemens Westinghouse Power Corporation,
Plasma Processing Corporation and Mr. Robert M. Chiste. Counsel to the Official
Committee is Blank Rome Comisky & McCauley, LLP, One Logan Square, Philadelphia,
PA 19103-6998, Attention: Raymond L. Shapiro, Esq. and the Creditors'
Committee's Financial Advisor is Loeb Partners Corporation, 61 Broadway, 24th
Floor, New York, New York, 10006, Attention: Harvey Tepner. Canadian counsel to
the Official Committee is
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Cassels, Brock & Blackwell, Scotia Plaza, Suite 2100, 40 King Street West,
Toronto, Ontario, M5H 3C2, Attention: E.B. Leonard.
After the Confirmation Date, the Creditors' Committee shall
continue to exist as provided in this paragraph and shall be an active
participant in the Claims review process. The Creditors' Committee shall have
the right to file objections to Class 7 Claims and, if the Canadian
Reorganization Plan is sanctioned, Canadian Impaired Unsecured Claims. The
Creditors' Committee shall be reduced to three members as they shall select and
be represented by counsel and other professionals retained by the Committee
prior to the Effective Date ("Commit tee Professional"). Until all Distributions
to Class 7 Claims have been made pursuant to Plan, the Creditors' Committee will
continue to exist and may: (i) file such pleadings with the Bankruptcy Court as
it deems appropriate or necessary concerning implementation of the Plan; (ii)
consult with the Reorganized Debtors concerning objections to, settlements of or
litigation over Disputed Class 7 Claims; (iii) monitor, analyze and reconcile
the Distributions to holders of Class 7 Claims; and (iv) provide such other
services that the Creditors' Committee deems reasonably necessary to protect and
enforce the rights and interests of the holders of Class 7 Claims consistent
with the provisions of the Plan. Following the Effective Date, the reasonable
out of pocket fees and expenses of all Committee Professionals, and the expenses
of Committee members, shall be paid by the Reorganized Debtors within ten days
after receipt of monthly invoices from such Committee Professionals, provided,
however, that the Reorganized Debtors shall be entitled to dispute the
reasonableness of any such fees and expenses and further provided that the
Reorganized Debtors' aggregate liability for post-Confirmation fees and expenses
of the Creditors' Committee and the Creditors' Committee professionals shall not
exceed $50,000 in the event the Canadian Reorganization Plan is sanctioned, and
$75,000 in the event the Alternate Canadian Transactions are implemented. Any
unresolved, disputed fees and expenses shall be presented to the Bankruptcy
Court for resolution. If the Canadian Reorganization Plan is sanctioned, the
Creditors' Committee shall be entitled to retain Canadian counsel, which may
incur post-confirmation fees and expenses payable by the Reorganized Debtors up
to an aggregate $50,000.
3. Other Matters Occurring in the Cases
(a) Motion Authorizing Employment of Loeb Partners
Corporation As Financial Advisor and Investment
Banker For The Official Committee Of Unsecured
Creditors
The Bankruptcy Court authorized the Official
Committee of Unsecured Creditors of the to employ Loeb Partners Corporation as
its investment banker and financial advisor in these Chapter 11 Cases,
effective as of July 15, 1999.
(b) Motion Authorizing the Debtors to Enter Into An
Employment Agreement with Mr. Anthony G. Fernandes
as Chief Executive Officer of PSC
On September 14, 1999, the Bankruptcy Court approved
Debtors' motion to enter into an employment agreement and retain Mr. Anthony G.
Fernandes as Chief Executive Officer of PSC.
(c) Motion for an Order Authorizing Substantive
Consolidation of Debtors For Purposes of the
Treatment of Classes 6, 7 and 8 Under the Plan
On August 9, 1999, the Debtors filed a motion for an
order substantive consolidation of the Debtors for purposes of the
treatment of Classes 6, 7 and 8 under the Plan, including for the purposes of
voting, confirmation and distribution (the "Substantive Consolidation Motion").
The Debtors expect to have the Substantive Consolidation Motion heard at the
same time as the hearing on the confirmation of the Plan.
4. Negotiations with Allen Fracassi
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PSC is also contemplating entering into a consulting
agreement with Do 4 U Services Corporation whereby Do 4 U Services Corporation
will provide certain management consulting services for up to seventy-five (75)
hours per month of a nature set out in the consulting agreement. Such consulting
services shall be provided for a twelve (12) month period by and/or through
Allen Fracassi or other selected individuals in consideration of a set monthly
fee, including reasonable out of pocket expenses.
In consideration of PSC entering into the aforementioned
consulting agreement, Mr. Fracassi and PSC shall enter into a settlement
agreement which sets out the terms and conditions of the settlement of all
outstanding claims of Mr. Fracassi arising from his employment or the cessation
of his employment by PSC, which settlement agreement is in lieu of and not in
addition to any other entitlements of Mr. Fracassi. Further, as more fully
described in the settlement agreement, Mr. Fracassi shall forever release and
discharge PSC from any and all claims now or hereafter existing arising from any
event relating to Mr. Fracassi's employment or the cessation of such employment
with PSC. In consideration of Mr. Fracassi entering into the settlement
agreement and complying with its terms, PSC shall forever release and discharge
all claims held by it based on any actions relating to Mr. Fracassi except for:
(i) Mr. Fracassi's outstanding indebtedness to PSC and (ii) any claims which
would be Excluded Indemnification Obligations, as subject to revocation by PSC
in the event PSC reasonably determines that Mr. Fracassi has failed to provide
factual information to PSC in connection with any claim against Deloitte &
Touche and Robert Waxman arising out of the same nucleus of operative facts
alleged in the Securities Actions, the Chazen Actions or the Liff Actions.
5. Management Stock Options Plan
On the Effective Date, as soon thereafter as is reasonably
practical thereafter, Reorganized PSC, if the Canadian Reorganization Plan is
sanctioned, or Reorganized PSI, if the Alternate Canadian Transactions are
implemented, will adopt and implement a Management Stock Option Plan. Pursuant
to the proposed Management Stock Option Plan, between three and three and
one-half percent (3 and 3.5%) of the New Common Shares or Reorganized PSI Common
Shares, as applicable will be made available in the form of stock options
pursuant to the terms of the Management Stock Option Plan to senior executives
of the Reorganized Debtors other than Anthony Fernandes. The terms of the
Management Stock Option Plan have not been finalized at this time and are
currently being negotiated between the Debtors and the Lenders. A copy of the
Management Stock Option Plan will be provided in the Plan Supplement.
B. POST-PETITION OPERATIONS AND LIQUIDITY
On June 28, 1999, the Bankruptcy Court entered an interim order
authorizing the Debtors to obtain secured postpetition financing up to an
aggregate principal amount not to exceed $100 million from certain lenders, to
obtain on an interim basis $12 million in letter of credit capacity pending
final relief, granting the lenders security interests in all the Debtors'
presently owned and after-acquired property to secure the Debtors' obligations
under the DIP Credit Agreement subject to a carve-out, and granting the lenders
priority with respect to the Debtors' obligations over any and all
administrative expenses of the kinds specified in sections 503(b) and 507(b) of
the Bankruptcy Code, subject to a carve-out and certain other superpriority
claims expressly set forth in the DIP Credit Agreement. On July 27, 1999, the
Bankruptcy Court entered the Final Order authorizing the Debtors to obtain
secured postpetition financing.
C. THE COMPANIES' CREDITORS ARRANGEMENT ACT (THE "CCAA") OF CANADA
As previously stated, PSC is amalgamated under the laws of the Province
of Ontario and PSI is a corporation established in the United States under the
laws of the State of Delaware.
On June 25, 1999, PSC and twenty-five of its Canadian subsidiaries (the
"Canadian Debtors") commenced a case under the Companies' Creditors Arrangement
Act (the "CCAA") of Canada in the Ontario Superior Court of
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Justice (the "Ontario Court"). The CCAA is intended to facilitate the
reorganization of major public companies with complicated public debt structures
and is the most effective framework for financial restructuring in Canada.
CCAA protection is not automatic but depends on the discretion of the
court. Where the court grants protection under the CCAA, a general stay of
proceedings normally is imposed against any and all proceedings and claims. An
initial stay of proceedings is restricted by statute to a maximum period of 30
days. The applicant may apply to extend the stay of proceedings and the court
normally will extend the stay if the court is satisfied that constructive
negotiations for the reorganization are taking place.
The purpose of the commencement of the Canadian Cases for PSC and the
Canadian Debtors was to obtain a stay of proceedings in order to permit the
restructuring contemplated by the Plan. The Debtors intend to seek court
approval in the Canadian Cases of the Canadian Reorganization Plan or the
Alternate Canadian Transactions.
For the Canadian Reorganization Plan to be sanctioned, the Canadian
Reorganization Plan must receive the affirmative vote of two-thirds in value of
proven claims and a majority in number of creditors holding proven claims in
each class of creditors entitled to vote. Holders of Lender Claims against the
Canadian Debtors, and the class of holders of Canadian Impaired Unsecured Claims
(similar to Class 7 of the Plan) will have the right to vote on the Canadian
Reorganization Plan. Subject to the terms of the Lender Lock-up Agreement, the
Lenders have agreed to vote in favor of the Canadian Reorganization Plan. If the
class of holders of Canadian Impaired Unsecured Claims votes to reject the
Canadian Reorganization Plan, then the Canadian Reorganization Plan cannot be
sanctioned.
On August 27, 1999, the Canadian Court required certain amendments to
the Canadian Reorganization Plan to be effected in order for Claims against PSC
to be proven and governed by the Canadian Reorganization Plan as well. The
Debtors have, in accordance with the Canadian Court's order, so amended the
Canadian Reorganiza tion Plan. However, in the event Canadian creditors that
may, as a result of such amendments, have the right to vote to approve the
Canadian Reorganization Plan, do not waive such right to or otherwise enter into
a settlement arrangement acceptable to the Debtors, the Canadian Debtors and the
Lenders, the Alternate Canadian Transactions may be implemented
While the sanctioning of the Canadian Reorganization Plan is a
condition to the Effective Date of the Plan, that condition may be waived,
enabling the Plan to be confirmed before the outcome of the Canadian proceedings
is determined. In such case, (a) all New Securities shall be issued by
Reorganized PSI, (b) PSC and the other Canadian Debtors will continue to be
managed by PSC's current Board of Directors and current management and (c) until
either the Canadian Reorganization Plan is sanctioned or the Alternate Canadian
Transactions are imple mented, all assets of PSC and the other Canadian Debtors
will continue to be owned and operated by PSC and the other Canadian Debtors,
respectively. If the Canadian Plan Condition is waived, it is contemplated that
substan tially all equity interests and/or assets of PSC and the other Canadian
Debtors ultimately will be transferred as going concerns to one or more direct
or indirect subsidiaries of Reorganized PSI.
Previously, on June 25, 1999, the Ontario Court issued an initial order
(the "Initial Order") in connection with the Canadian Cases. The following
provides a summary of certain of the matters addressed in the Initial Order:
1. Stay of Proceedings
The Ontario Court ordered that until Friday, July 23, 1999,
all proceedings against the Canadian Debtors are stayed and suspended and all
persons with contractual arrangements with the Canadian Debtors for the supply
of goods and services are restrained from asserting remedies contractual or
otherwise, against the Canadian Debtors.
2. Payment of Trade Creditors
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The Ontario Court ordered that the Canadian Debtors shall be
authorized to continue to pay claims of trade creditors, whether incurred before
or after the Initial Order provided that with respect to claims in excess of
$2,000, such trade creditors continue to supply trade credit to the Canadian
Debtors on terms at least as favorable as those currently extended.
3. Operations
The Ontario Court ordered that the Canadian Debtors remain
in possession and control of their property and to carry on business in a manner
consistent with the preservation of the Canadian Debtors' business and property
and to continue to engage advisors in the ordinary course of business or in
connection with the CCAA restructuring.
4. Authority to Borrow and Charging of Property
The Ontario Court ordered that the Canadian Debtors are
authorized and directed to enter into the DIP Facility and the matters referred
to above in sections VI.A.1(l) and (m).
5. Appointment of Ernst and Young Inc. as Monitor
The Ontario Court ordered that Ernst & Young Inc. (the
"Monitor") is appointed as the Monitor to monitor the business and affairs of
the Canadian Debtors during the Canadian Proceedings in accordance with the
statutory rights and obligations of monitors set forth in the CCAA and the
specific rights and obligations set forth in the Initial Order.
6. Cross-Border Insolvency Protocol
The Ontario Court approved the Canadian Debtors' proposed
protocol between the United States Bankruptcy court for the District of Delaware
and the Ontario Superior Court of Justice referred to above in section
VI.A.1(n).
ARTICLE VII.
CERTAIN FACTORS TO BE CONSIDERED
Holders of Class 6 and 7 Claims should carefully consider the following
factors, as well as the other information set forth in this Disclosure Statement
(and the documents delivered together herewith and/or incorporated by reference
herein), before deciding whether to vote to accept or to reject the Plan.
A. GENERAL CONSIDERATIONS
The formulation of a plan of reorganization is the principal purpose of
the Chapter 11 Cases. The Plan sets forth the means for satisfying the Claims
against the Debtors. Certain Claims and Interests receive no distributions
pursuant to the Plan. See Article II.C of the Disclosure Statement, entitled
"Summary of the Plan of Reorganization -- Classification and Treatment of Claims
and Interests." Reorganization of the Debtors' businesses and operations under
the proposed Plan also avoids the potentially adverse impact of a liquidation on
the Debtors' employees, and many of their customers, trade creditors and
lessors.
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B. CERTAIN BANKRUPTCY/CCAA CONSIDERATIONS
1. General
The filing of bankruptcy petitions by the Debtors and the
publicity attendant thereto may adversely affect the Debtors' businesses. The
Debtors believe that any such adverse effects may be diminished by the support
of the consenting lenders for the Plan pursuant to the terms of the Lender
Lock-up Agreement and the proposed timetable for the cases. However, such
adverse affects are likely to be experienced during the pendency of a protracted
bankruptcy case.
2. Effect on Non-Filing Subsidiaries
Together, the Chapter 11 Cases and the CCAA proceedings have
captured most, but not all of PSC's Subsidiaries in North America. For complete
lists of entities seeking Chapter 11 and CCAA relief, see Exhibit A to the Plan
and Appendix C hereto. There are, however, certain United States, Canadian, and
other international Subsidiaries that have not sought either Chapter 11 or CCAA
protection.
The filing of the Chapter 11 Cases by the Debtors and the
publicity attendant thereto might also adversely affect the businesses of any
non-filing Subsidiaries. Because the business of PSC is closely related to the
businesses of all its Subsidiaries, any downturn in the businesses of non-filing
Subsidiaries could affect PSC's prospects also. Although PSC does not believe
that the commencement of these Chapter 11 Cases will adversely affect the
businesses of any non-filing Subsidiaries, if the Chapter 11 Cases become
protracted, the possibility of adverse effects on such non-filing Subsidiaries
may increase.
3. Failure to Confirm the Plan
Even if all Impaired voting classes vote in favor of the
Plan and, with respect to any Impaired Class deemed to have rejected the Plan
the requirements for "cramdown" are met, the Bankruptcy Court, which, as a court
of equity may exercise substantial discretion, may choose not to confirm the
Plan. Section 1129 of the Bankruptcy Code requires, among other things, a
showing that confirmation of the Plan will not be followed by liquidation or the
need for further financial reorganization of the Debtors, see Article XI.A of
the Disclosure Statement, entitled "Feasibility of the Plan and the Best
Interests of Creditors Test -- Feasibility of the Plan," and that the value of
distributions to dissenting holders of Claims and Interests may not be less than
the value such holders would receive if the Debtors were liquidated under
Chapter 7 of the Bankruptcy Code. (See Article XI.C of the Disclosure Statement,
entitled "Feasibility of the Plan and the Best Interests of Creditors Tests --
Best Interests Test.") Although the Debtors believe that the Plan will meet such
tests, there can be no assurance that the Bankruptcy Court will reach the same
conclusion.
4. Failure to Consummate the Plan
The Plan provides for certain conditions that must be
fulfilled prior to confirmation of the Plan and the Effective Date. As of the
date of this Disclosure Statement, there can be no assurance that any or all of
the conditions in the Plan will be met (or waived) or that the other conditions
to consummation, if any, will be satisfied. Accordingly, even if the Plan is
confirmed by the Bankruptcy Court, there can be no assurance that the Plan will
be consummated and the restructuring completed. Additionally, it is a condition
to the Effective Date of the Plan that the Canadian Reorganization Plan is
sanctioned. If this condition is waived it is possible that the Plan may become
Effective prior to the consummation of either the Canadian Reorganization Plan
or the Alternate Canadian Transactions. In such case distributions under the
Plan to Classes 8B and 8C and any Class 6 Additional Distributions will be
delayed pending a resolution of the Canadian proceedings.
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5. Certain Provisions of the Amended Certificate of
Incorporation, the By-Laws and Other Agreements
The Amended Certificate of Incorporation, the By-Laws and
certain other agreements contain provisions that may have the effect of
delaying, deferring or preventing a change in control of the Reorganized
Debtors.
C. CERTAIN TAX CONSIDERATIONS
THERE ARE A NUMBER OF MATERIAL INCOME TAX CONSIDERATIONS, RISKS AND
UNCERTAINTIES ASSOCIATED WITH CONSUMMATION OF THE PLAN. INTERESTED PARTIES
SHOULD READ CAREFULLY THE DISCUSSION SET FORTH IN ARTICLE X OF THE DISCLOSURE
STATEMENT, ENTITLED "CERTAIN UNITED STATES INCOME TAX CONSEQUENCES OF THE PLAN"
FOR A DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES AND RISKS FOR
HOLDERS OF CLAIMS AND THE DEBTORS RESULTING FROM THE TRANSACTIONS OCCURRING IN
CONNECTION WITH THE PLAN.
D. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS
The Projections set forth in Appendix F hereto cover the
Debtors' operations through the period ending December 31, 2001. These
Projections are based on numerous assumptions that are an integral part of the
Projections, including confirmation and consummation of the Plan in accordance
with its terms, realization of the operating strategy of the Reorganized
Debtors, industry performance, no material changes in applicable legislation or
regulations, exchange rates, or generally accepted accounting principles,
general business and economic conditions, competition, adequate financing,
absence of material contingent or unliquidated litigation or indemnity claims,
and other matters, many of which are beyond the control of the Reorganized
Debtors and some or all of which may not materialize. In addition, unanticipated
events and circumstances occurring subsequent to the date of this Disclosure
Statement may affect the actual financial results of the Reorganized Debtors'
operations. Because the actual results achieved throughout the periods covered
by the Projections may vary from the projected results, the Projections should
not be relied upon as a guaranty, representation, or other assurance of the
actual results that will occur. (See Article XI.A of the Disclosure Statement,
entitled "Feasibility of the Plan and Best Interests of Creditors -- Feasibility
of the Plan.")
E. RISKS ASSOCIATED WITH EXIT FACILITY
The Debtors' operations are dependent on the availability and cost of
working capital financing and may be adversely affected by any shortage or
increased cost of such financing. Among the aspects of the Lender Lock-up
Agreement between the Debtors and the Lenders is the provision for the Exit
Facility. It is anticipated that the Exit Facility will provide credit
availability of up to $125 million. The Exit Facility would be secured by
guaranties and charges over the accounts receivable and inventory and, if
required, substantially all other assets of the Reorganized Debtors and its
Subsidiaries, senior to all other security including the security for the New
Senior Secured Term Debt. The Debtors anticipate that the Exit Facility would be
used to (a) fund repayment of the DIP Facility, (b) provide short-term working
capital needs, and (c) fund letters of credit within a sub-limit of the Exit
Facility. The maturity of the Exit Facility is contemplated as two years from
Plan implementation, but may be refinanced in whole but not in part by a
replacement facility with the same priority. The parties continue to negotiate
the terms of the Exit Facility, and there can be no assurances that the terms of
such a Facility will not differ materially from the terms described herein.
The Debtors believe that substantially all of their needs for funds
necessary to consummate the Plan and for post-Effective Date working capital
financing will be met by projected operating cash flow and the Exit Facility.
The proposed Exit Facility contains certain conditions and covenants that the
Debtors may not be able to meet,
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however. Moreover, if the Debtors require working capital greater than that
provided by the Exit Facility, they may be required either to (a) seek to
increase the availability under the Exit Facility, (b) obtain other sources of
financing or (c) curtail their operations. Some of the factors which may affect
the amount of financing required to consum mate the Plan include, without
limitation, a delay in consummating the Plan, and whether the Debtors' cash flow
prior to the Effective Date is more than budgeted. The Debtors believe that the
recapitalization to be accomplished through the Plan will facilitate the
Debtors' ability to obtain additional or replacement working capital financing.
No assurance can be given, however, that any additional replacement financing
will be available on terms that are favorable or acceptable to the Debtors.
Moreover, there can be no assurance that the Debtors will be able to obtain an
acceptable credit facility upon expiration of the Exit Facility.
F. RISKS ASSOCIATED WITH NEW COMMON SHARES/REORGANIZED PSI COMMON SHARES;
CHANGE IN CONTROL
PSC's common shares traded under the symbol "PHV" in the United States
on the New York Stock Exchange (the "NYSE") until January 13, 1999, when the
common shares were temporarily halted from trading due to the company's failure
to comply with the NYSE's continued listing criteria. On April 23, 1999, the
NYSE announced that due to then recent developments in PSC's financial
condition, it would suspend the trading of PSC's common shares on the NYSE prior
to the opening on April 26, 1999, and would seek delisting of those shares. PSC
continues to pursue its remedies in regard to the listing of its common shares
on the NYSE, but there can be no assurances that PSC will be able to retain such
a listing. PSC common shares are listed and posted for trading on the Toronto
Stock Exchange and the Montreal Exchange. If the Alternate Canadian Transactions
are implemented, Reorganized PSI intends to seek to have the Reorganized PSI
Common Shares listed on the NASDAQ or AMEX exchange. There can be no assurance
that Reorganized PSI will be able to obtain such a listing.
Pursuant to the Plan, New Common Shares or Reorganized PSI Common
Shares, as the case may be, will be issued in partial satisfaction of the Class
6 Secured Lender Claims, and if Class 7 votes to accept the Plan, the Class 7
Impaired Unsecured Claims and in full satisfaction of the Class 8 Claims and
Interests, provided, however, that if the holders of Allowed Class 7 Claims vote
to reject the Plan, no New Common Shares or Reorganized PSI Common Shares, as
the case may be, will be issued to holders of Class 7, 8A, 8B or 8C Claims. In
any case, distribution of New Common Shares or Reorganized PSI Common Shares, as
the case may be, shall be subject to dilution on or after the Effective Date (a)
to the extent necessary to give effect to the convertibility of the New Secured
PIK Debt and the New Unsecured Convertible Notes and the exercise of the
Management Options or (b) otherwise as a result of the issuance of common
shares, implementation of other management incentive programs or other action
taken by the board of directors of Reorganized PSC or Reorganized PSI, as the
case may be (the "Dilution"). The Plan contemplates certain management stock
options and the issuance of New Secured PIK Debt and, subject to the Class 7
Election, New Unsecured Convertible Notes which will be convertible into PSC
Common Shares or Reorganized PSI Common Shares, as the case may be. To the
extent such equity interests are issued after the Effective Date, the percentage
ownership of PSC Common Shares or Reorganized PSI Common Shares, as the case may
be, of the holders of Class 6, Class 7 and Class 8 Claims and Interests will be
diluted on a pro rata basis. In addition, the market price of the PSC's common
shares in the past has been and may in the future be volatile. A variety of
events, including quarter-to-quarter variations in operating results, news
announcements, trading volume, general market trends and other factors could
result in wide fluctuations in the market price of the PSC Common Shares.
Reorganized PSI has never had its stock publicly listed but it is expected that
the Reorga nized PSI Common Shares will be subject to wide fluctuations in
market price as the shares of PSC have been in the past.
If the Canadian Reorganization Plan is implemented, and if PSC is
delisted and is unable to obtain a relisting on the NYSE in connection with its
restructuring, then it will seek to have PSC Common Shares listed on the NASDAQ
or AMEX exchanges. There can be no assurances that Reorganized PSC will be able
to obtain such a listing.
Following the Debtors' restructuring, the Lenders, in the aggregate,
will own at least ninety-one percent (91%) of Reorganized PSC's or Reorganized
PSI's, as the case may be, outstanding common shares and will control
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such board of directors. Accordingly, the Lenders, if acting together, would be
able to exert substantial influence over the Reorganized Debtors and to control
effectively most matters requiring shareholder approval, including all
fundamental corporate actions such as mergers, substantial acquisitions and
divestitures. The voting power of these shareholders under certain circumstances
could have the effect of causing, delaying or preventing a change of control of
the Debtors, the effect of which may be to deprive the Debtors' shareholders of
a control premium that might otherwise be realized in connection with the
acquisition of the Debtors. In addition, if the Canadian Reorganization Plan is
implemented, certain provisions of the PSC's Amended Articles of Amalgamation
and Bylaws as well as provisions in certain agreements, including the
Shareholder Rights Plan, and the Business Corporations Act (New Brunswick) may
have the effect of delaying, deferring or preventing a change of control.
Similarly, if the Alternate Canadian Transactions are implemented, then certain
provisions of Reorganized PSI's Articles of Incorporation and By-laws as well as
provisions in certain agreements, including the Shareholder Rights Plan, and the
Delaware General Business Corporation Act may have the effect of delaying,
deferring or preventing a change of control.
G. RISKS ASSOCIATED WITH NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES
AND NEW UNSECURED CONVERTIBLE NOTES
There can be no assurance that the Debtors will generate sufficient
cash from operations described in the Projections, see Appendix F to the
Disclosure Statement, to repay the debt and notes being issued under the Plan at
maturity, or that the Debtors will not use cash in excess of the amounts set
forth in the Projections and, accordingly, satisfaction of the New Secured PIK
Debt, New Senior Secured Term Debt, New Unsecured PIK Notes, and New
Unsecured Convertible Notes at their respective maturity dates may be dependent
upon the ability of the Reorga nized Debtors to refinance the indebtedness
thereunder at maturity or to raise sufficient capital to make such payments.
H. DISRUPTION OF OPERATIONS DUE TO BANKRUPTCY FILING
As noted in Article III of the Disclosure Statement, entitled
"Treatment of Trade Creditors, Customers and Employees," as a part of the first
day relief sought in the Chapter 11 Cases the Debtors obtained orders from the
Bankruptcy Court allowing them to pay prepetition employee obligations and
certain prepetition key vendor trade claims in the ordinary course of business.
The Debtors therefore believe that the Solicitation with respect to the Plan
will not materially adversely affect the Debtors' relationships with customers,
employees, and suppliers, provided that the Debtors demonstrate (i) sufficient
liquidity to continue to operate their businesses and (ii) a likelihood of
emergence from Chapter 11 by November 30, 1999.
The Debtors believe that relationships with their customers, suppliers
and employees will be maintained if the Chapter 11 process continues in a timely
fashion. However, if there is a protracted Chapter 11 process, and if the
Debtors' relationships with their customers, suppliers and employees are
adversely affected, the Debtors' operations could be materially affected.
Weakened operating results could adversely affect the Debtors' ability to
complete the solicitation of acceptances of the Plan or, if such solicitation is
successfully completed, to obtain confirmation of the Plan. In the event that
the Debtors fail to confirm the Plan, the risks associated with a protracted
Chapter 11 process or a liquidation must also be considered (See Article XII of
the Disclosure Statement, entitled "Alternatives to the Confirmation and
Consummation of the Plan"). The Debtors anticipate, however, that they will have
sufficient cash generated from current operations and provided under the DIP
Facility and the Exit Facility to service the obligations that they intend to
pay during the period prior to and at consummation.
I. FINANCIAL UNCERTAINTY
The Debtors' results of operations for the second half of 1998 were
significantly impacted by actions taken by the Debtors to retain customers,
suppliers' tightening trade terms and employee attrition. In addition, the
results of operations for the year ended December 31, 1998 were impacted by
special charges recorded by PSC amounting to $1.211 billion. These charges
reflect the effects of (i) decisions made with respect to the potential
disposition of
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U.S. ferrous and certain Industrial Services Group operations; (ii) impairments
of fixed assets and related goodwill resulting from decisions to exit various
business locations or activities and dispose of the related assets; (iii)
assessments of the recoverability of fixed assets and the related goodwill of
business units in continuing use; (iv) charges for financing fees and debt
restructuring costs; (v) severance payments and other costs relating to ongoing
cost reduction measures and restructuring; (vi) the reduction in carrying value
of PSC's investment in Innovative Valve Technologies Inc. and (vii) a writedown
of PSC's investment in Strategic Holdings Inc.
In December 1998, the Debtors decided to discontinue the non-ferrous
and copper operations of their Metals Services business. A sale of certain of
the aluminum operations included in the non-ferrous operations closed on January
11, 1999. In addition, the Debtors sold their Houston, Texas steel distribution
business in 1998. The Debtors continue to review the divestiture of certain
non-core businesses or investments. The proceeds which may be raised from these
divestitures is unknown. A gain or loss may be recorded on the divestitures but
the amount cannot be determined until definitive agreements are reached.
J. ACQUISITION STRATEGY; INTEGRATION ISSUES
From 1992 to 1997, PSC deployed an aggressive strategy of growth
through acquisitions. In 1997 alone, PSC acquired over 30 businesses. In
connection with these acquisitions, there may be liabilities that PSC failed to
discover, including liabilities arising from pollution of the environment or
non-compliance with environmental laws by prior owners, and for which PSC, as a
successor owner, may be responsible and that are not being discharged under the
Plan. Indemnities and warranties for such liabilities from sellers, if obtained,
may not fully cover the liabilities due to their limited scope, amounts, or
duration, the financial limitations of the indemnitor or warrantor, or other
reasons.
There are significant uncertainties and risks relating to the
integration of an acquired company's operations. Whether the anticipated
benefits of an acquisition are ultimately achieved depends on a number of
factors, including the ability of the combined companies to achieve
administrative cost savings, insurance and bonding cost reductions, general
economies of scale and, generally, to capitalize on the combined asset base and
strategic position of the combined companies. The timing and manner of the
implementation of decisions made with respect to the ongoing business of the
combined companies following the acquisition will materially affect the
operations of the combined companies.
Given the range of potential outcomes arising from such decisions and
the interrelationships among decisions to be made, it is difficult to quantify
with precision the impact of such decisions on the results of operations and
financial condition of the combined companies. In particular, reserves
established or charges recorded in connection with an acquisition or the
integration thereof may be insufficient and the Debtors may be required to
establish additional reserves or record additional charges at a later date.
There can be no assurance that any expected synergies will be realized or that
the results of the combined operations will be improved in a timely manner, if
at all. In addition, the process of integrating the acquired company's
operations into those of the Debtors could cause the interruption of, or the
loss of momentum in, the activities of either or both companies, which could
have an adverse effect on the combined operations.
K. BUSINESS AND COMPETITION
The metals and industrial services industries are highly competitive
and require substantial capital resources. Competition is both national and
regional in nature and the level of competition faced by the Debtors in their
various lines of business is significant. Technology is constantly changing.
There can be no assurance that the Debtors will be able to keep pace with
technological changes, that a competitor will not develop superior technology or
that a well capitalized competitor will not enter or expand in the areas in
which the Debtors compete.
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The Debtors' primary competitors in the metals industry are other scrap
processors in regions where its metals operations are located. The Debtors face
competition both on the purchase and sales sides of its business; however,
competition is particularly significant on the purchase side for access to
scrap. The Metals Services Group competes on the basis of price, processing
capability and service. The availability of scrap depends on a number of
factors, including the general level of economic activity in the industries
serviced by the Metals Services Group, many of which are cyclical in nature, and
market prices for scrap. Competition for access to scrap may intensify during
periods of scrap scarcity. There can be no assurance that the Debtors will
continue to have adequate access to scrap supplies at economic prices.
The industrial services sector is also highly competitive and
fragmented. The Debtors compete with numerous local, regional and national
companies of varying sizes and financial resources. Competition for industrial
services is based primarily on hourly rates, productivity, safety, innovative
approaches and quality of service. The hazardous waste management industry
competes with the Debtors' industrial services operations by providing a price
competitive disposal alternative to a number of the Debtors' waste management
and by-products recovery services. The hazardous waste management industry
currently has substantial excess capacity caused by overbuild ing, continuing
efforts by hazardous waste generators to reduce volume and to manage their waste
on-site, and the uncertain regulatory environment regarding hazardous waste
management and remediation requirements. These factors have led to downward
pressure on pricing in a number of the markets served by the Debtors' industrial
services operations. The Debtors expect these conditions to continue for the
foreseeable future.
Recently, weak market conditions in the metals recycling and industrial
services industries have had a negative impact on revenue in these areas. For
example, record steel imports have decreased domestic demand and prices for
scrap steel. These conditions have had an effect on the entire market. In
addition, the Debtors' Industrial Services Group tends to follow seasonal
patterns, with higher levels of activity during the period from April through
November and lower levels during the adverse weather conditions of winter and
early spring. These operations are also affected by the spending decisions of
the Debtors' customers, which in turn are influenced by general economic
conditions and other factors. As a result of all these factors, the Debtors'
financial performance can vary signifi cantly from period to period.
The Debtors use a number of proprietary processes in their operations
and possess a number of United States patents and various foreign counterparts
of those patents. The Debtors rely primarily, however, on a combination of trade
secrets, confidentiality procedures and contractual provisions to protect their
intellectual property rights. The patents may be circumvented or invalidated and
afford only limited protection. Despite the Debtors' efforts to protect their
proprietary rights, unauthorized parties may attempt to obtain and use
information that the Debtors regard as confidential and proprietary, and there
can be no assurance that the Debtors' means of protecting their proprietary
rights will be adequate. The Debtors are not aware of any material claims that
any of their intellectual property infringes on the proprietary rights of third
parties. There can be no assurance, however, that third parties will not assert
infringement claims against the Debtors, which may be costly.
The Debtors' growth also is dependent on the continuation of
outsourcing and vendor reduction trends within industrial enterprises. As these
enterprises focus on their core business, they are increasingly outsourcing
non-core, non-revenue generating activities in order to reduce costs. Such
activities can generally be performed on a more cost effective basis by
specialized industrial service and resource recovery companies which have
greater expertise, technology advantages and economies of scale. In addition,
industrial enterprises are evidencing a desire to reduce the number of vendors
of industrial and resource recovery services by purchasing services only from
those suppliers that can provide a "total service" solution, thereby providing
further administrative and cost reductions. If the pace of either of these
trends slows or reverses, it could have a material adverse effect on the
Debtors' financial position and results of operations.
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L. ENVIRONMENTAL MATTERS
Environmental Regulations. The Debtors' operations are subject to
various comprehensive laws and regulations related to the protection of the
environment. Such laws and regulations, among other things, (i) regulate the
nature of the industrial by-products and wastes that the Debtors can accept for
processing at its treatment, storage and disposal facilities, the nature of the
treatment they can provide at such facilities and the location and expansion of
such facilities; (ii) impose liability for remediation and clean-up of
environmental contamination, both on-site and off-site, resulting from past and
present operations at the Debtors' facilities; and (iii) may require financial
assurance that funds will be available for the closure and post-closure care of
sites, including acquired facilities. In addition, because the Debtors provide
their customers with services designed to protect the environ ment by cleaning
and removing materials or substances from their customers' equipment or sites
that must be properly handled, recycled or removed for ultimate disposal, the
Debtors' operations are subject to regulations which impose liability on persons
involved in handling, processing, generating or transporting hazardous
materials. These requirements may also be imposed as conditions of operating
permits or licenses that are subject to renewal, modification or revocation.
These laws and regulations have become and are likely to continue to become
increasingly stringent. Existing laws and regulations, and new laws and
regulations, may require the Debtors to modify, supplement, replace or curtail
their operating methods, facilities or equipment at costs which may be
substantial without any corresponding increase in revenues.
Hazardous substances are present in some of the processing, transfer,
storage, disposal and landfill facilities owned or used by the Debtors.
Remediation will be required at these sites at substantial cost. For each of
these sites, the Debtors, in conjunction with an environmental consultant, have
developed or are developing cost estimates that are periodically reviewed and
updated, and the Debtors maintain reserves for these matters based on such cost
estimates. Estimates of the Debtors' liability for remediation of a particular
site and the method and ultimate cost of remediation require a number of
assumptions and are inherently difficult. There can be no assurance that the
ultimate cost and expense of corrective action will not substantially exceed
such reserves and have a material adverse impact on the Debtors' operations or
financial condition.
In the normal course of business, and as a result of the extensive
governmental regulation of industrial and environmental services and resource
recovery, the Debtors have been the subject of administrative and judicial
proceedings by regulators and have been subject to requirements to remediate
environmental contamination or to take corrective action. There will be
administrative or court proceedings in the future in connection with the
Debtors' present and future operations or the operations of acquired businesses.
In such proceedings in the past, the Debtors have been subject to monetary fines
and certain orders requiring the Debtors to take environmental remedial action.
In the future, the Debtors may be subject to monetary fines, penalties,
remediation, clean-up or stop orders, injunctions or orders to cease or suspend
certain of their practices. The outcome of any proceeding and associated costs
and expenses could have a material adverse impact on the operations or financial
condition of the Debtors.
The Debtors' industrial services businesses are subject to extensive
governmental regulation, and the complexity of such regulation makes consistent
compliance with such laws and regulations extremely difficult. In addition, the
demand for certain of the Debtors' services may be adversely affected by the
amendment or repeal of federal, state, provincial, or foreign laws and
regulations or by changes in the enforcement policies of the regulatory agencies
concerning such laws and regulations.
Public Concerns. There is a high level of public concern over
industrial by-products recovery and waste management operations, including the
siting and operation of transfer, processing, storage and disposal facilities
and the collection, processing or handling of industrial by-products and waste
materials, particularly hazardous materials. Zoning, permit and licensing
applications and proceedings and regulatory enforcement proceedings are all
matters open to public scrutiny and comment. As a result, from time to time, the
Debtors have been, and may in the future be, subject to citizen opposition and
publicity which may have a negative effect on their operations and delay or
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limit the expansion and development of operating properties and could have a
material adverse effect on their operations or financial condition.
Environmental Insurance Coverage. Consistent with industry trends, the
Debtors may not be able to obtain adequate amounts of environmental impairment
insurance at a reasonable premium to cover liability to third parties for
environmental damages. Accordingly, if the Debtors were to incur liability for
environmental damage either not provided for under such coverage or in excess of
such coverage, the Debtors' financial position and results of operations could
be materially and adversely affected.
Jurisdictional Restrictions on Waste Transfers. In the past, various
states, provinces, counties and municipalities have attempted to restrict the
flow of waste across their borders, and various United States and Canadian
federal, provincial, state, county and municipal governments may seek to do the
same in the future. Any such border closing may result in the Debtors incurring
increased third-party disposal costs in connection with alternate disposal
arrangements.
The Debtors are required under certain United States and Canadian laws
and regulations to demonstrate financial responsibility for possible bodily
injury and property damage to third parties caused by both sudden and non-sudden
occurrences. The Debtors are also required to provide financial assurance that
funds will be available when needed for closure and post-closure care at certain
of its treatment, storage and disposal facilities, the costs of which could be
substantial. Such laws and regulations allow the financial assurance
requirements to be satisfied by various means, including letters of credit,
surety bonds, trust funds, a financial (net worth) test and a guarantee by a
parent company. In the United States, a company must pay the closure costs for a
waste treatment, storage or disposal facility owned by it upon the closure of
the facility and thereafter pay post-closure care costs. There can be no
assurance that these costs will not materially exceed the amounts provided
pursuant to financial assurance requirements. In addition, if such a facility is
closed prior to its originally anticipated time, it is unlikely that sufficient
funds will have been accrued over the life of the facility to fund such costs,
and the owner of the facility could suffer a material adverse impact as a
result. Consequently, it may be difficult to close such facilities to reduce
operating costs at times when, as is currently the case in the industrial
services industry, excess treatment, storage or disposal capacity exists.
M. LENDER LOCK-UP AGREEMENT
The Plan is structured to implement the terms agreed to between the
Debtors and the Lenders memorialized in the Lender Lock-Up Agreement. Pursuant
to the Lender Lock-Up Agreement the holders of in excess of seventy-six percent
(76%) in the amount of Lender Claims and fifty percent (50%) in number of such
Lenders have agreed, subject to the terms of the Lender Lock-up Agreement, to
vote for the Plan and the Canadian Plan. The Debtors are currently not in
compliance with certain terms of the Lender Lock-up Agreement. For example, the
Lender Lockup Agreement required the Debtors to have received approval of the
Disclosure Statement for the Plan by September 15, 1999. As a result each Lender
is able to withdraw its support for the Plan and the Lender Lock-up Agreement
may be terminated, upon election, by Lenders holding in aggregate at least
fifty-one percent (51%) of the aggregate amount of Claims held by the Lenders
party to the Lender Lock-up Agreement. Accordingly, there can be no assurance
that the Debtors' Plan will gain the favorable vote of Class 6.
N. UNIMPAIRED CLAIMS
The Plan provides that the only claims against the Debtors that are
Impaired are the claims set forth in Classes 6, 7, 8 and 9. All other claims
against the Debtors are being left Unimpaired under the Plan. The Unimpaired
Claims include, but are not limited to, claims relating to environmental
liability, certain claims of employees for severance/retirement obligations,
contingent liabilities relating to indemnification obligations arising out of
the sale and acquisition of businesses or assets, certain indemnification claims
of current and former directors and officers assumed pursuant to the Plan,
certain litigation claims, certain claims arising out of services rendered and
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goods sold and certain other contingent and unliquidated obligations. To the
extent that such claims are required to be reflected on financial statements,
the Debtors believe that their financial statements and projected financial
statements properly reflect these claims in accordance with generally accepted
accounting principles. However, the actual amount of such claims may materially
differ from those set forth in the financial statements and projections.
Moreover, many Unimpaired Claims are of an off-balance sheet nature and the
Debtors' liability as to such claims cannot be and has not been estimated.
Further, there are likely to be Unimpaired Claims that exist which the Debtors
are not aware of at this time. The Debtors are taking no action in the Chapter
11 Cases to estimate, disallow, liquidate or otherwise cap or quantify any
Unimpaired Claims. The liability of the Debtors as to the Unimpaired Claims
after their emergence from Chapter 11 will not have been reduced or otherwise
affected by the Chapter 11 Cases or the Plan. There can be no assurance that the
Debtors' financial position and results of operations after emergence from
Chapter 11 pursuant to the Plan could not be materially and adversely affected
by the Unimpaired Claims.
O. UNSECURED CLAIMS
The Plan divides Unsecured Claims that are not DIP Facility Claims,
Administrative Claims, Priority Tax Claims, Other Priority Claims, Other Secured
Claims, Intercompany Claims of non-Debtors, Secured Lender Claims, Securities
Claims, Other Securities Claims or Excluded Indemnification Obligations into
Class 3 General Unsecured Claims and Class 7 Impaired Unsecured Claims.
As set forth on Exhibit B to the Plan and as further described in
Appendix H-1 through H-3 hereto, Class 7 Impaired Unsecured Claims consist of
those Unsecured Claims not otherwise classified above for which the Debtors, in
exercise of their business judgment, do not anticipate a go-forward business
relationship between the Reorganized Debtors and the affected creditors. As set
forth in more detail in Appendix H-1, these Claims include certain Unsecured
Claims arising from litigation, past employment and severance obligations, Old
Debenture Claims, rejected or expired lease and contract obligations and
Impaired Trade Claims and other trade obligations relating to discontinued
operations or severed business relationships. Excluded from Exhibit B are
Canadian Impaired Unsecured Claims. As set forth in Exhibit C to the Plan and as
further described in Appendix H-4, in order to comply with the ruling by Justice
Blair in the Canadian Bankruptcy Court, Canadian Impaired Unsecured Claims
consist of those Impaired Unsecured Claims (a) of Canadian residents against
Canadian Debtors that have not also been asserted against a United States Debtor
and (b) of United States residents against Canadian Debtors other than PSC that
have not also been asserted against a United States Debtor. In accordance with
terms proposed by the Official Committee, timely Claims filed in the wrong
jurisdiction (Canada or the United States) will be deemed to have been filed in
the correct jurisdiction without prejudice to the claimant. The remaining
Unsecured Claims are classified as Class 3 General Unsecured Claims and are
Unimpaired under the Plan.
P. CLAIMS ESTIMATES
There can be no assurance that the estimated Claim amounts set forth
herein for Class 7 are correct, and the actual Allowed amount of Claims in Class
7 may differ from the estimates. Estimated amounts are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, the
actual Allowed amount of Claims in Class 7 may vary from those estimated herein,
and the pro rata distribution of New Unsecured PIK Notes, New Common Shares and
New Unsecured Convertible Notes to holders of Impaired Unsecured Claims is
subject to such variation. In addition, the distributions to holders of Allowed
Class 7 Claims is dependent upon the aggregate amount of the Canadian Impaired
Unsecured Claims. The amount of such Claims will ultimately be determined by the
Bankruptcy Court, Canadian Bankruptcy Court or by estimation. There can be no
assurance that the estimated amount of the Canadian Impaired Unsecured Claims is
correct, and the actual amount of such claims ultimately allowed or estimated
may differ from the estimates. The estimated amounts are subject to risks,
uncertainties and assumptions, which if the risks or uncertainties materialize,
or underlying assumptions prove incorrect, the actual amount of Canadian
Impaired Unsecured Claims may vary from the estimates.
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Pursuant to a July 1, 1999 order of the Bankruptcy Court, August 13,
1999 was established as the deadline for filing Proofs of Claim in the Chapter
11 Cases (the "Bar Date"), Proofs of Claim were distributed to holders of
Impaired Unsecured Claims on or before July 6, 1999. As set forth in more detail
in Appendix H-1, as of September 9, 1999, $93 million of the Proofs of Claim
relating to Impaired Unsecured Claims scheduled on Exhibit B to the Plan have
been filed. Combined with the scheduled holders of Impaired Unsecured Claims
summarized in Appendix H-2 who failed to file a Proof of Claim by the Bar Date
and the holders of Impaired Unsecured Claims added to Exhibit B after July 22,
1999 (the date of the first amendment to Exhibit B) summarized in Appendix H-3,
the Debtors estimate that Class 7 presently consists of approximately $100.7
million in Impaired Unsecured Claims. In addition, as set forth in Appendix H-4,
the Debtors presently estimate that the Canadian Impaired Unsecured Claims set
forth in Exhibit C to the Plan do not exceed $54.5 million. The Debtors are in
the process of evaluating, formulating objections to and resolving the Claims
relating to Class 7, which process will continue after the Confirmation Date.
The amount of Class 7 Claims may also be impacted significantly if
claims otherwise classified as Class 8B or 8C are subsequently determined not to
be subject to subordination under section 510(b) or 510(c) or disallowance
pursuant to 502(e)(1)(b) and are included in Class 7. Moreover, if claims such
as those alleged by Deloitte & Touche, currently asserted in the Canadian
proceedings, are asserted in the United States proceedings and the Bankruptcy
Court determines such claims are not subject to subordination or disallowance,
the distributions to holders of Class 7 Claims could be substantially reduced.
Additionally, in the event a settlement is reached with Deloitte & Touche, there
can be no assurance that any such settlement will not further dilute recoveries
to holders of Class 7 Claims by the inclusion of any such settlement amount in
Class 7; no settlement that results in a Claim in Class 7 that would participate
in the distributions to holders of Allowed Claims shall be reached without the
consent of the Creditors' Committee.
Q. AFFILIATE STATUS
To the extent that Persons deemed to be "underwriters" receive New
Common Shares, New Secured PIK Debt, New Unsecured PIK Notes or New Unsecured
Convertible Notes issued pursuant to the Plan, such Persons do not receive the
exemption from the securities laws under section 1145 of the Bankruptcy Code.
Whether or not any particular person would be deemed to be an "underwriter" with
respect to any security to be issued pursuant to the Plan would depend upon
various facts and circumstances applicable to that person. Accordingly, the
Debtors express no view as to whether any person would be an "underwriter" with
respect to any security to be issued pursuant to the Plan. Given the complex,
subjective nature of the question of whether a particular person may be an
underwriter, the Debtors make no representations concerning the right of any
person to trade in the New Securities to be transferred pursuant to the Plan.
The Debtors recommend that holders of Claims receiving New Securities pursuant
to the Plan consult their own counsel concerning whether they may freely trade
such securities.
Persons that are "affiliates" of the Reorganized Debtor but are not
otherwise "underwriters" within the meaning of section 1145(b) of the Bankruptcy
Code, may be able to sell the New Common Shares, New Secured PIK Debt, New
Unsecured PIK Notes and New Unsecured Convertible Notes without registration,
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act. Rule 144 permits "affiliates" of the issuer to sell, within any
three-month period, the greater of one percent (1%) of the shares or other units
of the class outstanding, or the average weekly trading volume in such
securities on all national securities exchanges or automated quotation systems,
during the four calendar weeks preceding the date on which notice of such sale
was filed pursuant to Rule 144, subject to the satisfaction of certain other
requirements of Rule 144 regarding the manner of sale, notice requirements and
the availability of current public information regarding the issuer.
R. RELIANCE ON KEY PERSONNEL
One of the Debtors' primary assets is their highly skilled personnel,
who have the ability to leave the Debtors and so deprive them of the skill and
knowledge essential for performance of new and existing contracts.
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The Debtors operate a service business which is highly dependent on their
customers' belief that the Debtors will perform tasks of the highest standards
over an extended period of time. Continued deterioration of the Debtors'
business, or loss of a significant number of key personnel, will have a material
adverse effect on the Debtors and may threaten their ability to survive as going
concerns.
The Debtors' successful transition through the restructuring process is
dependent in part on their ability to retain and motivate their officers and key
employees. The Debtors' current financial difficulties have had a detrimental
effect on their ability to attract and retain key officers and employees. There
can be no assurance that the Debtors will be able to retain or employ qualified
management and technical personnel. While the Debtors have entered into
employment agreements with certain members of their senior management, should
any of these persons be unable or unwilling to continue their employment with
the Debtors, the business prospects of the Debtors could be materially and
adversely affected.
S. YEAR 2000 ISSUE
The Year 2000 issue affects computer systems that have time sensitive
programs that may not properly recognize the year 2000. The Debtors are actively
engaged, but have not yet completed, reviewing, correcting and testing all of
the Year 2000 compliance issues. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially or adversely
affect the Debtors' results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, the Debtors
are unable to determine at this time whether the consequences of the Year 2000
failures will have a material adverse affect on the results of operations,
liquidity and financial condition of the Debtors.
ARTICLE VIII.
NEW DEBT AND SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN
The following discussion summarizes the material provisions of the New
Common Shares, New Senior Secured Term Debt, New Secured PIK Debt, New Unsecured
PIK Notes and New Unsecured Convertible Notes. This summary does not purport to
be complete and is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Reorganized Debtors, the form of the Amended and
Restated Term Credit Agreement, the form of New Unsecured PIK Notes Indenture,
the form of the New Unsecured Convertible Notes Indenture and the Shareholder
Rights Plan, to be appended in the Plan Supplement.
A. NEW COMMON SHARES/PSC COMMON SHARES/REORGANIZED PSI COMMON SHARES
1. If the Canadian Reorganization Plan is Implemented
The New Common Shares will be issued to the various classes
under the Plan according to the terms described above. The effects of the
Reverse Stock Split on the New Common Shares and the resulting PSC Common Shares
are also described above. Following the continuance of Reorganized PSC in New
Brunswick, the rights of holders of the PSC Common Shares will be governed by
the laws of the Province of New Brunswick, as well as by the Reorganized Debtor
Articles of Incorporation and the Reorganized Debtor Bylaws. Under the
Reorganized Debtor Articles of Incorporation, the holders of PSC Common Shares
will be entitled to one vote for each share held of record on all matters
submitted to a vote of shareholders, including the election of directors. The
PSC Common Shares will not have cumulative voting rights. As a result, the
holders of more than fifty percent (50%) of PSC Common Shares will be able to
elect one hundred percent (100%) of the directors to be elected if they choose
to do so. In such event, the holders of the remaining PSC Common Shares will not
be able to elect any directors. Holders of PSC Common Shares will be entitled to
participate equally in such dividends as may be
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declared by the board of directors out of funds legally available therefor.
However, it is not anticipated that dividends will be paid on the PSC Common
Shares in the foreseeable future. In the event of a liquidation, dissolution or
winding up of the Reorganized Debtor, holders of PSC Common Shares will be
entitled to participate equally in all assets remaining after payment of
liabilities and the liquidation preference of any preferred shares of the
Reorganized Debtor. Holders of PSC Common Shares will have no preemptive rights.
Holders of PSC Common Shares will have no rights to convert their PSC Common
Shares into any other securities and will have no redemption provisions or
sinking fund provisions with respect to such shares. The registrar and transfer
agent for the PSC Common Shares will be selected prior to the Effective Date.
2. If the Alternate Canadian Transactions are Implemented
In the event the Alternate Canadian Transactions are
implemented, Reorganized PSI will issue up to 24,000,000 shares of Reorganized
PSI Common Shares pro rata to the various classes according to the terms set
forth in Article II.C.1 and II.E above. The rights of the holders of Reorganized
PSI Common Shares will be governed by the laws of the State of Delaware as well
as the Reorganized Debtor Certificate of Incorporation and Reorganized Debtor
Bylaws. Under the Reorganized Debtor Certificate of Incorporation, the holders
of PSI Common Shares will be entitled to one vote for each share held of record
on all matters submitted to a vote of shareholders, including the election of
Directors. The Reorganized PSI Common Shares will not have cumulative voting
rights. As a result, the holders of more than fifty percent (50%) of Reorganized
PSI Common Shares will be able to elect one hundred percent (100%) of the
Directors to be elected if they choose to do so. In such event, the remaining
Reorganized PSI Shareholders will not be able to elect any directors. Holders of
Reorganized PSI Common Shares will be entitled to participate equally in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. However, it is not anticipated that dividends will be paid
on the Reorganized PSI Common Shares in the foreseeable future. In the event of
a dissolution or winding up of Reorganized PSI, holders of Reorganized PSI
Common Shares will be entitled to participate equally in all assets remaining
after payment of liabilities and the liquidation preference of any preferred
shares of Reorganized PSI. Holders of Reorganized PSI Common Shares will have no
rights to convert their Reorganized PSI Common Shares into any other securities
and will have no redemption provisions or sinking fund provisions with respect
to such shares. The registrar and transfer agent for the Reorganized PSI Common
Shares will be selected prior to the Effective Date.
B. NEW SENIOR SECURED TERM DEBT
The New Senior Secured Term Debt of Reorganized PSI will be governed by
the terms of the Amended and Restated Term Credit Agreement and will be in the
aggregate principal amount of $250 million minus an amount equal to the Net
Asset Sale Proceeds Pool (the amount the Lenders receive from the proceeds in
partial satisfaction of their Secured Lender Claims). Reorganized PSI shall have
the right to prepay the New Senior Secured Debt subject to a prepayment premium.
Interest on the New Senior Secured Term Debt will be nine percent (9%) per annum
payable quarterly in arrears on the first business day of each financial
quarter, provided that during the first 12 months subsequent to the Effective
Date of the Plan, Reorganized PSI shall pay interest on the New Senior Secured
Term Debt to the extent of the lesser of nine percent (9%) per annum and
$20,000,000, and accrue the balance thereof subject to the mandatory prepayment
obligations in effect for the New Senior Secured Term Debt. In addition, the New
Senior Secured Term Debt, as well as the New Secured PIK Debt, will be secured
by guaranties and charges over substantially all of the assets of the
Reorganized Debtors, ranking in priority to all claims other than the Exit
Facility, and existing Liens, ranking in priority to the Liens of the Lenders
under the Pre-Petition Credit Agreement, as may be applicable to particular
assets. The New Senior Secured Term Debt will mature five (5) years from the
Effective Date of the Plan and shall be governed by the terms of the Amended and
Restated Term Credit Agreement.
The covenants for the New Senior Secured Term Debt will be
substantially similar to those in the Pre-Petition Credit Agreement and the
financial covenants shall be set forth in the Plan Supplement.
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C. NEW SECURED PIK DEBT
The New Secured PIK Debt will be issued to holders of Class 6 Secured
Lender Claims. The New Secured PIK Debt will be issued by Reorganized PSC (if
the Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the
Alternate Canadian Transactions are implemented or the Canadian Plan Condition
is waived) under the Amended and Restated Term Credit Agreement between
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) and
Reorganized PSI (if the Canadian Reorganization Plan is sanctioned) and holders
of Secured Lender Claims.
The New Secured PIK Debt will mature five years after the Effective
Date. The New Secured PIK Debt will have a rate of interest of ten percent (10%)
per annum. Subject to the terms of mandatory prepayments described in the second
succeeding sentence, interest will compound quarterly in arrears and will be
payable at maturity. The mandatory prepayments require that proceeds from an
annual cash sweep for the first two years and a cumulative quarterly cash sweep
thereafter will be applied in the following manner: (i) first, to pay any
interest accrued during the first twelve months subsequent to the Effective Date
with respect to New Senior Secured Term Debt, together with accrued interest on
any such deferred interest at the rate of nine percent (9%) per annum; (ii)
second, to pay accrued but unpaid interest with respect to the New Secured PIK
Debt and (iii) third, to repay New Senior Secured Term Debt. Such mandatory
prepayments from "Cash Flow Available for Debt Service" or "Net Asset Sale
Proceeds" (each as defined in the Restructuring Term Sheet) shall not cause the
incurrence of additional prepayment penalties or fees.
The New Secured PIK Debt will be convertible until maturity at the
option of the holders into twenty-five percent (25%) of the PSC Common Shares
(if the Canadian Reorganization Plan is sanctioned) or the Reorganized PSI
Common Shares (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived), in the aggregate, on a fully-diluted basis
as of the Effective Date. The New Secured PIK Debt will contain anti-Dilution
provisions applicable in a public offering of convertible debt, including giving
effect to the issuance of any PSC Common Shares or Reorganized PSI Common
Shares, as the case may be, under the Shareholder Rights Plan. Interest on New
Secured PIK Debt will not be convertible.
The New Secured PIK Debt will be redeemable in the following
circumstances: If (a) an offer is made to holders of PSC Common Shares or
Reorganized PSI Common Shares, as the case may be, to acquire all of the shares,
or, in the case of an offer by an existing beneficial owner or owners of such
shares, to acquire all of such shares not already owned by such owner(s)
together with persons acting in concert (the shares already owned being the
"Offeror's Existing Holdings"), (b) under the offer the Offeror acquires (1) PSC
Common Shares or Reorga nized PSI Common Shares, as the case may be, which
together with the Offeror's Existing Holdings amount to sixty-seven percent
(67%) or more of the PSC Common Shares or Reorganized PSI Common Shares, as the
case may be, or (2) a majority of the PSC Common Shares or Reorganized PSI
Common Shares, as the case may be, other than the Offeror's Existing Holdings,
whichever is greater, and (c) the person or persons making the offer (the
"Offeror") notifies the Reorganized Debtors that it requires the Reorganized
Debtors to exercise such redemption right, then, subject to the following
sentence, the Reorganized Debtors will have the right to redeem the New Secured
PIK Debt for a price (the "Redemption Price") equal to 115% of the face amount
of such notes plus all accrued interest on the New Secured PIK Debt. If the
Offeror has notified the Reorganized Debtors that it requires the Reorganized
Debtors to exercise the redemption right and the amount the holders of the New
Secured PIK Debt would have received by converting the convertible New Secured
PIK Debt to PSC Common Shares or Reorganized PSI Common Shares, as the case may
be, and tendering them to the Offeror under its offer (the "Tender Price") would
be greater than the Redemption Price of such Notes, any New Secured PIK Note
which has not been converted by the close of business on the day prior to the
redemption dates set out in the redemption notice issued by the Reorganized
Debtors will be deemed to have been converted and tendered to the Offeror's
offer, and the holders of the convertible New Secured PIK Debt will be entitled
to receive the Tender Price.
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The New Secured PIK Debt may not be redeemed prior to the end of the
first full year after the Effective Date except as provided above. Commencing in
the second year after the Effective Date, PSC may redeem the New Secured PIK
Debt upon payment of the following percentage of the face amount of the New
Secured PIK Debt during the periods following the Effective Date indicated
below, plus all accrued interest on the New Secured PIK Debt:
<TABLE>
<S> <C>
Year 1 Not redeemable
Year 2 125%
Year 3 125%
Year 4 116 2/3 %
Year 5 108 1/3%
Maturity 100%
</TABLE>
The New Secured PIK Debt will be secured by guaranties and charges over
substantially all of the assets of the Reorganized Debtors and their affiliates
and will rank pari passu with the New Senior Secured Term Debt, ranking in
priority to all claims other than the exit/working capital financing, and
existing senior liens ranking in priority to the Liens of the Lenders under the
Pre-Petition Credit Agreement, as may be applicable to particular assets.
Covenants
The covenants of the New Secured PIK Debt will be stated in the Amended
and Restated Credit Agreement. So long as the Amended and Restated Credit
Agreement is in effect, there are restrictions on the creation, incurrence or
existence of debt; the creation, incurrence or existence of liens; the
disposition of property; transactions with affiliates; acquisitions; capital
expenditures; and the treatment of the New Unsecured PIK Notes. Additionally,
the financial covenants governing the New Senior Secured Term Debt and described
above also apply to the New Secured PIK Debt.
D. NEW UNSECURED PIK NOTES
The New Unsecured PIK Notes will be issued by Reorganized PSC (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate
Canadian Transactions are implemented or the Canadian Plan Condition is waived)
to holders of Allowed Class 7 Claims, holders of Canadian Impaired Unsecured
Claims, and, if Class 7 votes to reject the Plan, to holders of Allowed Class 6
Claims, provided, however, that if Class 7 votes to reject the Plan and the
Alternate Canadian Transactions are implemented, no New Unsecured PIK Notes will
be issued. If the Canadian Reorganization Plan is sanctioned, then the amount of
the New Unsecured PIK Notes to be distributed under the U.S. Plan will be
between $48 million and $60 million, depending upon the Class 7 Election, minus
the amount of the New Unsecured PIK Notes to be allocated under the Canadian
Reorganization Plan. If the Alternate Canadian Transactions are implemented,
then the amount of New Unsecured PIK Notes to be distributed under the U.S. Plan
will be between $48 million and $60 million, depending upon the Class 7
Election. The New Unsecured PIK Notes will be issued under the New Unsecured PIK
Notes Indenture between Reorganized PSC or Reorganized PSI, as the case may be,
and a trustee to be selected by the Reorganized Debtors. The New Unsecured PIK
Notes Indenture shall be substantially in the form included in the Plan
Supplement. The New Unsecured PIK Notes Indenture shall meet the requirements of
the Trust Indenture Act of 1939, as amended.
The New Unsecured PIK Notes will mature ten (10) years from the
Effective Date. The New Unsecured PIK Notes will have a rate of interest at six
percent (6%) per annum. Interest will accrue and be paid in arrears by the
issuance of additional New Unsecured PIK Notes, provided that, if the New
Secured PIK Debt is not in default,
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cash interest will be payable semi-annually on the New Unsecured PIK Notes
following repayment in full of the New Secured PIK Debt. All interest shall be
based on a 360-day year and actual days elapsed. Commencing five (5) years from
the Effective Date, provided the New Senior Secured Term Debt is not in default,
the New Unsecured PIK Notes will be amortized in equal installments at the end
of years six (6) to ten (10). The New Unsecured PIK Notes will be unsecured
obligations of Reorganized PSC or Reorganized PSI, as the case may be, and shall
be pari passu with the New Unsecured Convertible Notes. The New Unsecured PIK
Notes will be fully subordinated to all debt governed by a bank credit facility
(including the Exit Facility and the New Senior Debt) and any extensions,
renewals or refinancings of any such debt. The New Unsecured PIK Notes will be
redeemable at the option of the Reorganized Debtors, at any time at the
principal amount outstanding plus accrued interest. Upon a change of control in
the Reorganized Debtors (as will be defined in the Indenture) each holder of the
New Unsecured PIK Notes will be entitled to put that holder's New Unsecured PIK
Note to the Reorganized Debtors at a discount rate of sixteen percent (16%).
In the event the New Unsecured PIK Notes are not paid when due, the
holders thereof will be entitled to exercise their rights and remedies pursuant
to the New Unsecured PIK Notes Indenture and applicable law.
E. NEW UNSECURED CONVERTIBLE NOTES
The New Unsecured Convertible Notes will be issued by Reorganized PSC
(if the Canadian Reorganiza tion Plan is sanctioned) or Reorganized PSI (if the
Alternate Canadian Transactions are implemented or the Canadian Plan Condition
is waived) in an aggregate face amount not to exceed $18 million. The terms of
the New Unsecured Convertible Notes will be governed by the New Unsecured
Convertible Notes Indenture. The New Unsecured Convertible Notes Indenture shall
meet the requirements of the Trust Indenture Act of 1939 as amended. The New
Unsecured Convertible Notes will be unsecured obligations of Reorganized PSC or
Reorganized PSI, as the case may be, and shall be pari passu with the New
Unsecured PIK Notes.
The New Unsecured Convertible Notes shall have an interest rate of
three percent (3%) per annum, payable semi-annually, commencing on the third
anniversary of the Effective Date, mature on the 20th anniversary of the
Effective Date and are convertible into PSC Common Shares (if the Canadian
Reorganization Plan is sanctioned) or Reorganized PSI Common Shares (if the
Alternate Canadian Transactions are implemented or the Canadian Plan Condition
is waived) at a price of $30 per share (every $30 of face amount of New
Unsecured Convertible Notes is convertible into one share of PSC Common Shares
or Reorganized PSI Common Shares, as the case may be).
The Reorganized Debtors will use their reasonable best efforts to list
the New Unsecured Convertible Notes on the same stock exchange market as the PSC
Common Shares or Reorganized PSI Common Shares, as the case may be, are listed.
The holders of the New Unsecured Convertible Notes shall have the right upon a
"Change of Control" to choose to put the New Unsecured Convertible Notes to
Reorganized PSC or Reorganized PSI, as the case may be, in exchange for the
amounts specified in the schedule below or to accept new convertible notes
issued by the acquiring entity with terms economically comparable to the New
Unsecured Convertible Notes prior to the Change of Control. "Change of Control"
shall mean an acquisition by a person or persons acting in concert of ownership
of more than fifty percent (50%) of the common shares of Reorganized PSC or
Reorganized PSI, as the case may be, excluding changes in ownership resulting
from transactions by parties owning greater than ten percent (10%) of the common
shares of Reorganized PSC or Reorganized PSI, as the case may be, as of the
Effective Date. Upon a change of control through an acquisition by a person or
persons acting in concert of ownership of more than fifty percent (50%) of the
common shares of Reorganized PSC or Reorganized PSI, as the case may be, with no
exclusion for parties owning greater than ten percent (10%) of the common shares
of Reorganized Debtors on the Effective Date of the Plan, the Reorganized
Debtors may redeem the New Unsecured Convertible notes at the principal amount
outstanding plus accrued and unpaid interest.
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<PAGE> 97
If Class 7 votes to reject the Plan, no New Unsecured Convertible Notes
will be issued. Moreover, if no Qualifying Class 7 Creditors choose New
Unsecured Convertible Notes in the Class 7 Election, no New Unsecured
Convertible Notes will be issued.
The following is a schedule of the amounts at which the holders of the
convertible notes will be entitled to demand redemption upon a change of
control:
<TABLE>
<CAPTION>
Timeframe Calculation and Amount
--------- ----------------------
<S> <C>
Anytime from issuance to 1st Anniversary 18,000 (1.06)[minus power of 5] (1.03)[minus power of 5]=$11,602,646
1st Anniversary to 2nd Anniversary 18,000 (1.06)[minus power of 4] (1.03)[minus power of 5]=$12,298,805
2nd Anniversary to 3rd Anniversary 18,000 (1.06)[minus power of 3] (1.03)[minus power of 5]=$13,036,733
3rd Anniversary to 4th Anniversary 18,000 (1.06)[minus power of 2] (1.03)[minus power of 5]=$13,818,937
4th Anniversary to 5th Anniversary 18,000 (1.06)[minus power of 1] (1.03)[minus power of 5]=$14,648,074
5th Anniversary to 6th Anniversary 18,000 (1.03)[minus power of 5]=$15,526,958
6th Anniversary to 7th Anniversary 18,000 (1.03)[minus power of 4]=$15,992,767
7th Anniversary to 8th Anniversary 18,000 (1.03)[minus power of 3]=$16,472,550
8th Anniversary to 9th Anniversary 18,000 (1.03)[minus power of 2]=$16,966,726
9th Anniversary to 10th Anniversary 18,000 (1.03)[minus power of 1]=$17,475,728
after 10th Anniversary (i.e. post the 10th year) $18,000,000
</TABLE>
Plus in each event accrued but unpaid interest at the time of redemption
ARTICLE IX.
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
No registration statement will be filed under the Securities Act or any
state securities laws with respect to the offer of the New Common Shares1, the
New Secured PIK Debt, the New Unsecured PIK Notes or the New Unsecured
Convertible Notes pursuant to this solicitation, issuance or subsequent transfer
of such securities under the Plan. The Debtors believe that, subject to certain
exceptions described below, various provisions of the Securities Act, the
Bankruptcy Code and state securities laws exempt from federal and state
securities registration requirements (i) the offer and the sale of such
securities pursuant to the Plan; and (ii) subsequent transfers of such
securities.
A. OFFER AND SALE OF NEW COMMON SHARES, NEW SECURED PIK DEBT, NEW
UNSECURED PIK NOTES AND NEW UNSECURED CONVERTIBLE NOTES PURSUANT TO
THE PLAN: BANKRUPTCY CODE EXEMPTION FROM REGISTRATION REQUIREMENTS
Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of
securities under a plan of reorganization from registration under both the
Securities Act and state securities laws, if three principal requirements are
satisfied: (i) the securities must be issued "under a plan" of reorganization by
the debtor or its successor under a plan or by an affiliate participating in a
joint plan of reorganization with the debtor; (ii) the recipients of the
securities must hold a pre-petition or administrative expense claim against the
debtor or an interest in the debtor; and (iii) the securities must be issued
entirely in exchange for the recipient's claim against or interest in the
debtor, or "principally" in such exchange and "partly" for cash or property. The
Debtors believe that the offer and sale of the
- --------
1 The discussion in Articles IX-X as to "New Common Shares" is equally
applicable to "PSC Common Shares" and "Reorganized PSI Common Shares."
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New Common Shares, New Secured PIK Debt, New Unsecured PIK Notes and New
Unsecured Convertible Notes under the Plan satisfies the requirements of section
1145(a)(1) of the Bankruptcy Code and is, therefore, exempt from registration
under the Securities Act and state securities laws.
B. SUBSEQUENT TRANSFERS OF NEW COMMON SHARES, NEW SECURED PIK DEBT, NEW
UNSECURED PIK NOTES AND NEW UNSECURED CONVERTIBLE NOTES
1. Federal Securities Laws: Section 1145(c) of the Bankruptcy
Code
Section 1145(c) of the Bankruptcy Code deems any offer or
sale of securities of the kind and in the manner specified in section 1145(a)(1)
of the Bankruptcy Code to have been a public offering. Accordingly, the New
Common Shares, New Secured PIK Debt, New Unsecured PIK Notes and New Unsecured
Convertible Notes generally will be freely transferable by holders of Impaired
Claims and Interests under the Securities Act unless the Holder is deemed, by
section 1145(b) of the Bankruptcy Code, to be an "underwriter" for purposes of
section 2(11) of the Securities Act with respect to such securities. Section
1145(b) of the Bankruptcy Code deems any entity to be an "underwriter" under
section 2(11) of the Securities Act, if such entity:
(a) purchases a claim against, interest in, or claim for
an administrative expense in the case concerning, the
debtor, if such purchase is with a view to
distributing any security received in exchange for
such a claim or interest;
(b) offers to sell securities offered or sold under a
plan the holders of such securities;
(c) offers to buy securities offered or sold under the
plan from the holders of such securities, if the
offer to buy is: (A) with view to distribution of
such securities; and (B) under an agreement made in
connection with the plan, with the consummation of
the plan, or with the offer or sale of securities
under the plan; or
(d) is an "issuer" with respect to the securities, as the
term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer"
includes any person directly or indirectly controlling or controlled by the
issuer, or any person under direct or indirect common control with the issuer.
To the extent that holders of Impaired Claims or Interests
who receive New Common Shares, New Secured PIK Debt, New Unsecured PIK Notes,
New Unsecured Convertible Notes or other securities pursuant to the Plan are
deemed to be "underwriters," such securities may not be resold by such persons
unless such securities are registered under the Securities Act or an exemption
from such registration requirements is available. However, it is anticipated
that holders of a portion of the New Common Shares will be entitled to demand
that the Reorga nized Debtor register the resale of such shares under the
Securities Act and that such holders of New Common Shares will be permitted to
obtain registration of the sale of their New Common Shares in certain
circumstances in connection with certain registered offerings of New Common
Shares by Reorganized PSC. (See Article IX.C hereof - "Registration Rights
Agreement").
Whether or not any particular person would be deemed to be
an "underwriter" with respect to the New Common Shares, New Secured PIK Debt,
New Unsecured PIK Notes, New Unsecured Convertible Notes or other security to be
issued pursuant to the Plan would depend upon various facts and circumstances
applicable to that person. Accordingly, the Debtors express no view as to
whether any particular person receiving New Common Shares, New Secured PIK Debt,
New Unsecured PIK Notes, and/or New Unsecured Convertible Notes under the Plan
would be an "underwriter" with respect to the New Common Shares, New Secured PIK
Debt, New Unsecured PIK Notes, and/or New Unsecured Convertible Notes.
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<PAGE> 99
GIVEN THE COMPLEX AND SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO
REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW COMMON
SHARES, NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES AND NEW UNSECURED CON
VERTIBLE NOTES. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE NEW
COMMON SHARES, NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES AND NEW UNSECURED
CONVERTIBLE NOTES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY
TRADE NEW COMMON SHARES, NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES, AND NEW
UNSECURED CONVERTIBLE NOTES WITHOUT COMPLIANCE WITH THE SECURITIES ACT OR THE
EXCHANGE ACT.
Persons that are "affiliates" of the Reorganized Debtors but
are not otherwise "underwriters" within the meaning of section 1145(b) of the
Bankruptcy Code, may be able to sell the New Common Shares, New Secured PIK
Debt, New Unsecured PIK Notes and New Unsecured Convertible Notes without
registration, pursuant to the exemption from registration provided by Rule 144
under the Securities Act. Rule 144 permits "affiliates" of the issuer to
publicly sell, within any three-month period, the greater of one percent (1%) of
the shares or other units of the class outstanding, or the average weekly
trading volume in such securities on all national securities exchanges or
automated quotation systems, during the four calendar weeks preceding the date
on which notice of such sale was filed pursuant to Rule 144, subject to the
satisfaction of certain other requirements of Rule 144 regarding the manner of
sale, notice requirements and the availability of current public information
regarding the issuer.
2. Subsequent Transfers of New Common Shares, New Secured PIK
Debt, New Unsecured PIK Notes and New Unsecured Convertible
Notes Under State Securities Laws
If the New Common Shares are listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market, the New
Common Shares, New Secured PIK Debt, New Unsecured PIK Notes, and New Unsecured
Convertible Notes will be generally freely tradeable under state securities
laws. If the New Common Shares are not listed on any of the above exchanges or
the Nasdaq National Market, the New Common Shares, New Secured PIK Debt, New
Unsecured PIK Notes and New Unsecured Convertible Notes will not be freely
tradeable under state securities laws unless there is an available exemption
from registration under such laws. A majority of states provide an exemption
from registration for secondary market transactions under the so-called "manual
exemption" if financial and other information about an issuer is published in
certain manuals published by Moody's Investor Service, Inc. or Standard &
Poor's. If the New Common Shares are not listed on one of the above exchanges or
the Nasdaq National Market, the Reorganized Debtors intend to provide the
necessary information in order to be able to take advantage of such manual
exemptions.
C. REGISTRATION RIGHTS AGREEMENT
On or before the Effective Date, Reorganized PSC (if the Canadian
Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian
Transactions are implemented or the Canadian Plan Condition is waived) will
enter into a "Registration Rights Agreement" with certain holders of Allowed
Lender Claims (the "Relevant Holders") with respect to rights of registration as
to the New Common Shares or the Reorganized PSI Common Shares, as the case may
be. The execution and delivery of such agreement is a condition precedent to the
Effective Date.
Under the Registration Rights Agreement, each Relevant Holder will have
the right to require on one occasion the relevant Reorganized Debtor to file a
registration statement in the United States and/or a prospectus with the
applicable Canadian securities authorities with respect to an offering of such
Relevant Holder's shares of New Common Stock or the Reorganized PSI Common
Shares, as the case may be. Such right is subject to a number of exceptions and
limitations, including with regard to the number of shares to be registered and
with regard to the aggregate number of registration statements the relevant
Reorganized Debtor must file. In addition, Relevant
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<PAGE> 100
Holders will have the right to participate, subject to certain limitations, in
registrations of offerings of New Common Stock or the Reorganized PSI Common
Shares, as the case may be, demanded by other Relevant Holders or in certain
public or private sales by Reorganized PSC or Reorganized PSI, as the case may
be, of its common stock. The Registration Rights Agreement will contain
customary representations and warranties of Reorganized PSC or Reorganized PSI,
as the case may be, and the Relevant Holders, and will also provide for mutual
indemnification of the parties.
D. CANADIAN SECURITIES LAWS
If the Canadian Reorganization Plan is sanctioned, the issuance by PSC
of the New Common Shares, New Secured PIK Debt, New Unsecured PIK Notes and New
Unsecured Convertible Notes will be subject to the Securities Act (Ontario) and
to the applicable securities laws of such other provinces of Canada in which
persons entitled to receive such securities reside. The issuance and subsequent
transfer of such securities will be made pursuant to an exemption from
applicable dealer registration and prospectus requirements of applicable
Canadian securities laws or pursuant to discretionary orders and/or rulings from
applicable Canadian provincial securities regulatory authorities. Based on
relief granted in connection with similar CCAA restructurings in the past to
other public companies, PSC believes that such discretionary relief is
obtainable.
If at the time of any subsequent transfer in Canada of New Common
Shares, New Secured PIK Debt, New Unsecured PIK Debt or New Unsecured
Convertible Notes, the seller holds a sufficient number of any securities of PSC
to affect materially its control, a prospectus will be required to be delivered
to the purchaser(s). For these purposes, the holding by any person or
combination of persons of more than twenty percent (20%) of the voting
securities of a company is deemed to affect materially the control of the
company. The Shareholder Rights Plan contains additional provisions which would
apply in the case of such a transfer.
If the Alternate Canadian Transactions are implemented, the issuance by
Reorganized PSI of the Reorganized PSI Common Shares, New Secured PIK Debt, New
Unsecured PIK Notes and New Unsecured Convertible Notes will be subject to the
applicable securities law of the provinces of Canada in which persons entitled
to receive such securities reside. The issuance of such securities will be made
pursuant to an exemption from dealer registration and prospectus requirements of
applicable Canadian provincial securities laws or pursuant to discretionary
orders and/or rulings from applicable Canadian provincial securities regulatory
authorities. Reorganized PSI will apply, as necessary, to applicable Canadian
securities regulatory authorities for discretionary orders and/or rulings to
exempt the subsequent transfer of securities issued by Reorganized PSI pursuant
to the Plan from dealer registration and prospectus requirements.
ARTICLE X.
INCOME TAX CONSEQUENCES OF THE PLAN
THE DISCUSSION BELOW, WHICH WAS PREPARED BY THE DEBTORS
AFTER CONSULTATION WITH THEIR U.S. COUNSEL, SKADDEN, ARPS, SLATE, MEAGHER & FLOM
LLP, IS A GENERAL SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
CANA DIAN REORGANIZATION PLAN TO THE DEBTORS AND THEIR CREDITORS HOLDING ALLOWED
CLASS 6 CLAIMS AND ALLOWED CLASS 7 CLAIMS WHO ARE SUBJECT TO U.S. FEDERAL INCOME
TAXATION ON A NET BASIS.
DUE TO THE UNSETTLED AND COMPLEX NATURE OF SOME OF THE TAX
ISSUES, AS WELL AS THE POSSIBILITY THAT DEVELOPMENTS SUBSEQUENT TO THE DATE
HEREOF COULD AFFECT THE TAX CONSEQUENCES OF THE CANADIAN REORGANIZATION PLAN,
THE FOLLOWING DISCUSSION SHOULD NOT BE REGARDED AS DEFINITIVE OR AS COVERING ALL
POSSIBLE TAX
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<PAGE> 101
CONSEQUENCES. ADDITIONALLY, THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S.
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR CREDITOR IN LIGHT
OF ITS SPECIFIC INVESTMENT CIRCUMSTANCES OR TO CERTAIN CREDITORS SUBJECT TO
SPECIAL TREATMENT UNDER THE U.S. FEDERAL INCOME TAX LAWS (INCLUDING BUT NOT
LIMITED TO, FOREIGN CORPORATIONS AND INDIVIDUALS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES, FINANCIAL INSTITUTIONS, BANKS, LIFE INSURANCE
COMPANIES, AND TAX-EXEMPT ORGANIZATIONS) AND DOES NOT DISCUSS ANY ASPECT OF
STATE, LOCAL OR FOREIGN TAXATION. FURTHER, THE DISCUSSION WITH RESPECT TO
CREDITORS OF THE DEBTORS IS LIMITED TO PERSONS WHO HOLD DEBT CLAIMS OF THE
DEBTORS AS "CAPITAL ASSETS" AND WHO WILL HOLD THE NEW SENIOR SECURED TERM DEBT,
NEW SECURED PIK DEBT, NEW UNSECURED PIK NOTES, NEW UNSECURED CONVERTIBLE NOTES
AND NEW COMMON SHARES AS "CAPITAL ASSETS" (GENERALLY, PROPERTY HELD FOR
INVESTMENT) WITHIN THE MEANING OF SECTION 1221 OF THE U.S. INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "TAX CODE"). FOR THE FOREGOING REASONS, HOLDERS OF
CLAIMS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES (FOREIGN, FEDERAL, STATE AND LOCAL) TO THEM OF THE CANADIAN
REORGANIZATION PLAN. IN PARTICULAR, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS REGARDING ANY CANADIAN INCOME AND WITHHOLDING TAX CONSEQUENCES TO THEM
RESULTING FROM THE CANADIAN REORGANIZA TION PLAN, THE EXCHANGE CONTEMPLATED BY
THE CANADIAN REORGANIZATION PLAN, AND HOLDING ANY OF THE INSTRUMENTS
CONTEMPLATED BY THE CANADIAN REORGANIZATION PLAN. THE DEBTORS ARE NOT MAKING ANY
REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE CONFIRMATION
AND CONSUMMATION OF THE CANADIAN REORGANIZATION PLAN AS TO ANY HOLDER OF CLAIMS,
NOR ARE THE DEBTORS RENDERING ANY FORM OF LEGAL OPINION AS TO SUCH TAX
CONSEQUENCES.
THIS SUMMARY IS BASED UPON THE LAWS, REGULATIONS, RULINGS
AND DECISIONS IN EFFECT ON THE DATE HEREOF AND UPON PROPOSED REGULATIONS, ALL OF
WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH RETROACTIVE EFFECT) BY LEGISLATION,
ADMINISTRATIVE ACTION OR JUDICIAL DECISION. MOREOVER, DUE TO A LACK OF
DEFINITIVE JUDICIAL OR ADMINISTRATIVE AUTHORITY AND INTERPRETATION, SUBSTANTIAL
UNCERTAIN TIES EXIST WITH RESPECT TO VARIOUS TAX CONSEQUENCES OF THE CANADIAN
REORGANIZA TION PLAN AS DISCUSSED HEREIN. NO RULINGS HAVE BEEN OR ARE EXPECTED
TO BE RE QUESTED FROM THE U.S. INTERNAL REVENUE SERVICE (THE "SERVICE")
CONCERNING ANY OF THE TAX MATTERS DESCRIBED HEREIN AND THERE CAN BE NO ASSURANCE
THAT THE SERVICE WILL NOT CHALLENGE THE POSITIONS TAKEN BY THE DEBTORS OR THEIR
AFFILIATES WITH RESPECT TO ANY OF THE ISSUES ADDRESSED HEREIN OR THAT A COURT
WOULD NOT SUSTAIN SUCH A CHALLENGE.
THIS SUMMARY DOES NOT REVIEW THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF, OR ANY OTHER CONSIDERATIONS RELATING TO, THE ALTERNATE CANADIAN
TRANSACTIONS. AS THESE MAY BE DIFFERENT IN MATERIAL RESPECTS FROM THOSE OF THE
CANADIAN REORGANIZATION PLAN WHICH ARE DESCRIBED BELOW, CREDITORS ARE URGED AND
EXPECTED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE ALTERNATE
CANADIAN TRANSACTIONS.
A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
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1. Discharge of Indebtedness
Under the Tax Code, a U.S. taxpayer generally must include
in gross income the amount of any discharged indebtedness realized during the
taxable year, except to the extent payment of such indebtedness would have
resulted in a tax deduction. Section 108 of the Tax Code provides, however, that
when the discharge of indebtedness occurs in a case under the Bankruptcy Code,
gross income does not include any amount that otherwise would be included in
gross income by reason of the discharge of indebtedness. Instead, the discharged
indebtedness in a bankruptcy case will generally be applied to reduce certain
tax attributes of the taxpayer, including net operating losses ("NOLs"),
investment tax credit carryforwards ("ITCs") and tax basis in property. (NOLs,
ITCs and tax basis in property of PSI, the common parent of the Debtors' U.S.
consolidated group for U.S. federal income tax purposes, and of Allwaste and
other U.S. Debtors liable on Claims (the "U.S. Debtors") are referred to
collectively as "Tax Attributes".)
Satisfaction of Allowed Class 6 Claims, Allowed Class 7
Claims and cancellation of other indebtedness pursuant to the Canadian
Reorganization Plan will result in a discharge of indebtedness and a
corresponding reduction in the respective U.S. Debtor's Tax Attributes in an
amount equal to the difference between the consideration transferred in
satisfaction of the discharged Claims and the amount of the discharged indebted
ness. For these purposes, the amount of consideration transferred will be the
sum of (i) any cash (including any cash from the Net Asset Sale Proceeds Pool),
(ii) the "issue price" of any new debt instruments exchanged for Claims, and
(iii) the fair market value of any New Common Shares exchanged for Claims. Based
on its intended reporting positions, PSI expects the amount of discharged
indebtedness under the Canadian Reorganization Plan to result in a significant
reduction in the U.S. Debtors' Tax Attributes, including the elimination of
PSI's NOLs.
2. Deductions of Accrued Interest and Original Issue Discount
by PSI and Affiliates
To the extent a portion of the consideration issued to
Creditors pursuant to the Canadian Reorganization Plan is attributable to
accrued and unpaid interest on their Claims, the relevant U.S. Debtor satisfying
such Claim would be entitled to interest deductions in the amount of such
accrued interest, assuming it has not already deducted such amounts. Under
present law, the amount of consideration which is treated as paid in respect of
accrued interest is unclear where Creditors are receiving less than the full
principal amount of their Claims; however, the Debtor intends to treat the full
amount of the consideration transferred to Creditors pursuant to the Canadian
Reorganization Plan as paid in respect of the principal amount of such
Creditors' Claims and to take the position that no amount of the consideration
to be received by Creditors pursuant to the Canadian Reorganiza tion Plan is
attributable to accrued and unpaid interest on such Creditors' Claims.
B. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLASS 6 AND
ALLOWED CLASS 7 CLAIMS
1. Allowed Class 6 Claims
The U.S. federal income tax consequences of the Canadian
Reorganization Plan to a Class 6 Creditor receiving New Senior Secured Term
Debt, New Secured PIK Debt, New Common Shares, the Net Asset Sale Proceeds Pool
and potentially New Unsecured PIK Notes (the New Senior Secured Term Debt, New
Secured PIK Debt and New Unsecured PIK Notes, as applicable, are referred to in
this Section "Allowed Class 6 Claims" as the "New Debt") will depend on a number
of factors, including whether the New Debt is properly classified as debt or
equity for U.S. federal income tax purposes, whether the debt under the
Pre-Petition Credit Agreement (the "Old Senior Secured Term Debt") or the New
Debt are "securities" of the same issuer for U.S. federal income tax purposes (a
"Tax Security"), and whether the Old Senior Secured Term Debt or New Debt are
considered traded on an established securities market ("publicly traded") for
purposes of the original issue discount rules. The Debtor's
intended position with respect to each of these factors is briefly discussed
below; however, Class 6 Creditors are urged to consult their tax advisors with
respect to these factors.
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Although the matter is not free from doubt, the Debtor
intends to (i) treat the New Debt as debt for U.S. federal income tax purposes,
(ii) take the position that the Old Senior Secured Term Debt is not a Tax
Security, (iii) take the position that the Old Senior Secured Term Debt, the New
Senior Secured Term Debt and the New Secured PIK Debt are not publicly traded
for purposes of the original issue discount rules and (iv) take the position
that the New Unsecured PIK Notes are publicly traded for purposes of the
original issue discount rules. Since the determination of whether a debt
obligation is publicly traded depends on the nature of the trading in such debt
obligation once issued, the determination of whether the New Debt is publicly
traded cannot be made with certainty at this time.
The defined term "New Debt" is used to simplify the
following discussion. However, where the tax treatment of the New Debt is
discussed below, such treatment applies separately to each instrument included
in the defined term "New Debt".
(a) General
Pursuant to the Canadian Reorganization Plan,
holders of Allowed Class 6 Claims will exchange the Old Senior Secured Term Debt
for the New Debt, New Common Shares and the Net Asset Sale Proceeds Pool. Based
on the intended position that the Old Senior Secured Term Debt is not a Tax
Security, a Class 6 Creditor generally should recognize gain or loss on the
exchange of the Old Senior Secured Term Debt for the New Debt and New Common
Shares equal to the difference between (A) (i) the sum of the issue price of the
New Debt, the fair market value of the New Common Shares and any cash received
less (ii) any amounts attributable to accrued and unpaid interest on the Old
Senior Secured Term Debt and (B) the holder's tax basis in the Old Senior
Secured Term Debt. The characterization of such gain or loss will depend on the
holder's tax position and circumstances, including whether the Class 6 Claim is
a "market discount" obligation. Class 6 Creditors are strongly urged to consult
their tax advisors regarding the characterization of any gain or loss recognized
as a result of the Canadian Reorganization Plan.
The Debtor believes that the issue prices of the
New Senior Secured Term Debt and New Secured PIK Debt should be determined under
section 1274(a) of the Tax Code and should equal their respective stated
principal amounts, and the issue price of the New Unsecured PIK Notes should be
determined under section 1273 of the Tax Code and should equal their fair market
value. The holder of a Class 6 Claim generally should have an initial tax basis
in the New Senior Secured Term Debt, New Secured PIK Debt and New Unsecured PIK
Notes equal to their respective issue prices and an initial tax basis in the New
Common Shares equal to their fair market value. The holding period with respect
to each instrument should begin on the day following the day on which the Class
6 Creditor has the right to receive it.
If the New Unsecured PIK Notes are not publicly
traded for purposes of the original issue discount ("OID") rules then the issue
price of the New Unsecured PIK Notes would be the lesser of the face amount of
the New Unsecured PIK Notes or the amount of all payments under the New
Unsecured PIK Notes discounted at the applicable federal rate.
(b) Accrued Interest on the Old Senior Secured Term Debt
As discussed in "U.S. Federal Income Tax Consequences
to the Debtors" above, although the manner in which consideration paid in
respect of accrued but unpaid interest and principal of the Old Senior Secured
Term Debt is unclear, the Debtor intends to take the position that the full
amount of consideration distributed to the Class 6 Creditors pursuant to the
Canadian Reorganization Plan is allocable to the principal amount of such
Creditors' Claims and to take the position that no amount of the consideration
to be distributed is allocable to accrued but unpaid interest on such Creditors'
Claims.
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A Class 6 Creditor that previously included in income
accrued but unpaid interest attributable to Old Senior Secured Term Debt should
recognize an ordinary loss to the extent that such previously included accrued
interest exceeds the amount of consideration received by the Creditor which is
attributable to accrued interest for U.S. federal income tax purposes. If and to
the extent that, contrary to the Debtor's intended position, a portion of the
consideration received by a Class 6 Creditor which it has not previously
included in its income as accrued but unpaid interest attributable to the Old
Senior Secured Term Debt is treated for U.S. federal income tax purposes as
attributable to accrued but unpaid interest, the Creditor will recognize
ordinary income in the amount of such interest, regardless of whether the
Creditor realizes an overall gain or loss upon the surrender of its Claim or
whether such gain or loss is recognized.
If a Class 6 Creditor is treated as having received
consideration in satisfaction of accrued interest on the Old Senior Secured Term
Debt, then the Creditor's basis in the portion of the consideration received
which is treated as received in satisfaction of accrued interest should be equal
to the amount of interest income treated as satisfied by the receipt of such
consideration. Additionally, a Creditor's tax holding period in such
consideration should begin on the day following the date on which it has a right
to receive such consideration.
(c) Original Issue Discount on the New Senior Secured
Term Debt
Assuming that the New Debt is properly characterized
as debt for U.S. federal income tax purposes, it would be treated as issued with
OID to the extent its "stated redemption price at maturity" exceeds its "issue
price". An instrument's stated redemption price at maturity includes all
payments required to be made over the term of the instrument other than payments
of "qualified stated interest," defined as interest payments required to be made
at fixed periodic intervals of one year or less (other than interest payable in
debt instruments of the issuer). The interest payments on the New Senior Secured
Term Debt should constitute qualified stated interest only to the extent of $20
million (i.e., the amount required to be made each year over the term of the
debt instrument). The interest payments on the New Secured PIK Debt and the New
Unsecured PIK Notes should not constitute qualified stated interest because they
are payable in kind and/or payments in cash which are not made at least
annually. Accordingly, the stated redemption price at maturity of the New Debt
should equal their respective stated principal amounts plus all interest
payments (other than payments of qualified stated interest) required to be made
under the New Debt.
The determination of the "issue price" of the New
Debt depends on whether either the Old Senior Secured Term Debt or the New Debt
is publicly traded for purposes of the OID rules. As stated above, although the
matter is not free from doubt, the Debtor believes that the issue price of the
New Senior Secured Term Debt and New Secured PIK Debt would be determined by
reference to the rules applicable to debt that is not traded on an established
securities market. Accordingly, the issue price of the New Senior Secured Term
Debt and New Secured PIK Debt generally would be their stated principal amount
under section 1274(a) of the Tax Code.
As stated earlier, although the matter is not free
from doubt, the Debtor intends to take the position that the New Unsecured PIK
Notes will be publicly traded for purposes of the OID rules. Conse quently,
under section 1273 of the Tax Code, the issue price of the New Unsecured PIK
Notes would be equal to their fair market value on the issue date. If, contrary
to the Debtor's intended position, the issue price of the New Unsecured PIK
Notes was ultimately determined to be determined by reference to the rules
governing non-publicly traded debt instruments, the amount of OID and other
consequences to holders would likely differ from those resulting from the
application of section 1273 of the Tax Code.
A holder of a debt instrument that bears OID is
required to include in gross income an amount equal to the sum of the daily
portions of OID for each day during the taxable year in which the debt
instrument is held. The daily portions of OID are determined by allocating to
each day in an accrual period the pro rata portion of the OID that is considered
allocable to the accrual period. The amount of OID that is allocable to an
accrual period is generally equal to (A) the product of the adjusted issue price
of the New Debt at the beginning of
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the accrual period (the issue price of the New Debt increased by prior accruals
of OID and decreased by prior cash payments other than payments of qualified
stated interest) and its yield-to-maturity (the discount rate, which when
applied to all payments under the New Debt, results in a present value equal to
the issue price of the New Debt) less (B) the amount of qualified stated
interest allocable to that accrual period.
The general effect of the OID rules is that holders,
including holders that use a cash-basis method of accounting, will be required
to accrue OID as interest income with respect to the New Debt over the life of
the New Debt based on its yield-to-maturity. Cash payments (other than payments
of qualified stated interest) on the New Debt are not separately included in a
holder's income as interest, but rather are treated first as payments of
previously accrued OID and then as payments of principal.
As noted above, the issuance of additional New
Unsecured PIK Notes will not be treated as a payment of interest. Instead, the
underlying New Unsecured PIK Notes and any additional New Unsecured PIK Notes
that may be issued thereon are treated as a single debt instrument under the OID
rules. Moreover, the issuance of any additional New Unsecured PIK Notes should
be treated simply as a division of the underlying New Unsecured PIK Notes, so
that the holder's tax basis and adjusted issue price in the underlying
instruments should be allocated among the underlying instruments and the
additional instruments in proportion to their relative principal amounts.
(d) Adjustment of Conversion Price of New Secured PIK
Debt
The conversion ratio of the New Secured PIK Debt is
subject to adjustment under certain circumstances. Section 305 of the Tax Code,
and the Treasury Regulations issued thereunder, may treat holders of New Secured
PIK Debt as having received a constructive distribution, resulting in ordinary
income to the extent of PSC's current and accumulated earnings and profits (as
determined for U.S. federal income tax purposes), if, and to the extent that,
certain adjustments of the conversion ratio increase the proportionate interest
of a holder in the fully diluted share ownership of PSC, whether or not such
holder exercises the conversion privilege. Moreover, if there is not a full
adjustment of the conversion ratio of the New Secured PIK Debt to reflect a
stock dividend or other event that increases the proportionate interest of
holders of outstanding New Common Shares in the assets or earnings and profits
of PSC, then such increase in the proportionate interest of holders of New
Common Shares generally will be treated as a taxable distribution to such
holders with respect to their New Common Shares.
(e) Conversion of New Secured PIK Debt into New Common
Shares
In general, no gain or loss will be recognized for
U.S. federal income tax purposes upon a conversion of the New Secured PIK Debt
into New Common Shares. However, cash paid in lieu of a fractional share of New
Common Shares will result in taxable gain (or loss) to the extent that the
amount of such cash exceeds (or is exceeded by) the portion of the adjusted tax
basis of the New Secured PIK Debt allocable to such fractional share. The
initial tax basis of New Common Shares received on conversion of the New Secured
PIK Debt will equal the adjusted tax basis of the converted New Secured PIK Debt
on the date of conversion, reduced by the portion of such adjusted tax basis
allocated to any fractional share of New Common Shares considered to be
exchanged for cash. The holding period for New Common Shares received on
conversion will include the period during which the converted New Secured PIK
Debt was held.
(f) Sale, Exchange or Redemption of New Common Shares
and New Debt
The sale or exchange of New Common Shares generally
should result in capital gain or loss equal to the difference between the amount
realized and the holder's tax basis in such New Common Shares. Depending upon
the circumstances, a redemption by PSC of New Common Shares may result in
capital gain or loss to the holder of such security, or may be treated as a
dividend, generally taxable as ordinary income to the holder to the extent of
PSC's earnings and profits (as determined for U.S. federal income tax purposes)
at the time of the redemption.
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In general, the sale, exchange or redemption of the
New Debt by a Class 6 Creditor (except for exchanges of New Secured PIK Debt for
New Common Shares as discussed above) would result in capital gain or loss equal
to the difference between the amount realized and the holder's tax basis in such
New Debt.
2. Allowed Class 7 Claims
The U.S. federal income tax consequences of the Canadian
Reorganization Plan to a Class 7 creditor receiving New Unsecured PIK Notes
and/or New Unsecured Convertible Notes (the New Unsecured PIK Notes and New
Unsecured Convertible Notes, as applicable, are referred to in this Section
"Allowed Class 7 Claims" as the "New Notes") and New Common Shares will depend
on a number of factors, including whether the New Notes are properly classified
as debt or equity for U.S. federal income tax purposes, whether the exchanged
Claim and New Notes are both "securities" of PSC for U.S. federal income tax
purposes (a PSC "Tax Security"), and whether the exchanged Claims or New Notes
are considered traded on an established securities market ("publicly traded")
for purposes of the original issue discount rules. PSC's intended position
regarding the New Notes with respect to each of these factors is briefly
discussed below; however, Class 7 creditors are urged to consult their tax
advisors with respect to these factors. Additionally, whether any of the
exchanged Claims is a Tax Security or publicly traded depends on the facts and
circumstances of each exchanged Claim, and Class 7 creditors are urged to
consult their tax advisors with respect to these factors.
Although the matter is not free from doubt, the Debtor
intends to (i) treat the New Notes as debt for U.S. federal income tax purposes,
(ii) take the position that the New Notes are Tax Securities and (iii) take the
position that the New Notes are publicly traded for purposes of the original
issue discount rules. Since the determination of whether a debt obligation is
publicly traded depends on the nature of the trading in such debt obligation
once issued, the determination of whether the New Notes are publicly traded
cannot be made with certainty at this time.
The defined term "New Notes" is used to simplify the
following discussion. However, where the tax treatment of the New Notes is
discussed below, such treatment applies separately to each instrument included
in the defined term "New Notes".
(a) General
Pursuant to the Canadian Reorganization Plan, holders
of Allowed Class 7 Claims will exchange their Claims for the New Notes and New
Common Shares. Generally, a Class 7 creditor will not recognize gain or loss on
its exchange if the Creditor's exchanged Claim is a PSC Tax Security. Whether an
instrument constitutes a Tax Security is determined based on all the facts and
circumstances. Certain authorities have held that the length of the term of a
debt instrument is a factor in determining whether such instrument is a Tax
Security for U.S. federal income tax purposes. These authorities have indicated
that a term of less than five years is evidence that the instrument is not a Tax
Security, whereas a term of ten years or more is evidence that it is a Tax
Security. In addition, claims in the nature of legal actions, accounts
receivable or bank loans generally are not treated as Tax Securities; whereas,
bonds, notes or other evidences of indebtedness issued to investors with a term
of at least ten years generally are treated as Tax Securities.
Holders of Allowed Class 7 Claims whose exchanged
Claims are PSC Tax Securities generally should not recognize gain or loss with
respect to the exchange of such Claims for New Notes and New Common Shares
because such exchanges should constitute a recapitalization pursuant to a plan
of reorganization within the meaning of section 368(a)(1)(E) of the Tax Code.
Accordingly, with respect to such exchanges, such holders should (i) allocate
their basis in their exchanged Claims to the New Notes and New Common Shares
based on the relative fair market value of such securities, and (ii) have tax
holding periods for the New Notes and New Common Shares received in exchange for
their exchanged Claims that include their tax holding periods for such exchanged
Claims (except to the extent such securities are attributable to accrued
interest).
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Holders of Allowed Class 7 Claims whose exchanged
Claims are not PSC Tax Securities (including all holders of Class 7 Claims whose
Claims are against specific entities other than PSC itself) generally should
recognize gain or loss on the exchange of such Claims for the New Notes and New
Common Shares equal to the difference between (A) (i) the sum of the issue price
of the New Notes and the fair market value of the New Common Shares received
less (ii) any amounts attributable to accrued and unpaid interest on the
exchanged Claims and (B) the holder's tax basis in the exchanged Claims.
Accordingly, with respect to such exchanges, such holders should have an initial
tax basis in the New Unsecured PIK Notes and New Unsecured Convertible Notes
equal to their respective issue prices and an initial tax basis in the New
Common Shares equal to their fair market value. The holding period with respect
to each instrument should begin on the day following the day on which the
Creditor has the right to receive it. The characterization of such gain or loss
will depend on the holder's tax position and circumstances, including whether
the Class 7 Claim is a "market discount" obligation. Class 7 creditors are
strongly urged to consult their tax advisors regarding the characterization of
any gain or loss recognized as a result of the Canadian Reorganization Plan.
The determination of the "issue price" of the New
Notes depends on whether the New Notes are publicly traded for purposes of the
OID rules. As stated above, although the matter is not free from doubt, the
Debtor believes that the New Notes will be publicly traded for purposes of the
OID rules. Accordingly, the issue price of the New Notes should be equal to
their fair market value on the issue date as determined under section 1273 of
the Tax Code.
If the New Notes are not publicly traded for purposes
of the OID rules (and a "substantial amount" of the exchanged Claims are not
publicly traded for purposes of the OID rules, which the Debtor believes to be
the case) then the issue price of the New Notes would be the lesser of the face
amount of the New Notes or the amount of all payments under the New Notes
discounted at the applicable federal rate.
(b) Accrued Interest on Unsecured Claims
Although the manner in which consideration is to be
allocated between accrued but unpaid interest and principal of the unsecured
Claims for U.S. federal income tax purposes is unclear, the Debtor intends to
take the position that the full amount of the consideration distributed to Class
7 creditors pursuant to the Canadian Reorganization Plan is allocable to the
principal amount of such Creditors' Claims and to take the position that no
amount of consideration to be distributed is allocable to accrued but unpaid
interest on such Creditors' Claims.
A Class 7 creditor that previously included in income
accrued but unpaid interest attributable to its unsecured Claims should
recognize an ordinary loss to the extent that such previously included accrued
interest exceeds the amount of consideration received by the Creditor which is
attributable to accrued interest for U.S. federal income tax purposes. If and to
the extent that, contrary to the Debtor's intended position, a portion of the
consideration received by a Class 7 creditor which it has not previously
included in its income as accrued but unpaid interest attributable to its
unsecured Claims is treated for U.S. federal income tax purposes as attributable
to accrued but unpaid interest, such Creditor will recognize ordinary income in
the amount of such interest, regardless of whether the Creditor realizes an
overall gain or loss upon the surrender of its Claim or whether such gain or
loss is recognized.
If a Class 7 creditor is treated as having received
consideration in satisfaction of accrued interest on the unsecured Claims, then
the Creditor's basis in the portion of the New Notes treated as received in
satisfaction of accrued interest on the unsecured Claims should be equal to the
amount of interest income treated as satisfied by the receipt of such
instruments. Additionally, a Creditor's tax holding period in the New Notes
should begin on the day following the date on which it has a right to receive
them.
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(c) Original Issue Discount on the New Notes
Assuming that the New Notes are properly
characterized as debt instruments for U.S. federal income tax purposes, they
would be treated as issued with OID to the extent their "stated redemption price
at maturity" exceeds their "issue price". An instrument's stated redemption
price at maturity includes all payments required to be made over the term of the
instrument other than payments of "qualified stated interest," defined as
interest payments required to be made at fixed periodic intervals of one year or
less (other than interest payable in debt instruments of the issuer). The
interest payments on the New Notes should not constitute qualified stated
interest because they are payable in kind and/or payments in cash which are not
made at least annually. Accord ingly, the stated redemption price at maturity of
the New Notes should equal their stated principal amount plus all interest
payments required to be made under the New Notes.
The determination of the "issue price" of the New
Notes depends on whether the New Notes are publicly traded for purposes of the
OID rules. As stated above, although the matter is not free from doubt, the
Debtor intends to take the position that the New Notes will be publicly traded
for purposes of the OID rules. Consequently, the issue price of the New Notes
should be equal to their fair market value on the issue date. If, contrary to
the Debtor's intended position, the issue price of the New Notes was ultimately
determined to be determined by reference to the rules governing non-publicly
traded debt instruments, the issue price would likely differ from those
resulting from the application of section 1273 of the Tax Code.
A holder of a debt instrument that bears OID is
required to include in gross income an amount equal to the sum of the daily
portions of OID for each day during the taxable year in which the debt
instrument is held. The daily portions of OID are determined by allocating to
each day in an accrual period the pro rata portion of the OID that is considered
allocable to the accrual period. The amount of OID that is allocable to an
accrual period is generally equal to the product of the adjusted issue price of
the New Notes at the beginning of the accrual period (the issue price of the New
Notes increased by prior accruals of OID and decreased by prior cash payments)
and its yield-to-maturity (the discount rate, which when applied to all payments
under the New Notes, results in a present value equal to the issue price of the
New Notes).
The general effect of the OID rules is that holders,
including holders that use a cash-basis method of accounting, will be required
to accrue OID as interest income with respect to the New Notes over the life of
the New Notes based on their yield-to-maturity (which may differ from the stated
interest rate of the New Notes).
As noted above, the issuance of additional New
Unsecured PIK Notes will not be treated as a payment of interest. Instead, the
underlying New Unsecured PIK Notes and any additional New Unsecured PIK Notes
that may be issued thereon are treated as a single debt instrument under the OID
rules. Moreover, the issuance of any additional New Unsecured PIK Notes should
be treated simply as a division of the underlying New Unsecured PIK Notes, so
that the holder's tax basis and adjusted issue price in the underlying New
Unsecured PIK Notes should be allocated among underlying New Unsecured PIK Notes
and the additional New Unsecured PIK Notes in proportion to their relative
principal amounts.
(d) Bond Premium on New Notes
A holder that has a tax basis in its New Notes in
excess of the issue price of such bonds should be permitted to reduce its
original issue discount income with respect to such bonds by a ratable portion
of such excess. Class 7 creditors having a relatively high basis in their
unsecured Claims should be able to offset a substantial portion of their
original issue discount income with respect to the New Notes by amortizing this
premium. Additionally, in general, if the tax basis of New Notes in the hands of
a Class 7 creditor exceeds the stated redemption price at maturity of such New
Notes (which may occur for Class 7 creditors who receive recapitalization
treatment in the exchange because they hold exchanged Claims which are PSC Tax
Securities), the New Notes will be considered to be issued with "bond premium".
To amortize bond premium, the holder must make an election that
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applies to all debt instruments it holds or subsequently acquires. A holder that
elects to amortize bond premium must reduce its tax basis in the New Notes by an
amount equal to the amortized premium.
(e) Market Discount on New Notes
The Tax Code generally requires holders of debt
instruments with "market discount," (generally, the amount by which the "revised
issue price" of a debt instrument (i.e., the sum of its issue price plus accrued
original issue discount) exceeds the holder's adjusted tax basis in such debt
instrument), to treat as ordinary income any gain realized on the disposition of
such debt instruments to the extent of the market discount accrued during the
holder's period of ownership. Holders should consult their own tax advisors as
to the potential application of the market discount rules to them in light of
their individual circumstances, and the advisability of making an election to
accrue market discount on a current basis.
(f) Adjustment of Conversion Price of New Unsecured
Convertible Notes
The conversion ratio of the New Unsecured Convertible
Notes is subject to adjustment under certain circumstances. Section 305 of the
Tax Code, and the Treasury Regulations issued thereunder, may treat holders of
New Unsecured Convertible Notes as having received a constructive distribution,
resulting in ordinary income to the extent of PSC's current and accumulated
earnings and profits (as determined for U.S. federal income tax purposes), if,
and to the extent that, certain adjustments of the conversion ratio increase the
proportion ate interest of a holder in the fully diluted share ownership of PSC,
whether or not such holder exercises the conversion privilege. Moreover, if
there is not a full adjustment of the conversion ratio of the New Unsecured
Convertible Notes to reflect a stock dividend or other event that increases the
proportionate interest of holders of outstanding New Common Shares in the assets
or earnings and profits of PSC, then such increase in the proportion ate
interest of holders of New Common Shares generally will be treated as a taxable
distribution to such holders with respect to their New Common Shares.
(g) Conversion of New Unsecured Convertible Notes into
New Common Shares
In general, no gain or loss will be recognized for
U.S. federal income tax purposes upon a conversion of New Unsecured Convertible
Notes into New Common Shares. However, cash paid in lieu of a fractional share
of New Common Shares, if any, will result in taxable gain (or loss) to the
extent that the amount of such cash exceeds (or is exceeded by) the portion of
the adjusted tax basis of the New Unsecured Convertible Note allocable to such
fractional share. The initial tax basis of New Common Shares received on
conversion of the New Unsecured Convertible Notes will equal the adjusted tax
basis of the converted New Unsecured Convertible Notes on the date of
conversion, reduced by the portion of such adjusted tax basis allocated to any
fractional share of New Common Shares considered to be exchanged for cash. The
holding period for New Common Shares received on conversion will include the
period during which the converted New Unsecured Convertible Notes were held.
(h) Sale, Exchange or Redemption of New Common Shares
and New Notes
The sale or exchange of New Common Shares generally
should result in capital gain or loss equal to the difference between the amount
realized and the holder's tax basis in such New Common Shares. Depending upon
the circumstances, a redemption by PSC of New Common Shares may result in
capital gain or loss to the holder of such security, or may be treated as a
dividend, generally taxable as ordinary income to the holder to the extent of
PSC's earnings and profits (as determined for U.S. federal income tax purposes)
at the time of the redemption.
In general, assuming the New Notes are properly
treated as debt for U.S. federal income tax purposes, and subject to the market
discount rules discussed above, the sale, exchange or redemption of the New
Notes by a Class 7 creditor (except for exchanges of New Unsecured Convertible
Notes for New Common Shares as
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discussed above) would result in capital gain or loss equal to the difference
between the amount realized and the holder's tax basis in such New Notes.
3. Importance of Obtaining Professional Tax Assistance
THE FOREGOING IS INTENDED TO BE ONLY A GENERAL SUMMARY OF
CERTAIN OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE CANADIAN
REORGANIZATION PLAN, AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX
PROFESSIONAL. THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE CANADIAN
REORGANIZATION PLAN WHICH ARE DESCRIBED HEREIN AND THE STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES (INCLUDING CANADA INCOME TAX, WITHHOLDING TAX AND OTHER
CONSEQUENCES) OF THE CANADIAN REORGANIZATION PLAN WHICH ARE NOT ADDRESSED
HEREIN, ARE COMPLEX AND, IN SOME CASES, UNCERTAIN. SUCH CONSEQUENCES MAY ALSO
VARY SIGNIFICANTLY BASED ON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF A
CLAIM. ACCORDINGLY, EACH HOLDER OF A CLAIM IS STRONGLY URGED TO CONSULT WITH ITS
TAX ADVISOR REGARDING THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE CANADIAN REORGANI ZATION PLAN, INCLUDING ANY CANADA INCOME
OR WITHHOLDING TAX CONSEQUENCES TO IT.
THE FOREGOING SUMMARY DOES NOT REVIEW THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF, OR ANY OTHER CONSIDERATIONS RELATING TO, THE
ALTERNATE CANADIAN TRANSACTIONS. AS THESE MAY BE DIFFERENT IN MATERIAL RESPECTS
FROM THOSE OF THE CANADIAN REORGANIZATION PLAN WHICH ARE DESCRIBED ABOVE,
CREDITORS ARE URGED AND EXPECTED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE ALTERNATE CANADIAN TRANSACTIONS.
C. CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a summary of certain Canadian federal income tax
considerations generally applicable to PSC and to holders of indebtedness to
which Allowed Class 6 Claims and Allowed Class 7 Claims ("Old Debt") relate, who
receive proceeds out of the Net Asset Sale Proceeds Pool or New Senior Secured
Term Debt, New Secured PIK Debt, New Unsecured PIK Notes or New Unsecured
Convertible Notes ("New Debt") or New Common Shares, as the case may be,
pursuant to the implementation of the Canadian Reorganization Plan
(collectively, "New Property"), and who, at all relevant times, for the purposes
of the Income Tax Act (Canada) (the "Tax Act"), hold Old Debt and New Property
as capital property and deal at arm's length and are not affiliated with PSC
("Holders"). Generally, property will be considered to be capital property to a
Holder provided that the Holder does not hold the property in the course of
carrying on a business and has not acquired it in a transaction or transactions
considered to be an adventure in the nature of trade. Certain Resident Holders
(as defined below) whose New Common Shares might not otherwise qualify as
capital property may be entitled to obtain such qualification by making the
irrevocable election permitted by subsection 39(4) of the Tax Act. A Holder that
is, as defined under the Tax Act, a "specified financial institution", or a
"financial institution" subject to special provisions of the Tax Act applicable
to "mark-to-market property", should consult its own tax advisors as the
following summary does not apply to such a Holder.
This summary is based upon the current provisions of the Tax Act, the
regulations thereunder, all specific proposals to amend the Tax Act and the
regulations publicly announced by or on behalf of the Minister of Finance
(Canada) prior to the date hereof. This summary does not otherwise take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial decision or action, nor does it take into account or consider any
provincial, territorial or foreign income tax consequences.
NO ADVANCE INCOME TAX RULINGS HAVE BEEN REQUESTED FROM REVENUE CANADA
WITH RESPECT TO ANY INCOME TAX CONSEQUENCES OF THE CANADIAN REORGANIZATION PLAN
AND NO OPINION OF COUNSEL HAS BEEN SOUGHT OR OBTAINED
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WITH RESPECT TO SUCH CONSEQUENCES. NO REPRESENTATIONS REGARDING THE PARTICULAR
TAX CONSEQUENCES OF THE IMPLEMENTATION OF THE CANADIAN REORGANIZATION PLAN TO
ANY HOLDER ARE BEING MADE.
THE SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER. ACCORDINGLY,
HOLDERS ARE URGED AND EXPECTED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THEIR PARTICULAR CIRCUMSTANCES.
THIS SUMMARY DOES NOT REVIEW THE CANADIAN FEDERAL INCOME TAX
CONSEQUENCES OF, OR ANY OTHER CONSIDERATIONS RELATING, TO THE ALTERNATE CANADIAN
TRANSACTIONS, AS THESE MAY BE DIFFERENT IN MATERIAL RESPECTS FROM THOSE OF THE
CANADIAN REORGANIZATION PLAN WHICH ARE DESCRIBED BELOW, HOLDERS ARE URGED AND
EXPECTED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE ALTERNATE
CANADIAN TRANSACTIONS.
1. Certain Federal Income Tax Consequences to PSC
The Canadian Reorganization Plan will result in the
forgiveness of certain of PSC's indebted ness. Such forgiveness will reduce, in
prescribed order, certain tax attributes of PSC and, if appropriate agreements
and tax designations have been filed as prescribed by the Tax Act, certain tax
attributes of taxable Canadian corporations controlled by PSC. Tax attributes
reduced as a result of debt forgiveness include non-capital losses, net capital
losses, cumulative eligible capital, the undepreciated capital cost of
depreciable property and the adjusted cost base of certain capital property (the
"Tax Shield"). Generally, three-quarters of the amount by which the debt
forgiveness exceeds the Tax Shield will be required to be included in PSC's
income for the taxation year in which the debt forgiveness takes place. PSC
believes that the implementation of the Canadian Reorganization Plan should not
result in any amount being required to be included in its income or in the
income of any taxable Canadian corporation controlled by it.
2. Certain Federal Income Tax Consequences to Holders
(a) Non-resident Holders
The following is a summary of certain Canadian
federal income tax considerations generally applicable to a Holder who, at all
relevant times, for purposes of the Tax Act and any applicable income tax
treaty, is not and is not deemed to be a resident of Canada and does not use or
hold and is not deemed to use or hold Old Debt or New Property in carrying on a
business in Canada (a "Non-resident Holder"). Special rules, which are not
discussed in this summary, may apply to a Non-resident Holder that is an insurer
carrying on business in Canada and elsewhere.
(i) Receipt of New Property
A Non-resident Holder who pursuant to
either Plan New Property in full or partial satisfaction of the outstanding
principal amount of Old Debt should not be subject to tax in respect of such
receipt and should acquire the New Property for a cost equal to its then fair
market value.
(ii) Withholding Tax
Interest which is or is deemed to be paid
or credited PSC to a Non-resident Holder on New Debt may be subject to
withholding tax under the Tax Act, depending on the final terms and conditions
of such New Debt. Based on the current draft terms and conditions of the New
Debt, the following consequences should arise.
Interest which is or is deemed to be paid or
credited by PSC to a Non-resident Holder on New Secured PIK Debt will be subject
to withholding tax under the Tax Act. Interest which is or is
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deemed to be paid or credited by PSC to a Non-resident Holder on New Unsecured
PIK Notes issued in full or partial satisfaction of the outstanding principal
amount of Old Debt should not be subject to withholding tax under the Tax Act.
However, interest which is or is deemed to be paid or credited, whether in cash
or kind, by PSC to a Non-resident Holder on New Unsecured PIK Notes issued from
time to time as payment in kind in respect of PSC's obligation to pay interest
on any New Unsecured PIK Notes will be subject to withholding tax under the Tax
Act if the principal amount of such notes is payable within 5 years from the
date on which they are issued. Interest which is or is deemed to be paid or
credited by PSC to a Non-resident Holder on New Unsecured Convertible Notes may,
depending on their terms and conditions, be subject to withholding tax under the
Tax Act. Certain dispositions of New Debt, including to PSC upon repayment, may
result in interest being deemed to have been paid to a Nonresident Holder.
Withholding tax is imposed under the Tax
Act at a rate of twenty-five percent (25%) of the amount of interest which is or
is deemed to be paid or credited, subject to reduction in accordance with the
provisions of any applicable tax treaty. Under the Canada-United States Income
Tax Convention, the rate of withholding tax in respect of interest is generally
reduced to ten percent (10%).
(iii) Conversions
A Non-resident Holder of New Secured PIK
Notes or New Unsecured Convertible Notes who converts such notes into New Common
Shares will generally be treated as not having disposed on the notes and the
cost of the New Common Shares to such Non-resident Holder will be equal to the
aggregate adjusted cost base to the Non-resident Holder of the converted notes
immediately before the conversion.
(iv) Dispositions
A Non-resident Holder will not be subject to
tax under the Tax Act on any capital gain realized on the disposition of New
Unsecured PIK Notes. A Non-resident Holder will not be subject to tax under the
Tax Act on any capital gain realized on a disposition of New Common Shares, New
Convertible Notes or New Secured PIK Notes unless the shares constitute "taxable
Canadian property" at the time of their disposition. New Common Shares, provided
they are and continue to be listed on a prescribed stock exchange (which
includes the Toronto Stock Exchange), generally will not constitute taxable
Canadian property to a Non-resident Holder unless at any time during the
60-month period immediately preceding their disposition, the Non-resident
Holder, persons with whom the Non-resident Holder did not deal at arm's length,
or the Non-resident Holder together with all such persons, owned twenty-five
percent (25%) or more of the issued shares of any class of PSC. For this
purpose, a Non-resident Holder will be considered to own any share if such
person has an interest in or option or other right to acquire such share, either
by virtue of holding New Unsecured Convertible Notes or New Secured PIK Notes or
otherwise.
(b) Resident Holders
The following is a summary of certain Canadian
federal income tax considerations generally applicable to a Holder who, at all
relevant times, for purposes of the Tax Act and any applicable tax treaty, is or
is deemed to be a resident of Canada (a "Resident Holder").
(i) Receipt of New Property
A Resident Holder who receives New Property
in full or partial satisfaction of the outstanding principal amount of Old Debt
will be treated as having disposed of an interest in the Old Debt for proceeds
of disposition equal to the aggregate fair market value of the New Property so
received, and should be treated as having a cost in such New Property equal to
its fair market value. Generally, such disposition will give rise to a capital
gain (or capital loss) to the extent that the proceeds of disposition, net of
any reasonable costs of
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dispositions, exceed (or are less than) the aggregate adjusted cost base to the
Resident Holder, immediately before the disposition, of the interest in the Old
Debt so disposed of.
(ii) Disposition of New Common Shares
A Resident Holder who disposes of New Common
Shares will generally realize a capital gain (or capital loss) to the extent
that the proceeds of disposition therefor, net of any reasonable costs of
disposition, exceed (or are less than) the Resident Holder's aggregate adjusted
cost base immediately before the disposition of the New Common Shares disposed
of.
In the case of a Resident Holder that is a
corporation, the amount of any capital loss otherwise determined on the
disposition of its New Common Shares may in certain circumstances be reduced by
the amount of certain dividends previously received on such New Common Shares,
to the extent and under the circumstances described in the Tax Act. Similar
rules may apply where a corporation, a partnership or a trust is a member of a
partnership or a beneficiary of a trust that owns New Common Shares.
(iii) Interest and Premium on New Debt
A Resident Holder of New Debt that is a
corporation, partnership, unit trust or trust of which a corporation or
partnership is a beneficiary will be required to include in its income for a
taxation year any interest that accrues to the Resident Holder to the end of
that taxation year or becomes receivable or is received by it before the end of
that year, except to the extent that such amount was included in its income for
a preceding taxation year.
Any other Resident Holder of New Debt,
including an individual, will be required to include in income for a taxation
year any interest received or receivable by such holder in that year (depending
upon the method regularly followed by the Resident Holder in computing income),
except to the extent that such amount was included in the Resident Holder's
income for a preceding taxation year.
Any premium paid by the issuer of New Debt
because it exercises its right to redeem the New Debt before maturity thereof
will generally be deemed to be interest received at that time by a Resident
Holder to the extent that such premium can reasonably be considered to relate
to, and does not exceed, the value, at the time of the redemption, of the
interest that would have been paid or payable by such issuer on such redeemed
New Debt for a taxation year ending after the redemption.
(iv) Disposition of New Debt
Where a Resident Holder assigns or otherwise
transfers New Debt, the Resident Holder must include in income for the taxation
year in which the assignment or other transfer occurs, an amount of interest
that has accrued on the New Debt up to that time and that is not payable until
after that time, to the extent that such interest was not otherwise included in
computing the Resident Holder's income for that taxation year or a previous
taxation year.
Where, in a taxation year, a Resident Holder
has disposed of New Debt for consideration equal to its fair market value, the
Resident Holder generally may deduct in computing income for the year such
portion of the total of all amounts included in the Resident Holder's income for
that taxation year or a preceding taxation year as interest on such New Debt as
cannot reasonably be considered to have been received or become receivable by
the Resident Holder in that taxation year or a preceding taxation year. Any
amount so deducted by the Resident Holder in computing income will not reduce
the Resident Holder's capital gain or increase the Resident Holder's capital
loss from the disposition of the New Debt.
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A Resident Holder who disposes of New Debt
will generally realize capital gain (or capital loss) to the extent that the
proceeds of disposition therefor (which should exclude amounts included in
income in respect of such disposition as interest), net of any reasonable costs
of disposition, exceed (or are less than) the Resident Holder's aggregate
adjusted cost base immediately before the disposition of the New Debt disposed
of.
(v) Conversions
A Resident Holder of New Secured PIK Notes
or New Unsecured Convertible Notes who converts such notes into New Common
Shares will generally be treated as not having disposed of the notes and the
cost of the New Common Shares to such Resident Holder will be equal to the
aggregate adjusted cost base to the Resident Holder of the converted notes
immediately before the conversion.
(vi) Treatment of Capital Gains (or Losses)
Three-quarters of the amount of any capital
gain (a "taxable capital gain") realized by a Resident Holder in a taxation year
generally must be included in income in that year, and three-quarters of the
amount of any capital loss (an "allowable capital loss") realized in a taxation
year must be deducted from taxable capital gains realized by the Resident Holder
in that year. Allowable capital losses in excess of taxable capital gains may be
carried back and deducted in any of the three preceding taxation years or
carried forward and deducted in any following taxation year against net taxable
capital gains realized in such years to the extent and under the circumstances
described in the Tax Act.
Capital gains realized by a Resident Holder
that is an individual or a trust, other than certain specified trusts, may give
rise to alternative minimum tax under the Tax Act.
For the purpose of determining the adjusted
cost base of any New Properties acquired at any time by a Resident Holder, the
cost of such properties will be determined by averaging their cost with the
adjusted cost base of all other identical properties held immediately before the
time of such acquisition by the Holder as capital property.
(vii) Refundable Tax
A Resident Holder that is a
"Canadian-controlled private corporation" (as defined in the Tax Act) may be
liable for a refundable tax of six and two-thirds percent (6 2/3%) on investment
income, including interest and taxable capital gains. This tax will be refunded
when the corporation pays taxable dividends (at a rate of one dollar for every
three dollars of taxable dividends paid).
(viii) Foreign Tax Credit or Deduction
Assuming that the rate of any foreign
withholding tax paid by a Resident Holder in respect of interest received on New
Senior Secured Term Debt does not exceed fifteen percent (15%), such tax will
generally be treated as a foreign income tax eligible for credit against such
Resident Holder's Canadian federal income tax otherwise payable or for deduction
in computing such Resident Holder's income, to the extent and in the
circumstances provided for in the Tax Act. Any such foreign withholding tax paid
by the Resident Holder at a rate exceeding fifteen percent (15%) will generally
be eligible for deduction in computing such Resident Holder's income or, in the
case of a Resident Holder that is not (and for the purposes of the Tax Act is
not treated as) an individual, a credit against such Resident Holder's Canadian
federal income tax otherwise payable, to the extent and in the circumstances
provided for in the Tax Act.
ARTICLE XI.
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FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS
A. FEASIBILITY OF THE PLAN
In connection with confirmation of the Plan, the Bankruptcy Court will
have to determine that the Plan is feasible pursuant to section 1129(a)(11) of
the Bankruptcy Code, which means that the confirmation of the Plan is not likely
to be followed by the liquidation or the need for further financial
reorganization of the Debtors.
To support their belief in the feasibility of the Plan, the Debtors
have relied upon Pro Forma Financial Projections for six months ended December
31, 1999 and Fiscal Years 2000 through 2001, as set forth in Appendix F annexed
to this Disclosure Statement.
The Projections indicate that the Reorganized Debtors should have
sufficient cash flow to pay and service their debt obligations, including the
Exit Facility, and to fund their operations as contemplated by the Business
Plan. Accordingly, the Debtors believe that the Plan complies with the financial
feasibility standard of section 1129(a)(11) of the Bankruptcy Code.
The Projections were not prepared with a view toward compliance with
the published guidelines of the American Institute of Certified Public
Accountants or any other regulatory or professional agency or body or generally
accepted accounting principles. Furthermore, the Debtors' independent certified
public accountants have not compiled or examined the Projections and accordingly
do not express any opinion or any other form of assurance with respect thereto
and assume no responsibility for the Projections.
The Projections assume that (i) the Plan will be confirmed and
consummated in accordance with its terms, (ii) there will be no material change
in legislation or regulations, or the administration thereof, including environ
mental legislation or regulations, that will have an unexpected effect on the
operations of the Reorganized Debtors, (iii) there will be no change in United
States generally accepted accounting principles that will have a material effect
on the reported financial results of the Reorganized Debtors, and (iv) there
will be no material contingent or unliquidated litigation or indemnity claims
applicable to the Reorganized Debtors. To the extent that the assumptions
inherent in the Projections are based upon future business decisions and
objectives, they are subject to change. In addition, although they are presented
with numerical specificity and considered reasonable by the Debtors when taken
as a whole, the assumptions and estimates underlying the Projections are subject
to significant business, economic and competitive uncertainties and
contingencies, many of which will be beyond the control of the Reorganized
Debtors. Accordingly, the Projections are only an estimate that are necessarily
speculative in nature. It can be expected that some or all of the assumptions in
the Projections will not be realized and that actual results will vary from the
Projections, which variations may be material and are likely to increase over
time. The Projections should therefore not be regarded as a representation by
the Debtors or any other person that the results set forth in the Projections
will be achieved. In light of the foregoing, readers are cautioned not to place
undue reliance on the Projections. The Projections should be read together with
the information in Article VII of the Disclosure Statement entitled "Certain
Factors to be Considered", which sets forth important factors that could cause
actual results to differ from those in the Projections.
PSC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files periodic
reports and other information with the SEC relating to its business, financial
statements and other matters. Such filings will not include projected financial
information. The Debtors do not intend to update or otherwise revise the
Projections, including any revisions to reflect events or circumstances existing
or arising after the date of this Disclosure Statement or to reflect the
occurrence of unanticipated events, even if any or all of the underlying
assumptions do not come to fruition. Furthermore, the Debtors do not intend to
update or revise the Projections to reflect changes in general economic or
industry conditions.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: The Projections contain statements which constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. "Forward-looking statements" in the Projections
include the intent, belief or current expectations of the Debtors and members of
their management team with respect to the timing of, completion of and scope of
the current restructuring, reorganization plan, strategic business plan, bank
financing, and debt and equity market conditions and the Debtors' future
liquidity, as well as the assumptions upon which such statements are based.
While the Debtors believe that the expectations are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, parties in interest are cautioned that any such forward-looking
statements are not guarantees of future performance, and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. Important factors currently
known to management that could cause actual results to differ materially from
those contemplated by the forward-looking statements in the Projections include,
but are not limited to, further adverse developments with respect to the
Debtors' liquidity position or operations of the Debtors' various businesses,
adverse developments in the Debtors' efforts to renegotiate their funding and
adverse developments in the bank financing or public or private markets for debt
or equity securities, or adverse developments in the timing or results of the
Debtors' strategic business plan (including the time line to emerge from Chapter
11), the difficulty in controlling industry costs and integrating new
operations, the ability of the Debtors to realize the anticipated general and
administrative expense savings and overhead reductions presently contemplated,
the ability of the Debtors to return the Debtors' operations to profitability,
the level and nature of any restructuring and other one-time charges, the
difficulty in estimating costs relating to exiting certain markets and
consolidating and closing certain operations, and the possible negative effects
of a change in applicable legislation.
B. ACCEPTANCE OF THE PLAN
As a condition to confirmation, the Bankruptcy Code requires that each
Class of Impaired Claims vote to accept the Plan, except under certain
circumstances.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by
a class of impaired claims as acceptance by holders of at least two-thirds (2/3)
in dollar amount and more than one-half (1/2) in number of claims in that class,
but for that purpose counts only those who actually vote to accept or to reject
the Plan. Thus, Class 6 and 7 will have voted to accept the Plan only if
two-thirds (2/3) in amount and a majority in number actually voting in each
Class cast their Ballots in favor of acceptance. Holders of Claims who fail to
vote are not counted as either accepting or rejecting a plan.
C. BEST INTERESTS TEST
As noted above, even if a plan is accepted by the holders of each class
of claims and interests, the Bankruptcy Code requires a bankruptcy court to
determine that the plan is in the best interests of all holders of claims or
interests that are impaired by the plan and that have not accepted the plan. The
"best interests" test, as set forth in section 1129(a)(7) of the Bankruptcy
Code, requires a bankruptcy court to find either that all members of an impaired
class of claims or interests have accepted the plan or that the plan will
provide a member who has not accepted the plan with a recovery of property of a
value, as of the effective date of the plan, that is not less than the amount
that such holder would recover if the debtor were liquidated under Chapter 7 of
the Bankruptcy Code.
To calculate the probable distribution to holders of each impaired
class of claims and interests if the Debtors were liquidated under Chapter 7, a
bankruptcy court must first determine the aggregate dollar amount that would be
generated from a debtor's assets if its Chapter 11 cases were converted to
Chapter 7 cases under the Bankruptcy Code. This "liquidation value" would
consist primarily of the proceeds from a forced sale of the debtor's assets by a
Chapter 7 trustee.
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The amount of liquidation value available to unsecured creditors would
be reduced by, first, the claims of secured creditors to the extent of the value
of their collateral, and, second, by the costs and expenses of liquidation, as
well as by other administrative expenses and costs of both the Chapter 7 cases
and the Chapter 11 cases. Costs of liquidation under Chapter 7 of the Bankruptcy
Code would include the compensation of a trustee, as well as of counsel and
other professionals retained by the trustee, asset disposition expenses, all
unpaid expenses incurred by the debtor in its Chapter 11 cases (such as
compensation of attorneys, financial advisors and accountants) that are allowed
in the Chapter 7 cases, litigation costs, and claims arising from the operations
of the debtor during the pendency of the Chapter 11 cases. The liquidation
itself would trigger certain priority payments that otherwise would be due in
the ordinary course of business. Those priority claims would be paid in full
from the liquidation proceeds before the balance would be made available to pay
general claims or to make any distribution in respect of equity interests. The
liquidation would also prompt the rejection of a large number of executory
contracts and unexpired leases and thereby create a significantly higher number
of unsecured creditors.
Once the court ascertains the recoveries in liquidation of secured
creditors and priority claimants, it must determine the probable distribution to
general unsecured creditors and equity security holders from the remaining
available proceeds in liquidation. If such probable distribution has a value
greater than the distributions to be received by such creditors and equity
security holders under the plan, then the plan is not in the best interests of
creditors and equity security holders. Therefore, the Debtors believe that the
members of each Class of Impaired Claims and Interests will receive more under
the Plan than they would receive if the Debtors were liquidated.
D. LIQUIDATION ANALYSIS
The Debtors believe that the Plan meets the "best interests of
creditors" test of section 1129(a)(7) of the Bankruptcy Code. The Debtors
believe that the members of each Impaired Class will receive greater value under
the Plan than they would in a liquidation. The liquidation analysis (the
"Liquidation Analysis") for consolidated PSC, including the Debtors, the
Canadian Debtors and the non-filing Subsidiaries (collectively, "Consolidated
PSC") is annexed as Appendix E to this Disclosure Statement.
The Liquidation Analysis presumes the liquidation of Consolidated PSC
under the law of the respective jurisdictions of incorporation/amalgamation for
each individual Subsidiary. The Liquidation Analysis relies on certain projected
future events and necessarily relies on certain estimates and assumptions in
order to arrive at a hypothetical liquidation value for Consolidated PSC.
The Liquidation Analysis provides that in the event of a liquidation as
described therein, the proceeds available to satisfy Class 6 Secured Lender
Claims would be approximately $277.5 million, leaving a shortfall to
satisfaction of Lender Claims of approximately $726.3 million. The Liquidation
Analysis provides that no distribution would be available to holders of Class 7
Impaired Unsecured Claims or holders of Class 8A Interests, Class 8B Claims or
Class 8C Claims. Therefore, because the Plan provides for distributions or
retention of interests for Classes 7, 8A, 8B and 8C, if Class 7 votes to accept
the Plan, such holders of Impaired Claims and Interests in such classes will
receive a greater recovery under the Plan than they would in a liquidation. The
Plan also meets the "best interests test" with respect to Lender Claims. In a
liquidation, the distributions on account of Lender Claims is shown in the
Liquidation Analysis to be significantly less than the value of distributions
provided under the Plan. Although the Debtors believe that the Plan meets the
"best interests test" of section 1129(a)(7) of the Bankruptcy Code, there can be
no assurance that the Bankruptcy Court will determine that the Plan meets this
test.
E. VALUATION OF THE REORGANIZED DEBTORS
In conjunction with formulating the Plan, the Debtors determined that
it was necessary to estimate a post-confirmation going concern enterprise value
for the Reorganized Debtors. Accordingly, the Debtors directed Ernst & Young
Corporate Finance Inc. ("EYCF") to prepare such a valuation. A summary of the
valuation prepared by EYCF is attached with Appendix G to the Disclosure
Statement.
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As shown in the valuation, EYCF has determined pursuant to various
well-accepted valuation techniques that the enterprise value of Reorganized PSC
and its Subsidiaries and affiliates is in a range of $500 million to $600
million. The mid-point range of this range of value is $550 million.
F. APPLICATION OF THE "BEST INTERESTS" TEST TO THE LIQUIDATION ANALYSIS
AND THE VALUATION OF THE REORGANIZED DEBTORS
It is impossible to determine with any specificity the value each
creditor will receive as a percentage of its Allowed Claim. This difficulty in
estimating the value of such recoveries is due to, among other things, the
inherent uncertainty with respect to future performance and the question of a
public market for the New Common Shares or Reorganized PSI Common Shares, as the
case may be, New Secured PIK Debt, New Unsecured PIK Notes and New Unsecured
Convertible Notes. Such a valuation is made even more difficult because the
analysis regarding the amount of Class 7 Claims that will ultimately be Allowed
is preliminary and subject to change.
After considering the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for the distribution to Creditors in the
Chapter 11 Cases versus the valuation of the of the Reorganized Debtors as a
going concern, each as set forth above, the Debtors have determined that the
confirmation of the Plan will provide each holder of an Allowed Class 6 Secured
Lender Claim and each holder of Allowed Class 7 Impaired Unsecured Claim with a
recovery that is not less than such holder would receive pursuant to a
liquidation under Chapter 7.
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES: THE
"CRAMDOWN" ALTERNATIVE
In view of the deemed rejection by Class 9, the Debtors will seek
confirmation of the Plan pursuant to the "cramdown" provisions of the Bankruptcy
Code. Specifically, section 1129(b) of the Bankruptcy Code provides that a plan
can be confirmed even if the plan is not accepted by all impaired classes, as
long as at least one impaired class of claims has accepted it. The Bankruptcy
Court may confirm a plan at the request of the debtors if the plan "does not
discriminate unfairly" and is "fair and equitable" as to each impaired class
that has not accepted the plan. A plan does not discriminate unfairly within the
meaning of the Bankruptcy Code if a dissenting class is treated equally with
respect to other classes of equal rank.
A plan is fair and equitable as to a class of secured claims that
rejects such plan if the plan provides (a)(i) that the holders of claims
included in the rejecting class retain the liens securing those claims whether
the property subject to those liens is retained by the debtor or transferred to
another entity, to the extent of the allowed amount of such claims, and (ii)
that each holder of a claim of such class receives on account of that claim
deferred cash payments totaling at least the allowed amount of that claim, of a
value, as of the effective date of the plan, of at least the value of the
holder's interest in the estate's interest in such property; (b) for the sale,
subject to section 363(k) of the Bankruptcy Code, of any property that is
subject to the liens securing the claims included in the rejecting class, free
and clear of the liens, with the liens to attach to the proceeds of the sale,
and the treatment of the liens on proceeds under clause (a) or (c) of this
paragraph; or (c) for the realization by such holders of the indubitable
equivalent of such claims.
A plan is fair and equitable as to a class of unsecured claims which
rejects a plan if the plan provides (a) for each holder of a claim included in
the rejecting class to receive or retain on account of that claim property that
has a value, as of the effective date of the plan, equal to the allowed amount
of such claim; or (b) that the holder of any claim or interest that is junior to
the claims of such class will not receive or retain on account of such junior
claim or interest any property at all.
A plan is fair and equitable as to a class of equity interests that
rejects a plan if the plan provides (a) that each holder of an interest included
in the rejecting class receive or retain on account of that interest property
that has a value, as of the effective date of the plan, equal to the greatest of
the allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or the
value
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of such interest; or (b) that the holder of any interest that is junior to
the interests of such class will not receive or retain under the plan on account
of such junior interest any property at all.
The Debtors also will seek confirmation of the Plan pursuant to the
"cramdown" provisions of the Bankruptcy Code if the holders of Allowed Class 7
Claims vote to reject the Plan. Serious legal and factual questions have been
raised by certain parties in interest as to whether such a "cramdown" can be
accomplished under the Bankruptcy Code. The Debtors, the Lenders, the Creditors'
Committee and First Union as Indenture Trustee all disagree with this
contention.
ARTICLE XII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors believe that the Plan affords holders of Class 6 and 7
Claims the potential for the greatest realization on the Debtors' assets and,
therefore, is in the best interests of such holders. The Plan as presented is
the result of considerable negotiations between PSC and an ad hoc steering
committee of Lenders, as well as significant unsecured creditors.
If, however, the requisite acceptances are not received, or the Plan is
not confirmed and consummated, the theoretical alternatives include: (a)
formulation of an alternative plan or plans of reorganization, or (b)
liquidation of the Debtors under Chapter 7 or 11 of the Bankruptcy Code.
A. ALTERNATIVE PLAN(S) OF REORGANIZATION
If the requisite acceptances are not received or if the Plan is not
confirmed, the Debtors (or, if the Debtors' exclusive periods in which to file
and solicit acceptances of a plan of reorganization have expired, any other
party-in-interest) could attempt to formulate and propose a different plan or
plans of reorganization. Such a plan or plan(s) might involve either a
reorganization and continuation of the Debtors' businesses or an orderly
liquidation of assets.
Additionally, it is not clear whether the Debtors could survive as
going concerns in a protracted alternative plan of reorganization. They could
have difficulty sustaining operations in the face of high costs, erosion of
customer confidence, and liquidity difficulties that could well result if they
remained Debtors for any length of time.
With respect to an alternative plan, the Debtors have explored various
other alternatives in connection with the extensive negotiation process involved
in the formulation and development of the Plan. The Debtors believe that the
Plan, as described herein, the result of extensive negotiations between the
Debtors and various creditor constituencies, enables creditors to realize the
greatest possible value under the circumstances, and, that as compared to any
alternative plan of reorganization, the Plan has the greatest chance to be
confirmed and consummated.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If no plan is confirmed, the Chapter 11 Cases may be converted to cases
under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be
elected or appointed to liquidate the Debtors' assets for distribution to
Creditors in accordance with the priorities established by the Bankruptcy Code.
It is impossible to predict precisely how the proceeds of the liquidation would
be distributed to the respective holders of Claims against or Interests in the
Debtors.
The Debtors believe that in a liquidation under Chapter 7, before
Creditors received any distribution, additional administrative expenses involved
in the appointment of a trustee or trustees and attorneys, accountants and other
professionals to assist such trustees would cause a substantial diminution in
the value of the Debtors'
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Estates. The assets available for distribution to Creditors would be reduced by
such additional expenses and by Claims, some of which would be entitled to
priority, which would arise by reason of the liquidation and from the rejection
of leases and other executory contracts in connection with the cessation of
operations and the failure to realize the greater going concern value of the
Debtors' assets.
The Debtors could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Debtors' assets could be sold in an orderly fashion over a more extended period
of time than in a liquidation under Chapter 7. Thus, a Chapter 11 liquidation
might result in larger recoveries than in a Chapter 7 liquidation, but the delay
in distributions could result in lower present values received and higher
administrative costs. Because a trustee is not required in a Chapter 11 case,
expenses for professional fees could be lower than in a Chapter 7 case, in which
a trustee must be appointed. Any distribution to the holders of Claims under a
Chapter 11 liquidation plan probably would be delayed substantially.
Although preferable to a Chapter 7 liquidation, the Debtors believe
that any alternative liquidation under Chapter 11 is a much less attractive
alternative to creditors than the Plan because of the greater return the Debtors
anticipate is provided by the Plan.
ARTICLE XIII.
THE SOLICITATION; VOTING PROCEDURE
A. SOLICITATION OF VOTES
This Disclosure Statement, including all Appendices hereto, together
with the related materials included herewith, is being furnished to the holders
of Class 6 and 7 Claims for the purposes of voting on the Plan. As a condition
to confirmation, the Bankruptcy Code requires that each Class of Impaired Claims
vote to accept the Plan, except under certain circumstances.
The Debtors may alter, amend, or modify the Plan or any Exhibits
thereto under section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Date, subject to the approval of the Required Lenders. After the
Confirmation Date and prior to substantial consummation of the Plan, as defined
in section 1101(2) of the Bankruptcy Code, the Reorganized Debtors may, under
section 1127(b) of the Bankruptcy Code, institute proceedings in the Bankruptcy
Court to remedy any defect or omission or reconcile any inconsistencies in the
Plan, the Disclosure Statement, or the Confirmation Order, and such matters as
may be necessary to carry out the purposes and effects of the Plan so long as
such proceedings do not materially adversely affect the treatment of holders of
Claims or Interests under the Plan; provided, however, that prior notice of such
proceedings shall be served in accordance with the Bankruptcy Rules or order of
the Bankruptcy Court.
B. VOTING DEADLINE
All votes to accept or reject the Plan must be cast by using the ballot
(the "Ballot") enclosed with this Disclosure Statement. No other votes will be
counted. Ballots must be RECEIVED by the Voting Agent no later than 5:00 p.m.
(Prevailing Eastern Time) on the Voting Deadline or if the date is extended as
set forth below, the period during which Ballots will be accepted will terminate
at 5:00 p.m. (Prevailing Eastern Time) on such extended date (in either case,
the "Voting Deadline").
The Debtors reserve the absolute right to extend, by oral or written
notice to the Voting Agent, the period of time (on a daily basis, if necessary)
during which Ballots will be accepted for any reason including, but not limited
to, determining whether or not the Requisite Acceptances have been received, by
making a public announcement of such extension no later than 9:00 a.m.
(Prevailing Eastern Time) on the first Business Day next succeeding the
previously announced Voting Deadline. Without limiting the manner in which the
Debtors may choose to make any
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public announcement, the Debtors will not have any obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
issuing a news release through the Dow Jones News Service. There can be no
assurance that the Debtors will exercise their right to extend the solicitation
period for the receipt of Ballots.
Except to the extent requested by the Debtors or as permitted by the
Bankruptcy Court, Ballots received after the Voting Deadline will not be counted
or otherwise used in connection with the Debtors' request for confirmation of
the Plan (or any permitted modification thereof).
C. VOTING PROCEDURES
The failure of a Holder of Class 6 or 7 Claim to deliver a duly
executed Ballot will be deemed to constitute an abstention by such Lender with
respect to voting on the Plan and such abstentions will not be counted as votes
for or against the Plan.
You should provide all of the information requested by the Ballots you
receive. You should complete and return all Ballots that you receive in the
return envelope provided with each such Ballot. IN NO CASE SHOULD A BALLOT BE
DELIVERED TO ANY ENTITY OTHER THAN THE VOTING AGENT.
D. FIDUCIARIES AND OTHER REPRESENTATIVES
If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corpora tion, or another acting in a fiduciary or
representative capacity, such person should indicate such capacity when signing
and, unless otherwise determined by the Debtors, must submit proper evidence
satisfactory to the Debtors of authority to so act. Authorized signatories
should submit the separate Ballot of each beneficial owner for whom they are
voting.
E. PARTIES IN INTEREST ENTITLED TO VOTE
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be "impaired" under a plan unless (i) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim or
interest entitles the holder thereof or (ii) notwithstanding any legal right to
an accelerated payment of such claim or interest, the plan cures all existing
defaults (other than defaults resulting from the occurrence of events of
bankruptcy) and reinstates the maturity of such claim or interest as it existed
before the default.
In general, a holder of a claim or interest may vote to accept or to
reject a plan if (i) the claim or interest is "allowed," which means generally
that no party in interest has objected to such claim or interest, and (ii) the
claim or interest is impaired by the plan. If, however, the holder of an
impaired claim or interest will not receive or retain any distribution under the
plan on account of such claim or interest, the Bankruptcy Code deems such holder
to have rejected the plan, and, accordingly, holders of such claims and
interests do not actually vote on the plan. If a claim or interest is not
impaired by the plan, the Bankruptcy Code deems the holder of such claim or
interest to have accepted the plan and, accordingly, holders of such claims and
interests are not entitled to vote on the plan.
F. CLASSES IMPAIRED UNDER THE PLAN
Classes 6 and 7 are entitled to vote to accept or reject the Plan,
provided, however, that in the event the Alternate Canadian Transactions are
implemented, the Canadian Impaired Unsecured Claims that make the U.S. Plan
Election shall not be entitled to vote on the Plan. If the Class 8 Solicitation
Order is entered, Classes 8A, 8B and 8C will be deemed to have rejected the Plan
and therefore will not be entitled to vote. If the Class 8 Solicitation Order is
not entered, then Classes 8A, 8B and 8C will be entitled to vote to accept or
reject the Plan. By operation of law, each Unimpaired Class of Claims is deemed
to have accepted the Plan and, therefore, is not entitled to vote to accept
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or the Plan. By operation of law, Class 9 is deemed to have rejected the
Plan and therefore is not entitled to vote to accept or reject the Plan.
G. WAIVERS OF DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed by the Bankruptcy Court, all questions as to
the validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of Ballots will be determined by the Voting Agent and
the Debtors in their sole discretion, which determination will be final and
binding. As indicated below under "Withdrawal of Ballots; Revocation," effective
withdrawals of Ballots must be delivered to the Voting Agent prior to the Voting
Deadline. The Debtors reserve the absolute right to contest the validity of any
such withdrawal. The Debtors also reserve the right to reject any and all
Ballots not in proper form, the acceptance of which would, in the opinion of the
Debtors or their counsel, be unlawful. The Debtors further reserve the right to
waive any defects or irregularities or conditions of delivery as to any
particular Ballot. The interpretation (including the Ballot and the respective
instructions thereto) by the Debtors, unless otherwise directed by the
Bankruptcy Court, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of Ballots must be cured
within such time as the Debtors (or the Bankruptcy Court) determine. Neither the
Debtors nor any other person will be under any duty to provide notification of
defects or irregularities with respect to deliveries of Ballots nor will any of
them incur any liabilities for failure to provide such notification. Unless
otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be
deemed to have been made until such irregularities have been cured or waived.
Ballots previously furnished (and as to which any irregularities have not
theretofore been cured or waived) will be invalidated.
H. WITHDRAWAL OF BALLOTS; REVOCATION
Any party who has delivered a valid Ballot for the acceptance or
rejection of the Plan may withdraw such acceptance or rejection by delivering a
written notice of withdrawal to the Voting Agent at any time prior to the Voting
Deadline. A notice of withdrawal, to be valid, must (i) contain the description
of the Claim(s) to which it relates and the aggregate principal amount
represented by such Claim(s), (ii) be signed by the withdrawing party in the
same manner as the Ballot being withdrawn, (iii) contain a certification that
the withdrawing party owns the Claim(s) and possesses the right to withdraw the
vote sought to be withdrawn and (iv) be received by the Voting Agent in a timely
manner at the address set forth in Article XIII below. The Debtors intend to
consult with the Voting Agent to determine whether any withdrawals of Ballots
were received and whether the Requisite Acceptan ces of the Plan have been
received. As stated above, the Debtors expressly reserve the absolute right to
contest the validity of any such withdrawals of Ballots.
Unless otherwise directed by the Bankruptcy Court, a purported notice
of withdrawal of Ballots which is not received in a timely manner by the Voting
Agent will not be effective to withdraw a previously cast Ballot.
Any party who has previously submitted to the Voting Agent prior to the
Voting Deadline a properly completed Ballot may revoke such Ballot and change
his or its vote by submitting to the Voting Agent prior to the Voting Deadline a
subsequent properly completed Ballot for acceptance or rejection of the Plan. In
the case where more than one timely, properly completed Ballot is received, only
the Ballot which bears the latest date will be counted for purposes of
determining whether the Requisite Acceptances have been received.
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I. FURTHER INFORMATION; ADDITIONAL COPIES
If you have any questions or require further information about the
voting procedure for voting your Claim or about the packet of material you
received, or if you wish to obtain an additional copy of the Plan, the
Disclosure Statement, or any exhibits or appendices to such documents (at your
own expense, unless otherwise specifically required by Bankruptcy Rule 3017(d)),
please contact the Voting Agent:
Philip Services Corp.
c/o
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
(743) 509-3190
113
<PAGE> 124
ARTICLE XIV.
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the
Debtors believe that confirmation and consummation of the Plan is preferable to
all other alternatives. Consequently, the Debtors, the Committee and the
Debenture Holders urge all holders of Class 6 and 7 Claims to vote to ACCEPT the
Plan, and to complete and return their ballots so that they will be RECEIVED by
the Voting Agent on or before 5:00 p.m. Prevailing Eastern Time on the Voting
Deadline.
Dated: Hamilton, Ontario
September 21, 1999
PHILIP SERVICES CORP.
(for itself and on behalf of the Debtors)
By: /s/ Phillip C. Widman
-----------------------
Name: Phillip C. Widman
Title: Chief Financial Officer
<PAGE> 125
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
David S. Kurtz
Jeffrey W. Linstrom
J. Gregory St. Clair
Timothy R. Pohl
333 W. Wacker Drive
Chicago, Illinois 60606-1285
(312) 407-0700
-and-
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
By: /s/ Gregg M. Galardi
--------------------------------------------
Gregg M. Galardi (I.D. #2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
Attorneys for Philip Services (Delaware), Inc., et al.
<PAGE> 126
APPENDIX A
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF PHILIP SERVICES (DELAWARE), INC., ET AL.
<PAGE> 127
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - - - X
:
IN RE :
: CHAPTER 11
PHILIP SERVICES (DELAWARE), INC., ET AL. : CASE NO. 99-02385 (MFW)
: (JOINTLY ADMINISTERED)
DEBTORS. :
:
- - - - - - - - - - - - - - - - - - - - - - - - - X
FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF PHILIP SERVICES (DELAWARE), INC., ET AL.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
David S. Kurtz
Jeffrey W. Linstrom
J. Gregory St. Clair
Timothy R. Pohl
333 W. Wacker Drive
Chicago, Illinois 60606-1285
(312) 407-0700
-and-
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Gregg M. Galardi (I.D.#2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
Attorneys for Philip Services (Delaware), Inc., et al.
Dated: September 21, 1999
<PAGE> 128
TABLE OF CONTENTS
PAGE
TABLE OF EXHIBITS..............................................................v
INTRODUCTION...................................................................1
ARTICLE I.
DEFINITIONS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW................................1
A. Scope of Definitions; Rules of Construction.................1
B. Definitions.................................................1
C. Rules of Interpretation....................................14
D. Computation of Time........................................14
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS..............................14
A. Introduction...............................................14
B. Unclassified Claims........................................15
1. DIP Facility Claims....................................15
2. Administrative Claims..................................15
3. Priority Tax Claims....................................15
C. Summary of Classified Claims and Interests.................15
D. Classification of Unimpaired Classes of Claims and
Interests .................................................15
1. Class 1: Other Priority Claims........................15
2. Class 2: Other Secured Claims.........................15
3. Class 3: General Unsecured Claims.....................16
4. Class 4: Intercompany Claims of Non-Debtors...........16
5. Class 5: Subsidiary Interests.........................16
E. Classification of Impaired Classes of Claims and
Interests .................................................16
1. Class 6: Secured Lender Claims........................16
2. Class 7: All Impaired Unsecured Claims................16
3. Class 8A: Old Common Shares............................16
4. Class 8B: Securities Claims in the Securities Actions..16
5. Class 8C: Other Securities Claims......................16
6. Class 9: Other Equity Securities......................16
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS...................................16
A. Unclassified Claims........................................16
1. DIP Facility Claims....................................16
2. Administrative Claims..................................17
3. Priority Tax Claims....................................17
B. Unimpaired Classes of Claims and Interests.................17
1. Class 1: Other Priority Claims........................17
2. Class 2: Other Secured Claims.........................17
3. Class 3: General Unsecured Claims.....................18
4. Class 4: Intercompany Claims of Non-Debtors...........18
5. Class 5: Subsidiary Interests.........................18
C. Impaired Classes of Claims and Interests...................18
1. Class 6: Secured Lender Claims........................18
2. Class 7: Impaired Unsecured Claims....................19
3. Class 8A: Old Common Shares............................20
4. Class 8B: Securities Claims in the Securities Actions..20
i
<PAGE> 129
5. Class 8C: Other Securities Claims......................21
6. Class 9: Other Equity Securities.......................21
D. Special Provision Regarding Unimpaired Claims..............21
E. Special Provision Regarding Canadian Class 8B and
Class 8C Holders...........................................22
F. Distributions to Certain Holders of Canadian Impaired
Unsecured Claims and Canadian Class 8B and 8C Holders......22
G. Distributions to Classes 6, 7, 8B and 8C if Canadian
Plan Condition Is Waived...................................22
H. Accrual Of Post-Petition Interest..........................23
ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN................................23
A. Continued Corporate Existence..............................23
B. Corporate Action...........................................23
1. Asset Transfer Pursuant to the Alternate Canadian
Transactions...........................................23
2. Cancellation of Old Securities and Agreements..........23
3. Certificate of Incorporation and Bylaws................24
4. Restructuring Transactions.............................24
5. Shareholder Rights Plan................................24
6. Reverse Stock Split....................................24
7. Shareholder Approval...................................24
C. Plan Transactions .........................................25
1. New Securities.........................................25
2. New Senior Secured Debt................................25
3. New Guaranties.........................................25
4. Exit Facility..........................................25
5. Tax Related Transactions...............................26
D. Directors and Officers.....................................26
E. Revesting of Assets; Releases of Liens.....................26
F. Preservation of Rights of Action...........................26
G. Effectuating Documents; Further Transactions...............27
H. Exemption from Certain Transfer Taxes......................27
I. Releases and Related Matters...............................27
1. Releases by Debtors....................................27
2. Releases by Holders of Lender Claims, Claims and
Interests..............................................28
3. Injunction Related to Releases.........................29
4. Reinstatement of Certain Releases......................29
J. Substantive Consolidation for Purposes of
Treating Impaired Claims...................................29
K. Contribution and Indemnity Claims Other Than Assumed
Indemnification Obligations................................30
L. Assumed Indemnification Obligations........................30
ARTICLE V.
ACCEPTANCE OR REJECTION OF THE PLAN.................................30
A. Classes Entitled to Vote...................................30
B. Acceptance by Impaired Classes.............................30
C. Cramdown...................................................30
ARTICLE VI.
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN.................31
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS..................................31
A. Distributions for Claims Allowed as of the
Effective Date.............................................31
B. Interest on Claims.........................................31
C. Distributions by Disbursing Agent and the Indenture
Trustee....................................................31
ii
<PAGE> 130
D. Record Date for Distributions to Holders of Lender
Claims and Old Debentures..................................32
E. Means of Cash Payment......................................32
F. Calculation of Distribution Amounts........................32
1. New Common Shares......................................32
2. New Debt Securities....................................32
3. Conversion Rate........................................32
G. Delivery of Distributions..................................32
H. Surrender of Securities and Instruments....................33
1. Notes and Old Debentures...............................33
2. Lost, Mutilated or Destroyed Notes or Old Debentures...33
3. Failure to Surrender Canceled Note or Old Debentures...33
I. Withholding and Reporting Requirements.....................33
J. Setoffs....................................................33
ARTICLE VIII.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES................................................34
A. Assumed Contracts and Leases...............................34
B. Payments Related to Assumption of Contracts and Leases.....34
C. Rejected Contracts and Leases..............................34
D. Compensation and Benefit Programs..........................34
ARTICLE IX.
PROCEDURES FOR RESOLVING DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND DISPUTED INTERESTS..........35
A. Prosecution of Objections..................................35
B. No Distributions Pending Allowance.........................35
C. Disputed Distribution Reserve; Reserve for Subsequent
Distributions to Qualifying Class 7 Creditors..............35
D. Distributions After Allowance of Class 7 Claims and
Canadian Impaired Unsecured Claims.........................35
E. Distribution Procedures for Class 8 Claims and Interests...36
ARTICLE X.
CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN...36
A. Conditions to Confirmation.................................36
B. Conditions to Effective Date...............................36
C. Waiver of Conditions.......................................38
ARTICLE XI.
MODIFICATIONS AND AMENDMENTS........................................38
ARTICLE XII.
RETENTION OF JURISDICTION...........................................38
ARTICLE XIII.
COMPROMISES AND SETTLEMENTS.........................................40
ARTICLE XIV.
MISCELLANEOUS PROVISIONS............................................40
A. Bar Dates For Certain Post-Petition Claims.................40
1. Administrative Claims; Substantial Contribution
Claims.................................................40
2. Professional Fee Claims................................40
iii
<PAGE> 131
B. Payment of Statutory Fees..................................40
C. Severability of Plan Provisions............................41
D. Successors and Assigns.....................................41
E. Releases and Satisfaction of Subordination Rights..........41
F. Discharge of the Debtors; Injunction.......................41
1. Discharge..............................................41
2. Injunction.............................................42
G. Committees.................................................42
H. Exculpation and Limitation of Liability; Indemnity.........43
I. Binding Effect.............................................44
J. Revocation, Withdrawal or Non-Consummation.................44
K. Plan Supplement............................................44
L. Notices....................................................44
M. Payment of Certain Fees and Expenses.......................45
N. Prepayment.................................................45
O. Term of Injunctions or Stays...............................45
P. Governing Law..............................................45
iv
<PAGE> 132
TABLE OF EXHIBITS
EXHIBIT NAME
------- ----
A List of Subsidiary Debtors
B List of Impaired Unsecured Claims
C List of Canadian Impaired Unsecured Claims
D Canadian Reorganization Plan
v
<PAGE> 133
INTRODUCTION
Philip Services (Delaware), Inc., a Delaware corporation ("PSI"),
Philip Services Corp., an Ontario corporation ("PSC"), and those entities listed
on Exhibit A hereto (the "Subsidiary Debtors") hereby propose the following
joint plan of reorganization (the "Plan") for the resolution of their
outstanding creditor Claims and equity Interests. The Debtors are the proponents
of this Plan within the meaning of section 1129 of the Bankruptcy Code. All
capitalized terms not defined in this Introduction have the meanings ascribed in
Article I of this Plan. Reference is made to the Disclosure Statement,
distributed contemporaneously herewith, for a discussion of the Debtors'
history, businesses, properties, results of operations, projections for future
operations, risk factors, a summary and analysis of the Plan, and certain
related matters, including the New Securities to be issued under the Plan.
As explained in the Disclosure Statement, the precise treatment of
certain classes of Claims and Interests under the Plan differs depending on
which of two alternative restructurings are implemented in the Canadian CCAA
proceedings of PSC and the other Canadian Debtors: the Canadian Reorganization
Plan or the Alternate Canadian Transactions. If the Canadian Reorganization Plan
is sanctioned, PSC and the other Canadian Debtors will reorganize and PSC, as
reorganized, will emerge from chapter 11 and its CCAA proceedings as the
ultimate parent company of the Reorganized Debtors and the Canadian Debtors.
Alternatively, if the Alternate Canadian Transactions are implemented, the
reorganization of the Canadian Debtors will be accomplished through the transfer
of the businesses of the Canadian Debtors as going concerns to one or more
direct or indirect subsidiaries of Reorganized PSI, with certain claims and
causes of action and other assets being retained by PSC and the other Canadian
Debtors, subject to the Lenders' security interests and Reorganized PSI will
emerge from chapter 11 as the ultimate parent company of the Reorganized
Debtors. In addition, the precise treatment of certain classes of Claims and
Interests under the Plan may differ if the Debtors waive the condition to the
Effective Date of this Plan that either the Canadian Reorganization Plan has
been sanctioned or the Alternate Canadian Transactions have been implemented and
thus this Plan becomes effective before the outcome of the Canadian Debtors'
CCAA proceedings has been determined. The Debtors believe that there will not be
a material economic impact on the nature or value of the distributions to be
made under this Plan as a result of which of these alternatives are implemented.
All holders of Claims and all holders of Interests are encouraged to
read this Plan and the Disclosure Statement in their entirety before voting to
accept or reject this Plan. Subject to certain restrictions and requirements set
forth in section 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019 and
Article XI of this Plan, the Debtors reserve the right to alter, amend, modify,
revoke or withdraw this Plan prior to its substantial consummation.
ARTICLE I.
DEFINITIONS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. SCOPE OF DEFINITIONS; RULES OF CONSTRUCTION
For purposes of this Plan, except as expressly provided or unless the
context otherwise requires, all capitalized terms not otherwise defined shall
have the meanings ascribed to them in Article I of this Plan. Any term used in
this Plan that is not defined herein, but is defined in the Bankruptcy Code or
the Bankruptcy Rules, shall have the meaning ascribed to that term in the
Bankruptcy Code or the Bankruptcy Rules. Whenever the context requires, such
terms shall include the plural as well as the singular number, the masculine
gender shall include the feminine, and the feminine gender shall include the
masculine.
B. DEFINITIONS
1.1 "Account Intermediaries" means (a) CIBC in its capacity as
the provider of the CIBC Bank Account Services, (b) Comerica and its affiliates
in their respective capacities as the providers of Comerica Bank Account
Services and (c) for purposes of Articles IV.I.1 and IV.I.2, includes Royal Bank
of Canada in its capacity as the former provider of bank account services to one
or more of the Canadian Debtors.
1.2 "Administrative Agent" means CIBC or its successor as
administrative agent for the Lenders under the Pre-Petition Credit Agreement.
1.3 "Administrative Claim" means a Claim for payment of an
administrative expense of a kind specified in section 503(b) or 1114(e)(2) of
the Bankruptcy Code and entitled to priority pursuant to section 507(a)(1) of
the Bankruptcy Code,
<PAGE> 134
including, but not limited to, (a) the actual, necessary costs and expenses,
incurred after the Petition Date, of preserving the Estates and operating the
businesses of the Debtors, including wages, salaries or commissions for services
rendered after the commencement of the Chapter 11 Cases, (b) Professional Fee
Claims, (c) all fees and charges assessed against the Estates under 28 U.S.C.
ss. 1930 and (d) all Allowed Claims that are entitled to be treated as
Administrative Claims pursuant to a Final Order of the Bankruptcy Court under
section 546(c)(2)(A)of the Bankruptcy Code.
1.4 "Agreed LC Claim" means $20 million.
1.5 "Allowed Canadian Impaired Unsecured Claim" means (a) with
respect to a Canadian Impaired Unsecured Claims the holder of which has made the
U.S. Plan Election, if the Alternate Canadian Transactions are implemented, (1)
a claim as to which no objection to allowance or request for estimation has been
interposed on or before the Effective Date or the expiration of such other
applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy
Rules or the Bankruptcy Court, (2) as to which any objection to its allowance
has been settled, waived through payment, or withdrawn, or has been denied by a
Final Order, and (3) that has been allowed by a Final Order and (b) with respect
to a Canadian Impaired Unsecured Claim if the Canadian Reorganization Plan is
sanctioned, a claim that has been allowed pursuant to the Canadian
Reorganization Plan.
1.6 "Allowed Claim" means a Claim (a) as to which no objection to
allowance or request for estimation has been interposed on or before the
Effective Date or the expiration of such other applicable period of limitation
fixed by the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, (b)
as to which any objection to its allowance has been settled, waived through
payment, or withdrawn, or has been denied by a Final Order, (c) that has been
allowed by a Final Order or (d) that is expressly allowed in a liquidated amount
in the Plan; provided, however, that, with respect to an Administrative Claim,
"Allowed Claim" means an Administrative Claim allowed in accordance with Article
XIV.A of this Plan; provided further, however, that all Class 1, 2, 3 and 4
Claims, if any, shall, except as otherwise provided herein or in Orders of the
Bankruptcy Court, be treated for all purposes as if the Chapter 11 Cases were
not filed, and the determination of whether any such Claims shall be allowed
and/or the amount of any such Claims (as to which no proof of Claim need be
filed) shall be determined, resolved or adjudicated, as the case may be, in the
manner in which such Claim would have been determined, resolved or adjudicated
if the Chapter 11 Cases had not been commenced.
1.7 "Allowed" means, when used in reference to a Claim or Interest
within a particular Class, an Allowed Claim or Allowed Interest of the type
described in such Class.
1.8 "Allowed Class . . . Claim" means an Allowed Claim in the
particular Class described.
1.9 "Allowed Class . . . Interest" means an Interest in the
particular Class described (a) that has been allowed by a Final Order, (b) for
which (i) no objection to its allowance has been filed within the periods of
limitation fixed by the Bankruptcy Code or by any Final Order of the Bankruptcy
Court or (ii) any objection to its allowance has been settled or withdrawn, or
(c) that is expressly allowed in the Plan.
1.10 "Allwaste Lock-up Agreement" means the Term Sheet executed
as of July 8, 1999 by Kornitzer Capital Management, Inc. and Great Plains
Trust Company.
1.11 "Alternate Canadian Transactions" means, if the Canadian
Reorganization Plan is not sanctioned, the series of transactions pursuant to
which the Lenders will enforce the remedies available to them under Canadian law
against one or more of PSC or the other Canadian Debtors; the businesses of the
Canadian Debtors will be transferred as going concerns to one or more direct or
indirect subsidiaries of Reorganized PSI; and the proceeds of such transfers
will be distributed in accordance with the priorities under Canadian law of the
claims against the transferred assets.
1.12 "Amended and Restated Term Credit Agreement" means
collectively, the agreement, together with ancillary documents, to be entered
into among Reorganized PSC and/or Reorganized PSI and holders of Secured Lender
Claims as of the Effective Date, pursuant to which the New Senior Secured Term
Debt and New Secured PIK Debt will be governed, which agreement shall be
substantially in the form included in the Plan Supplement.
1.13 "Amended Certificates of Incorporation and Bylaws" means the
Reorganized Debtors' certificates of incorporation and bylaws, as amended by the
Plan.
1.14 "Assumed Indemnification Obligations" means (a) the
obligations of PSC pursuant to section 7.02 of its bylaws to indemnify current
and former directors and officers, on the terms and subject to the limitations
described therein, if and to the extent that such indemnification is permissible
under the Ontario Business Corporations Act or such other applicable governing
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corporate statute and (b) the obligations of the Debtors other than PSC to
indemnify current and former directors and officers under their respective
bylaws to the extent such indemnification obligations are not more expansive
than those of PSC under section 7.02 of its bylaws if and to the extent such
indemnification is permissible under the applicable governing corporate statute
of the applicable Debtor, in each case, including any affirmative obligation of
the Debtors to indemnify current and former directors and officers in connection
with any governmental, regulatory or enforcement investigation or action and in
each case solely with respect to such officer or director actions subsequent to
becoming an officer or director of PSC or of a direct or indirect subsidiary or
affiliate of PSC. Notwithstanding anything herein to the contrary, Assumed
Indemnification Obligations shall not include any Excluded Indemnification
Obligations.
1.15 "Ballots" means each of the ballot forms distributed with the
Disclosure Statement to holders of Impaired Claims and/or Interests entitled to
vote under Article II hereof in connection with the solicitation of acceptances
of the Plan.
1.16 "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
codified in title 11 of the United States Code, 11 U.S.C. ss.ss. 101-1330, as
now in effect or hereafter amended.
1.17 "Bankruptcy Court" means the United States Bankruptcy Court
for the District of Delaware or such other court as may have jurisdiction over
the Chapter 11 Cases.
1.18 "Bankruptcy Rules" means collectively the Federal Rules of
Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal
Rules of Civil Procedure, as amended, as applicable to the Chapter 11 Cases or
proceedings therein, and the Local Rules of the Bankruptcy Court, as applicable
to the Chapter 11 Cases or proceedings therein, as the case may be.
1.19 "BTCo" means Bankers Trust Company.
1.20 "Bar Date(s)" means the date(s), if any, designated by the
Bankruptcy Court as the last dates for filing Proofs of Claim or Interest
against the Debtors.
1.21 "Bonding Lien Order" means the Stipulation and Order
Authorizing Debtors to Obtain Post-Petition Surety Bonds and to Enter into
Indemnity Agreement and Intercreditor Agreement, dated June 28, 1999.
1.22 "Business Day" means any day, excluding Saturdays, Sundays or
"legal holidays" (as defined in Fed. R. Bankr. P. 9006(a)), on which commercial
banks are open for business in New York, New York.
1.23 "Canadian Bankruptcy Court" means the Ontario Superior Court
of Justice.
1.24 "Canadian Claim" means (a) a claim of a Canadian resident
against a Canadian Debtor that has not also been asserted against a United
States Debtor and (b) a claim of a United States resident against a Canadian
Debtor other than PSC that has not also been asserted against a United States
Debtor.
1.25 "Canadian Class Action" means the putative class action
entitled Menegon v. Philip Services Corp., et al., File No. 4166 CP 98 (Ontario
Court, General Division).
1.26 "Canadian Class 8B Holder" means a Canadian resident that is a
holder of a claim that would be classified in Class 8B if such holder was not a
Canadian resident.
1.27 "Canadian Class 8C Holder" means a Canadian resident that is a
holder of a claim that would be classified in Class 8C if such holder was not a
Canadian resident.
1.28 "Canadian Debtors" means PSC and the Subsidiaries that have
commenced proceedings in the Canadian Bankruptcy Court under the CCAA.
1.29 "Canadian Impaired Unsecured Claims" means those Canadian
Claims listed on Exhibit C hereto, as amended or supplemented from time to time.
1.30 "Canadian Plan Condition" means the condition to the Effective
Date contained in Article X.B.6.
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1.31 "Canadian Proof of Claim and Election" means the form to be received by
Logan & Company Inc. by the Voting Deadline by a holder of a Canadian Impaired
Unsecured Claim or Canadian Class 8C Holder (a) voluntarily and irrevocably
electing to submit to the personal and subject matter jurisdiction of the
Bankruptcy Court for purposes of participating in distributions under this Plan,
(b) voluntarily and irrevocably consenting to have the allowance and priority of
such holder's claim determined in accordance with the provisions of the
Bankruptcy Code, (c) voluntarily and irrevocably agreeing to be bound by the
provisions of the Plan in all respects and (d) asserting the amount of such
holder's claim, a copy of which shall be included in the solicitation materials
distributed to holders of Canadian Impaired Unsecured Claims and Canadian Class
8C Holders.
1.32 "Canadian Reorganization Plan" means the Plan of Compromise and
Arrangement proposed by the Canadian Debtors in their CCAA proceedings providing
for the reorganization of PSC and the other Canadian Debtors, as may be amended
from time to time.
1.33 "Cash" means legal tender of the United States or equivalents thereof.
1.34 "Cash Collateral Order" means the Amended Final Stipulation and Order
Authorizing and Restricting Use of Cash Collateral and Granting Adequate
Protection of Secured Claims, dated July 29, 1999.
1.35 "CCAA" means the Companies' Creditors Arrangement Act (Canada).
1.36 "Chapter 11 Cases" means the jointly administered Chapter 11 cases
of the Debtors.
1.37 "Chazen Actions" means the actions filed by a group of former
shareholders of the Southern-Foundry Supply group of companies captioned Gary D.
Chazen, Robert G. Chazen, Julius L. Chazen and Ruth E. Chazen v. Philip Metals
Inc., et al., Case No:99 Civ. 2797 (MBM) (dismissed); and Stephen M. Chazen v.
Philip Metals Inc., previously known as Philip Metals (Ohio) Inc., Philip
Services Corp., Allen Fracassi, and Robert Waxman, No: CV9801642, in the Circuit
Court of Jefferson County, Alabama (subsequently dismissed in favor of
arbitration), and any and all actions that could be asserted by such Plaintiffs
based upon the facts that have been or could be alleged in these actions or any
other facts arising out of the acquisition by PSC of the Southern-Foundry Supply
group of companies.
1.38 "Chazen Claims" means any Claims arising out of the Chazen Actions.
1.39 "CIBC" means Canadian Imperial Bank of Commerce.
1.40 "CIBC Bank Account Services" means "CIBC Bank Account Services" as
defined in the Pre-Petition Credit Agreement.
1.41 "Claim" means a claim, as such term is defined by section 101(5) of the
Bankruptcy Code, against the Debtors, or any of them, whether or not asserted.
1.42 "Claims Objection Deadline" means the last day for filing objections to
Claims (other than Claims set forth in Article 1.82), which day shall be
established by an order of the Bankruptcy Court.
1.43 "Claims Estimation Deadline" means the last day for filing a request
for estimation of a Disputed Class 7 Claim (and if the Alternate Canadian
Transactions are implemented, a Disputed Canadian Impaired Unsecured Claim the
holder of which has made the U.S. Plan Election if the Alternate Canadian
Transactions are implemented), for the purpose of establishing the Disputed
Claims Reserve, which day shall be 15 days after the Confirmation Date.
1.44 "Class" means a category of holders of Claims or Interests, as
described in Article II below.
1.45 "Class 6 Additional Distribution" means, if the Alternate Canadian
Transactions are implemented (a) an amount of Reorganized PSI Common Shares
equivalent to the aggregate amount of New Common Shares after the Reverse Stock
Split to which holders of Canadian Impaired Unsecured Claims that do not make
the U.S. Plan Election would have been entitled if the Canadian Reorganization
Plan had been sanctioned as of the Effective Date (based on the Debtors'
estimate of the Allowed amount of such claims) and (b) an amount of New
Unsecured PIK Notes equal to the aggregate amount to which holders of Canadian
Impaired Unsecured Claims that do not make the U.S. Plan Election would have
been entitled if they had each made the U.S. Plan Election (based on the
Debtors' estimate of the Allowed amount of such claims).
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1.46 "Class 7 Election" means that election to be made by Qualifying Class 7
Creditors on the Ballot to be submitted on or before the Voting Deadline as to a
distribution of New Unsecured PIK Notes or New Unsecured Convertible Notes
pursuant to Article III.C.2.
1.47 "Class 8 Solicitation Order" means a Final Order of the Bankruptcy
Court or other court of competent jurisdiction in form and substance
satisfactory to PSC providing that Class 8 is not entitled to vote on the Plan
and Class 8 is deemed to have rejected the Plan.
1.48 "Collateral" means any property or interest in the property of a
Debtor's Estate subject to a Lien to secure the payment or performance of a
Claim, which Lien is not subject to avoidance under the Bankruptcy Code or
otherwise invalid under the Bankruptcy Code or applicable state law.
1.49 "Comerica Bank Account Services" means "Comerica Bank Account Services"
as defined in the Pre-Petition Credit Agreement.
1.50 "Confirmation" means entry by the Bankruptcy Court of the Confirmation
Order.
1.51 "Confirmation Date" means the date of entry by the clerk of the
Bankruptcy Court of the Confirmation Order.
1.52 "Confirmation Hearing" means the hearing to consider confirmation of
the Plan under section 1128 of the Bankruptcy Code.
1.53 "Confirmation Order" means the order entered by the Bankruptcy Court
confirming the Plan.
1.54 "Credit Documents" means the "Credit Documents" as defined in the
Pre-Petition Credit Agreement.
1.55 "Creditor" means any Person who holds a Claim against any of the
Debtors.
1.56 "Creditors' Committee" means the committee of unsecured creditors
appointed pursuant to section 1102(a) of the Bankruptcy Code in the Chapter 11
Cases.
1.57 "Cure" means the distribution of Cash, or such other property as may be
agreed upon by the parties or ordered by the Bankruptcy Court, with respect to
the assumption of an executory contract or unexpired lease, pursuant to section
365(b) of the Bankruptcy Code, in an amount equal to all unpaid monetary
obligations, without interest, or such other amount as may be agreed upon by the
parties, under such executory contract or unexpired lease, to the extent such
obligations are enforceable under the Bankruptcy Code and applicable
nonbankruptcy law.
1.58 "Debtor(s)" means individually PSI, PSC and each of the Subsidiary
Debtors, and collectively, PSI, PSC and the Subsidiary Debtors, including in
their capacity as debtors-in-possession pursuant to sections 1107 and 1108 of
the Bankruptcy Code, and as reorganized hereunder.
1.59 "Deloitte & Touche" means Deloitte & Touche, its successors and
affiliates.
1.60 "Dilution" means dilution subsequent to the Effective Date (a) to the
extent necessary to give effect to the convertibility of the New Secured PIK
Debt, the New Unsecured Convertible Notes and the exercise of the Management
Options or (b) otherwise as a result of the issuance of common shares,
implementation of other management incentive programs or other action taken by
the board of directors of Reorganized PSC (if the Canadian Reorganization Plan
is sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived).
1.61 "DIP Agent" means BTCo, in its capacity as administrative agent under
the DIP Facility Agreement.
1.62 "DIP Co-Arrangers" means BTCo and CIBC, in their capacities as
co-arrangers of the DIP Facility.
1.63 "DIP Facility" means the debtor-in-possession credit facility provided
to the Debtors during the Chapter 11 Cases in the principal amount of $100
million of available credit, pursuant to the DIP Facility Agreement.
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1.64 "DIP Facility Agreement" means the Credit Agreement between PSC and PSI
as borrowers, the Subsidiary Debtors as guarantors, certain other Subsidiaries
as guarantors, the DIP Agent, and the DIP Co-Arrangers, and the other lender
signatories thereto.
1.65 "DIP Facility Claim" means a Claim arising under or as a result of the
DIP Facility.
1.66 "DIP Order" means the Interim Order Authorizing Debtors to Obtain
Post-Petition Financing Pursuant to 11 U.S.C. ss.ss.364(c) and 364(d), dated
July 27, 1999.
1.67 "Disbursing Agent" means Reorganized PSC (if the Canadian
Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian
Transactions are implemented or the Canadian Plan Condition is waived) or any
party designated by Reorganized PSC or PSI as applicable, to serve as a
disbursing agent under the Plan and, with respect to the Old Debentures, shall
mean the indenture trustee under the Old Indenture.
1.68 "Disclosure Statement" means the written disclosure statement that
relates to the Plan, as amended, supplemented or modified from time to time and
that is prepared and distributed in accordance with section 1125 of the
Bankruptcy Code and Fed. R. Bankr. P. 3018.
1.69 "Disputed Canadian Impaired Unsecured Claim" means a Canadian Impaired
Unsecured Claim that has not become an Allowed Canadian Impaired Unsecured Claim
or been estimated pursuant to the Plan, the Confirmation Order, Stipulation or a
Final Order of the Bankruptcy Court.
1.70 "Disputed Class 7 Claim" means any Impaired Unsecured Claim which has
not become an Allowed Claim, or been estimated pursuant to the Plan, the
Confirmation Order, Stipulation or a Final Order of the Bankruptcy Court.
1.71 "Disputed Class 7 and Canadian Impaired Unsecured Claim Amount" means
(a) if a liquidated amount is set forth in the Proof of Claim relating to a
Disputed Class 7 Claim (or a Disputed Canadian Impaired Unsecured Claim the
holder of which has made the U.S. Plan Election if the Alternate Canadian
Transactions are implemented), (i) the liquidated amount set forth in such Proof
of Claim; (ii) an amount agreed to by the Debtors and the holder of such Claim
or Disputed Canadian Impaired Unsecured Claim; or (iii) if a request for
estimation is filed by the Debtors or other parties in interest by the Claims
Estimation Deadline, the amount at which such Claim or Canadian Impaired
Unsecured Claim is estimated by the Bankruptcy Court; (b) if no liquidated
amount is set forth in the Proof of Claim relating to a Disputed Class 7 Claim
(or a Disputed Canadian Impaired Unsecured Claim the holder of which has made
the U.S. Plan Election if the Alternate Canadian Transactions are implemented),
(i) an amount agreed to by the Debtors and the holder of such Disputed Class 7
Claim or Disputed Canadian Impaired Unsecured Claim or (ii) the amount estimated
by the Bankruptcy Court with respect to such Disputed Class 7 Claim or Disputed
Canadian Impaired Unsecured Claim, provided, however, that the Debtors, the
claimant or other parties in interest must file a request for estimation of such
Disputed Class 7 Claim or Disputed Canadian Impaired Unsecured Claim no later
than the Claims Estimation Deadline; (c) if the Claim was listed on the Impaired
Unsecured Claims List as unliquidated, contingent or disputed and no Proof of
Claim was filed, or deemed to have been filed, by the applicable Bar Date and
the Claim has not been resolved by written agreement of the parties or an order
of the Bankruptcy Court, zero; (d) if the Alternate Canadian Transactions are
implemented the Debtors' estimate of the maximum aggregate liability for
Disputed Canadian Impaired Unsecured Claims the holders of which have not made
the U.S. Plan Election or (e) if the Canadian Reorganization Plan is sanctioned,
the maximum aggregate liability for Canadian Impaired Unsecured Claims as
determined under the Canadian Reorganization Plan.
1.72 "Disputed Distribution Reserve" means the reserve, if any, established
and maintained by the Disbursing Agent, into which the Reorganized Debtors shall
deposit the amount of New Unsecured PIK Notes and New Common Shares (or
Reorganized PSI Common Shares if applicable) determined pursuant to Article IX.C
hereof.
1.73 "Distribution Date" means the date, occurring as soon as practicable
after the Effective Date, upon which distributions are made by the Reorganized
Debtors, provided that (a) distributions to holders of Allowed DIP Facility,
Allowed Administrative, Allowed Priority Tax and Allowed Class 6 Claims shall be
made within thirty (30) Business Days after the Effective Date and (b)
distributions to holders of (i) Allowed Class 7 Claims and (ii) if the Alternate
Canadian Transactions are implemented, on account of Canadian Impaired Unsecured
Claims that make the U.S. Plan Election and with respect to the Class 6
Additional Distribution, shall not occur prior to the estimation of Disputed
Class 7 Claims and Disputed Canadian Impaired Unsecured Claims for the purpose
of establishing the Disputed Distribution Reserve as set forth in Article IX.C.
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1.74 "Distribution Record Date" means the record date for purposes of making
distributions under the Plan on account of Allowed Claims or Interests, which
date shall be the Confirmation Date or such other date designated in the
Confirmation Order.
1.75 "Effective Date" means the Business Day on which all conditions to the
consummation of the Plan as set forth in Article X.B hereof have been satisfied
or waived as provided in Article X.C hereof and is the effective date of the
Plan.
1.76 "Estate(s)" means individually the estate of each Debtor in the Chapter
11 Cases, and, collectively, the estates of all Debtors in the Chapter 11 Cases,
created pursuant to section 541 of the Bankruptcy Code.
1.77 "Excess Proceeds Account" means a separate interest-bearing account
established by the DIP Agent into which Net Asset Sale Proceeds of all asset
sales of PSC and the Subsidiaries consummated on or after the Petition Date are
deposited and into which all proceeds at any time deposited into the
Pre-Petition Proceeds Account (without giving effect to any disbursements from
the Pre-Petition Proceeds Account prior to the Petition Date) in excess of
$93,000,000 (after post-closing adjustments of no greater than $4,000,000
deposited into the Pre-Petition Proceeds Account with respect to the sale of
certain assets of PSC's aluminum division prior to the Petition Date) shall also
be deposited, which funds shall be held by the DIP Agent to be distributed in
accordance with this Plan on the Effective Date.
1.78 "Excluded Indemnification Obligations" means (i) the obligations of the
Debtors to indemnify any current or former officers, directors or employees
solely as to claims actually asserted as of the Petition Date, or claims
asserted after the Petition Date in the following actions or in actions
initiated after the Petition Date, in each case arising out of or related to the
same nucleus of operative facts alleged in the following actions as of the
Petition Date or when such actions were filed: (A) the consolidated, putative
class action entitled In re Philip Services, Corp Securities Litigation, 98 CV
835 (MBM), previously pending against PSC in the United States District Court
for the Southern District of New York, and the putative class action entitled
Menegon v. Philip Services Corp., et al., File No. 4166 CP 98 (Ontario Court,
General Division), (B) the action filed by a group of former shareholders of the
Steiner-Liff Metals group of companies on October 6, 1998, with the American
Arbitration Association captioned In re Liff Arbitration, Case No. 39 Y 1680012
98 and the litigation styled Liff v. Chodos, Case No. 99 Civ. 1322 (dismissed
and pending appeal), (C) the actions filed by a group of former shareholders of
the Southern-Foundry Supply group of companies captioned Gary D. Chazen, Robert
G. Chazen, Julius L. Chazen and Ruth E. Chazen v. Philip Metals Inc., et al.,
Case No:99 Civ. 2797 (MBM) (S.D.N.Y.) (dismissed); and Stephen M. Chazen v.
Philip Metals Inc., previously known as Philip Metals (Ohio) Inc., Philip
Services Corp., Allen Fracassi, and Robert Waxman, No: CV9801642, in the Circuit
Court of Jefferson County, Alabama (subsequently dismissed in favor of
arbitration) and (D) the action captioned Great Plains Trust Company and
Kornitzer Capital Management, Inc. v. Robert M. Christe, R.L. Nelson, Jr., T.
Wayne Wren, Jr., Michael W. Ramirez, David E. Fanta, James E. Rief, William L.
Fiedler, Michael A. Baker, John U. Clarke, Frank A. Rossi, Thomas J. Tierney and
T. Michael Young, No. 1999-38771, in the District Court of Harris County, Texas;
(ii) any claims for reimbursement, contribution or indemnity that may be
asserted by Robert Waxman, Greg Madesker, Rik Barrese, Drew Luntz, Andrew Luntz
and John Luntz; (iii) any claims for reimbursement, contribution or indemnity
asserted by present or former professionals or advisors of the Debtors or
Subsidiaries, including, without limitation, Deloitte & Touche, any insurance
brokers retained by the Debtors, accountants, auditors, financial consultants,
underwriters or attorneys as to claims arising out of the matters alleged in the
Securities Actions, the Chazen Actions, the Liff Actions, the Great Plains
Action, or in any action initiated after the Petition Date based upon similar
factual allegations or alleging similar causes of action and any indemnification
obligation of such professionals or advisors of the kind described in section
510(b) of the Bankruptcy Code or subject to subordination pursuant to section
510(c) of the Bankruptcy Code and (iv) any reimbursement, contribution or
indemnity obligations to current or former directors or officers of any Debtor
that are more expansive than those contained in section 7.02 of PSC's bylaws or
which are not permissible under the applicable governing corporate statute of
the applicable Debtor; provided, however, that "Excluded Indemnification
Obligations" shall not impact the setoff rights, if any, of any party, and shall
not include Assumed Indemnification Obligations in connection with any
governmental, regulatory or enforcement investigation or action or Assumed
Indemnification Obligations to pay the reasonable defense costs of any
individual who was a director, officer or employee of a Debtor as of the
Petition Date in connection with any third party complaint or claim by Deloitte
& Touche and/or Robert Waxman against such officer, director or employee in
connection with any action commenced by the Debtors, the Reorganized Debtors or
the Lenders against Deloitte & Touche arising out of the same nucleus of
operative facts alleged in the Securities Actions, the Chazen Actions or the
Liff Actions.
1.79 "Exit Facility" means the new senior secured credit facility in an
aggregate principal amount of approximately $125 million, which the Reorganized
Debtors anticipate entering into as a condition to the consummation of the Plan.
1.80 "Exit Lender(s)" means the lender(s) under the Exit Facility.
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1.81 "Final Order" means an order or judgment of the Bankruptcy Court, as
entered on the docket in the Chapter 11 Cases, or the order or judgment of any
other court of competent jurisdiction, the operation or effect of which has not
been stayed, reversed, or amended and as to which order or judgment (or any
revision, modification or amendment thereof) the time to appeal or seek review
or rehearing has expired and as to which no appeal or petition for review or
rehearing was filed or, if filed, remains pending.
1.82 "General Unsecured Claim" means a Claim against the Debtors, that is
not a DIP Facility Claim, Administrative Claim, Priority Tax Claim, Other
Priority Claim, Other Secured Claim, Intercompany Claim of a Non-Debtor, Secured
Lender Claim, Unsecured Lender Claim, Impaired Unsecured Claim, Securities
Claim, Other Securities Claim or Excluded Indemnification Obligation.
1.83 "Great Plains Action" means the action captioned Great Plains Trust
Company and Kornitzer Capital Management, Inc. v. Robert M. Christe, R.L.
Nelson, Jr., T. Wayne Wren, Jr., Michael W. Ramirez, David E. Fanta, James E.
Rief, William L. Fiedler, Michael A. Baker, John U. Clarke, Frank A. Rossi,
Thomas J. Tierney and T. Michael Young, No. 1999-38771, in the District Court of
Harris County, Texas.
1.84 "Impaired" means, when used with reference to a Claim or Interest, a
Claim or Interest that is impaired within the meaning of section 1124 of the
Bankruptcy Code.
1.85 "Impaired Trade Claims" means Claims in excess of $50,000 of trade
vendors who do not agree to continue to provide trade credit to the Debtors in
accordance with terms provided prior to the Petition Date or who have not
actually provided such terms during the Chapter 11 Cases.
1.86 "Impaired Unsecured Claims" means collectively the Claims listed on the
Impaired Unsecured Claims List, the Unsecured Lender Claims, the Old Debenture
Claims, Impaired Trade Claims and Claims of parties to executory contracts and
leases that are rejected in the Chapter 11 Cases.
1.87 "Impaired Unsecured Claims List" means the list of Impaired Unsecured
Claims attached hereto as Exhibit B as amended or supplemented from time to
time.
1.88 "Indenture Trustee" means First Union National Bank or its successor,
in either case in its capacity as indenture trustee for the Old Debentures.
1.89 "Intercompany Claim" means, as the case may be, any Claim of (a) any
Subsidiary against a Debtor, (b) any Subsidiary against any other Subsidiary, or
(c) PSC against any Subsidiary.
1.90 "Interest" means (a) the legal, equitable, contractual and other rights
of any Person (including any 401K plan or plan participant) with respect to Old
Common Shares, Old Stock Options or any Other Equity Securities of any Debtor
and (b) the legal, equitable, contractual or other rights of any Person to
acquire or receive any of the foregoing.
1.91 "LC Lenders" means the "LC Lenders" as defined in the Pre-Petition
Credit Agreement.
1.92 "Lender" means a "Lender" as defined in the Pre-Petition Credit
Agreement, CIBC as Administrative Agent, BTCo as syndication agent, CIBC and
BTCo as co-arrangers, and their individual successors and assigns.
1.93 "Lender Claim" means a Claim of a Lender arising under or as a result
of the Pre-Petition Credit Facility Agreements.
1.94 "Lender Lock-up Agreement" means the letter agreement dated as of April
5, 1999, as amended and restated as of June 21, 1999, and as may be amended
further subsequent to the date hereof, among PSC and the lenders signatories
thereto with respect to the principal terms and conditions of this Plan.
1.95 "Lien" means a charge against or interest in property to secure payment
of a debt or performance of an obligation.
1.96 "Liff Actions" means the action filed by a group of former shareholders
of the Steiner-Liff Metals group of companies on October 6, 1998, with the
American Arbitration Association captioned In re Liff Arbitration, Case No. 39 Y
168 00112 98, the litigation styled Liff v. Chodos, Case No. 99 Civ. 1322 (MBM)
(S.D.N.Y.) (dismissed and pending appeal) and any
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and all actions that could be asserted by such Plaintiffs based upon the facts
that have been or could be alleged in this action or any other facts arising out
of the acquisition by PSC of the Steiner-Liff Metals group of companies.
1.97 "Liff Claims" means any Claims arising out of the Liff Actions.
1.98 "Litigation Claims" means the claims, rights of action, suits, or
proceedings, whether in law or in equity, whether known or unknown, that the
Debtors or their Estates may hold against any Person, which are to be retained
by the Reorganized Debtors pursuant to Article IV.F of this Plan.
1.99 "Management Option Agreement(s)" means the stock option agreement(s) to
be entered into by Reorganized PSC (if the Canadian Reorganization Plan is
sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived) and the Management Option
Plan Participants, pursuant to which the Management Options will be granted.
1.100 "Management Option Plan" means a stock option plan to be adopted by
the Board of Directors of Reorganized PSC (if the Canadian Reorganization Plan
is sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived) on or after the Effective
Date.
1.101 "Management Option Plan Participants" means the employees of
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived) entitled to participate in the Management
Option Plan.
1.102 "Management Options" means the options to be issued by Reorganized PSC
or PSI, as applicable, to the Management Option Plan Participants to purchase
PSC Common Shares (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI Common Shares (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived) pursuant to the provisions
of the Management Option Agreement to be entered into under the Management
Option Plan, subject to Dilution.
1.103 "Net Asset Sale Proceeds" means the cash proceeds of asset sales of
PSC and the Subsidiaries net only of reasonable costs and expenses and the
payment of Other Secured Claims (excluding the Secured Claims of the Account
Intermediaries) secured by Liens on such assets senior to the Liens securing the
Secured Lender Claims on such assets.
1.104 "Net Asset Sale Proceeds Pool" means the amount of cash in the Excess
Proceeds Account equal to sixty-six and two-thirds percent (66-b%) of the first
$200,000,000 of any Net Asset Sale Proceeds of the U.S. Ferrous division, if the
US Ferrous division is sold, plus seventy-five percent (75%) of all other Net
Asset Sale Proceeds in the Excess Proceeds Account.
1.105 "New Common Shares" means common shares of Reorganized PSC to be
authorized under Article IV.C.1 of the Plan (if the Canadian Reorganization Plan
is sanctioned), and for the purposes of the Reverse Stock Split, shall include
the common shares of Reorganized PSC, if any, to be retained by holders of
Allowed Class 8A Interests under the Plan.
1.106 "New Debt Securities" means collectively the New Secured PIK Debt, the
New Unsecured PIK Notes and the New Unsecured Convertible Notes.
1.107 "New Guaranties" means collectively the secured guaranties of the
Reorganized Subsidiary Debtors (in existence after giving effect to the
Restructuring Transactions) and the other Restricted Subsidiaries to be entered
into as of the Effective Date to guaranty and secure the New Senior Secured Term
Debt and the New Secured PIK Debt.
1.108 "New Securities" means collectively the New Common Shares (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI Common Shares (if
the Alternate Canadian Transactions are implemented or the Canadian Plan
Condition is waived), New Secured PIK Debt, New Unsecured PIK Notes, New
Unsecured Convertible Notes and Management Options.
1.109 "New Secured PIK Debt" means the 10% Secured Convertible PIK Debt due
2004 of Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived) in the aggregate principal amount of $100
million, to be issued and distributed pursuant to the Plan on the Distribution
Date and governed by the terms of the Amended and Restated Term Credit
Agreement, the original face amount of which are convertible until maturity at
the option of the holders into twenty-five percent (25%) of (i) the PSC Common
Shares (if the Canadian Reorganization Plan is sanctioned) or (ii) Reorganized
PSI Common Shares (if the Alternate
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Canadian Transactions are implemented or the Canadian Plan Condition is waived),
in the aggregate, not subject to Dilution, as of the Effective Date and having
usual anti-dilution provisions applicable in a public offering of convertible
debt, including giving effect to the issuance of any New Common Shares, PSC
Common Shares or Reorganized PSI Common Shares under the Shareholder Rights
Plan.
1.110 "New Senior Secured Term Debt" means the secured term debt of
Reorganized PSI due 2004, to be governed by the terms of the Amended and
Restated Term Credit Agreement, to be distributed under the Plan on the
Distribution Date in the aggregate principal amount of $250 million minus an
amount equal to the Net Asset Sale Proceeds Pool.
1.111 "New Unsecured Convertible Notes" means the 3% Unsecured Convertible
Notes due 2019 of Reorganized PSC (if the Canadian Reorganization Plan is
sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived), to be governed by the
terms of the New Unsecured Convertible Notes Indenture, in an aggregate face
amount not to exceed $18 million, to be issued and distributed pursuant to the
Plan on the Class 7 Distribution Date and governed by the terms of the New
Unsecured Convertible Notes Indenture; provided, however, that no New Unsecured
Convertible Notes will be issued if Class 7 votes to reject the Plan.
1.112 "New Unsecured Convertible Notes Indenture" means the indenture to be
entered into between Reorganized PSC (if the Canadian Reorganization Plan is
sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived) and an entity to be
selected prior to the Effective Date, as indenture trustee, under which the New
Unsecured Convertible Notes shall be issued, which indenture shall be
substantially in the form included in the Plan Supplement.
1.113 "New Unsecured PIK Notes Indenture" means the indenture to be entered
into between Reorganized PSC (if the Canadian Reorganization Plan is sanctioned)
or Reorganized PSI (if the Alternate Canadian Transactions are implemented or
the Canadian Plan Condition is waived) and an entity to be selected prior to the
Effective Date, as indenture trustee, under which the New Unsecured PIK Notes
shall be issued, which indenture shall be substantially in the form included in
the Plan Supplement.
1.114 "New Unsecured PIK Notes" means the 6% Unsecured PIK Notes due 2009 of
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived) in the aggregate principal amount not to
exceed $60 million, to be issued and distributed pursuant to the Plan on the
Class 7 Distribution Date and governed by the terms of the New Unsecured PIK
Notes Indenture; provided, however, that no New Unsecured PIK Notes will be
issued (i) if the Canadian Reorganization Plan is sanctioned, and Class 7 votes
to reject the Plan and the class of holders of Canadian Impaired Unsecured
Claims votes to reject the Canadian Reorganization Plan or (ii) if the Alternate
Canadian Transactions are implemented and Class 7 votes to reject the Plan.
1.115 "Old Common Shares" means the common shares of PSC issued and
outstanding as of the Petition Date.
1.116 "Old Debentures" means the 7 1/4% Convertible Subordinated Debentures
due 2014, issued and outstanding under the Old Indenture.
1.117 "Old Indenture" means the Indenture, dated June 1, 1989, between
Allwaste, Inc. and TCT, as trustee, as modified by the First Supplemental
Indenture, dated as of July 30, 1997, between Allwaste, Inc., PSC and TCT, as
trustee, pursuant to which the Old Debentures were issued and are outstanding.
1.118 "Old Securities" means collectively the Old Common Shares, the Other
Equity Securities and the Old Debentures.
1.119 "Old Stock Options" means the outstanding options to purchase Old
Common Shares, as of the Petition Date.
1.120 "Ordinary Course Professionals' Order" means an order entered by the
Bankruptcy Court authorizing the Debtors, or any of them, to retain, employ and
pay certain professionals, as specified in the order, which are not involved in
the administration of the Chapter 11 Cases, in the ordinary course of business,
without further order of the Bankruptcy Court.
1.121 "Other Equity Securities" means collectively the Old Stock Options,
together with any other options, warrants, conversion rights, rights of first
refusal or other rights, contractual or otherwise, to acquire or receive any Old
Common Shares or other ownership interests in any Debtor or of an affiliate of
any Debtor, and any contracts, subscriptions, commitments or
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agreements pursuant to which the non-debtor party was or could have been
entitled to receive shares, securities or other ownership interests in any
Debtor, excluding Subsidiary Interests.
1.122 "Other Priority Claim" means a Claim entitled to priority pursuant to
section 507(a) of the Bankruptcy Code other than a DIP Facility Claim, a
Priority Tax Claim or an Administrative Claim.
1.123 "Other Secured Claims" means collectively the Secured Claims of the
Account Intermediaries, the issuers of letters of credit issued under the
Permitted LC Facility established pursuant to Amending Agreement No. 3 to the
Pre-Petition Credit Agreement and all other Secured Claims against the Debtors,
as the case may be, other than the Secured Lender Claims included in Class 6.
1.124 "Other Securities Claims" means (a) the Chazen Claims, Liff Claims,
Claims arising out of the Great Plains Action and any and all Claims arising
from the recission or right of recission of a purchase or sale of a security or
Interest of any Debtor or of an affiliate of any Debtor, or for damages arising
from the purchase or sale of such a security or Interest (excluding the
Securities Claims classified in Class 8B); (b) claims for reimbursement,
indemnification or contribution allowed under section 502 of the Bankruptcy Code
on account of (i) such Claims, (ii) the Securities Actions, (iii) any actions
initiated after the Petition Date that may be subordinated pursuant to section
510(b) or 510(c) of the Bankruptcy Code or (iv) any actions associated with or
arising out of the facts or alleged facts relating to any of the aforementioned
claims or actions in each case that may be subordinated pursuant to section
510(b) or 510(c) of the Bankruptcy Code; and (c) claims relating to Excluded
Indemnification Obligations, in each case to the extent not disallowed pursuant
to Article IV.K; provided, however, that "Other Securities Claims" shall not
include Assumed Indemnification Obligations or Claims against PSC held by
Canadian residents.
1.125 "Person" means Person as defined in section 101 (41) of the
Bankruptcy Code.
1.126 "Petition Date" means the dates on which the Debtors filed their
petitions for relief commencing the Chapter 11 Cases.
1.127 "Phencorp" means Phencorp International Finance Inc.
1.128 "Plan" means this chapter 11 reorganization plan and all exhibits
annexed hereto or referenced herein, as the same may be amended, modified or
supplemented from time to time with the consent of the Required Lenders, and to
the extent of any modification to the treatment of the Account Intermediaries as
holders of Other Secured Claims, the consent of the Account Intermediaries.
1.129 "Plan Supplement" means the compilation of documents and forms of
documents specified in the Plan which will be filed with the Bankruptcy Court
not later than five (5) Business Days prior to date of the commencement of the
Confirmation Hearing.
1.130 "Pre-Petition Credit Agreement" means the Credit Agreement dated as of
August 11, 1997, among PSC, as borrower in Canada, PSI, as borrower in the
United States, the Lenders, CIBC, as administrative agent for the Lenders, BTCo,
as syndication agent, and CIBC and BTCo, as co-arrangers, as amended by amending
agreements dated as of October 31, 1997, February 19, 1998, June 24, 1998,
October 20, 1998, and December 4, 1998.
1.131 "Pre-Petition Credit Facility Agreements" mean the Pre-Petition Credit
Agreement, the Credit Documents and the Lender Lock-up Agreement.
1.132 "Pre-Petition Proceeds Account" means the account established under
the Proceeds Agreement into which proceeds of certain asset sales were deposited
prior to the Petition Date.
1.133 "Priority Tax Claim" means a Claim that is entitled to priority
pursuant to section 507(a)(8) of the Bankruptcy Code.
1.134 "Proceeds Agreement" means the Proceeds Agreement dated April 5, 1999,
as amended, made by and among PSC, the Subsidiaries and the Lenders.
1.135 "Professional" means any professional employed in the Chapter 11 Cases
pursuant to section 327 or 1103 of the Bankruptcy Code or otherwise and any
professionals seeking compensation or reimbursement of expenses in connection
with the Chapter 11 Cases pursuant to section 503(b)(4) of the Bankruptcy Code.
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1.136 "Professional Fee Claim" means a Claim of a Professional for
compensation or reimbursement of costs and expenses relating to services
incurred after the Petition Date and prior to and including the Effective Date.
1.137 "Proof of Claim" means collectively (i) the proof of claim that must
be filed by certain holders of Impaired Unsecured Claims pursuant to an Order of
the Bankruptcy Court entered on June 28, 1999, and (ii) any other proof of claim
filed in the Chapter 11 Cases as required by the Plan, the Bankruptcy Code, the
Bankruptcy Rules or any order of the Bankruptcy Court.
1.138 "Protocol" means the Cross-Border Insolvency Protocol entered in the
Chapter 11 Cases and the CCAA cases of the Canadian Debtors.
1.139 "PSC Common Shares" means (if the Canadian Reorganization Plan is
sanctioned) the common shares of Reorganized PSC outstanding after giving effect
to the issuance of the New Common Shares and the Reverse Stock Split, if
applicable.
1.140 "Qualifying Class 7 Creditors" means the holders of Class 7 Impaired
Unsecured Claims that as of the Voting Record Date are holders of Allowed
Impaired Unsecured Claims (or a portion of a Disputed Class 7 Claim the portion
of which is not disputed) entitled to a distribution.
1.141 "Registration Rights Agreement" means an agreement to be entered into
between Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or the
Canadian Plan Condition is waived) and certain holders of Allowed Lender Claims
with respect to rights of registration as to the New Common Shares or
Reorganized PSI Common Shares in substantially the form included in the Plan
Supplement.
1.142 "Reinstated" or "Reinstatement" means (i) leaving unaltered the legal,
equitable and contractual rights to which a Claim or Interest entitles the
holder of such Claim or Interest so as to leave such Claim or Interest
unimpaired in accordance with section 1124 of the Bankruptcy Code or (ii)
notwithstanding any contractual provision or applicable law that entitles the
holder of such Claim or Interest to demand or receive accelerated payment of
such Claim or Interest after the occurrence of a default (a) curing any such
default that occurred before or after the Petition Date, other than a default of
a kind specified in section 365(b)(2) of the Bankruptcy Code; (b) reinstating
the maturity of such Claim or Interest as such maturity existed before such
default; (c) compensating the holder of such Claim or Interest for any damages
incurred as a result of any reasonable reliance by such holder on such
contractual provision or such applicable law; or (d) not otherwise altering the
legal, equitable or contractual rights to which such Claim or Interest entitles
the holder of such Claim or Interest; provided, however, that, except as to the
Other Secured Claims of the Account Intermediaries, any contractual right that
does not pertain to the payment when due of principal and interest on the
obligation on which such Claim or Interest is based, including, but not limited
to, financial covenant ratios, negative pledge covenants, covenants or
restrictions on merger or consolidation, and affirmative covenants regarding
corporate existence prohibiting certain transactions or actions contemplated by
the Plan, or conditioning such transactions or actions on certain factors, shall
not be required to be reinstated in order to accomplish Reinstatement.
1.143 "Reorganized PSC" means PSC or its successor, on and after the
Effective Date.
1.144 "Reorganized PSI" means PSI, on and after the Effective Date.
1.145 "Reorganized PSI Common Shares" means shares of common stock of
Reorganized PSI to be authorized under Article IV.C.1 of the Plan (if the
Alternate Canadian Transactions are implemented or the Canadian Plan Condition
is waived).
1.146 "Reorganized Debtor(s)" means individually any Debtor and collectively
all Debtors, on or after the Effective Date.
1.147 "Reorganized Subsidiary Debtor(s)" means individually any Debtor and
collectively all Debtors, on or after the Effective Date.
1.148 "Required Lenders" means the "Required Lenders" as defined in the
Pre-Petition Credit Agreement.
1.149 "Restricted Subsidiaries" means "Restricted Subsidiaries" as defined
in the Pre-Petition Credit Agreement.
1.150 "Restructuring Transactions" has the meaning ascribed thereto in
Article IV.B.4 hereof.
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1.151 "Reverse Stock Split" means (if the Canadian Reorganization Plan is
sanctioned by the Effective Date) the reverse stock split of Reorganized PSC to
be implemented only if Class 7 votes to accept the Plan, which if so implemented
shall be done simultaneously with the Effective Date pursuant to which each 273
New Common Shares shall be consolidated into one PSC Common Share and as a
result 24,000,000 shares of PSC Common Shares will be issued and outstanding.
1.152 "Schedules" means the schedules of assets and liabilities and the
statements of financial affairs, if any, filed in the Bankruptcy Court by the
Debtors as such schedules or statements as may be amended or supplemented from
time to time in accordance with Fed. R. Bankr. P. 1009 or orders of the
Bankruptcy Court.
1.153 "Secured Claim" means a Claim that is secured by a Lien on property in
which an Estate has an interest or that is subject to setoff under section 553
of the Bankruptcy Code, to the extent of the value of the Claim holder's
interest in the Estate's interest in such property or to the extent of the
amount subject to setoff, as applicable, as determined pursuant to section
506(a) of the Bankruptcy Code.
1.154 "Secured Lender Claim" means a Secured Claim of a Lender arising under
or as a result of the Pre-Petition Credit Facility Agreements other than any
Other Secured Claims.
1.155 "Securities Act" means the Securities Act of 1933, 15
U.S.C.ss.ss.77a-77aa, as now in effect or hereafter amended.
1.156 "Securities Actions" means collectively (i) the U.S. Class Action
and (ii) the Canadian Class Action.
1.157 "Securities Claim" means a Claim of any Person (other than a Claim
against PSC held by a Canadian resident) as to causes of action asserted in the
Securities Actions or Claims arising out of the ownership of Old Common Shares,
excluding the Other Securities Claims.
1.158 "Security Agent" means the "Security Agent" as defined in the
Pre-Petition Credit Agreement.
1.159 "Shareholder Rights Plan" means the Shareholder Rights Plan to be
implemented on the Effective Date for Reorganized PSC (if the Canadian
Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian
Transactions are implemented or the Canadian Plan Condition is waived)
substantially in the forms included in the Plan Supplement.
1.160 "Subsidiaries" means collectively all of the direct and indirect
subsidiaries of PSC, Reorganized PSC and/or Reorganized PSI.
1.161 "Subsidiary Debtors" means the direct and indirect subsidiaries of
PSC listed on Exhibit A.
1.162 "Subsidiary Interests" means collectively the issued and outstanding
shares of stock of the Subsidiaries as of the Petition Date.
1.163 "Substantial Contribution Claim" means a claim for compensation or
reimbursement of expenses incurred in making a substantial contribution in the
Chapter 11 Cases pursuant to section 503(b)(3),(4) or (5) of the Bankruptcy
Code.
1.164 "TCT" means Texas Commerce Trust Company of New York.
1.165 "Unfunded LC Claim" means the amount, if any, by which the Agreed LC
Claim exceeds the amount actually drawn from the Petition Date through the
Effective Date on letters of credit issued pursuant to the Pre-Petition Credit
Agreement, which for greater certainty do not include letters of credit issued
under the Permitted LC Facility established pursuant to Amending Agreement No. 3
to the Pre-Petition Credit Agreement.
1.166 "Unimpaired" means, when used with reference to a Claim or Interest, a
Claim or Interest that is not impaired within the meaning of section 1124 of the
Bankruptcy Code.
1.167 "Unimpaired Claim" means a Claim that is not an Impaired Claim.
1.168 "United States Debtors" means the Debtors in these jointly
administered Chapter 11 proceedings, other than PSC.
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1.169 "Unsecured Lender Claim" means a Claim of a Lender arising under or
as a result of the Pre-Petition Credit Facility Agreements that is not a Secured
Lender Claim, other than Lender Claims in respect of letters of credit issued
pursuant to the Pre-Petition Credit Agreement that are contingent as of the
Effective Date.
1.170 "U.S. Class Action" means the consolidated, putative class action
entitled In re Philip Services, Corp Securities Litigation, 98 CV 835 (MBM),
previously pending against PSC in the United States District Court for the
Southern District of New York.
1.171 "U.S. Plan Election" means (a) the election to receive distributions
under this Plan by holders of Canadian Impaired Unsecured Claims or Canadian
Class 8C Holders made by filing by the Voting Deadline the Canadian Proof of
Claim and Election and (b) the election to receive distributions under this Plan
by Canadian Class 8B Holders (i) that have opted out of the Canadian Class
Action class if the settlement of the Canadian Class Action is approved and
implemented or (ii) by filing by a date to be determined by the Debtors prior to
the Effective Date a form substantially similar to the Canadian Proof of Claim
and Election if the settlement of the Canadian Class Action is not approved and
implemented, provided that such elections shall only become effective if the
Alternate Canadian Transactions are implemented.
1.172 "Voting Deadline" means the voting deadline on the Plan as set by an
order of the Bankruptcy Court.
1.173 "Voting Record Date" means the voting record date as to the Plan as
set by an order of the Bankruptcy Court.
C. RULES OF INTERPRETATION
For purposes of the Plan (a) any reference in the Plan to a contract,
instrument, release, indenture, or other agreement or document's being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions; (b) any reference in the Plan to an existing document or exhibit
filed or to be filed means such document or exhibit as it may have been or may
be amended, modified, or supplemented; (c) unless otherwise specified, all
references in the Plan to Sections, Articles, Schedules, and Exhibits are
references to Sections, Articles, Schedules and Exhibits of or to the Plan; (d)
the words "herein" and "hereto" refer to the Plan in its entirety rather than to
a particular portion of the Plan; (e) captions and headings to Articles and
Sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretation of the Plan; and (f) the rules of
construction set forth in section 102 of the Bankruptcy Code and in the
Bankruptcy Rules shall apply.
D. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, the
provisions of Fed. R. Bankr. P. 9006(a) shall apply.
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS
A. INTRODUCTION
The Plan is premised on the substantive consolidation of the Debtors
only with respect to the treatment of Class 6, 7 and 8 Claims, as provided in
Article IV.J. The Plan does not contemplate the substantive consolidation of the
Debtors with respect to the other Classes of Claims or Interests. All Claims and
Interests, except DIP Facility Claims, Administrative Claims and Priority Tax
Claims, are placed in the Classes set forth below. In accordance with section
1123(a)(1) of the Bankruptcy Code, DIP Facility Claims, Administrative Claims
and Priority Tax Claims, as described below, have not been classified.
A Claim or Interest is placed in a particular Class only to the extent
that the Claim or Interest falls within the description of that Class and is
classified in other Classes to the extent that any portion of the Claim or
Interest falls within the description of such other Classes. A Claim is also
placed in a particular Class for the purpose of receiving distributions pursuant
to the Plan only to the extent that such Claim is an Allowed Claim in that Class
and such Claim has not been paid, released, or otherwise settled prior to the
Effective Date.
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B. UNCLASSIFIED CLAIMS (NOT ENTITLED TO VOTE ON THE PLAN)
1. DIP Facility Claims
2. Administrative Claims
3. Priority Tax Claims
C. SUMMARY OF CLASSIFIED CLAIMS AND INTERESTS
Class Status
Class 1 - Other Priority Claims Unimpaired - not entitled to vote
Class 2 - Other Secured Claims Unimpaired - not entitled to vote
Class 3 - General Unsecured Claims Unimpaired - not entitled to vote
Class 4 - Intercompany Claims of Non-Debtors Unimpaired (except for
Intercompany Claims of Phencorp
against PSI, Luntz Acquisition
(Delaware) Corporation, RESI
Acquisition (Delaware)
Corporation and Industrial
Services Technology, Inc. ) - not
entitled to vote (Phencorp deemed
to accept)
Class 5 - Subsidiary Interests Unimpaired - not entitled to vote
Class 6 - Secured Lender Claims Impaired - entitled to vote
Class 7 - Impaired Unsecured Claims Impaired - entitled to vote
Class 8A - Old Common Shares Impaired - entitled to vote,
unless the Class 8 Solicitation
Order is entered, in which case
deemed to reject
Class 8B - Securities Claims in the
Securities Actions Impaired - entitled to vote,
unless the Class 8 Solicitation
Order is entered, in which case
deemed to reject
Class 8C - Other Securities Claims Impaired - entitled to vote
unless the Class 8 Solicitation
Order is entered, in which case
deemed to reject
Class 9 - Other Equity Securities Impaired - deemed to reject
D. CLASSIFICATION OF UNIMPAIRED CLASSES OF CLAIMS AND INTERESTS (DEEMED
TO HAVE ACCEPTED THE PLAN AND THEREFORE NOT ENTITLED TO VOTE)
1. Class 1: Other Priority Claims
Class 1 consists of all Other Priority Claims.
2. Class 2: Other Secured Claims
Class 2 consists of separate subclasses for each Other Secured Claim
secured by a Lien upon property in which an Estate has an interest. Each
subclass is deemed to be a separate Class for all purposes under the Bankruptcy
Code.
3. Class 3: General Unsecured Claims
Class 3 consists of all General Unsecured Claims.
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4. Class 4: Intercompany Claims of Non-Debtors
Class 4 consists of all Intercompany Claims of all Non-Debtors against
Debtors.
5. Class 5: Subsidiary Interests
Class 5 consists of the Subsidiary Interests.
E. CLASSIFICATION OF IMPAIRED CLASSES OF CLAIMS AND INTERESTS. (Classes 6
and 7 are entitled to vote on the Plan. If the Class 8 Solicitation Order is
entered, then Classes 8A, 8B and 8C will be deemed to have rejected the Plan
and, therefore, will not be entitled to vote. If the Class 8 Solicitation Order
is not entered, then Classes 8A, 8B and 8C will be entitled to vote.)
1. Class 6: Secured Lender Claims
Class 6 consists of all Secured Lender Claims. Notwithstanding anything
contained in this Plan to the contrary, the Secured Lender Claims shall be
deemed Allowed Class 6 Claims in an amount to be determined by the Bankruptcy
Court.
2. Class 7: All Impaired Unsecured Claims
Class 7 consists of all Impaired Unsecured Claims.
3. Class 8A: Old Common Shares
Class 8A consists of the Interests of holders of Old Common Shares.
4. Class 8B: Securities Claims in the Securities Actions
Class 8B consists of all the Securities Claims of the putative
plaintiffs in the Securities Actions.
5. Class 8C: Other Securities Claims
Class 8C consists of all Other Securities Claims.
6. Class 9: Other Equity Securities
Class 9 consists of the Interests of holders of Other Equity
Securities.
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS
A. UNCLASSIFIED CLAIMS
1. DIP Facility Claims
On the Effective Date or the date such DIP Facility Claim becomes
payable pursuant to any agreement between the Debtors and the holder of such DIP
Facility Claim, each holder of an Allowed DIP Facility Claim shall receive in
full satisfaction, settlement, release and discharge of and in exchange for such
Allowed DIP Facility Claim (a) Cash equal to the unpaid portion of such Allowed
DIP Facility Claim or (b) such other treatment as to which the Debtors, with the
consent of the Required Lenders and the Account Intermediaries, and such holder
shall have agreed upon in writing.
2. Administrative Claims
Except as otherwise provided for herein, and subject to the
requirements of Article XIV.A hereof, on, or as soon as reasonably practicable
after, the latest of (i) the Distribution Date, (ii) the date such
Administrative Claim becomes an Allowed Administrative Claim, or (iii) the date
such Administrative Claim becomes payable pursuant to any agreement
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between a Debtor and the holder of such Administrative Claim, each holder of an
Allowed Administrative Claim shall receive in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Administrative Claim
(a) Cash equal to the unpaid portion of such Allowed Administrative Claim or (b)
such other treatment as to which the applicable Debtor, with the consent of the
Required Lenders, and such holder shall have agreed upon in writing; provided,
however, that Administrative Claims with respect to liabilities incurred by a
Debtor in the ordinary course of business during the Chapter 11 Cases shall be
paid in the ordinary course of business in accordance with the terms and
conditions of any agreements relating thereto.
3. Priority Tax Claims
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Priority Tax Claim becomes an Allowed
Priority Tax Claim, each holder of an Allowed Priority Tax Claim shall receive
in full satisfaction, settlement, release and discharge of and in exchange for
such Allowed Priority Tax Claim (a) with the consent of the Required Lenders,
Cash equal to the unpaid portion of such Allowed Priority Tax Claim, (b) Cash
payments over time in an aggregate principal amount equal to the amount of such
Allowed Priority Tax Claim plus simple interest on the unpaid portion thereof at
the rate of seven percent (7%) per annum from the Effective Date through the
date of payment thereof, or (c) such other treatment as to which a Debtor, with
the consent of the Required Lenders, and such holder shall have agreed upon in
writing. Cash payments of principal shall be made in annual installments, each
such installment amount being equal to ten percent (10%) of such Allowed
Priority Tax Claim plus accrued and unpaid interest, with the first payment to
be due on or before the first anniversary of the Effective Date, or as soon
thereafter as is practicable, and subsequent payments to be due on the
anniversary of the first payment date or as soon thereafter as is practicable;
provided, however, that any installments remaining unpaid on the date that is
six years after the date of assessment of the tax that is the basis for the
Allowed Priority Tax Claim shall be paid on the first Business Day following
such date, or as soon thereafter as is practicable, together with any accrued
and unpaid interest to the date of payment; and provided further that the
Debtors reserve the right to pay any Allowed Priority Tax Claim, or any
remaining balance of any Allowed Priority Tax Claim, in full at any time on or
after the Distribution Date without premium or penalty; and provided further
that no holder of an Allowed Priority Tax Claim shall be entitled to any
payments on account of any pre-Effective Date interest accrued on or penalty
arising after the Petition Date with respect to or in connection with such
Allowed Priority Tax Claim.
B. UNIMPAIRED CLASSES OF CLAIMS AND INTERESTS
1. Class 1: Other Priority Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class 1 Other Priority Claim becomes an
Allowed Class 1 Other Priority Claim, or (iii) the date such Class 1 Other
Priority Claim becomes payable pursuant to any agreement between a Debtor and
the holder of such Class 1 Other Priority Claim, each holder of an Allowed Class
1 Other Priority Claim shall receive in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed Class 1 Other Priority Claim
(a) Cash equal to the unpaid portion of such Allowed Class 1 Other Priority
Claim or (b) such other treatment as to which a Debtor, with the consent of the
Required Lenders, and such holder shall have agreed upon in writing.
2. Class 2: Other Secured Claims
Each holder of a Class 2 Other Secured Claim shall be treated as a
separate class for all purposes under this Plan, and each holder of an Allowed
Class 2 Other Secured Claim shall receive the treatment set forth below in
Option A or B. Except as to the Liens and security interests of the Account
Intermediaries, the Debtors specifically reserve all rights to challenge the
validity, nature and perfection of any purported Liens and security interests of
the holders of Other Secured Claims.
Option A: Allowed Class 2 Other Secured Claims with respect to which
the applicable Debtor or the applicable Reorganized Debtor selects Option A
will, subject to the consent of the Required Lenders, be paid in cash, in full,
by the Reorganized Debtors, unless the holder of such Claim agrees to less
favorable treatment.
Option B: Allowed Class 2 Other Secured Claims with respect to which
the applicable Debtor or Reorganized Debtor selects Option B will be Reinstated.
The applicable Debtor or Reorganized Debtor will be deemed to have
elected Option B in respect of the Other Secured Claims of the Account
Intermediaries and all other Allowed Class 2 Other Secured Claims except those
with respect
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to those other Allowed Class 2 Other Secured Claims which the applicable Debtor,
with the consent of the Required Lenders, elects Option A in writing prior to
the Confirmation Hearing.
3. Class 3: General Unsecured Claims
Each holder of an Allowed Class 3 General Unsecured Claim shall, at the
option of the Debtors, (a) have its Claim Reinstated or (b) receive such other
treatment as to which the applicable Debtor or Reorganized Debtor, with the
consent of the Required Lenders, and such holder shall have agreed upon in
writing.
4. Class 4: Intercompany Claims of Non-Debtors
Except as provided herein, each holder of an Allowed Class 4
Intercompany Claim, in full satisfaction, settlement, release and discharge of
and in exchange for such Allowed Class 4 Intercompany Claim, shall, in the sole
discretion of the applicable Debtor or Reorganized Debtor, (a) have its Claim
Reinstated or (b) receive such other treatment as the applicable Debtor or
Reorganized Debtor, with the consent of the Required Lenders, and such holder
have agreed upon in writing.
5. Class 5: Subsidiary Interests
Subject to the Restructuring Transactions, all Class 5 Subsidiary
Interests will be deemed Allowed Interests and Reinstated on the Effective Date,
but the holders of the Class 5 Subsidiary Interests shall receive no
distribution under the Plan on account of such Interests; provided, however, if
the Alternate Canadian Transactions are implemented or the Canadian Plan
Condition is waived, then the Interests in PSI and Luntz Corporation owned by
Philip Enterprises, Inc. shall be deemed cancelled and extinguished as of the
Effective Date.
C. IMPAIRED CLASSES OF CLAIMS AND INTERESTS
1. Class 6: Secured Lender Claims
(a) Treatment if the Canadian Reorganization Plan Is
Sanctioned. On the Effective Date, the Pre-Petition Credit Facility Agreements
shall be amended and restated by the Amended and Restated Term Credit Agreement
without any further action by any party. Subject to the adjustment described in
the immediately succeeding paragraph, each holder of an Allowed Class 6 Secured
Lender Claim, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 6 Secured Lender Claim, shall receive on or as
soon as practicable after the Distribution Date its pro rata share of (A) the
Net Asset Sale Proceeds Pool, (B) the New Secured PIK Debt, (C) the New Senior
Secured Term Debt and (D) (i) if Class 7 votes to accept the Plan, 5,967,052,592
shares of the New Common Shares which shall be ninety-one percent (91%) of the
PSC Common Shares issued and outstanding as of the Effective Date (which shall
equal 21,840,000 PSC Common Shares after giving effect to the Reverse Stock
Split), subject to Dilution or (ii) if Class 7 votes to reject the Plan,
22,800,000 shares of the PSC Common Shares which shall be ninety-five percent
(95%) of the PSC Common Shares issued and outstanding as of the Effective Date
plus an amount of PSC Common Shares equal to the aggregate number of New Common
Shares that would have been available for distribution to Class 7 had Class 7
voted to accept the Plan (based on the Debtors' estimate of the aggregate amount
of Allowed Class 7 Claims), subject to Dilution, and an amount of New Unsecured
PIK Notes equal to the amount that would have been distributed to Class 7 had
Class 7 voted to accept the Plan (based on the Debtors' estimate of the
aggregate amount of Allowed Class 7 Claims).
Each LC Lender will fund its pro rata share of the Unfunded LC
Claim (a) in Cash, or (b) by forgoing distributions that it would otherwise
receive in respect of a Claim in the amount of its pro rata share of the
Unfunded LC Claim. If the distributions that would otherwise be received by an
LC Lender are insufficient to fund its pro rata share of the Unfunded LC Claim,
such deficiency may be paid by forgoing distributions to the extent necessary by
any Lender that is an Affiliate of such LC Lender. Any such Cash paid or
distributions forgone shall be reallocated pro rata among the holders of Allowed
Class 6 Secured Lender Claims.
On the Effective Date, Reorganized PSC shall record such
holders of Allowed Class 6 Lender Claims as holders of record of such New Common
Shares. Each holder of an Allowed Class 6 Secured Lender Claim shall vote the
New Common Shares distributed to it under the Plan in favor of each of the
matters set forth in Article IV.B.7 hereof.
(b) Treatment if the Alternate Canadian Transactions Are
Implemented. On the Effective Date, the Pre-Petition Credit Facility Agreements
shall be amended and restated by the Amended and Restated Term Credit Agreement,
except as provided in the last sentence of this paragraph, without any further
action by any party. Subject to the adjustment
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described in the immediately succeeding paragraph, each holder of an Allowed
Class 6 Secured Lender Claim, in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed Class 6 Secured Lender Claim
against the Debtors other than PSC and in exchange for the assignment of its
right as a secured creditor to receive certain proceeds of the Alternate
Canadian Transactions, shall receive on or as soon as practicable after the
Distribution Date its pro rata share of (A) the Net Asset Sale Proceeds Pool,
(B) the New Secured PIK Debt, (C) the New Senior Secured Term Debt and (D) (i)
if Class 7 votes to accept the Plan, ninety-one percent (91%) which shall equal
21,840,000 Reorganized PSI Common Shares as of the Effective Date, plus the
Class 6 Additional Distribution or (ii) if Class 7 votes to reject the Plan, one
hundred percent (100%) which shall equal 24,000,000 shares of the Reorganized
PSI Common Shares as of the Effective Date, subject to Dilution. The holders of
Allowed Class 6 Secured Lender Claims shall retain such claims against PSC and
the other Canadian Debtors and security interests in assets of PSC and the other
Canadian Debtors retained and not transferred in connection with the Alternate
Canadian Transactions and such claims shall continue to be governed by the
Pre-Petition Credit Facility Agreements.
Each LC Lender will fund its pro rata share of the Unfunded LC
Claim (a) in Cash, or (b) by forgoing distributions that it would otherwise
receive in respect of a Claim in the amount of its pro rata share of the
Unfunded LC Claim. If the distributions that would otherwise be received by an
LC Lender are insufficient to fund its pro rata share of the Unfunded LC Claim,
such deficiency may be paid by forgoing distributions to the extent necessary by
any Lender that is an Affiliate of such LC Lender. Any such Cash paid or
distributions forgone shall be reallocated pro rata among the holders of Allowed
Class 6 Secured Lender Claims.
2. Class 7: Impaired Unsecured Claims
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Class 7 Claim becomes an Allowed Class 7
Claim:
(a) Treatment if the Canadian Reorganization Plan Is
Sanctioned.
(i) If the holders of Allowed Class 7 Claims vote to
accept the Plan then each holder of an Allowed Class 7 Claim shall receive in
full satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class 7 Claim, its pro rata share of (a) subject to the Class 7
Election, $60 million of New Unsecured PIK Notes to be issued pursuant to
Article IV.C.1 of the Plan and (b) 327,860,033 New Common Shares which shall be
five percent (5%) of the PSC Common Shares issued and outstanding as of the
Effective Date, (which shall equal 1,200,000 PSC Common Shares after giving
effect to the Reverse Stock Split), subject to Dilution, in each case which
distribution shall be shared pro rata with the holders of allowed Canadian
Impaired Unsecured Claims under the Canadian Reorganization Plan. The holders of
Unsecured Lender Claims shall be deemed to have waived any and all distributions
to which they would be entitled under the Plan as holders of Unsecured Lender
Claims, including the benefits of any and all contractual subordination
provisions in respect of the Old Debentures and shall receive no distributions
on account of such Unsecured Lender Claims; or
(ii) if the holders of Allowed Class 7 Claims vote to
reject the Plan, then the holders of such Claims shall not receive or retain any
property on account of such Claims.
(b) Treatment if the Alternate Canadian Transactions
Are Implemented.
(i) If the holders of Allowed Class 7 Claims vote to
accept the Plan then each holder of an Allowed Class 7 Claim shall receive in
full satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class 7 Claim, its pro rata share of (a) subject to the Class 7
Election, $60 million of New Unsecured PIK Notes to be issued pursuant to
Article IV.C.1 of the Plan and (b) five percent (5%) which shall equal 1,200,000
Reorganized PSI Common Shares as of the Effective Date, subject to Dilution and
to the provisions of Article III.F. The holders of Unsecured Lender Claims shall
be deemed to have waived any and all distributions to which they would be
entitled under the Plan as holders of Unsecured Lender Claims, including the
benefits of any and all contractual subordination provisions in respect of the
Old Debentures and shall receive no distributions on account of such Unsecured
Lender Claims; provided, however, that the holders of the Allowed Unsecured
Lender Claims shall retain such Claims against PSC and the Subsidiaries other
than the Debtors in the assets retained and not transferred in connection with
the Alternate Canadian Transactions and such claims shall continue to be
governed by the Pre-Petition Credit Facility Agreement; or
(ii) if the holders of Allowed Class 7 Claims vote to
reject the Plan, then the holders of such Claims shall not receive or retain any
property on account of such Claims.
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(c) Other Provisions Applicable to Class 7.
Qualifying Class 7 Creditors shall have the right to make the
Class 7 Election if Class 7 votes to accept the Plan. The Class 7 Election shall
entitle Qualifying Class 7 Creditors to elect to forgo their pro rata
distribution of New Unsecured PIK Notes and instead receive New Unsecured
Convertible Notes. If Class 7 votes to accept the Plan, Qualifying Class 7
Creditors electing New Unsecured Convertible Notes shall receive, in exchange
for every $1.00 in face amount of New Unsecured PIK Notes that such Qualifying
Class 7 Creditor would have received under the Plan, $1.50 in face amount of New
Unsecured Convertible Notes. The aggregate of New Unsecured Convertible Notes
shall not exceed $18 million. Holders of Old Debentures that do not make an
affirmative Class 7 Election or that do not vote on the Plan shall be deemed to
have elected to receive the New Unsecured Convertible Notes. All other
Qualifying Class 7 Creditors that do not make an affirmative Class 7 Election or
that do not vote on the Plan shall be deemed to have elected to receive the New
Unsecured PIK Notes.
If Qualifying Class 7 Creditors elect to convert more than $12
million in aggregate face amount of New Unsecured PIK Notes into New Unsecured
Convertible Notes, then each Qualifying Class 7 Creditor shall be entitled to
its pro rata share of $18 million in face amount of New Unsecured Convertible
Notes (with such pro rata determination to include only Claims of the Qualifying
Class 7 Creditors electing or that have been deemed to have elected the New
Unsecured Convertible Notes), and such holders shall be deemed not to have made
the Class 7 Election with respect to the balance of their Class 7 Claims.
On the Effective Date, the Old Debentures, the Old Indenture
and any agreement with respect to Impaired Unsecured Claims shall be terminated
automatically without any further action by any party and shall no longer be of
any force or effect, except that, as between the Indenture Trustee and the
holders of the Old Debentures, provisions relating to any indemnification of the
Indenture Trustee by the holders of Old Debentures, any payment of the Indenture
Trustee's compensation, expenses (including, but no limited to, the Indenture
Trustee's professional fees and expenses), disbursements and advances, and for
any lien prior to the claims of holders of Old Debentures to secure such
compensation, fees, expenses, disbursements and advances, shall remain in full
force and effect.
3. Class 8A: Old Common Shares
On the Effective Date, in full satisfaction, settlement, release and
discharge of and in exchange for Class 8A Interests, holders of Allowed Class 8A
Interests shall be entitled to (a) if the Canadian Reorganization Plan is
sanctioned, retain their Old Common Shares, which after giving effect to the
issuance of New Common Shares shall be two percent (2.0%) of the PSC Common
Shares issued and outstanding as of the Effective Date (which shall equal
480,000 of the PSC Common Shares after giving effect to the Reverse Stock Split)
subject to Dilution or (b) if the Alternate Canadian Transactions are
implemented or the Canadian Plan Condition is waived, receive two percent (2.0%)
which shall equal 480,000 Reorganized PSI Common Shares as of the Effective
Date, subject to Dilution.
Notwithstanding any provision contained herein to the contrary, if
Class 7 votes to reject the Plan, then the holders of Class 8A Interests shall
not receive or retain any property on account of such Interests. In such case,
the Reorganized Debtors will take all such corporate actions as are necessary or
required on and after the Effective Date to cancel such Interests.
4. Class 8B: Securities Claims in the Securities Actions
(a) Treatment if the Canadian Reorganization
Plan Is Sanctioned.
On or as soon as reasonably practicable after the later of the
Distribution Date or the date such Class 8B Claim becomes an Allowed Class 8B
Claim, in full satisfaction, settlement, release and discharge and in exchange
for Class 8B Claims, each holder of an Allowed Class 8B Claim will receive its
(a) pro rata share of 98,358,010 shares of the New Common Shares, which shall be
in the aggregate, one and one-half percent (1.5%) of the PSC Common Shares
issued and outstanding as of the Effective Date (which shall equal 360,000 PSC
Common Shares after giving effect to the Reverse Stock Split) subject to
Dilution, which distributions shall be shared with members of the Canadian Class
Action class if the settlement of the Canadian Class Action is approved and
implemented.
(b) Treatment if the Alternate Canadian
Transactions Are Implemented.
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On or as soon as reasonably practicable after the later of the
Distribution Date or the date such Class 8B Claim becomes an Allowed Class 8B
Claim, in full satisfaction, settlement, release and discharge and in exchange
for Class 8B Claims, each holder of an Allowed Class 8B Claim will receive its
pro rata share of one and one-half percent (1.5%) which shall equal 360,000
Reorganized PSI Common Shares as of the Effective Date, subject to Dilution and
to the provisions of Article III.F, which distributions shall be shared with
members of the Canadian Class Action class if the settlement of the Canadian
Class Action is approved and implemented.
(c) Other Provisions Applicable to Class 8B.
Notwithstanding any provision contained herein to the
contrary, if Class 7 votes to reject the Plan, then the holders of Class 8B
Claims shall not receive or retain any property on account of such Claims.
5. Class 8C: Other Securities Claims
(a) Treatment if the Canadian Reorganization
Plan Is Sanctioned.
On the Effective Date, in full satisfaction, settlement,
release and discharge of and in exchange for Class 8C Claims, each holder of an
Allowed Class 8C Claim shall receive its pro rata share of 32,786,003 shares of
the New Common Shares, which shall be one-half of one percent (0.5%) of the PSC
Common Shares issued and outstanding as of the Effective Date (which shall equal
120,000 shares of the PSC Common Shares after giving effect to the Reverse Stock
Split) subject to Dilution.
(b) Treatment if the Alternate Canadian
Transactions Are Implemented.
On the Effective Date, in full satisfaction, settlement,
release and discharge of and in exchange for Class 8C Claims, each holder of an
Allowed Class 8C Claim shall receive its pro rata share of one-half of one
percent (0.5%) which shall equal 120,000 Reorganized PSI Common Shares issued
and outstanding as of the Effective Date, subject to Dilution and to the
provisions of Article III.F.
(c) Other Provisions Applicable to Class 8C.
Notwithstanding any provision contained herein to the
contrary, if Class 7 votes to reject the Plan, then the holders of Class 8C
Claims shall not receive or retain any property on account of such Claims.
6. Class 9: Other Equity Securities
The holders of Other Equity Securities shall not receive or retain any
property under the Plan on account of such Interests. On the Effective Date, all
of the Other Equity Securities shall be deemed cancelled and extinguished.
D. SPECIAL PROVISION REGARDING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, the Cash Collateral Order,
the DIP Order or the Bonding Lien Order, nothing shall affect the Debtors' or
Reorganized Debtors' rights and defenses, both legal and equitable, with respect
to any Unimpaired Claims, including, but not limited to, all rights with respect
to legal and equitable defenses to setoffs or recoupments against Unimpaired
Claims. Notwithstanding the substantive consolidation of the Debtors, the
Unimpaired Claims of any particular Debtor shall remain the obligations solely
of such Debtor and shall not become obligations of any other Debtor or
Reorganized Debtor. Letters of credit issued pursuant to the Pre-Petition Credit
Agreement that remain outstanding and undrawn on the Effective Date shall be
replaced or, with the consent of the issuers of such letters of credit,
supported by letters of credit issued under the Exit Facility. The terms and
provisions of the Bonding Lien Order shall continue in full force and effect
post-Confirmation with respect to any surety bonds issued and outstanding
pursuant thereto.
E. SPECIAL PROVISION REGARDING CANADIAN CLASS 8B AND CLASS 8C HOLDERS
If the Alternate Canadian Transactions are implemented, and in the
event that a Canadian Class 8B or 8C Holder that makes the U.S. Plan Election
obtains an order of the Bankruptcy Court determining that such claim is
improperly classified or that such claim is not subject to subordination
pursuant to section 510(b) or 510(c) of the Bankruptcy Code or disallowance
pursuant to section 502(e)(1)(B) of the Bankruptcy Code, such claim shall be
deemed to be a Canadian Impaired Unsecured Claim that has filed the Canadian
Proof of Claim and Election. The Debtors shall have 30 days to file objections
to the proof
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of Claim, if any. Only if no objection to the Proof of Claim is filed within the
required time period, including any extensions granted by the Bankruptcy Court
or agreed to by the Debtors and the holder, or if the Bankruptcy Court enters an
order allowing such a claim as other than a subordinated claim, shall such claim
be deemed an Allowed Canadian Impaired Unsecured Claim that has filed the U.S.
Plan Election. In no event shall the holder of such Claim be a Qualifying Class
7 Creditor.
F. DISTRIBUTIONS TO CERTAIN HOLDERS OF CANADIAN IMPAIRED UNSECURED
CLAIMS AND CANADIAN CLASS 8B AND 8C HOLDERS
Each holder of a Canadian Impaired Unsecured Claim and each Canadian Class
8B or 8C Holder may make the U.S. Plan Election, entitling such holder to
receive distributions as provided in this Article III.F if the Alternate
Canadian Transactions are implemented. If the Alternate Canadian Transactions
are implemented, any holder of an Allowed Canadian Impaired Unsecured Claim that
makes the U.S. Plan Election shall receive a distribution of New Unsecured PIK
Notes and Reorganized PSI Common Shares identical to that which a holder of an
Allowed Class 7 Claim of equal amount would be entitled. If the Alternate
Canadian Transactions are implemented, any Canadian Class 8B or 8C Holder that
make the U.S. Plan Election shall receive the distribution to which such holder
would be entitled pursuant to Article III.C.4 or III.C.5, as applicable, if such
holder's claim were a Class 8B or 8C Claim, respectively. Any distribution to
which a holder of a Canadian Impaired Unsecured Claim or a Canadian Class 8B or
8C Holder is entitled under this Article III.F is subject to the application of
the provisions of this Plan governing distributions generally and application of
the provisions of this Plan, the Bankruptcy Code and other laws of the United
States regarding the determination of allowance and priority of such claims.
If the Alternate Canadian Transactions are implemented, the Lenders will
enforce remedies available to them against PSC and the other Canadian Debtors.
The proceeds paid on the transfer of the assets of PSC and the other Canadian
Debtors will be distributed pursuant to the priorities under Canadian law of the
claims against such assets. Canadian Impaired Unsecured Claims will not be
compromised pursuant to the Alternate Canadian Transactions, but it is expected
that no distributions will be made to the holders of such claims. The
distributions that would have been made available under the Canadian
Reorganization Plan, if the Canadian Reorganization Plan had been sanctioned,
for distribution to the holders of Canadian Impaired Unsecured Claims that do
not make the U.S. Plan Election, will instead comprise the Class 6 Additional
Distribution and be distributed to the holders of Class 6 Lender Claims pursuant
to Article III.C.1.
Holders of Canadian Impaired Unsecured Claims entitled to receive a
distribution pursuant to this Article III.F shall not be entitled to vote on the
Plan.
G. DISTRIBUTIONS TO CLASSES 6, 7, 8B AND 8C IF CANADIAN PLAN CONDITION IS
WAIVED
If the Canadian Plan Condition is waived, distributions to holders of
Claims in Classes 6 and 7 shall initially be made pursuant to the provisions of
Articles III.C.1.(b) and III.C.2.(b), respectively. If the Canadian Plan
Condition is waived, an amount of New Unsecured PIK Notes and the amount of
Reorganized PSI Common Shares equivalent to the amount of New Common Shares that
would be distributed to the holders of Canadian Impaired Unsecured Claims under
the Canadian Reorganization Plan (assuming all such Claims will be allowed)
shall be held by the Disbursing Agent pending the implementation of the Canadian
Reorganization Plan or the Alternate Canadian Transactions. If the Canadian
Reorganization Plan is implemented, such securities shall be deposited into the
Disputed Distribution Reserve and shall be distributed to holders of Allowed
Class 7 Claims under this Plan and Allowed Canadian Impaired Unsecured Claims in
accordance with the Canadian Reorganization Plan. If the Alternate Canadian
Transactions are implemented, such securities shall be distributed pursuant to
Articles III.F and III.C.1.(b) respectively, subject to the provisions of the
Plan governing distributions generally. The time, nature and amount of
distributions to holders of Claims in Classes 8B and 8C and Canadian Class 8B
and 8C Holders that make the U.S. Plan Election shall be determined upon the
approval of the Canadian Reorganization Plan or the Alternate Canadian
Transactions, respectively.
H. ACCRUAL OF POST-PETITION INTEREST
Interest on and fees and expenses, if any, with respect to Allowed Class 2
Other Secured Claims, shall be paid when due under the contract, agreement, or
other instrument governing the terms and conditions of the obligation comprising
such Allowed Claim, together with any additional amounts required to be paid
with respect to Unimpaired Claims pursuant to section 1124 of the Bankruptcy
Code. Except as otherwise provided above, elsewhere in this Plan, or in an order
of the Bankruptcy Court, no holder of an Allowed Claim that is not an Other
Secured Claim shall be entitled to the accrual of post-petition interest or the
payment by the Debtors or Reorganized Debtors of post-petition interest on
account of such Claim for any purpose.
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ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE
Subject to the Restructuring Transactions, the Reorganized Debtors shall
continue to exist after the Effective Date as separate corporate entities, in
accordance with the applicable law in the respective jurisdictions in which they
are incorporated and pursuant to their respective certificates or articles of
incorporation and bylaws in effect prior to the Effective Date, except (i) to
the extent such certificates or articles of incorporation and bylaws are amended
by this Plan or (ii) if the Canadian Reorganization Plan is sanctioned,
Reorganized PSC, with the consent of the Required Lenders, continues under the
laws of the Province of New Brunswick, which continuance is hereby expressly
authorized by this Plan. Notwithstanding anything to the contrary in this Plan,
including Article IV.J hereof as to substantive consolidation, subject to the
Restructuring Transactions, the Unimpaired Claims of a particular Debtor or
Reorganized Debtor shall remain the obligations solely of such Debtor or
Reorganized Debtor and shall not become obligations of any other Debtor or
Reorganized Debtor by virtue of the Plan, the Chapter 11 Cases or otherwise.
B. CORPORATE ACTION
1. Asset Transfer Pursuant to the Alternate Canadian Transactions
On the Effective Date, if the Alternate Canadian Transactions are
implemented, PSC, the other Canadian Debtors and PSI shall take any and all
steps necessary on their part to implement the Alternate Canadian Transactions.
PSC, PSI and the Reorganized Debtors are expressly authorized to take any and
all steps necessary to implement the Alternate Canadian Transactions, including
without limitation, PSC obtaining approval of the Alternate Canadian
Transactions by the Canadian Bankruptcy Court, entering into any and all
agreements necessary on their part to effectuate the Alternate Canadian
Transactions, and directing the other Canadian Debtors to obtain approval of the
Alternate Canadian Transactions by the Canadian Bankruptcy Court and to enter
into any and all agreements necessary to effectuate the Alternate Canadian
Transactions. The automatic stay of section 362(a) of the Bankruptcy Code shall
be deemed lifted on the Effective Date so that the Alternate Canadian
Transactions may be effectuated and shall be deemed lifted on or prior to the
Effective Date to the extent necessary to permit any required notices to be
issued or proceedings to be taken which may be necessary prior to the Effective
Date so that the transfer of assets pursuant to the Alternate Canadian
Transactions on or after the Effective Date may be made in compliance with
applicable law.
2. Cancellation of Old Securities and Agreements
On the Effective Date, except as otherwise provided for herein, (i) the Old
Debentures, Other Equity Securities, any other note, bond (with the exception of
surety bonds outstanding), indenture or other instrument or document evidencing
or creating any indebtedness or obligation of a Debtor (except as provided in
Article III.C.2.(c)), except such notes or other instruments evidencing
indebtedness or obligations of a Debtor that are Reinstated or amended and
restated under the Plan, shall be canceled, and (ii) the obligations of the
Debtors under any agreements, indentures or certificates of designations
governing the Old Debentures and Other Equity Securities and any other note,
bond, indenture or other instrument or document evidencing or creating any
indebtedness or obligation of a Debtor, except such notes or other instruments
evidencing indebtedness or obligations of a Debtor that are Reinstated or
amended and restated under the Plan, as the case may be, shall be discharged. As
of the Effective Date, all Old Common Shares that have been authorized to be
issued but that have not been issued shall be deemed cancelled and extinguished
without any further action of any party.
3. Certificate of Incorporation and Bylaws 4.
The certificate or articles of incorporation and bylaws of each Debtor
shall be amended as necessary to satisfy the provisions of the Plan and the
Bankruptcy Code and shall include, among other things, pursuant to section
1123(a)(6) of the Bankruptcy Code, a provision prohibiting the issuance of
nonvoting equity securities, but only to the extent required by section
1123(a)(6) of the Bankruptcy Code.
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4. Restructuring Transactions
On or after the Effective Date, the applicable Reorganized Debtors with the
consent of the Required Lenders (to the extent such actions are taken on the
Effective Date) may enter into such transactions and may take such actions as
may be necessary or appropriate to effect a corporate restructuring of their
respective businesses, to simplify otherwise the overall corporate structure of
the Reorganized Debtors, or to reincorporate certain of the Subsidiary Debtors
under the laws of jurisdictions other than the laws of which the applicable
Subsidiary Debtors are presently incorporated. Such restructuring is
contemplated to include one or more mergers, consolidations, restructures,
dispositions, liquidations, or dissolutions, as may be determined by the Debtors
or Reorganized Debtors to be necessary or appropriate (collectively, the
"Restructuring Transactions"). The actions to effect the Restructuring
Transactions may include: (i) the execution and delivery of appropriate
agreements or other documents of merger, consolidation, restructuring,
disposition, liquidation or dissolution containing terms that are consistent
with the terms of the Plan and that satisfy the applicable requirements of
applicable state law and such other terms to which the applicable entities may
agree; (ii) the execution and delivery of appropriate instruments of transfer,
assignment, assumption or delegation of any asset, property, right, liability,
duty or obligation on terms consistent with the terms of the Plan and having
such other terms to which the applicable entities may agree; (iii) the filing of
appropriate certificates or articles of merger, consolidation or dissolution
pursuant to applicable state law; and (iv) all other actions that the applicable
entities determine to be necessary or appropriate, including making filings or
recordings that may be required by applicable state law in connection with such
transactions. The Restructuring Transactions may include one or more mergers,
consolidations, restructurings, dispositions, liquidations or dissolutions, as
may be determined by the Reorganized Debtors to be necessary or appropriate to
result in substantially all of the respective assets, properties, rights,
liabilities, duties and obligations of certain of the Reorganized Debtors
vesting in one or more surviving, resulting, or acquiring corporations. In each
case in which the surviving, resulting or acquiring corporation in any such
transaction is a successor to a Reorganized Debtor, such surviving, resulting or
acquiring corporation will perform the obligations of the applicable Reorganized
Debtor pursuant to the Plan to pay or otherwise satisfy the Allowed Claims
against such Reorganized Debtor, except as provided in any contract, instrument
or other agreement or document effecting a disposition to such surviving,
resulting or acquiring corporation, which may provide that another Reorganized
Debtor will perform such obligations.
5. Shareholder Rights Plan
On the Effective Date, Reorganized PSC (if the Canadian Reorganization Plan
is sanctioned) or Reorganized PSI (if the Alternate Canadian Transactions are
implemented or if the Canadian Plan Condition is waived) shall implement the
Shareholder Rights Plan.
6. Reverse Stock Split
If the Canadian Reorganization Plan is sanctioned, and if Class 7 has voted
to accept the Plan, on the Effective Date Reorganized PSC shall take all steps
necessary to implement the Reverse Stock Split.
7. Shareholder Approval
If the Canadian Reorganization Plan is sanctioned, on or immediately after
the Effective Date and the distribution of New Common Shares to the holders of
Allowed Class 6 Secured Lender Claims, Reorganized PSC shall hold a meeting of
its shareholders for the purposes of: (i) ratifying and approving the
Shareholder Rights Plan; (ii) electing the directors of Reorganized PSC set out
in the Plan Supplement; (iii) amending the articles of incorporation of
Reorganized PSC to allow for the implementation of the Reverse Stock Split; (iv)
authorizing the continuance of Reorganized PSC under the laws of New Brunswick;
and (v) if Class 7 votes to reject the Plan, canceling the Old Common Shares.
C. PLAN TRANSACTIONS
1. New Securities
(a) Authorization
If the Canadian Reorganization Plan is sanctioned, the issuance by
Reorganized PSC of $100 million in principal amount of New Secured PIK Debt, up
to $60 million in principal amount of New Unsecured PIK Notes, up to $18 million
in principal amount of New Unsecured Convertible Notes, up to 6,426,056,637
shares of New Common Shares, and Management Options to purchase the PSC Common
Shares according to the terms of the Management Option Plan to be
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adopted by the Board of Directors of Reorganized PSC on or after the Effective
Date, subject to Dilution (except with respect to the New Secured PIK Debt) as
of the Effective Date, is hereby authorized without further act or action under
applicable law, regulation, order or rule.
If the Alternate Canadian Transactions are implemented or the Canadian
Plan Condition is waived, as of the Effective Date, the issuance by Reorganized
PSI of $100 million in principal amount of New Secured PIK Debt, up to $60
million in principal amount of New Unsecured PIK Notes, up to $18 million in
principal amount of New Unsecured Convertible Notes, up to 24,000,000 shares of
Reorganized PSI Common Shares, and Management Options to purchase Reorganized
PSI Common Shares according to the terms of the Management Option Plan to be
adopted by the Board of Directors of Reorganized PSI on or after the Effective
Date, as of the Effective Date, is hereby authorized without further act or
action under applicable law, regulation, order or rule.
(b) Issuance
The New Securities authorized pursuant to Article IV.C.1 hereof shall
be issued pursuant to the Plan without further act or action under applicable
law, regulation, order or rule other than the application for and receipt of
discretionary rulings of certain of the applicable Canadian provincial
securities regulatory authorities for the issuance of New Securities.
Reorganized PSC (if the Canadian Reorganization Plan is sanctioned) or
Reorganized PSI (if the Alternate Canadian Transactions are implemented or if
the Canadian Plan Condition is waived) shall use its reasonable best efforts to
list the New Unsecured PIK Notes and the New Unsecured Convertible Notes on an
American stock exchange.
2. New Senior Secured Debt
On the Effective Date, Reorganized PSC and Reorganized PSI (if the Canadian
Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate Canadian
Transactions are implemented or if the Canadian Plan Condition is waived) shall
execute and deliver the Amended and Restated Term Credit Agreement to govern the
New Senior Secured Term Debt and the New Secured PIK Debt.
3. New Guaranties
On the Effective Date, the Reorganized Subsidiary Debtors (in existence
after giving effect to the Restructuring Transactions) and the other Restricted
Subsidiaries shall enter into the New Guaranties and related security documents.
4. Exit Facility
The Debtors, together with the Subsidiaries, expect to enter into a
post-confirmation loan facility, the Exit Facility, in order to (a) refinance
amounts outstanding on the Effective Date under the DIP Facility, (b) make other
payments required to be made on the Effective Date or the Distribution Date, and
(c) provide the additional borrowing capacity required by the Reorganized
Debtors and the Subsidiaries following the Effective Date to maintain their
operations.
5. Tax Related Transactions
Immediately prior to implementation of the Plan, each holder of a Claim
under the Pre-Petition Credit Agreement shall be deemed to have exchanged such
Claim for an undivided co-ownership interest in all of the Claims under the
Pre-Petition Credit Agreement in the same aggregate principal amount as the
Claim so exchanged.
D. DIRECTORS AND OFFICERS
Subject to the requirements of section 1129(a)(5) of the Bankruptcy Code,
the Debtors intend to announce prior to the Confirmation Date the identities of
the individuals proposed to serve as officers of the Reorganized Debtors and the
directors of Reorganized PSC (if the Canadian Reorganization Plan is sanctioned)
or Reorganized PSI (if the Alternate Canadian Transactions are implemented or
the Canadian Plan Condition is waived). To the extent possible, the identities
of such individuals will be announced by inclusion of a list of proposed
directors and/or officers in the Plan Supplement, which will be filed with the
Bankruptcy Court at least five (5) Business Days prior to the commencement of
the Confirmation Hearing. The new board of directors for Reorganized PSC (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate
Canadian Transactions are implemented or if the Canadian Plan Condition is
waived) will consist of nine (9) directors, who will be nominated by holders of
Lender Claims. The nominees of the holders of Lender Claims shall include two
(2) members of the existing PSC board of directors and will include two (2)
members nominated by
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High River Limited Partnership ("High River") provided that High River and any
holders of Lender Claims acting in concert with it beneficially own at least
twenty-five percent (25%) of the Lender Claims. If one or both of the nominees
from the existing board is a nominee on that board of High River or persons
acting in concert with it, that person will be counted as a High River nominee
on the slate for the new board of directors. The boards of directors of the
Reorganized Debtors shall have the responsibility for the management, control,
and operation of the Reorganized Debtors on and after the Effective Date;
provided, however, (i) if the Alternate Canadian Transactions are implemented,
then PSC shall be governed pursuant to the terms of the Alternate Canadian
Transactions or as otherwise determined by the Canadian Bankruptcy Court and
(ii) if the Canadian Plan Condition is waived, PSC shall continue to be governed
in accordance with its existing bylaws and by its existing board of directors.
E. REVESTING OF ASSETS; RELEASES OF LIENS
The property of each Debtor's Estate, together with any property of each
Debtor that is not property of its Estate and that is not specifically disposed
of pursuant to the Plan, shall revest in the applicable Debtor on the Effective
Date. Thereafter, each Debtor may operate its business and may use, acquire and
dispose of property free of any restrictions of the Bankruptcy Code, the
Bankruptcy Rules and the Bankruptcy Court. As of the Effective Date, all
property of each Debtor shall be free and clear of all Liens, Claims and
Interests, except as specifically provided in the Plan or the Confirmation
Order. Without limiting the generality of the foregoing, each Debtor may,
without application to or approval by the Bankruptcy Court, pay fees that it
incurs after the Effective Date for professional fees and expenses.
Notwithstanding anything to the contrary set forth in the foregoing
paragraph, if the Alternate Canadian Transactions are implemented then the
vesting of the property of PSC shall occur pursuant to the Alternate Canadian
Transactions and any order of the Canadian Bankruptcy Court or other applicable
Canadian Court.
F. PRESERVATION OF RIGHTS OF ACTION
Except as otherwise provided in this Plan (including this Article IV.F and
Article IV.I.1) or the Confirmation Order, or in any contract, instrument,
release, indenture or other agreement entered into in connection with the Plan,
in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized
Debtors shall retain and may enforce, sue on, settle or compromise (or decline
to do any of the foregoing) all claims, rights or causes of action, suits and
proceedings, whether in law or in equity, whether known or unknown, that the
Debtors or the Estates may hold against any Person or entity. Each Debtor or its
successor(s) may pursue such retained claims, rights or causes of action, suits
or proceedings as appropriate, in accordance with the best interests of the
Reorganized Debtor or its successor(s) who hold such rights.
Notwithstanding anything to the contrary in this Plan and without limiting
the right of PSC or any other Canadian Debtor in respect of any other claim, if
the Alternate Canadian Transactions are implemented, then any claim, rights or
causes of action, suits and proceedings, whether in law or in equity, whether
known or unknown, that PSC and/or the Canadian Debtors may hold against Deloitte
& Touche, Robert Waxman, Greg Madesker and/or Rik Barrese shall remain property
of such entities and shall remain subject to the Lenders' Claims to the extent
such claims have not been satisfied in full as a result of distributions
pursuant to the Plan.
G. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The chairman of the board of directors, president, chief financial officer,
or any other appropriate officer of PSC, PSI or any applicable Debtor, as the
case may be, shall be authorized to execute, deliver, file, or record such
contracts, instruments, releases, indentures, and other agreements or documents,
and take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the Plan. The secretary or
assistant secretary of PSC, PSI or any applicable Debtor, as the case may be,
shall be authorized to certify or attest to any of the foregoing actions.
H. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from a
Debtor to a Reorganized Debtor or any other Person or entity pursuant to the
Plan in the United States shall not be subject to any document recording tax,
stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act,
real estate transfer tax, mortgage recording tax or other similar tax or
governmental assessment, and the Confirmation Order shall direct the appropriate
state or local governmental officials or agents to forgo the collection of any
such tax or governmental assessment and to accept for filing and recordation any
of the foregoing instruments or other documents without the payment of any such
tax or governmental assessment.
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I. RELEASES AND RELATED MATTERS
1. Releases by Debtors
As of the Effective Date, for good and valuable consideration, the
adequacy of which is hereby confirmed, the Debtors and Reorganized Debtors in
their individual capacities and as debtors in possession and the Subsidiaries
will be deemed to release forever, waive and discharge all claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action and
liabilities (other than the rights of the Debtors or Reorganized Debtors to
enforce the Plan and the contracts, instruments, releases, indentures and other
agreements or documents delivered thereunder) whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, in law, equity or
otherwise that are based in whole or part on any act, omission, transaction,
event or other occurrence taking place on or prior to the Effective Date in any
way relating to the Debtors, the Reorganized Debtors or their Subsidiaries, the
parties released pursuant to this Article IV.I.1, the Chapter 11 Cases, the
Lender Lock-up Agreement or the Plan, and that could have been asserted by or on
behalf of the Debtors or their Estates, the Reorganized Debtors or their
Subsidiaries against (i) the directors, officers and employees of the Debtors or
the Subsidiaries in each case as of the Petition Date or that have become
officers and/or directors thereafter but prior to the Effective Date (other than
for indebtedness owed by any such directors, officers or employees to any of the
Debtors or their Subsidiaries) and the Debtors' or Subsidiaries' agents and
professionals (excluding Deloitte & Touche and any insurance brokers retained by
the Debtors), (ii) the Lenders (other than any entity specifically excluded from
the releases granted in this Article IV.I.1 that has become a Lender), (iii) the
ad hoc steering committee and any other committee of holders of Lender Claims,
(iv) CIBC, as Administrative Agent and co-arranger under the Pre-Petition Credit
Agreement, (v) BTCo as Syndication Agent and co-arranger under the Pre-Petition
Credit Agreement, (vi) any official committees appointed in the Chapter 11
Cases, (vii) the DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility
Claims (other than any entity specifically excluded from the releases granted in
this Article IV.I.1 that has become a holder of a DIP Facility Claim), (viii)
the Security Agent, (ix) the Account Intermediaries, (x) any individual,
corporation or other entity that was at any time formerly one of the foregoing
released parties identified in subclauses (ii) - (viii) of this Article IV.I.1,
and (xi) the respective affiliates, current and former officers, directors,
employees, agents, shareholders and professionals (excluding Deloitte & Touche,
Robert Waxman, Greg Madesker, Rik Barrese and any insurance brokers retained by
the Debtors) (including the current and former officers, directors, employees,
agents, shareholders and professionals of the released professionals) of the
entities released in subclauses (ii) - (viii) of this Article IV.I.1 acting in
such capacity; provided, however, that the releases provided to any director,
officer or employee of the Debtors described in clause (i) of this Article
IV.I.1 may be revoked by the Reorganized Debtors if the Canadian Reorganization
Plan is sanctioned or by the Administrative Agent if the Alternate Canadian
Transactions are implemented, by written notice to such director, officer or
employee in the event that the Reorganized Debtors reasonably determine that
such director, officer or employee has failed to provide factual information as
reasonably requested by the Reorganized Debtors or by the Administrative Agent
in connection with any claim against Deloitte & Touche, Robert Waxman, Greg
Madesker and/or Rik Barrese arising out of or related to the same nucleus of
operative facts alleged as of the Petition Date in the Securities Actions, the
Chazen Actions or the Liff Actions, including, without limitation, providing
information and documents, attendance at meetings and interviews, assisting
counsel, attendance at discoveries, if required, assistance in pre-trial
preparation and attendance at trial, including as a witness, but subject in the
case of any person who is at the relevant time no longer a director, officer or
employee of any of the Reorganized Debtors, to reimbursement of that person's
foregone income and reasonable expenses.
2. Releases by Holders of Lender Claims, Claims and Interests
(a) Holders of Lender Claims. As of the Effective Date, in
consideration for the obligations of the Debtors, the Reorganized Debtors and
the Subsidiaries under the Plan and the Lender Lock-up Agreement and the Cash,
securities, contracts, instruments, releases and other agreements or documents
to be delivered in connection with the Plan, each of the holders of Lender
Claims, the ad hoc steering committee and any other committee of holders of
Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
the Pre-Petition Credit Agreement, the DIP Agent, the DIP Co-Arrangers, the
holders of DIP Facility Claims, the Security Agent, the Account Intermediaries,
and any individual, corporation or other entity that was at any time formerly
one of the foregoing releasing parties will be deemed to forever release, waive
and discharge all claims, obligations, suits, judgments, damages, demands,
debts, rights, causes of action and liabilities (other than the rights to
enforce the Debtors' or the Reorganized Debtors' obligations under the Plan and
the securities, contracts, instruments, releases and other agreements and
documents delivered thereunder), whether liquidated or unliquidated, fixed or
contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then
existing or thereafter arising, in law, equity or otherwise that are based in
whole or in part on any act, omission, transaction, event or other occurrence
taking place on or prior to the Effective Date in any way relating to the
Debtors or Subsidiaries, the Reorganized Debtors, the Chapter 11 Cases, the
Lender Lock-up Agreement or the
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Plan against (i) the Debtors, the Subsidiaries and the Reorganized Debtors;
provided, however, if the Canadian Reorganization Plan is not sanctioned, the
holders of Allowed Secured Lender Claims and Allowed Unsecured Lender Claims
shall not be deemed to have released PSC or any Subsidiary other than the
Debtors from such claims or their security interests against any assets of PSC
or any Subsidiary other than the Debtors retained and not transferred in
connection with the Alternate Canadian Transactions, provided further, however,
any such claims the Lenders hold shall be reduced by the value of any
distributions the Lenders receive by the Lenders pursuant to the Plan, provided,
further, that this release in this clause (i) shall not be given by any Account
Intermediary who is a current Bank Account Service Provider, (ii) the directors,
officers and employees of the Debtors or the Subsidiaries in each case as of the
Petition Date (and in addition, those who become officers and/or directors
thereafter prior to the Effective Date), (iii) the Lenders (other than any
entity specifically excluded from the releases granted in this Article
IV.I.2.(a) that has become a Lender), (iv) the ad hoc steering committee and any
other committee of holders of Lender Claims, (v) CIBC, as Administrative Agent
and co-arranger under the Pre-Petition Credit Agreement, (vi) BTCo as
Syndication Agent and co-arranger under the Pre-Petition Credit Agreement, (vii)
any official committees appointed in the Chapter 11 Cases, (viii) the DIP Agent,
the DIP Co-Arrangers and the holders of DIP Facility Claims (other than any
entity specifically excluded from the releases granted in this Article
IV.I.2.(a) that has become a holder of a DIP Facility Claim), (ix) the Security
Agent, (x) the Account Intermediaries, (xi) any individual, corporation or other
entity that was at any time formerly one of the foregoing released parties
identified in subclauses (iii) - (ix) of this Article IV.I.2.(a) and (xii) the
respective current and former professionals of the entities in subclauses (i) -
(ix) of this Article IV.I.2.(a) (excluding Deloitte & Touche and any insurance
brokers retained by the Debtors) (including the current and former officers,
directors, employees, shareholders and professionals of the released
professionals), acting in such capacity; provided, however, that the releases
provided to any director, officer or employee of the Debtors described in clause
(ii) of this Article IV.I.2(a) may be revoked by the Administrative Agent, or
its successor, by written notice to such director, officer or employee, in the
event that the Administrative Agent or its successor reasonably determines that
any such director, officer or employee has failed to provide factual information
reasonably requested by the Administrative Agent or its successor in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or related to the same nucleus of operative facts
alleged as of the Petition Date in the Securities Actions, the Chazen Actions or
the Liff Actions, including, without limitation, providing information and
documents, attendance at meetings and interviews, assisting counsel, attendance
at discoveries, if required, assistance at pre-trial preparation and attendance
at trial, including as a witness, but subject in the case of any person who is
at the relevant time no longer a director, officer or employee of any of the
Reorganized Debtors, to reimbursement of that person's foregone income and
reasonable expenses, provided further, that nothing contained herein shall
affect the rights and obligations of the parties designated in clauses (iii),
(v), (vi), (ix) and (x) of this Article IV.I.2.(a) under the Priority and
Subordination Agreement, dated as of December 4, 1998, the Security Sharing
Agreement, dated as of November 30, 1998 and the Intercreditor Agreement, dated
as of June 25, 1999.
(b) Holders of Claims and Interests. As of the Effective
Date, to the fullest extent permitted under applicable law, in consideration for
the obligations of the Debtors and the Reorganized Debtors under the Plan and
the Cash, securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, and the benefits provided
by the Lenders and the Account Intermediaries under the Plan, each present and
former holder of a Claim or Interest (other than the releasing parties
identified in Article IV.I.2(a) above or any individual, corporation or other
entity that was at any time formerly one of the foregoing releasing parties)
will be deemed to release forever, waive and discharge all claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action and
liabilities (other than the rights to enforce the Debtors' or the Reorganized
Debtors' obligations under the Plan and the securities, contracts, instruments,
releases and other agreements and documents delivered thereunder), whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising, in law,
equity or otherwise that are based in whole or in part on any act, omission,
transaction, event or other occurrence taking place on or prior to the Effective
Date in any way relating to the Debtors or Subsidiaries, the parties released
pursuant to this Article IV.I.2(b), the Reorganized Debtors the Chapter 11
Cases, the Lender Lock-up Agreement or the Plan against (i) the Debtors, the
Subsidiaries and the Reorganized Debtors, (ii) the Lenders as of September 15,
1999 or an entity that subsequently becomes a Lender subject to the Debtors'
consent, the ad hoc steering committee or any other committee of holders of
Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
the Pre-Petition Credit Agreement, any official committees appointed in the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims as of September 15, 1999 or an entity that subsequently becomes
a holder of a DIP Facility Claim subject to the Debtors' consent, and the
Security Agent, (iii) the Account Intermediaries, (iv) any individual,
corporation or other entity that was at any time formerly one of the foregoing
released parties identified in subclause (ii) of this Article IV.I.2(b) and (v)
the respective affiliates, current and former officers, directors, employees,
agents, shareholders and professionals of the entities listed in subclause (ii)
of this Article IV.I.2.(b) (excluding Deloitte & Touche and any insurance
brokers retained by the Debtors) acting in such capacity. Under the Plan,
holders of Claims (other than the Lenders) and Interests are not deemed to have
released any non-Debtor third party other than the Lenders and those parties
explicitly listed in subsections (ii), (iii), (iv) and (v) above.
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3. Injunction Related to Releases
As further provided in Article XIV.F, the Confirmation Order will
enjoin the prosecution, whether directly, derivatively or otherwise, of any
claim, obligation, suit, judgment, damage, demand, debt, right, cause of action,
liability or interest released, discharged or terminated pursuant to the Plan.
4. Reinstatement of Certain Releases
The revocation of any release of any director, officer or employee
pursuant to Articles IV.I.1 or 2(a) hereof shall be void ab initio to the extent
that a court of competent jurisdiction, including, but not limited to the
Bankruptcy Court, determines that such director, officer or employee has
provided the factual information reasonably requested by the Reorganized Debtors
if the Canadian Reorganization Plan is sanctioned or by the Administrative Agent
or its successor if the Alternate Canadian Transactions are implemented.
J. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING IMPAIRED CLAIMS
The Plan is premised upon the substantive consolidation of the Debtors
only for purposes of treating Class 6, 7 or 8 Claims under the Plan, including
for voting, confirmation and distribution purposes. The Plan does not
contemplate the substantive consolidation of the Debtors with respect to the
other Classes of Claims or Interests set forth in the Plan. On the Effective
Date, (a) all guaranties of any Debtor of the payment, performance or collection
of another Debtor with respect to Class 6, 7 or 8 Claims shall be deemed
eliminated and cancelled; (b) any obligation of any Debtor and all guaranties
with respect to Class 6, 7 or 8 Claims thereof executed by one or more of the
other Debtors shall be treated as a single obligation and any obligation of two
or more Debtors, and all multiple Impaired Claims against such entities on
account of such joint obligations, shall be treated and Allowed only as a single
Impaired Claim against the consolidated Debtors; and (c) each Class 6, 7 or 8
Claim filed in the Chapter 11 Cases of any Debtor shall be deemed filed against
the consolidated Debtors and shall be deemed one Class 6, 7 or 8 Claim against
and obligation of the consolidated Debtors. Except as set forth in this Article
IV.J, such substantive consolidation shall not (other than for purposes related
to the Plan) (a) affect the legal and corporate structures of the Reorganized
Debtors, subject to the right of the Debtors or Reorganized Debtors to effect
the Restructuring Transactions as provided in Article IV.B.3 hereof, (b) cause
any Debtor to be liable for any Impaired Claim or Unimpaired Claim under the
Plan, for which it otherwise is not liable, and the liability of any Debtor for
any such Claim shall not be affected by such substantive consolidation, (c)
affect Intercompany Claims of Debtors against Debtors, and (d) affect Interests
in the Subsidiary Debtors. On the Effective Date, the Intercompany Claims of
Debtors against Debtors shall be Reinstated or discharged and satisfied, at the
option of the Reorganized Debtors with the consent of the Required Lenders,
by contributions, distributions or otherwise as determined by the Reorganized
Debtors. On the Effective Date, to the extent a Subsidiary Debtor is not
dissolved or merged as part of the Restructuring Transactions or except as
otherwise expressly provided for in the Plan, the Interests in such Subsidiary
Debtor shall remain outstanding.
K. CONTRIBUTION AND INDEMNITY CLAIMS OTHER THAN ASSUMED INDEMNIFICATION
OBLIGATIONS
Any Claim other than the Assumed Indemnification Obligations against
any Debtor for reimbursement, contribution, indemnity or setoff that is subject
to section 510(b) and/or 510(c) of the Bankruptcy Code or related to or arising
from the facts surrounding, allegations or actions resulting in a Claim that is
subject to section 510(b) and/or 510(c) of the Bankruptcy Code or arising out of
such facts or alleged facts, and any Excluded Indemnification Obligation, shall
be deemed rejected for all purposes under the Plan and shall be deemed
disallowed under the Plan upon entry of the Confirmation Order pursuant to
section 502(e)(1)(B) of the Bankruptcy Code to the fullest extent permitted by
law; provided, however, to the extent that any such Claim is not so disallowed
and becomes an Allowed Claim against any Debtor, then such Allowed Claim shall
be treated as an Allowed Class 8C Claim pursuant to sections 510(b) and/or
510(c) of the Bankruptcy Code.
L. ASSUMED INDEMNIFICATION OBLIGATIONS
The Assumed Indemnification Obligations shall be deemed assumed by the
Reorganized Debtors as of the Effective Date without any further action by any
party and in the event the Alternate Canadian Transactions are implemented or
the Canadian Plan Condition is waived, the Assumed Indemnification Obligations
of PSC shall be deemed assumed by Reorganized PSI.
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ARTICLE V.
ACCEPTANCE OR REJECTION OF THE PLAN
A. CLASSES ENTITLED TO VOTE
Classes 6 and 7 are entitled to vote to accept or reject the Plan. If
the Class 8 Solicitation Order is entered, Classes 8A, 8B and 8C will be deemed
to have rejected the Plan and therefore will not be entitled to vote. If the
Class 8 Solicitation Order is not entered, then Classes 8A, 8B and 8C will be
entitled to vote to accept or reject the Plan. By operation of law, each
Unimpaired Class of Claims is deemed to have accepted the Plan and, therefore,
is not entitled to vote to accept or reject the Plan. By operation of law, Class
9 is deemed to have rejected the Plan and therefore is not entitled to vote to
accept or reject the Plan.
B. ACCEPTANCE BY IMPAIRED CLASSES
An Impaired Class of Claims 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 amount of the Allowed 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 Claims actually voting in such Class have
voted to accept the Plan. 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 the Allowed Interests
actually voting in such Class have voted to accept the Plan.
C. CRAMDOWN
The Debtors will seek confirmation of the Plan under section 1129(b) of
the Bankruptcy Code in view of the deemed rejection by Class 9. Subject to
Article XI hereof, the Debtors reserve the right to modify the Plan to the
extent, if any, that Confirmation pursuant to section 1129(b) of the Bankruptcy
Code requires modification.
ARTICLE VI.
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
On the Effective Date, Reorganized PSC and Reorganized PSI (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate
Canadian Transactions are implemented or if the Canadian Plan Condition is
waived) shall issue for distribution in accordance with the provisions of the
Plan all of the New Secured PIK Debt, New Unsecured PIK Notes, New Unsecured
Convertible Notes and New Common Shares (if the Canadian Reorganization Plan is
sanctioned) or Reorganized PSI Common Shares (if the Alternate Canadian
Transactions are implemented or if the Canadian Plan Condition is waived),
pursuant to the provisions of the Plan. All securities to be issued will be
deemed issued as of the Effective Date regardless of the date on which they are
actually distributed. The form of the Amended and Restated Credit Agreement
governing the New Secured PIK Debt shall be in substantially the form attached
in the Plan Supplement. The form of indenture governing the New Unsecured PIK
Notes shall be in substantially the form attached to the Plan Supplement. The
form of the New Convertible Notes Indenture governing the New Unsecured
Convertible Notes shall be substantially in the form attached to the Plan
Supplement.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
A. DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE
Except as otherwise provided herein or as ordered by the Bankruptcy
Court, distributions to be made on account of Claims that are Allowed Claims as
of the Effective Date shall be made not later than the Distribution Date.
Distributions on account of Claims that first become Allowed Claims after the
Effective Date shall be made pursuant to Articles III, VII and IX of this Plan.
Notwithstanding the date on which any distribution of securities is actually
made to a holder of a Claim or
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Interest that is an Allowed Claim or Allowed Interest on the Effective Date, as
of the date of the distribution such holder shall be deemed to have the rights
of a holder of such securities distributed as of the Effective Date.
B. INTEREST ON CLAIMS
Unless otherwise specifically provided for in this Plan or the
Confirmation Order, or required by applicable bankruptcy law, post-petition
interest shall not accrue or be paid on Claims, and no holder of a Claim shall
be entitled to interest accruing on or after the Petition Date on any Claim.
Interest shall not accrue or be paid upon any Disputed Claim in respect of the
period from the Petition Date to the date a final distribution is made thereon
if and after such Disputed Claim becomes an Allowed Claim.
C. DISTRIBUTIONS BY DISBURSING AGENT AND THE INDENTURE TRUSTEE
The Disbursing Agent shall make all distributions required under this
Plan (subject to the provisions of Articles III, VII and IX hereof).
Distributions provided for in the Plan on account of Allowed Old Debenture
Claims shall be made to the Indenture Trustee, as Disbursing Agent for Old
Debenture Claims, for further distribution to holders of Allowed Old Debenture
Claims. Any such further distributions shall be made pursuant to the Old
Indenture and the Plan, particularly to the Indenture Trustee (i) to itself as
Indenture Trustee for application of any unpaid fees, compensation, expenses
(including the Indenture Trustee's professional fees and expenses) disbursements
and advances; (ii) to itself as escrow agent holding an expense fund of
approximately $92,000 (such amount determined exclusively by the Indenture
Trustee) for the Great Plains Action, and thereafter (iii) on account of Allowed
Claims of holders of Old Debentures.
If the Disbursing Agent is an independent third party designated by the
Reorganized Debtors to serve in such capacity, such Disbursing Agent shall
receive, without further Bankruptcy Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services from
the Reorganized Debtors on terms acceptable to the Reorganized Debtors. No
Disbursing Agent shall be required to give any bond or surety or other security
for the performance of its duties unless otherwise ordered by the Bankruptcy
Court.
D. RECORD DATE FOR DISTRIBUTIONS TO HOLDERS OF LENDER CLAIMS AND OLD
DEBENTURES
At the close of business on the Distribution Record Date, the transfer
records for the Old Debentures and Lender Claims shall be closed, and there
shall be no further changes in the record holders of the Old Debentures or
Lender Claims. The Reorganized Debtors, the Disbursing Agent, and the
Administrative Agent for the Lenders shall have no obligation to recognize any
transfer of such Old Debentures or Lender Claims occurring after the
Distribution Record Date and shall be entitled instead to recognize and deal for
all purposes hereunder with only those record holders as of the close of
business on the Distribution Record Date.
E. MEANS OF CASH PAYMENT
Cash payments made pursuant to this Plan shall be in U.S. funds for
creditors located in the United States and in Canadian funds for creditors
located in Canada, unless such creditors in Canada have previously agreed, or
contracted for, payment in U.S. funds, by the means agreed to by the payor and
the payee, including by check or wire transfer or, in the absence of an
agreement, such commercially reasonable manner as the payor shall determine in
its sole discretion.
F. CALCULATION OF DISTRIBUTION AMOUNTS
1. New Common Shares
No fractional shares of New Common Shares or Reorganized PSI Common
Shares shall be issued or distributed under the Plan. Each Person entitled to
receive New Common Shares will receive the total number of whole shares of New
Common Shares or Reorganized PSI Common Shares to which such Person is entitled.
Whenever any distribution to a particular Person would otherwise call for
distribution of a fraction of a share of New Common Shares or Reorganized PSI
Common Shares, the actual distribution of shares of such stock shall be rounded
to the next higher or lower whole number as follows: (a) fractions 1/2 or
greater shall be rounded to the next higher whole number, and (b) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of shares of New Common Shares to be distributed to a Class of Claims or
Interests shall be adjusted as necessary to account for the rounding provided
for in this Article VII.F. No consideration shall be provided in lieu of
fractional shares that are rounded down.
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2. New Debt Securities
New Debt Securities will be issued in denominations of $1,000 and such
fractions thereof as is necessary.
3. Conversion Rate
Canadian dollar ("CDN") Claims will be converted to United States
dollars for purposes of distributions by applying the June 25, 1999 Dow Jones
Canadian to United States exchange rate of .68254855.
G. DELIVERY OF DISTRIBUTIONS
Distributions to holders of Allowed Claims shall be made by the
Disbursing Agent (a) at the addresses set forth on the proofs of Claim filed by
such holders (or at the last known addresses of such holders if no Proof of
Claim is filed or if the Debtors have been notified of a change of address), (b)
at the addresses set forth in any written notices of address changes delivered
to the Disbursing Agent after the date of any related Proof of Claim, (c) at the
addresses reflected in the Schedules if no Proof of Claim has been filed and the
Disbursing Agent has not received a written notice of a change of address, (d)
in the case of the holder of an Allowed Old Debenture Claim, at the addresses
contained in the official records of the indenture trustee under the Old
Indenture, or (e) at the addresses set forth in a properly completed letter of
transmittal accompanying securities properly remitted to the Debtors. If any
holder's distribution is returned as undeliverable, no further distributions to
such holder shall be made unless and until the Disbursing Agent is notified of
such holder's then current address, at which time all missed distributions shall
be made to such holder without interest. No undeliverable distributions will go
back to the Reorganized Debtors. All claims for undeliverable distributions in
respect of Allowed Class 7 Claims (or Canadian Impaired Unsecured Claims for
which the U.S. Plan Election is made if the Alternate Canadian Transactions are
implemented) must be made on or before the expiration of the eighteenth (18th)
month following the Effective Date, after which date all unclaimed property
shall be distributed pro rata to the holders of the other Allowed Class 7 Claims
(and Canadian Impaired Unsecured Claims for which the U.S. Plan Election is made
if the Alternate Canadian Transactions are implemented) and the claim of any
holder or successor to such holder with respect to such property shall be
discharged and forever barred, notwithstanding any federal or state escheat laws
to the contrary. Nothing contained in the Plan shall require the Debtors,
Reorganized Debtors, any Disbursing Agent or the indenture trustee to attempt to
locate any holder of an Allowed Claim or Allowed Interest. All distributions
pursuant to the Plan shall be at the Reorganized Debtors' expense.
H. SURRENDER OF SECURITIES AND INSTRUMENTS
1. Notes and Old Debentures
Except as provided in Article VII.H.2 for lost, stolen, mutilated or
destroyed Old Debentures, each holder of an Allowed Claim evidenced by a note or
Old Debenture shall tender such note or Old Debenture to the Disbursing Agent in
accordance with written instructions to be provided in a letter of transmittal
to such holders by the Disbursing Agent as promptly as practicable following the
Effective Date. Such letter of transmittal shall specify that delivery of such
notes or Old Debentures will be effected, and risk of loss and title thereto
will pass, only upon the proper delivery of such notes or Old Debentures with
the letter of transmittal in accordance with such instructions. Such letter of
transmittal shall also include, among other provisions, customary provisions
with respect to the authority of the holder of the applicable note or Old
Debenture to act and the authenticity of any signatures required on the letter
of transmittal. All surrendered notes and Old Debentures shall be marked as
canceled and delivered to the Reorganized Debtors.
2. Lost, Mutilated or Destroyed Notes or Old Debentures
In addition to any requirements under the applicable certificate or
articles of incorporation or bylaws of the applicable Debtor, any holder of a
Claim or an Interest evidenced by a note or Old Debenture that has been lost,
stolen, mutilated or destroyed shall, in lieu of surrendering such note or Old
Debenture, deliver to the Disbursing Agent (a) evidence satisfactory to the
Disbursing Agent of the loss, theft, mutilation or destruction; and (b) such
indemnity as may be required by the Disbursing Agent to hold the Disbursing
Agent harmless from any damages, liabilities or costs incurred in treating such
individual as a holder of a note or Old Debenture. Upon compliance with this
Article VII.H.2 by a holder of a Claim or an Interest evidenced by a note or Old
Debenture, such holder shall, for all purposes under the Plan, be deemed to have
surrendered a note or Old Debenture, as applicable.
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3. Failure to Surrender Canceled Note or Old Debentures
Any note or Old Debenture holder that fails to surrender or be deemed
to have surrendered such note or Old Debenture within the second anniversary
after the Effective Date shall have its claim for a distribution pursuant to the
Plan on account of such note or Old Debenture discharged and shall be forever
barred from asserting any such claim against any Reorganized Debtor or its
respective property.
I. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with this Plan and all distributions hereunder, the
Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state,
provincial, local or foreign taxing authority, and all distributions hereunder
shall be subject to any such withholding and reporting requirements. The
Disbursing Agent shall be authorized to take any and all actions that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan (i) each holder of
an Allowed Claim or Interest that is to receive a distribution of New Securities
pursuant to the Plan shall have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution, and (ii) no distribution shall be made to or on behalf of
such holder pursuant to the Plan unless and until such holder has made
arrangements satisfactory to the Disbursing Agent for the payment and
satisfaction of such tax obligations. Any New Securities to be distributed
pursuant to the Plan shall, pending the implementation of such arrangements, be
treated as an undeliverable distribution pursuant to Article VII.G. It is the
Debtors' intent that distributions under the Plan to holders of Claims are in
respect of, and to be applied to principal first and then interest.
J. SETOFFS
The Reorganized Debtors may, but shall not be required to, set off
against any Claim (or Canadian Impaired Unsecured Claim the holder of which has
made the U.S. Plan Election if the Alternate Canadian Transactions are
implemented), and the payments or other distributions to be made pursuant to the
Plan in respect of such Claim, claims of any nature whatsoever that the Debtors
or Reorganized Debtors may have against the holder of such Claim (or Canadian
Impaired Unsecured Claim the holder of which has made the U.S. Plan Election if
the Alternate Canadian Transactions are implemented); provided, however, that
neither the failure to do so nor the allowance of any Claim (or Canadian
Impaired Unsecured Claim the holder of which has made the U.S. Plan Election if
the Alternate Canadian Transactions are implemented) hereunder shall constitute
a waiver or release by the Reorganized Debtors of any such claim that the
Debtors or Reorganized Debtors may have against such holder. Notwithstanding
anything to the contrary, the Debtors and Reorganized Debtors will not exercise
any right of setoff against any Lender, any agents under the Pre-Petition Credit
Agreement or the DIP Facility Agreement, the Account Intermediaries or the DIP
Lenders.
ARTICLE VIII.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. ASSUMED CONTRACTS AND LEASES
Except as otherwise provided in the Plan, or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, as of the Effective Date each Debtor shall be deemed
to have assumed each executory contract and unexpired lease to which it is a
party, unless such contract or lease (i) was previously assumed or rejected by
such Debtor, (ii) previously expired or terminated pursuant to its own terms, or
(iii) is otherwise set forth in the schedule to be filed in the Plan Supplement
as being an executory contract or unexpired lease to be rejected, provided,
however, that the Debtors reserve their right, at any time prior to the
Confirmation Date, to amend the schedule to be filed in the Plan Supplement to
delete any unexpired lease or executory contract therefrom or add any unexpired
lease or executory contract thereto. The Confirmation Order shall constitute an
order of the Bankruptcy Court under section 365 of the Bankruptcy Code approving
the contract and lease assumptions described above, as of the Effective Date.
Each executory contract and unexpired lease that is assumed and relates
to the use, ability to acquire or occupancy of real property shall include (a)
all modifications, amendments, supplements, restatements or other agreements
made directly or
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indirectly by any agreement, instrument or other document that in any manner
affect such executory contract or unexpired lease and (b) all executory
contracts or unexpired leases appurtenant to the premises, including all
easements, licenses, permits, rights, privileges, immunities, options, rights of
first refusal, powers, uses, usufructs, reciprocal easement agreements, vaults,
tunnel or bridge agreements or franchises, and any other interests in real
estate or rights in rem related to such premises, unless any of the foregoing
agreements has been rejected pursuant to an order of the Bankruptcy Court.
B. PAYMENTS RELATED TO ASSUMPTION OF CONTRACTS AND LEASES
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default shall be satisfied, under
section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor party to
the contract or lease or the assignee of such Debtor party assuming such
contract or lease, by Cure. If there is a dispute regarding (i) the nature or
amount of any Cure, (ii) the ability of any Reorganized Debtor or any assignee
to provide "adequate assurance of future performance" (within the meaning of
section 365 of the Bankruptcy Code) under the contract or lease to be assumed,
or (iii) any other matter pertaining to assumption, Cure shall occur following
the entry of a Final Order resolving the dispute and approving the assumption or
assumption and assignment, as the case may be.
C. REJECTED CONTRACTS AND LEASES
Except as otherwise provided in the Plan and subject to Article VIII.A
hereof or as otherwise provided in any contract, instrument, release, indenture
or other agreement or document entered into in connection with the Plan, none of
the executory contracts and unexpired leases to which the Debtors, or any of
them, are a party shall be rejected under the Plan.
D. COMPENSATION AND BENEFIT PROGRAMS
Except and to the extent previously assumed or rejected by an order of
the Bankruptcy Court on or before the Confirmation Date, all employment
agreements and employee compensation and benefit programs of the Debtors,
including programs subject to sections 1114 and 1129(a)(13) of the Bankruptcy
Code, entered into before or after the Petition Date and not since terminated,
shall be deemed to be, and shall be treated as though they are, executory
contracts that are assumed under Article VIII.A of the Plan and in the event the
Alternate Canadian Transactions are implemented or the Canadian Plan Condition
is waived, assumed and assigned to PSI, except for (i) executory contracts or
plans specifically rejected pursuant to the Plan (to the extent such rejection
does not violate sections 1114 and 1129(a)(13) of the Bankruptcy Code) and (ii)
executory contracts or plans as have previously been rejected, are the subject
of a motion to reject, or have been specifically waived by the beneficiaries of
any plans or contracts; provided, however, that the Debtors' obligations, if
any, to pay all "retiree benefits" as defined in section 1114(a) of the
Bankruptcy Code shall continue.
ARTICLE IX.
PROCEDURES FOR RESOLVING DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND DISPUTED INTERESTS
A. PROSECUTION OF OBJECTIONS
After the Confirmation Date, only the Debtors, the Reorganized Debtors
(subject to Article XIV.G), the Creditors' Committee and the Indenture Trustee
shall have the authority to file objections, settle, compromise, withdraw or
litigate to judgment objections to Claims (and Canadian Impaired Unsecured
Claims the holders of which have made the U.S. Plan Election if the Alternate
Canadian Transactions are implemented) and Interests. From and after the
Effective Date, the Reorganized Debtors may settle or compromise any Disputed
Class 7 Claim, Disputed Canadian Impaired Unsecured Claim the holder of which
has made the U.S. Plan Election if the Alternate Canadian Transactions are
implemented or Disputed Interest, without approval of the Bankruptcy Court.
B. NO DISTRIBUTIONS PENDING ALLOWANCE
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made with respect to all or any portion of a Disputed
Class 7 Claim or Disputed Canadian Impaired Unsecured Claim unless and until
some portion thereof has become an Allowed Claim or Allowed Canadian Impaired
Unsecured Claim, respectively.
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C. DISPUTED DISTRIBUTION RESERVE; RESERVE FOR SUBSEQUENT DISTRIBUTIONS TO
QUALIFYING CLASS 7 CREDITORS
On the Effective Date (or as soon thereafter as is practicable) if
holders of Allowed Class 7 Claims are to receive distributions in accordance
with Article III.C, the Disbursing Agent shall establish the Disputed
Distribution Reserve by withholding from the initial distribution on account of
Allowed Class 7 Claims, Allowed Canadian Impaired Unsecured Claims and the Class
6 Additional Distribution (as applicable) an amount of New Unsecured PIK Notes
and New Common Shares (or Reorganized PSI Common Shares as applicable)
calculated as if all Class 7 Claims and Canadian Impaired Unsecured Claims were
Allowed Class 7 Claims and Allowed Canadian Impaired Unsecured Claims as of such
date, in an amount equal to one hundred percent (100%) of their Disputed Class 7
and Disputed Canadian Impaired Unsecured Claim Amount. The Disbursing Agent
shall also establish a reserve for subsequent distributions to Qualifying Class
7 Creditors containing the maximum amount of New Unsecured Convertible Notes
distributable under the Plan, if necessary, less the amount of New Unsecured
Convertible Notes distributed to Qualifying Class 7 Creditors on the
Distribution Date.
D. DISTRIBUTIONS AFTER ALLOWANCE OF CLASS 7 CLAIMS AND CANADIAN IMPAIRED
UNSECURED CLAIMS
The Disbursing Agent shall make payments and distributions from the
Disputed Distribution Reserve to each holder of a Disputed Class 7 Claim that
has become an Allowed Class 7 Claim and each holder of a Disputed Canadian
Impaired Unsecured Claim that has become an Allowed Canadian Impaired Unsecured
Claim, in each case in accordance with the provisions of this Plan or the
Canadian Reorganization Plan, respectively. On the next succeeding interim
distribution date after the date that the order or judgment of the Bankruptcy
Court or the Canadian Bankruptcy Court allowing such Claim or claim becomes a
Final Order, the Disbursing Agent shall distribute to the holder of such Claim
or claim any New Unsecured PIK Notes and New Common Shares (or Reorganized PSI
Common Shares, as applicable) in the Disputed Distribution Reserve that would
have been distributed on the Distribution Date had such Claim been an Allowed
Class 7 Claim or an Allowed Canadian Impaired Unsecured Claim on the
Distribution Date. After a Final Order has been entered, or other final
resolution has been reached, with respect to each of the Disputed Class 7 Claims
and Disputed Canadian Impaired Unsecured Claims, any New Unsecured PIK Notes,
New Unsecured Convertible Notes, and New Common Shares or Reorganized PSI
Common Shares that remain in the Disputed Distribution Reserve and the reserve
for subsequent distributions to Qualifying Class 7 Creditors shall be
distributed, as applicable, pro rata to holders of (i) Allowed Claims in Class
7, (ii) Allowed Canadian Impaired Unsecured Claims and (iii) holders of the
Class 6 Secured Lender Claims on account of the Class 6 Additional Distribution,
if applicable (based on an estimate of the allowed Canadian Impaired Unsecured
Claims of holders who did not make the U.S. Plan Election); provided however,
that only Qualifying Class 7 Creditors shall be entitled to receive
distributions of New Unsecured Convertible Notes from the reserve for subsequent
distributions to Qualifying Class 7 Creditors. All distributions made under this
Article IX.D of the Plan on account of an Allowed Class 7 Claim and Allowed
Canadian Impaired Unsecured Claim, shall be made together with any payments or
other distributions made on account of, as well as any obligations arising from,
the distributed property, as if such Allowed Class 7 Claim or Allowed Canadian
Impaired Unsecured Claim had been an Allowed Class 7 Claim or Allowed Canadian
Impaired Unsecured Claim on the Distribution Date. Notwithstanding the
foregoing, the Disbursing Agent shall not be required to make distributions
under Article IX.D more frequently than once every 180 days or to make any
individual payments in an amount less than $25.00. Notwithstanding anything
herein to the contrary, if the Canadian Reorganization Plan is sanctioned,
disbursements to holders of Canadian Impaired Unsecured Claims shall be made in
compliance with the Canadian Reorganization Plan.
E. DISTRIBUTION PROCEDURES FOR CLASS 8 CLAIMS AND INTERESTS
A description of the procedure for the distribution to holders of Class
8 Claims and Interests, as well as the procedure for the establishment of a
reserve for the benefit of holders of Class 8 Claims and Interests on account of
Class 8 Claims and Interests that have not become Allowed, if any, and the
procedure for distribution to holders of Class 8 Claims and Interests that have
not become Allowed, if any, after such Claims or Interests, become Allowed
Claims or Interests will be included in the Plan Supplement.
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ARTICLE X.
CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The following are conditions precedent to the occurrence of the
Confirmation Date: (i) the entry of an order finding that the Disclosure
Statement contains adequate information pursuant to section 1125 of the
Bankruptcy Code and (ii) the proposed Confirmation Order shall be in form and
substance acceptable to the Debtors and the Required Lenders.
B. CONDITIONS TO EFFECTIVE DATE
The following are conditions precedent to the occurrence of the
Effective Date, each of which must be (i) satisfied or (ii) waived in accordance
with Article X.C below:
1. The Confirmation Order confirming the Plan, as such Plan
may have been modified, shall have been entered and become a Final Order in form
and substance reasonably satisfactory to the Debtors and the Required Lenders
and shall provide that:
(a) the Debtors and Reorganized Debtors are
authorized and directed to take all actions
necessary or appropriate to enter into, implement
and consummate the contracts, instruments,
releases, leases, indentures and other agreements
or documents created in connection with the Plan
or the Restructuring Transactions;
(b) the provisions of the Confirmation Order are
nonseverable and mutually dependent;
(c) Reorganized PSC or Reorganized PSI, or both, as
applicable is authorized to issue the New
Unsecured PIK Notes, New Unsecured Convertible
Notes, New Common Shares, Reorganized PSI Common
Shares and Management Options and incur the New
Senior Secured Term Debt and New Secured PIK
Debt; and
(d) the New Secured PIK Debt, New Unsecured PIK
Notes, New Unsecured Convertible Notes and New
Common Shares (or Reorganized PSI Common Shares,
as applicable) issued under the Plan in exchange
for Claims against the Debtors are exempt from
registration under the Securities Act of 1933
pursuant to section 1145 of the Bankruptcy Code,
except to the extent that holders of the New
Secured PIK Debt, New Unsecured PIK Notes, New
Unsecured Convertible Notes and New Common Shares
(or Reorganized PSI Common Shares, as applicable)
are "underwriters," as that term is defined in
section 1145 of the Bankruptcy Code.
2. The Reorganized Debtors shall have credit availability
under the Exit Facility, in amount, form and substance acceptable to the
Reorganized Debtors and the Required Lenders, to provide the Reorganized Debtors
and the Subsidiaries with sufficient working capital to meet ordinary and peak
requirements and additional borrowings to support future projects.
3. The following agreements, in form and substance
satisfactory to the Reorganized Debtors and the Required Lenders (and, in
addition, the Creditors' Committee and the Indenture Trustee shall retain the
authority to approve the specific agreements in subclauses (b) and (c)), shall
have been executed and delivered, and all conditions precedent thereto shall
have been satisfied:
(a) Amended Certificates of Incorporation and Bylaws
of the Reorganized Debtors and the other
Restricted Subsidiaries;
(b) New Unsecured PIK Notes Indenture;
(c) New Unsecured Convertible Notes Indenture;
(d) Amended and Restated Term Credit Agreement;
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(e) New Guaranties and related security documents;
(f) Registration Rights Agreement;
(g) Exit Facility;
(h) Shareholder Rights Plan; and
(i) Agreements evidencing sufficient bonding to meet
the Debtors' projected bonding requirements.
4. The Amended Certificates of Incorporation and Bylaws of the
Reorganized Debtors, as necessary, shall have been filed with the applicable
authority of each entity's jurisdiction of incorporation in accordance with such
jurisdiction's corporation laws.
5. All actions, documents and agreements necessary to
implement the Plan shall have been effected or executed.
6. (a) The Canadian Bankruptcy Court shall have entered an
order under the CCAA sanctioning the Canadian Reorganization Plan and all
conditions to the effectiveness of the Canadian Reorganization Plan shall have
been satisfied other than the condition that this Plan shall have become
effective or (b) the Alternate Canadian Transactions shall have been authorized
to be implemented in accordance with Canadian law and all conditions to the
implementation of the Alternate Canadian Transactions shall have been satisfied
or waived by the Required Lenders other than the condition that this Plan shall
have become effective, and the Alternate Canadian Transactions shall be capable
of being implemented on the Effective Date and the only unsatisfied condition to
the transactions shall be the effectiveness of this Plan.
7. The new Board of Directors of Reorganized PSC (if the
Canadian Reorganization Plan is sanctioned) or Reorganized PSI (if the Alternate
Canadian Transactions are implemented or if the Canadian Plan Condition is
waived) shall have been appointed.
C. WAIVER OF CONDITIONS
1. Each of the conditions set forth in Article X.B above may
be waived in whole or in part by the Debtors with the written consent of the
Required Lenders, without any other notice to parties in interest or the
Bankruptcy Court and without a hearing. The failure to satisfy or waive any
condition to the Effective Date may be asserted by the Debtors or Reorganized
Debtors regardless of the circumstances giving rise to the failure of such
condition to be satisfied (including any action or inaction by a Debtor or
Reorganized Debtor). The failure of a Debtor or Reorganized Debtor to exercise
any of the foregoing rights shall not be deemed a waiver of any other rights,
and each such right shall be deemed an ongoing right that may be asserted at any
time.
2. If the Canadian Plan Condition is waived, (a) all New
Securities shall be issued by Reorganized PSI, (b) PSC and the other Canadian
Debtors will continue to be managed by PSC's current Board of Directors and
current management and (c) until either the Canadian Reorganization Plan is
sanctioned or the Alternate Canadian Transactions are implemented, all assets of
PSC and the other Canadian Debtors will continue to be owned and operated by PSC
and the other Canadian Debtors, respectively. If the Canadian Plan Condition is
waived, it is contemplated that substantially all equity interests and/or assets
of PSC and the other Canadian Debtors ultimately will be transferred as going
concerns to Reorganized PSI and/or a newly formed or existing direct or indirect
subsidiary or subsidiaries of Reorganized PSI.
ARTICLE XI.
MODIFICATIONS AND AMENDMENTS
Subject to the consent of the Required Lenders, after giving notice to
the Creditors' Committee and the Indenture Trustee, and to the extent of any
modification to the treatment of the Account Intermediaries as holders of Other
Secured Claims, the consent of the Account Intermediaries, the Debtors may
alter, amend or modify the Plan or any Exhibits thereto under section 1127(a) of
the Bankruptcy Code at any time prior to the Confirmation Date. After the
Confirmation Date and prior to substantial consummation of the Plan, as defined
in section 1101(2) of the Bankruptcy Code, the Debtors may, under
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section 1127(b) of the Bankruptcy Code, institute proceedings in the Bankruptcy
Court to remedy any defect or omission or reconcile any inconsistencies in the
Plan, the Disclosure Statement or the Confirmation Order, and such matters as
may be necessary to carry out the purposes and effects of the Plan so long as
they have obtained the prior approval of the Required Lenders and such
proceedings do not materially adversely affect the treatment of holders of
Claims or Interests under the Plan (it being specifically understood that any
settlement of a claim of the Estates against any party specifically excluded
from the releases provided in Article IV.I shall be deemed to have a material
adverse affect on the treatment of holders of Claims and Interests); provided,
however, that prior notice of such proceedings shall be served in accordance
with the Bankruptcy Rules or order of the Bankruptcy Court.
ARTICLE XII.
RETENTION OF JURISDICTION
Under sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the Effective
Date, subject to the Protocol, the Bankruptcy Court shall retain exclusive
jurisdiction over all matters arising out of, and related to, the Chapter 11
Cases and the Plan to the fullest extent permitted by law, including, among
other things, jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify, estimate
or establish the priority or secured or unsecured status of any Claim or
Interest not otherwise Allowed under the Plan (or any Canadian Impaired
Unsecured Claim or claim held by a Canadian Class 8B or 8C Holder that has made
the U.S. Plan Election), resolve any counterclaim with respect thereto,
including the resolution of any request for payment of any Administrative Claim
and the resolution of any objections to the allowance or priority of Claims or
Interests;
(ii) Hear and determine all applications for compensation and
reimbursement of expenses of Professionals under the Plan or under sections 330,
331, 503(b), 1103 and 1129(a)(4) of the Bankruptcy Code; provided, however, that
from and after the Effective Date the payment of the fees and expenses of the
retained Professionals of the Reorganized Debtors shall be made in the ordinary
course of business and shall not be subject to the approval of the Bankruptcy
Court;
(iii) Hear and determine all matters with respect to the
assumption or rejection of any executory contract or unexpired lease to which a
Debtor is a party or with respect to which a Debtor may be liable, including, if
necessary, the nature or amount of any required Cure or the liquidation or
allowance of any Claims arising therefrom;
(iv) Effectuate performance of and payments under the
provisions of the Plan;
(v) Hear and determine any and all adversary proceedings,
motions, applications and contested or litigated matters arising out of, under,
or related to, the Chapter 11 Cases;
(vi) Enter such orders as may be necessary or appropriate to
execute, implement or consummate the provisions of the Plan and all contracts,
instruments, releases and other agreements or documents created in connection
with the Plan, the Disclosure Statement or the Confirmation Order;
(vii) Hear and determine disputes arising in connection with
the interpretation, implementation, consummation or enforcement of the Plan,
including disputes arising under agreements, documents or instruments executed
in connection with the Plan;
(viii) Consider any modifications of the Plan, cure any defect
or omission, or reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the Confirmation Order;
(ix) Issue injunctions, enter and implement other orders, or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with implementation, consummation or enforcement of
the Plan or the Confirmation Order;
(x) Enter and implement such orders as may be necessary or
appropriate if the Confirmation Order is for any reason reversed, stayed,
revoked, modified or vacated;
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(xi) Hear and determine any matters arising in connection with
or relating to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release or other agreement or document created in
connection with the Plan, the Disclosure Statement or the Confirmation Order;
(xii) Enforce all orders, judgments, injunctions, releases,
exculpations, indemnifications and rulings entered in connection with the
Chapter 11 Cases;
(xiii) Except as otherwise limited herein, recover all assets
of the Debtors and property of the Debtors' Estates, wherever located;
(xiv) Hear and determine matters concerning state, local and
federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
(xv) Hear and determine all disputes involving the existence,
nature or scope of the Debtors' discharge;
(xvi) Hear and determine such other matters as may be provided
in the Confirmation Order or as may be authorized under, or not inconsistent
with, provisions of the Bankruptcy Code; and
(xvii) Enter a final decree closing the Chapter 11 Cases.
Notwithstanding the jurisdiction retained in this Article XII, from and
after the Confirmation Date, the Bankruptcy Court shall not have the power to
issue any order in the Chapter 11 Cases which modifies the provisions of the
Amended and Restated Term Credit Agreement or the rights of holders of the New
Senior Secured Term Debt, the New Secured PIK Debt or the New Common Shares (if
the Canadian Reorganization Plan is sanctioned) or Reorganized PSI Common Shares
(if the Alternate Canadian Transactions are implemented).
ARTICLE XIII.
COMPROMISES AND SETTLEMENTS
Pursuant to Fed. R. Bankr. P. 9019(a), the Debtors may compromise and
settle various Claims against them and/or claims that they may have against
other Persons. The Debtors, subject to the prior approval of the Required
Lenders, expressly reserve the right (with Bankruptcy Court approval, following
appropriate notice and opportunity for a hearing) to compromise and settle
Claims against the Debtors and claims that they may have against other Persons
up to and including the Effective Date. After the Effective Date, such right
shall pass to the Reorganized Debtors pursuant to Articles IV.E and IV.F of the
Plan.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
A. BAR DATES FOR CERTAIN POST-PETITION CLAIMS
1. Administrative Claims; Substantial Contribution Claims
The Confirmation Order will establish an Administrative Claims Bar Date
for filing of Administrative Claims that have not been paid, released or
otherwise settled (excluding Administrative Claims arising from the sale of
goods or services to a Debtor, after the Petition Date, in the ordinary course
of business), including Substantial Contribution Claims (but not including
claims for Professional Fees or the expenses of the members of any creditors'
committee), which date will be 45 days after the Confirmation Date. Holders of
asserted Administrative Claims, other than claims for Professional Fees or the
expenses of the members of any creditors' committee, not paid prior to the
Confirmation Date must submit proofs of Administrative Claim on or before such
Administrative Claims Bar Date or forever be barred from doing so. The notice of
Confirmation to be delivered pursuant to Fed. R. Bankr. P. 3020(c) and 2002(f)
will set forth such date and constitute notice
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of this Administrative Claims Bar Date. The Debtors or Reorganized Debtors, as
the case may be, shall have 45 days (or such longer period as may be allowed by
order of the Bankruptcy Court) following the Administrative Claims Bar Date to
review and object to such Administrative Claims before a hearing for
determination of allowance of such Administrative Claims.
2. Professional Fee Claims
All final requests for compensation or reimbursement of Professional
Fees pursuant to section 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy
Code for services rendered to the Debtors or any creditors' committee prior to
the Effective Date (other than Substantial Contribution Claims under section
503(b)(4) of the Bankruptcy Code) must be filed and served on the Reorganized
Debtors and their counsel no later than 45 days after the Effective Date, unless
otherwise ordered by the Bankruptcy Court. Objections to applications of such
Professionals or other entities for compensation or reimbursement of expenses
must be filed and served on the Reorganized Debtors and their counsel and the
requesting Professional or other entity no later than 45 days (or such longer
period as may be allowed by order of the Bankruptcy Court) after the date on
which the applicable application for compensation or reimbursement was served.
B. 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 Confirmation, shall be
paid on or before the Effective Date.
C. SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan is held by
the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court,
at the request of any Debtor with the consent of the Required Lenders, and to
the extent of any modification to the treatment of the Account Intermediaries as
holders of Other Secured Claims, the consent of the Account Intermediaries,
shall have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision shall then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration or interpretation, the
remainder of the terms and provisions of the Plan shall remain in full force and
effect and shall in no way be affected, impaired or invalidated by such holding,
alteration or interpretation. The Confirmation Order shall constitute a judicial
determination and shall provide that each term and provision of the Plan, as it
may have been altered or interpreted in accordance with the foregoing, is valid
and enforceable pursuant to its terms.
D. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to
in the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
E. RELEASES AND SATISFACTION OF SUBORDINATION RIGHTS
All Claims of the holders of the Lender Claims and the Old Debentures
against the Debtors and all rights and claims between or among such holders
relating in any manner whatsoever to any claimed subordination rights or
otherwise shall be deemed satisfied by the distributions under, described in,
contemplated by and/or implemented in Article III.C of this Plan. All other
claimed subordination rights against the holders of Old Debentures, other than
the subordination of the claims of holders of Old Debentures to the claims of or
payments to the Indenture Trustee under the Old Indenture, are deemed satisfied
by this Plan. Distributions under, described in, contemplated by and/or
implemented by this Plan to the various Classes of Claims hereunder shall not be
subject to levy, garnishment, attachment or like legal process by any holder of
a Claim, including, but not limited to, holders of Lender Claims and Old
Debenture Claims, by reason of any claimed subordination rights or otherwise, so
that each holder of a Claim shall have and receive the benefit of the
distributions in the manner set forth in the Plan.
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F. DISCHARGE OF THE DEBTORS; INJUNCTION
1. Discharge
Except as otherwise provided herein or in the Confirmation Order, all
consideration distributed under the Plan shall be in exchange for, and in
complete satisfaction, settlement, discharge, and release of, all Claims (other
than those Reinstated under the Plan) of any nature whatsoever against the
Debtors or any of their assets or properties, and regardless of whether any
property shall have been distributed or retained pursuant to the Plan on account
of such Claims, upon the Effective Date, the Debtors, and each of them, shall
(i) be deemed discharged and released under section 1141(d)(1)(A) of the
Bankruptcy Code from any and all Claims, including, but not limited to, demands
and liabilities that arose before the Confirmation Date, and all debts of the
kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not (a) a proof of Claim based upon such debt is filed or deemed
filed under section 501 of the Bankruptcy Code, (b) a Claim based upon such debt
is Allowed under section 502 of the Bankruptcy Code, or (c) the holder of a
Claim based upon such debt accepted the Plan, and (ii) terminate all Interests
of the holders of (A) Other Equity Securities and (B) if Class 7 votes to reject
the Plan, Old Common Shares.
As of the Confirmation Date, except as provided in the Plan or the
Confirmation Order, all entities shall be precluded from asserting against the
Debtors or the Reorganized Debtors, their successors or their property any other
or further claims, debts, rights, causes of action, liabilities or equity
interests relating to the Debtors based upon any act, omission, transaction or
other activity of any nature that occurred prior to the Confirmation Date;
provided however, that nothing in this Plan shall be deemed to preclude any
third party (other than the releasing parties in Article IV.I.2.(a) to the
extent provided therein) from asserting claims, debts, rights, causes of action,
liabilities or equity interests that are not property of the Estates under
section 541 of the Bankruptcy Code against any current or former officers,
directors or employees of the Debtors or Reorganized Debtors; provided further,
that notwithstanding anything contained in the Plan to the contrary, rights and
claims of the United States under environmental laws or regulations shall not be
discharged, impaired or otherwise affected by the Plan and the Chapter 11 Cases,
shall survive the Chapter 11 Cases as if the Chapter 11 Cases had not been
commenced and shall be determined in the manner and by the administrative or
judicial tribunals in which such rights or claims would have been resolved or
adjudicated if the bankruptcy cases had not been commenced. In accordance with
the foregoing, except as provided in the Plan or the Confirmation Order, the
Confirmation Order shall be a judicial determination of discharge of all such
Claims and other debts and liabilities against the Debtors and termination of
all Interests of the holders of (i) Other Equity Securities and (ii) if Class 7
votes to reject the Plan, Old Common Shares, pursuant to sections 524 and 1141
of the Bankruptcy Code, and such discharge shall void any judgment obtained
against the Debtors at any time, to the extent that such judgment relates to a
discharged Claim or terminated Interest.
2. Injunction
(a) Injunction Related to Discharged Claims and Terminated
Interests
Except as provided in the Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Interest or
other right of an equity security holder that is Impaired or terminated pursuant
to the terms of the Plan are permanently enjoined from taking any of the
following actions against the Debtors, Reorganized Debtors or their property on
account of any such discharged Claims, debts or liabilities or terminated
interests or rights: (a) commencing or continuing, in any manner or in any
place, any action or other proceeding; (b) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors and (e) commencing or continuing any action in any
manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan.
(b) Released Claims
As of the Effective Date, all entities that have held,
currently hold or may hold a claim, demand, debt, right, cause of action or
liability that is released pursuant to Article IV.I or XIV.H are permanently
enjoined from taking any of the following actions on account of such released
claims, obligations, suits, judgments, damages, demands, debts, rights, causes
of action or liabilities: (a) commencing or continuing in any manner any action
or other proceeding; (b) enforcing, attaching, collecting or recovering in any
manner any judgment, award, decree or order; (c) creating, perfecting or
enforcing any lien or
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encumbrance: (d) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to any released entity; and
(e) commencing or continuing any action, in any manner, in any place that does
not comply with or is inconsistent with the provisions of the Plan.
(c) Consent of Injunction
By accepting a distribution pursuant to the Plan, each holder
of an Allowed Claim or Allowed Interest receiving distributions pursuant to the
Plan will be deemed to have specifically consented to the injunctions set forth
in this Article XIV.F.
G. COMMITTEES
After the Confirmation Date, the Creditors' Committee shall continue to
exist as provided in this paragraph and shall be an active participant in the
Claims review process. The Creditors' Committee shall have the right to file
objections to Class 7 Claims (and Canadian Impaired Unsecured Claims that have
made the U.S. Plan Election) and, if the Canadian Reorganization Plan is
sanctioned, Canadian Impaired Unsecured Claims. The Creditors' Committee shall
be reduced to three members as they shall select and be represented by counsel
and other professionals retained by the Committee prior to the Effective Date
("Committee Professional"). Until all Distributions to Class 7 Claims have been
made pursuant to Plan, the Creditors' Committee will continue to exist and may:
(i) file such pleadings with the Bankruptcy Court as it deems appropriate or
necessary concerning implementation of the Plan; (ii) consult with the
Reorganized Debtors concerning objections to, settlements of or litigation over
Disputed Class 7 Claims; (iii) monitor, analyze and reconcile the Distributions
to holders of Class 7 Claims; and (iv) provide such other services that the
Creditors' Committee deems reasonably necessary to protect and enforce the
rights and interests of the holders of Class 7 Claims consistent with the
provisions of this Plan. Following the Effective Date, the reasonable out of
pocket fees and expenses of all Committee Professionals, and the expenses of
Committee members, shall be paid by the Reorganized Debtors within ten days
after receipt of monthly invoices from such Committee Professionals, provided,
however, that the Reorganized Debtors shall be entitled to dispute the
reasonableness of any such fees and expenses and further provided that the
Reorganized Debtors' aggregate liability for post-Confirmation fees and expenses
of the Creditors' Committee and the Creditors' Committee professionals shall not
exceed $50,000 in the event the Canadian Reorganization Plan is sanctioned, and
$75,000 in the event the Alternate Canadian Transactions are implemented. Any
unresolved, disputed fees and expenses shall be presented to the Bankruptcy
Court for resolution. If the Canadian Reorganization Plan is sanctioned, the
Canadian Counsel retained by the Creditors' Committee may incur
post-confirmation fees and expenses payable by the Reorganized Debtors up to an
aggregate $50,000.
H. EXCULPATION AND LIMITATION OF LIABILITY; INDEMNITY
Neither the Debtors, the Subsidiaries, the Reorganized Debtors, the
Lenders, any individual, corporation or other entity that was at any time
formerly a Lender, the ad hoc steering committee or any other committee of
holders of Lender Claims, CIBC as Administrative Agent and co-arranger under the
Pre-Petition Credit Agreement, BTCo as Syndication Agent and co-arranger under
the Pre-Petition Credit Agreement, any official committees appointed in the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims, the Security Agent, and the Account Intermediaries, or any of
their respective present or former members, officers, directors, employees,
advisors, attorneys, or agents, shall have or incur any liability to any holder
of a Claim or an Interest, or any other party in interest, or any of their
respective agents, employees, representatives, financial advisors, attorneys, or
affiliates, or any of their successors or assigns, for any act or omission in
connection with, relating to, or arising out of, the Chapter 11 Cases,
formulating, negotiating or implementing the Plan, the Lender Lock-up Agreement
or the Allwaste Lock-up Agreement, the solicitation of acceptances of the Plan
or the Lender Lock-up Agreement, the pursuit of confirmation of the Plan, the
confirmation of the Plan, the consummation of the Plan, or the administration of
the Plan or the property to be distributed under the Plan, except for their
willful misconduct, and in all respects shall be entitled to rely reasonably
upon the advice of counsel with respect to their duties and responsibilities
under the Plan.
Notwithstanding any other provision of this Plan, no holder of a Claim
or Interest, no other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys, or affiliates, and no
successors or assigns of the foregoing, shall have any right of action against
any Debtor, Subsidiary or Reorganized Debtor, any Lender or any individual,
corporation or other entity that was at any time formerly a Lender, the ad hoc
steering committee or any other committee of holders of Lender Claims, CIBC as
Administrative Agent and co-arranger under the Pre-Petition Credit
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Agreement, BTCo as Syndication Agent and co-arranger under the Pre-Petition
Credit Agreement, any official committees appointed in the Chapter 11 Cases, the
DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility Claims, the
Security Agent, and the Account Intermediaries, or any of their respective
present or former members, officers, directors, employees, advisors, attorneys,
affiliates, or agents, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, formulating, negotiating or
implementing the Plan, the Lender Lock-up Agreement or the Allwaste Lock-up
Agreement, the solicitation of acceptances of the Plan, the Lender Lock-up
Agreement or the Allwaste Lock-up Agreement, the pursuit of confirmation of the
Plan, the consummation of the Plan, the confirmation of the Plan, or the
administration of the Plan or the property to be distributed under the Plan,
except for their willful misconduct.
The Debtors, the Reorganized Debtors and the Subsidiaries hereby
jointly and severally fully indemnify each of the Lenders, any individual,
corporation or other entity that was at any time a Lender, a member of the ad
hoc steering committee or any other committee of holders of Lender Claims, CIBC
as Administrative Agent and co-arranger under the Pre-Petition Credit Agreement,
BTCo as Syndication Agent and co-arranger under the Pre-Petition Credit
Agreement, the DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility
Claims, the Security Agent, and the Account Intermediaries, and their respective
agents, affiliates, directors, officers, employees, and representatives,
including counsel (collectively, the "Indemnitees") against any manner of
actions, causes of action, suits, proceedings, liabilities and claims of any
nature, costs and expenses (including reasonable legal fees) which may be
incurred by such Indemnitee or asserted against such Indemnitee arising out of
or during the course of, or otherwise in connection with or in any way related
to, the negotiation, preparation, formulation, solicitation, dissemination,
implementation, confirmation and consummation of the Plan, other than any
liabilities to the extent arising from the gross negligence or willful or
intentional misconduct of any Indemnitee as determined by a final judgment
of a court of competent jurisdiction. If any claim, action or proceeding is
brought or asserted against an Indemnitee in respect of which indemnity may be
sought from any of the Reorganized Debtors or any of the Subsidiaries, the
Indemnitee shall promptly notify the Reorganized Debtors in writing, and the
Reorganized Debtors may assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnitee, and the payment of all costs
and expenses. The Indemnitee shall have the right to employ separate counsel in
any such claim, action or proceeding and to consult with the Reorganized Debtors
in the defense thereof and the fees and expenses of such counsel shall be at the
expense of the Reorganized Debtors unless and until the Reorganized Debtors
shall have assumed the defense of such claim, action or proceeding. If the named
parties to any such claim, action or proceeding (including any impleaded
parties) include both the Indemnitee and any of the Reorganized Debtors or
Subsidiaries, and the Indemnitee reasonably believes that the joint
representation of such entity and the Indemnitee may result in a conflict of
interest, the Indemnitee may notify the Reorganized Debtors in writing that it
elects to employ separate counsel at the expense of the Reorganized Debtors, and
the Reorganized Debtors shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnitee. In addition, the Reorganized
Debtors shall not effect any settlement or release from liability in connection
with any matter for which the Indemnitee would have the right to indemnification
from the Reorganized Debtors, unless such settlement contains a full and
unconditional release of the Indemnitee, or a release of the Indemnitee
satisfactory in form and substance to the Indemnitee.
I. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Debtors,
all present and former holders of Claims against and Interests in the Debtors,
their respective successors and assigns, including, but not limited to, the
Reorganized Debtors and all other parties-in-interest in these Chapter 11 Cases.
J. REVOCATION, WITHDRAWAL OR NON-CONSUMMATION
Subject to the approval of the Required Lenders, the Debtors reserve
the right to revoke or withdraw the Plan at any time prior to the Confirmation
Date and to file subsequent plans of reorganization. If the Debtors revoke or
withdraw the Plan, or if Confirmation or Consummation does not occur, then (i)
the Plan shall be null and void in all respects, (ii) any settlement or
compromise embodied in the Plan (including the fixing or limiting to an amount
certain any Claim or Class of Claims), assumption or rejection of executory
contracts or leases effected by the Plan, and any document or agreement executed
pursuant to the Plan shall be deemed null and void, and (iii) nothing contained
in the Plan, and no acts taken in preparation for consummation of the Plan,
shall (a) constitute or be deemed to constitute a waiver or release of any
Claims by or against, or any Interests in, any Debtor or any other Person, (b)
prejudice in any manner the rights of any Debtor or any Person in any further
proceedings involving a Debtor, or (iii) constitute an admission of any sort by
any Debtor or any other Person.
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K. PLAN SUPPLEMENT
Any and all exhibits, lists or schedules not filed with the Plan shall
be contained in the Plan Supplement and filed with the Clerk of the Bankruptcy
Court at least five (5) Business Days prior to date of the commencement of the
Confirmation Hearing. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the Bankruptcy Court
during normal court hours. Holders of Claims or Interests may obtain a copy of
the Plan Supplement upon written request to the Debtors in accordance with
Article XIV.K of the Plan.
L. NOTICES
Any notice, request, or demand required or permitted to be made or
provided to or upon a Debtor or Reorganized Debtor under the Plan shall be (i)
in writing, (ii) served by (a) certified mail, return receipt requested, (b)
hand delivery, (c) overnight delivery service, (d) first class mail, or (e)
facsimile transmission, and (iii) deemed to have been duly given or made when
actually delivered or, in the case of notice by facsimile transmission, when
received and telephonically confirmed, addressed as follows:
PHILIP SERVICES (DELAWARE), INC., et al.
100 King St. W.
P. O. Box 2440, LCD #1
Hamilton, Ontario L8N4J6
Att'n: Colin Soule, Esq.
Telephone: (905) 521-1600
Facsimile: (905) 521-9160
with a copy to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606-1285
Att'n: David S. Kurtz, Esq.
Telephone: (312) 407-0700
Facsimile: (312) 407-0411
M. PAYMENT OF CERTAIN FEES AND EXPENSES
On the Effective Date, so long as the signatories to the Allwaste
Lock-up Agreement have performed their obligations thereunder, the Reorganized
Debtors shall reimburse (a) First Union National Bank for its reasonable legal
fees (determined on an hourly basis) and expenses in connection with the
Debtors' restructuring and the Chapter 11 Cases, (b) the Indenture Trustee's
reasonable fees and expenses as trustee, paying agent, registrar and
authentication agent as to the Old Debentures, (c) the reasonable fees of
Chanin, Kirkland & Messina (i) not to exceed $75,000 per month plus expenses for
the two-month period commencing on April 25, 1999, and then (ii) not to exceed
$37,500 per month for the period commencing on June 25, 1999 and ending on the
earliest of (1) October 25, 1999, (2) the date on which Chanin, Kirkland &
Messina is retained as financial advisor to the Creditors' Committee and (3) the
occurrence of a "Termination Event" as defined in the Lender Lock-up Agreement
and (d) unreimbursed travel expenses of the holders of Old Debentures serving on
the ad-hoc committee of holders of Old Debentures not to exceed $2,500 prior to
June 25, 1999 and $2,500 subsequent to June 25, 1999.
N. PREPAYMENT
Except as otherwise provided in this Plan, any ancillary documents
entered into in connection herewith, or the Confirmation Order, the Debtors,
with the consent of the Required Lenders, shall have the right to prepay,
without penalty, all or any portion of an Allowed Claim at any time; provided,
however, that any such prepayment shall not be violative of, or otherwise
prejudice, the relative priorities and parities among the classes of Claims.
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O. TERM OF INJUNCTIONS OR STAYS
Unless otherwise provided herein or in the Confirmation Order, all
injunctions or stays provided for in the Chapter 11 Cases under sections 105 or
362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date
(excluding any injunctions or stays contained in this Plan or the Confirmation
Order), shall remain in full force and effect until the Effective Date.
P. GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law (including
the Bankruptcy Code and Bankruptcy Rules), the laws of (i) the State of Delaware
shall govern the construction and implementation of the Plan and any agreements,
documents and instruments executed in connection with the Plan and (ii) the laws
of the state of incorporation of each Debtor shall govern corporate governance
matters with respect to such Debtor, in either case without giving effect to the
principles of conflicts of law thereof.
Dated: September 21, 1999
PHILIP SERVICES CORP.
(for itself and on behalf of the Debtors)
By: /s/ Phillip C. Widman
---------------------------------------
Name: Phillip C. Widman
---------------------------------------
Title: Chief Financial Officer
---------------------------------------
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<PAGE> 178
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
David S. Kurtz
Jeffrey W. Linstrom
J. Gregory St. Clair
Timothy R. Pohl
333 W. Wacker Drive
Chicago, Illinois 60606-1285
(312) 407-0700
-and-
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
By: /s/ Gregg M. Galardi
-------------------------------
Gregg M. Galardi (I.D. #2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
Attorneys for Philip Services (Delaware), Inc., et al.
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EXHIBIT A
LIST OF SUBSIDIARY DEBTORS
<PAGE> 180
EXHIBIT A
LIST OF SUBSIDIARY DEBTORS
RESI Acquisition (Delaware) Corporation
Philip Services (Delaware), Inc.
21st Century Environmental Management, Inc. of Nevada
21st Century Environmental Management, Inc. of Puerto Rico
21st Century Environmental Management, Inc. of Rhode Island
21st Century Environmental Management, Inc.
Ace/Allwaste Environmental Services of Indiana, Inc.
Advanced Environmental Systems, Inc.
Advanced Energy Corporation
All Safety and Supply, Inc.
Allies Staffing, Inc.
Allquest Capital, Inc.
AllScaff, Inc.
Allwaste Asbestos Abatement, Inc.
Allwaste Tank Cleaning, Inc.
Allwaste Services of El Paso, Inc.
Allwaste Asbestos Abatement Holdings, Inc.
Allwaste Asbestos Abatement of New England, Inc.
Allwaste Environmental Services/North Central, Inc.
Allwaste Railcar Cleaning, Inc.
Allwaste Recovery Systems, Inc.
Allwaste Texquisition Inc.
Allworth Inc.
ALRC, Inc.
APLC, Inc.
BEC/Philip, Inc.
Burlington Environmental Inc.
Burlington Environmental Inc.
Butco Inc.
Cappco Tubular Products USA, Inc.
Chem-Fab, Inc.
Chem-Freight, Inc.
Chemical Pollution Control, Inc. of Florida
Chemical Pollution Control, Inc. of New York
Chemical Reclamation Service, Inc.
Cousins Waste Control Corporation
CyanoKEM, Inc.
Deep Clean, Inc.
DM Acquisition Corporation
Gasoline Tank Service Company Inc.
Georgia Recovery Systems
GRS/Lake Charles, Ltd.
Hartney Corporation
Hydro-Engineering & Service, Inc.
Industrial Construction Services Co., Inc.
Industrial Services Technologies, Inc.
Intermetco US Inc.
Intermetco USA Ltd.
IST Holding Corp.
James & Luther Services, Inc.
Jesco Industrial Service, Inc.
Luntz Acquisition (Delaware) Corporation
Luntz Corporation
Mac-Tech, Inc.
Northland Environmental Inc.
Nortru, Inc.
Oneida Asbestos Removal, Inc.
Oneida Asbestos Abatement, Inc.
Philip Automotive, Ltd.
Philip Chemi-Solv, Inc.
Philip Chemisolv Holdings, Inc.
Philip Corrosion Services, Inc.
Philip Enterprise Service Corporation
Philip Environmental of Idaho Corporation
Philip Environmental Services Corporation
Philip Environmental Services, Inc.
Philip Environmental Washington Inc.
Philip Industrial Services (Delaware), Inc.
Philip Industrial Services (USA), Inc.
Philip Industrial Services Group, Inc.
Philip Industrial Services of Texas, Inc.
Philip/J.D. Meagher, Inc.
Philip Mechanical Services of Louisiana, Inc.
Philip Metals (New York) Inc.
Philip Metals (USA), Inc.
Philip Metals Inc.
Philip Metals Recovery (Delaware), Inc.
Philip Metals Recovery (USA) Inc.
Philip Mid-Atlantic, Inc.
Philip Oil Recycling, Inc.
<PAGE> 181
Philip Petro Recovery Systems, Inc.
Philip Plant Services, Inc.
Philip Reclamation Services, Houston, Inc.
Philip Refractory and Corrosion Corporation
Philip Refractory Services, Inc.
Philip Scaffold Corporation
Philip/SECO Industries, Inc.
Philip Services (Pennsylvania), Inc.
Philip Services/Atlanta, Inc.
Philip Services Corp.
Philip Services Hawaii, Ltd.
Philip Services/Louisiana, Inc.
Philip Services/Missouri, Inc.
Philip Services/Mobile, Inc.
Philip Services/North Atlantic, Inc.
Philip Services/North Central, Inc.
Philip Services/Ohio, Inc.
Philip Services/Oklahoma, Inc.
Philip Services South Central, Inc.
Philip Services/Southwest, Inc.
Philip ST, Inc.
Philip ST Piping, Inc.
Philip Technical Services, Inc.
Philip Transportation and Remediation, Inc.
Philip West Industrial Services, Inc.
Philip/Whiting, Inc.
Piping Holdings Corp.
Piping Mechanical Corp.
Piping Companies, Inc.
PRS Holding, Inc.
PSC Enterprises, Inc.
Republic Environmental Systems (Pennsylvania), Inc.
Republic Environmental Recycling (New Jersey), Inc.
Republic Environmental Systems (Transportation Group), Inc.
Republic Environmental Systems (Technical Services Group) Inc.
Resource Recovery Corporation
Rho-Chem Corporation
RMF Global, Inc.
RMF Industrial Contracting, Inc.
RMF Environmental, Inc.
Serv-Tech Construction and Maintenance, Inc.
Serv-Tech Engineers, Inc.
Serv-Tech EPC, Inc.
Serv-Tech International Sales, Inc.
Serv-Tech of New Mexico, Inc.
Serv-Tech Services, Inc.
Solvent Recovery Corporation
Southeast Environmental Services, Inc.
Termco Corporation
Terminal Technologies, Inc.
ThermalKEM, Inc.
TIPCO Acquisition Corp.
Total Refractory Systems, Inc.
United Industrial Materials, Inc.
United Drain Oil Service, Inc.
2
<PAGE> 182
EXHIBIT B
LIST OF IMPAIRED UNSECURED CLAIMS
<PAGE> 183
EXHIBIT B
LIST OF IMPAIRED UNSECURED CLAIMS
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
1. 62 Land, Inc. $0
2. Aalborg Keystone, Inc. 0
3. ABN Amro Bank 0
4. Advanta Business Services Corp. 26,808
5. Allen, Leslie 0
6. Allwaste Debentures 27,500,000
7. AMBAC International Corporation 0
8. Arroyo, Krystela Yasmeen, et al. 0
9. Bader, Alfred 126,000
10. Barnes, Donald 25,000
11. Big "R" Towing 25,000
12. Bloomberg, L.P. 25,000
13. Blue Box of Building and Construction 12,000
14. Bramblatt, Jennifer 25,000
15. Bryan, J.J. 139,000
16. BTM Capital Corporation 1,497,000
17. Buck, Sam 42,000
18. C&S Associates, VIII 64,000
19. Cadence Environmental Energy, Inc. 180,000
20. Caven Point Realty, Inc. 0
21. Chazen, Gary 503,000
22. Chazen, Bob 201,000
23. Chiste, Robert 771,000
24. Chiste, Robert 435,000
25. Comdisco, Inc. 0
</TABLE>
<PAGE> 184
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
26. Commercial Portfolio Management Corporation 21,000
27. Credit Suisse First Boston Corporation 0
28. DA Consulting Group Inc. 50,000
29. Daerr, Richard 250,000
30. Dalton G., Karen A., Glen E., Nancy,
Kirby., and Barbara Jane Rinehart et al. 25,000
31. Driver, James 140,000
32. Electric Systems, Inc. 250,000
33. Emtech 9,000
34. Envetech Inc. 25,000
35. F.C. Schaffer, Geralyn Graphia, Marian
Schaffer-Whitaker, Jose de Spinoso, Marlan
J. Mitch, Robert Miller, and Harold Birkett 0
36. F.C. Schaffer, Geralyn Graphia, Marian
Schaffer-Whitaker, Jose de Spinoso, Marlan
J. Mitch, Robert Miller, and Harold Birkett 0
37. Fanta, David 109,000
38. FC Schaffer Shareholders 0
39. Ferreira, Fred 151,000
40. Fifth Third Leasing Company 250,000
41. Fillmore Partnership 222,000
42. Fleet Business Credit Corporation 1,139,000
43. Foster, Norman 1,400,000
44. Franklin Iron and Metal Recycling, Inc. 25,000
45. Ginsky, Victor 437,000
46. Gooden, Howard P. 97,750
47. Group Dekko International, Inc. 0
48. Group Dekko International, Inc. 397,000
49. Hanson, Stefani 30,000
</TABLE>
2
<PAGE> 185
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
50. Harbison-Walker Refractories Company
(Newminco Joint Venture) 1,000,000
51. Hernandez, Elias 25,000
52. Hixson, Dale 353,000
53. Horlacher, Dale 300,000
54. IBS Incorporated 0
55. Industrial Finishing Service, Inc. 230,000
56. Ivey, Cecil 562,000
57. Jay Alix and Associates 0
58. John Adams Transportation 150,000
59. Jones, Dean 25,000
60. Kilntech Environmental Services Inc;
Rick W. 500,000
61. Kleingueti, Edward 20,000
62. Lee, Dwayne 0
63. Lentz, Allen D., as successor trustee of
the August 31, 1990 Liff Irrevocable Life
Insurance Trust 0
64. Liberty Mutual Insurance Company/Liberty
Mutual Fire Insurance 316,000
65. Liff, Noah; Liff, Adam; Liff, Daniel;
Jan; Liff, Terence D.; Liff, Zachary;
Wilson, Robert H.; Gellman, Herman;
Gellman, Robert; Shapiro, Daniel;
Bierman, Leonard; Baisley, Albert;
Baisley, Elizabeth 0
66. Ludwig Bauch; TMT Industries 0
67. Luntz, Greg 0
68. Luntz, Michelle 0
69. Luntz, Greg (Shareholders' Representative) 0
70. Luntz, Drew (Andrew) 0
71. Mains Sr., Gilbert 150,000
</TABLE>
3
<PAGE> 186
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
72. Mains Jr., Gilbert 600,000
73. Mallen, Michael 353,000
74. McCombs, Ernest 500,000
75. MDS Reading, Inc. 544,000
76. Meier, Frank 100,000
77. Meltzer, Morton 254,000
78. Mertz, Forrest 18,000
79. Metals USA, Inc. 0
80. Nelson, Pamela 25,000
81. Nelson, Raymond 1,498,000
82. Nicholson, Mrs. 42,000
83. P.A. Pipe, Inc. 0
84. Pardo, Felix 984,000
85. Pitney Bowes Credit Corp. 8,000
86. Plasma Processing Corporation/Chem
First, Inc. 2,417,000
87. PNC Leasing Corp. 1,050,000
88. Powell, Randell F. 30,000
89. Ramirez, Michael 4,000
90. Randazzo, Thomas 63,000
91. Recra Environmental, Inc. 200,000
92. Reliable Uniform Services Inc. 0
93. Renton Office V Realty, Inc. 362,000
94. Republic Environmental Systems (Brantford) Ltd. 7,650,000
95. Republic Environmental Systems Inc. 4,533,000
96. Rief, James 648,000
97. Roth, Eli 148,000
98. Roth, Larry 100,000
</TABLE>
4
<PAGE> 187
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
99. Rothschild, Sidney 130,000
100. Shonte Trumbo 25,000
101. Siemens Westinghouse, Inc./ Siemens
Westinghouse Power Corporation 1,500,000
102. St. Paul Properties, Inc. 160,000
103. Strata Corporation 0
104. Strategic Holdings, Inc.; Equus II
Incorporated; ARTI Partners I, Ltd.;
ARTI Partners II, LLC; ARI Glass
Newco, Inc.; and Strategic Materials, Inc. 0
105. Straton, Jeff 303,000
106. Tennessee Valley Steel Corp, Bankruptcy
Trustee 25,000
107. Theodore M. Luntz, William L. Luntz,
Robert A. Luntz, and Joan Luntz Goulder 0
108. Theresa Adams, et al. 240,000
109. Unifirst Corporation 20,000
110. Wallace, Becky 50,000
111. Wells, Frederick A. 249,000
112. Westlake PetroChemicals Corp. 400,000
113. Wheeler, Vikki 20,000
114. Yanarella 0
==========
65,508,558
</TABLE>
<PAGE> 188
EXHIBIT C
LIST OF CANADIAN IMPAIRED UNSECURED CLAIMS
<PAGE> 189
EXHIBIT C
LIST OF CANADIAN IMPAIRED UNSECURED CLAIMS
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
1. 1066424 Ontario, Inc. 389,640
2. 1348040 Ontario Inc. 1,650,000
3. 2418711 Canada Inc. 0
4. 2819635 Canada Inc. 15,000
5. 759082 Ontario Inc. 26,000
6. 963767 Ontario, Ltd. 0
7. Ablack, Krish 50,000
8. Agglo Venture Inc., Agglo, Inc. 340,000
9. Alexander Brown, Inc. 340,000
10. B.A.C.C. Capital Corporation 1,580,828
11. Bell Canada Inc. 176,800
12. Bernadin, Gilles 27,000
13. Boughton, Marvin 27,000
14. Canadian Imperial Bank of Commerce 15,000,000
15. Canadian Imperial Bank of Commerce,
Ontario Teachers' Pension Plan Board,
1067892 Ontario, Ltd., C.D.P.Q.
Venture Capital Inc. 0
16. Chesterton Investments Limited &
Morris Investments Limited 683,000
17. Chodos, Peter 476,000
18. CIBC Equipment Finance Limited 665,000
19. CIBC Equipment Finance Limited 51,000
20. Cinicorp Holdings Limited 212,000
21. City of Toronto Economic Development
Corporation 1,016,000
22. Clark, Brad 1,360
23. Close Quarters Inc. 110,666
24. Close Quarters Inc. / Tom Close 506,813
25. Comdisco Canada, Ltd. 0
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
26. Compagnie de Gestion, M.P.F., Inc. /
c/o Chaurette Levesque 1,650,000
27. Coristine, Bruce 563,000
28. Coristine, Bruce 249,000
29. Coristine, Bruce 42,000
30. Coristine, Bruce / Close Quarters Inc. 155,789
31. Crawford, Kevin 61,000
32. D'Allessandro, Gino 0
33. Enterprises Delcapitale Limitee 0
34. FP Commodity Master Trust 16,897,483
35. Fracassi, Philip 52,000
36. Gallagher, John 13,600
37. Goldblatt, Marvin 827,000
38. Gore, Reginald J., Gore, Alma P., Gore,
Larry R., Sebele, Sandra P.,
and Sebele, Terry C. 870,400
39. Green, John, Green, Lilla, Stasiuk,
John, Dynamic Industrial Services, Inc. 23,800
40. GUSO Ltd. 21,553
41. Hamilton Harbour Commissioners 561,000
42. Hilson, Michael 6,800
43. Hoey, Graham 20,000
44. Imperial Oil, a partnership of Imperial
Oil Limited and McColl-Frontenac
Petroleum Inc. 0
45. Kimco Steel Sales Limited 4,000
46. Kumer, Sheldon 348,000
47. Leasing Solutions (Canada), Inc. 0
48. Lethbridge, Thomas 20,000
49. Lions Wrecking Ltd.; Lions Disposal
and Excavation; Lions Disposal
Excavation & Demolition Ltd.; Jose
Nunes; Honorina Nunes; Olivio Ricardo;
Maria Ricardo 0
50. Liquid Cargo Lines Limited 0
51. McQuillan, Peter 21,000
</TABLE>
2
<PAGE> 191
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<S> <C>
52. MD Realty Canada Inc., Abrim 11 Inc.,
& 132001 Canada Inc, Sitq Inc. 42,000
53. MDS Environmental Services Limited 816,000
54. MTC Leasing Inc. 16,000
55. Myrtle Eva Harrington; Harrington Acquisition
Corporation; Nancy Hamilton; Myrtle
Eva Harrington as Trustee for the estate
of Frederick John Harrington; Bruce Hamilton 170,000
56. Newcourt Credit Group, Inc./Newcourt
Financial Ltd. 507,000
57. Nortel Networks Corporation 692,000
58. OE Leasing, a division of OE Financial
Services Inc. 898
59. Ontario Paving Inc.; Carmen Alfano 0
60. Palango, Paul 0
61. Paletta International Corporation 1,383,800
62. PDQ Mechanical 9,000
63. Perron, Victor 21,000
64. Poplack, Bernard 82,000
65. Port of Quebec Authority 67,206
66. Royal Bank of Canada 2,500,000
67. Teperman and Sons Inc. 0
68. Utter, Christopher 0
69. Woodcroft, John 716,000
70. Woodstock Sufferance Warehouse Ltd. 184,611
71. Xerox Canada Ltd. 5,862
==========
52,964,909
</TABLE>
3
<PAGE> 192
EXHIBIT D
CANADIAN REORGANIZATION PLAN
<PAGE> 193
Court File No.: 99-CL-3442
SUPERIOR COURT OF JUSTICE
(Commercial List)
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985,
c. C-36., AS AMENDED
AND IN THE MATTER OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C-43, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE AND ARRANGEMENT OF PHILIP
SERVICES CORP. AND THE APPLICANTS LISTED ON SCHEDULE "A".
APPLICATION UNDER THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.
1985, c. C.-36, AS AMENDED.
AMENDED AND RESTATED PLAN OF COMPROMISE
AND ARRANGEMENT
September 24, 1999
<PAGE> 194
- 1 -
AMENDED AND RESTATED PLAN OF COMPROMISE
AND ARRANGEMENT
Amended and Restated Plan of Compromise and Arrangement of Philip Services
Corp. and its Canadian subsidiaries listed on Schedule "A" hereto pursuant to
the Companies' Creditors Arrangement Act, R.S.C. 1995, c. C-36, as amended.
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS
In this Plan (including the Schedules hereto), unless otherwise stated or
the context otherwise requires:
"ACCOUNT INTERMEDIARIES" means (a) CIBC in its capacity as the provider of
the CIBC Bank Account Services, and (b) Comerica Bank and its affiliates
in their respective capacities as the providers of the Comerica Bank
Account Services, and (c) for the purposes of Section 6.3 includes Royal
Bank of Canada in its capacity as the former provider of bank account
services to one or more of the Applicants;
"ADMINISTRATIVE AGENT" means CIBC or its successor as administrative agent
for the Lenders under the Credit Agreement;
"AFFECTED CLAIM" means an Affected Secured Lender Claim or an Affected
Unsecured Claim;
"AFFECTED CREDITOR" means a holder of an Affected Claim;
"AFFECTED SECURED LENDER CLAIM" means a Secured Claim of a Lender against
the Applicants arising under or as a result of the Credit Facility
Agreements other than any Other Secured Claims;
"AFFECTED SECURED CREDITOR" means a holder of an Affected Secured Lender
Claim;
"AFFECTED TRADE CLAIMS" means Claims in excess of $75,000 of trade vendors
who do not agree to continue to provide trade credit to the Applicants in
accordance with terms provided prior to the Date of Filing or who have not
actually provided such terms during the CCAA Proceedings;
"AFFECTED UNSECURED CLAIMS" means collectively, Affected Unsecured Lender
Claims, those Claims set forth on the Affected Unsecured Claims List,
Affected Trade Claims, Contribution and Indemnity Claims and Claims of
parties to executory contracts and leases that are repudiated or
terminated pursuant to Article 8 hereof, and, for greater certainty, does
not include the Unaffected Obligations;
<PAGE> 195
- 2 -
"AFFECTED UNSECURED CLAIMS LIST" means the list of Affected Unsecured
Claims attached hereto as Schedule "B", as amended or supplemented from
time to time;
"AFFECTED UNSECURED CREDITOR" means a holder of an Affected Unsecured
Claim;
"AFFECTED UNSECURED LENDER CLAIM" means a Claim of a Lender arising under
or as a result of the Credit Facility Agreements that is not an Affected
Secured Lender Claim, other than Lender Claims in respect of letters of
credit issued pursuant to the Credit Agreement that are contingent as of
the Effective Date;
"AGREED LC CLAIM" means US$20 million;
"AMENDED AND RESTATED TERM CREDIT AGREEMENT" means collectively, the
Amended and Restated Term Credit Agreement, together with ancillary
documents, to be entered into among PSC, PSI and holders of Secured Lender
Claims as of the Effective Date, pursuant to which the New Senior Secured
Term Debt and New Secured PIK Debt will be governed, which agreement shall
be substantially in the form to be included as a supplement to the U.S.
Plan;
"APPLICANTS" means PSC and each of the Canadian Subsidiaries and
"APPLICANT" means any one of the Applicants;
"ASSUMED INDEMNIFICATION OBLIGATIONS" means (a) the obligations of PSC
pursuant to section 7.02 of its bylaws to indemnify current and former
directors and officers, on the terms and subject to the limitations
described therein, if and to the extent that such indemnification is
permissable under the Business Corporations Act (Ontario) or such other
applicable governing corporate statute and (b) the obligations of the
Applicants other than PSC to indemnify current and former directors and
officers under their respective bylaws to the extent such indemnification
obligations are not more expansive than those of PSC under section 7.02 of
its bylaws if and to the extent such indemnification is permissible under
the applicable governing corporate statute of the applicable Applicant; in
each case, including any affirmative obligation of the Applicants to
indemnify current and former directors and officers in connection with any
governmental, regulatory or enforcement investigation or action and in
each case solely with respect to such officer's or director's actions
subsequent to becoming an officer or director of PSC or of a director or
indirect subsidiary or affiliate of PSC; provided, however, that Assumed
Indemnification Obligations shall not include Excluded Indemnification
Obligations;
"BAR DATE" means the date designated by the Court as the last date for
filing Proofs of Claim;
"BTCo" means Bankers Trust Company;
<PAGE> 196
- 3 -
"BUSINESS DAY" means a day which is not (i) a Saturday or a Sunday; or
(ii) a day observed as a holiday under the laws of the Province of Ontario
or the applicable federal laws of Canada;
"CANADIAN SECURITIES ACTION" means the class action claim entitled Menegon
v. Philip Services Corp. et al, File No. 4166 CP 98 (Ontario Superior
Court of Justice);
"CANADIAN SUBSIDIARIES" means, collectively, the direct and indirect
subsidiaries of PSC listed on Schedule "A" hereto;
"CANADIAN UNDERWRITERS" means Merrill Lynch Canada Inc., Midland Walwyn
Capital Inc., First Marathon Securities Limited, Gordon Capital
Corporation, Salomon Brothers Canada Inc., CIBC Wood Gundy Securities
Inc., RBC Dominion Securities Inc. and TD Securities Inc., and their
respective successors;
"CCAA" means the Companies' Creditors Arrangement Act, R.S.C. 1985, c.
C-36, as amended;
"CCAA PROCEEDINGS" means the CCAA cases of PSC and the Canadian
Subsidiaries before the Court pursuant to the CCAA;
"CHAPTER 11 CASES" means the jointly administered Chapter 11 cases of PSI,
PSC and the U.S. Subsidiaries before the United States Bankruptcy Court
pursuant to the provisions of Chapter 11 of the United States Bankruptcy
Code;
"CIBC" means Canadian Imperial Bank of Commerce;
"CIBC BANK ACCOUNT SERVICES" means "CIBC Bank Account Services" as defined
in the Credit Agreement;
"CLAIM" means any right of any Person against any Applicant in connection
with any indebtedness, liability or obligation of any kind of any
Applicant whether or not reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, unsecured, present, future, known, unknown, by
guarantee, by surety or otherwise and whether or not such a right is
executory in nature, including, without limitation, the right or ability
of any person to advance a claim for contribution or indemnity or
otherwise with respect to any matter, action, cause or chose in action
whether existing at present or commenced in the future based in whole or
in part on facts which exist prior to or at the time of the first
Creditors' Meeting other than (i) a claim of a United States resident
against PSC, or (ii) a claim of a Canadian resident against PSC which the
holder of the claim has voluntarily agreed is to be subject to and bound
by the provisions of the U.S. Plan, and has consented to have the
allowance and priority of such claim determined in accordance with the
provisions of the U.S. Bankruptcy Code;
<PAGE> 197
- 4 -
"CLAIMS OFFICER" means the claims officer designated by PSC and approved
by the Court;
"CLASS" means the Class consisting of all holders of Affected Secured
Lender Claims or holders of Affected Unsecured Claims, as the case may be;
"COMERICA BANK ACCOUNT SERVICES" means "Comerica Bank Account Services" as
defined in the Credit Agreement;
"COMMON SHARES" means common shares in the capital of PSC;
"CONFIRMATION DATE" means the date that the Confirmation Order is made;
"CONFIRMATION ORDER" means the order of the Court sanctioning and
approving the Plan;
"CONTRIBUTION AND INDEMNITY CLAIMS" means any Claims of Deloitte & Touche,
any of the Canadian Underwriters or any of the Directors and Officers
against any of the Applicants for contribution and indemnity.
"COURT" means the Ontario Superior Court of Justice;
"CREDIT AGREEMENT" means the Credit Agreement dated as of August 11, 1997
among PSC, as borrower in Canada, PSI, as borrower in the United States,
the Lenders, CIBC, as administrative agent for the Lenders, BTCo, as
syndication agent, and CIBC and BTCo, as co-arrangers, as amended by
amending agreements dated as of October 31, 1997, February 19, 1998, June
24, 1998, October 20, 1998 and December 4, 1998;
"CREDIT DOCUMENTS" means the "Credit Documents" as defined in the Credit
Agreement;
"CREDIT FACILITY AGREEMENTS" means the Credit Agreement, the Credit
Documents and the Lender Lock-Up Agreement;
"CREDITOR" means any Person having a Claim and may, if the context
requires, mean a trustee, receiver, receiver manager or other Person
acting on behalf of such Persons, but a Creditor shall not include a
Person having a Claim in respect of an Unaffected Obligation;
"CREDITORS' MEETINGS" means the meetings of the Creditors called for the
purpose of considering and voting upon this Plan and includes any
adjournment of such meeting;
"CREDITORS' MEETINGS DATES" means the dates fixed for the Creditors'
Meetings under the Creditors' Meetings Order;
<PAGE> 198
- 5 -
"CREDITORS' MEETINGS ORDER" means the Order of the Court dated September
23, 1999 establishing procedures for proving Claims and setting the date
for the Creditors' Meetings, as amended or supplemented from time to time;
"DATE OF FILING" means June 25, 1999;
"DELOITTE & TOUCHE" means Deloitte & Touche, its successors and
affiliates;
"DILUTION" means dilution subsequent to the Effective Date (a) to the
extent necessary to give effect to the convertibility of the New Secured
PIK Debt, the New Unsecured Convertible Notes (as defined in the U.S.
Plan) and the exercise of the Management Options or (b) otherwise as a
result of the issuance of Common Shares, implementation of other
management incentive programs or other action taken by the new board of
directors of PSC referred to in Section 6.1(2)(d).
"DIP AGENT" means BTCo, in its capacity as administrative agent under the
DIP Facility Agreement;
"DIP CO-ARRANGERS" means BTCo and CIBC, in their capacities as
co-arrangers of the DIP Facility;
"DIP FACILITY AGREEMENT" means the Credit Agreement between PSC and PSI as
borrowers, the Canadian Subsidiaries and U.S. Subsidiaries as guarantors,
certain other Subsidiaries as guarantors, the DIP Agent, and the DIP
Co-Arrangers, and the other lender signatories thereto;
"DIP FACILITY" means the debtor-in-possession credit facility to be
provided to PSC, PSI, the Canadian Subsidiaries and the U.S. Subsidiaries
during the CCAA Proceedings and Chapter 11 Cases in the principal amount
of US$100 million of available credit pursuant to the DIP Facility
Agreement;
"DIP FACILITY CLAIM" means a Claim arising under or as a result of the DIP
Facility;
"DIRECTORS AND OFFICERS" means the current and former directors and
officers of the Applicants resident in Canada;
"DISBURSING AGENT" means PSC or any party designated by PSC, in its sole
discretion, to serve as disbursing agent under the Plan;
"DISCLOSURE STATEMENTS" means the written disclosure statements that
relate to this Plan or the U.S. Plan, as such documents may be amended,
supplemented or modified from time to time and "DISCLOSURE STATEMENT"
means any one of them;
"DISPUTED CLAIM AMOUNT" means the amount of a Disputed Unsecured Claim;
<PAGE> 199
- 6 -
"DISPUTED CLAIMS RESERVE" means the reserve, if any, established and
maintained by the Disbursing Agent, into which the Applicants shall
deposit the amount of New Unsecured PIK Notes and New Common Shares that
would have been distributed on the Distribution Date to holders of
Disputed Unsecured Claims if such Claims had been Proven Claims on the
Distribution Date, pending the allowance of such Claims;
"DISPUTED UNSECURED CLAIM" means a Claim that is the subject of a
Distribution Dispute Notice;
"DISTRIBUTION DATE" means a date occurring as soon as practicable after
the Effective Date upon which distributions are made to holders of Proven
Claims under the Plan provided, however, that in no event shall the
Distribution Date occur later than thirty (30) Business Days after the
Effective Date;
"DISTRIBUTION DISPUTE NOTICE" means an "Applicants' Distribution Dispute
Notice" or a "Creditor Distribution Dispute Notice" as such terms are
defined in the Creditors' Meetings Order;
"DISTRIBUTION RECORD DATE" means the record date for the purposes of
making distributions under this Plan on account of Proven Claims, which
shall be the Confirmation Date or such other date designated in the
Confirmation Order;
"DOLLARS" or "$" means lawful money of Canada unless otherwise indicated;
"EFFECTIVE DATE" means the Business Day on which all conditions to
implementation of the Plan as set forth in Section 9.8 have been satisfied
or waived as provided in Section 9.9 and is the effective date of the
Plan;
"EMPLOYEES" means those Persons who are or were employed by any Applicant
or retained by any Applicant to perform services exclusively for such
Applicant;
"EXCESS PROCEEDS ACCOUNT" means a separate interest-bearing account
established by the DIP Agent into which Net Asset Sale Proceeds of all
asset sales of PSC and the Subsidiaries consummated on or after the Date
of Filing are deposited and into which all proceeds at any time deposited
into the Proceeds Account (without giving effect to any disbursements from
the Proceeds Account prior to the Date of Filing) in excess of
US$93,000,000 (after post-closing adjustments of no greater than
US$4,000,000 deposited into the Proceeds Account with respect to the sale
of certain assets of PSC's aluminium division prior to the Date of Filing)
shall also be deposited, which funds shall be held by the DIP Agent to be
distributed in accordance with this Plan and the U.S. Plan on the
Effective Date;
"EXCLUDED INDEMNIFICATION OBLIGATIONS" means, in the case of PSC,
"Excluded Indemnification Obligations" (as defined in the U.S. Plan) of
PSC to any Canadian resident and, in the case of any of the Canadian
Subsidiaries, means Claims of any Canadian residents against any of the
Canadian Subsidiaries that would be "Excluded
<PAGE> 200
- 7 -
Indemnification Obligations" under the U.S. Plan if such Canadian
Subsidiaries were U.S. Plan Applicants and in each case includes Claims of
any Canadian residents against any of the Applicants that are not Assumed
Indemnification Obligations. For greater certainty, "Excluded
Indemnification Obligations" shall not affect the set-off rights, if any,
of any Person;
"EXIT FACILITY" means the new senior secured credit facility in an
aggregate principal amount of approximately US$125 million, which PSC, PSI
and the Subsidiaries anticipate entering into as a condition to the
consummation of the Plan;
"FACE AMOUNT" means (a) when used in reference to a Disputed Unsecured
Claim, the full stated amount claimed by the holder of such Claim in any
Proof of Claim or Distribution Dispute Notice timely filed with the Court
in accordance with this Plan or otherwise deemed timely filed by any Final
Order of the Court or other applicable bankruptcy law, and (b) when used
in reference to a Proven Claim, the as proven amount of such Claim;
"FINAL ORDER" means an order or judgment of the Court relating to the
Plan, the operation or effect of which has not been stayed, reversed or
amended and as to which order or judgment (or any revision, modification,
or amendment thereof) the time to appeal or seek review or rehearing has
expired and as to which no appeal or petition for review or rehearing was
filed, or if filed remains pending;
"INITIAL ORDER" means the Order of the Court dated June 25, 1999, as
amended from time to time, pursuant to which, among other things, the
Applicants were granted certain relief pursuant to the CCAA;
"INTERCOMPANY CLAIMS" means, as the case may be, any Claim of (a) any
Subsidiary against an Applicant, (b) any Subsidiary against a Subsidiary,
or (c) PSC against any Subsidiary;
"LC LENDERS" means the "LC Lenders" as defined in the Credit Agreement;
"LENDER" means a "Lender" as defined in the Credit Agreement, CIBC as
administrative agent, BTCo as syndication agent, CIBC and BTCo as
co-arrangers, and their individual successors and assigns;
"LENDER CLAIM" means a Claim of a Lender arising under or as a result of
the Credit Facility Agreements;
"LENDER LOCK-UP AGREEMENT" means the letter agreement dated as of April 5,
1999, as amended and restated as of June 21, 1999, as may be further
amended subsequent to the Date of Filing, among PSC and the Lenders
signatories thereto with respect to the principal terms and conditions of
this Plan and the U.S. Plan;
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"LIEN" means a charge against or interest in property to secure payment of
debt or performance of an obligation;
"MANAGEMENT OPTION AGREEMENT(S)" means stock option agreement(s) to be
entered into by PSC and the Management Option Plan Participants, pursuant
to which the Management Options will be granted;
"MANAGEMENT OPTION PLAN" means a stock option plan to be adopted by the
new board of directors of PSC referred to in Section 6.1(2)(d) on or after
the Effective Date;
"MANAGEMENT OPTION PLAN PARTICIPANTS" means the employees of PSC entitled
to participate in the Management Option Plan;
"MANAGEMENT OPTIONS" means the options to be issued by PSC pursuant to the
Management Option Plan to Management Option Plan Participants to purchase
Common Shares pursuant to the provisions of the Management Option
Agreements, subject to Dilution;
"MONITOR" means Ernst & Young Inc. and any successor thereto appointed in
accordance with the Initial Order or any further Order;
"NET ASSET SALE PROCEEDS" means the cash proceeds of asset sales of PSC
and the Subsidiaries net only of reasonable costs and expenses and the
payment of Other Secured Claims (excluding the Secured Claims of the
Account Intermediaries) secured by Liens on such assets senior to the
Liens securing the Affected Secured Lender Claims on such assets;
"NET ASSET SALE PROCEEDS POOL" means the amount of cash in the Excess
Proceeds Account equal to sixty-six and two-thirds percent (66-"%) of the
first US$200,000,000 of any Net Asset Sale Proceeds of the U.S. Ferrous
division, if the US Ferrous division is sold, plus seventy-five percent
(75%) of all other Net Asset Sale Proceeds in the Excess Proceeds Account;
"NEW COMMON SHARES" means the common shares of PSC to be issued pursuant
to this Plan and the U.S. Plan;
"NEW GUARANTEES" means, collectively, the secured guarantees of the
Canadian Subsidiaries and the other Restricted Subsidiaries to be entered
into as of the Effective Date to guarantee and secure the New Senior
Secured Term Debt and the New Secured PIK Debt;
"NEW SECURED PIK DEBT" means the ten percent (10%) Secured Convertible PIK
Debt due 2004 of PSC, in the aggregate principal amount of US$100 million,
to be issued and distributed pursuant to this Plan and the U.S. Plan on
the Distribution Date and governed by the terms of the Amended and
Restated Term Credit Agreement, the original face amount of which will be
convertible until maturity at the option of the holders into
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twenty-five percent (25%) of the PSC Common Shares, in the aggregate, on a
fully diluted basis as of the Effective Date and having the usual
anti-dilution provisions applicable in a public offering of convertible
debt, including giving effect to the issuance of any Common Shares under
the Shareholder Rights Plan;
"NEW SENIOR SECURED TERM DEBT" means the secured term debt of PSI due
2004, to be governed by the terms of the Amended and Restated Term Credit
Agreement, to be distributed under the Plan on the Distribution Date in
the aggregate principal amount of US$250 million minus an amount equal to
the Net Asset Sale Proceeds Pool;
"NEW UNSECURED PIK NOTES INDENTURE" means the indenture to be entered into
between PSC and an entity to be selected prior to the Effective Date, as
indenture trustee, under which the New Unsecured PIK Notes shall be
issued;
"NEW UNSECURED PIK NOTES" means the six percent (6%) unsecured
payment-in-kind notes due 2009 of PSC, in the aggregate principal amount
not to exceed US$60 million, to be issued and distributed pursuant to the
Plan and the U.S. Plan on the Distribution Date and governed by the terms
of the New Unsecured PIK Notes Indenture;
"ORDER" means any order of the Court in these proceedings;
"OTHER EQUITY SECURITIES" means, collectively, the outstanding options to
purchase Common Shares, as of the Date of Filing, together with any other
options, warrants, conversion rights, rights of first refusal or other
rights, contractual or otherwise, to acquire or receive any Common Shares
or other ownership interests in any Applicant, or of an affiliate of any
Applicant and any contracts, subscriptions, commitments or agreements
pursuant to which the non-Applicant party was or could have been entitled
to receive shares, securities or other ownership interests in any
Applicant, excluding Subsidiary Interests;
"OTHER SECURED CLAIMS" means, collectively, the Secured Claims of the
Account Intermediaries, the issuers of letters of credit issued under the
Permitted LC Facility established pursuant to Amending Agreement No. 3 to
the Credit Agreement and all other Secured Claims against the Applicants,
other than the Affected Secured Lender Claims;
"PERSON" means any individual, partnership, joint venture, trust,
corporation, unincorporated organization, government or any agency or
instrumentality thereof, or any other juridical entity howsoever
designated or constituted;
"PLAN" means this amended and restated plan of compromise and arrangement
dated September 24, 1999 of all of the Applicants under the CCAA, as same
may be amended or supplemented from time to time with the consent of the
Required Lenders and to the extent of any modification to the treatment of
the Account Intermediaries as holders of Secured Claims, the consent of
the Account Intermediaries;
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"PLAN SUPPLEMENT" has the meaning ascribed thereto in Section 6.2;
"PROCEEDS ACCOUNT" means the account established under the Proceeds
Agreement into which proceeds of certain asset sales were deposited prior
to the Date of Filing;
"PROCEEDS AGREEMENT" means the Proceeds Agreement dated April 5, 1999, as
amended, made among PSC, the Subsidiaries and the Lenders;
"PROOF OF CLAIM" means a proof of claim in the form prescribed by the
Creditors' Meetings Order;
"PROTOCOL" means the Cross-Border Insolvency Protocol entered into by the
U.S. Bankruptcy Court in the Chapter 11 Cases and by the Court in respect
of the CCAA Proceedings;
"PROVEN ..... CLAIM" of a Creditor means the amount of the Claim of such
Creditor as finally determined in accordance with the provisions of the
CCAA, any applicable Order or this Plan;
"PSC" means Philip Services Corp. or its successor;
"PSC COMMON SHARES" means the Common Shares of PSC outstanding after
giving effect to the issuance of New Common Shares and the Stock
Consolidation;
"PSI" means Philip Services (Delaware), Inc.;
"REGISTRATION RIGHTS AGREEMENT" means an agreement to be entered into
between PSC and certain Affected Secured Creditors with respect to rights
of registration as to the Common Shares, substantially in the form to be
included in a supplement to the U.S. Plan;
"REQUIRED LENDERS" means the "Required Lenders" as defined in the Credit
Agreement;
"REQUIRED MAJORITY" means, in respect of each Class of Creditor, an
affirmative vote of two-thirds in value of all Proven Claims of such Class
voted in accordance with the voting procedures established hereunder
(whether in person or by proxy) and a majority in number of all voting
Creditors of such Class;
"RESTRICTED SUBSIDIARIES" means "Restricted Subsidiaries" as defined in
the Credit Agreement;
"SECURED CLAIM" means a Claim that is secured by a Lien or other interest
on property in which an Applicant has an interest, whether the Person with
such Claim has a security interest by way of a mortgage, lease, chattel
mortgage, conditional sale agreement,
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debenture, security agreement or other security instrument, to the extent
of the value of the Claim holder's interest in the Applicant's interests
in such property;
"SECURITIES ACTIONS" means, collectively, (i) the consolidated, putative
class action entitled In re Philip Services Corp. Securities Litigation,
98 CV 835 (MBM), previously pending against PSC in the United States
District Court for the Southern District of New York and (ii) the Canadian
Securities Action;
"SECURITY AGENT" means the "Security Agent" as defined in the Credit
Agreement;
"SHAREHOLDERS' MEETING" means the meeting of shareholders of PSC referred
to in Section 6.1(2);
"SHAREHOLDER RIGHTS PLAN" means the shareholder rights plan to be
implemented on the Effective Date by PSC substantially in the form to be
included as a supplement to the U.S. Plan;
"STOCK CONSOLIDATION" means the consolidation of PSC's outstanding Common
Shares to be implemented simultaneously with the Effective Date pursuant
to which each 273 New Common Shares (including the Common Shares
outstanding prior to the Effective Date) shall be consolidated into one
PSC Common Share and as a result 24,000,000 PSC Common Shares will be
issued and outstanding;
"SUBSIDIARIES" means, collectively, all of the direct and indirect
subsidiaries of PSC;
"SUBSIDIARY INTERESTS" means, collectively, the issued and outstanding
shares in the stock of the Subsidiaries as of the Date of Filing;
"UNAFFECTED OBLIGATIONS" means Claims that are not Affected Claims;
"UNFUNDED LC CLAIM" means the amount, if any, by which the Agreed LC Claim
exceeds the amount actually drawn from the Date of Filing through the
Effective Date on letters of credit issued pursuant to the Credit
Agreement, which for greater certainty do not include letters of credit
issued under the Permitted LC Facility established in Amendment No. 3 to
the Credit Agreement;
"U.S. BANKRUPTCY COURT" means the United States Bankruptcy Court having
jurisdiction over the Chapter 11 Cases;
"U.S. IMPAIRED UNSECURED CLAIM" means a "Class 7 Claim" under the U.S.
Plan;
"U.S. PLAN" means the joint plan of reorganization of the U.S. Plan
Applicants as filed with the U.S. Bankruptcy Court, as the same may be
amended, modified or supplemented from time to time with the consent of
the Required Lenders;
"U.S. PLAN APPLICANTS" means PSC, PSI and each of the U.S. Subsidiaries;
and
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"U.S. SUBSIDIARIES" means PSI and the direct and indirect subsidiaries of
PSC set forth in the U.S. Plan.
SECTION 1.2 INTERPRETATION, ETC.
For purposes of the Plan:
(a) any reference in the Plan to a contract, instrument, release,
indenture, or other agreement or document's being in a particular
form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms
and conditions;
(b) any reference in the Plan to an existing document or exhibit filed or
to be filed means such document or exhibit as it may have been or may
be amended, modified, or supplemented;
(c) unless otherwise specified, all references in the Plan to Sections,
Articles and Schedules are references to Sections, Articles and
Schedules of or to the Plan;
(d) the words "herein" and "hereto" refer to the Plan in its entirety
rather than to a particular portion of the Plan;
(e) captions and headings to Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or
to affect the interpretation of the Plan;
(f) where the context requires, a word or words importing the singular
shall include the plural and vice versa;
(g) the words "includes" and "including" are not limiting;
(h) the phrase "may not' is prohibitive and not permissive; and
(i) the word "or" is not exclusive.
SECTION 1.3 DATE FOR ANY ACTION
In the event that any date on which any action is required to be taken
under this Plan by any of the parties is not a Business Day, that action shall
be required to be taken on the next succeeding day which is a Business Day.
SECTION 1.4 TIME
All times expressed in this Plan are local time Toronto, Ontario,
Canada unless otherwise stipulated.
SECTION 1.5 STATUTORY REFERENCES
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Any reference in this Plan to a statute includes all regulations made
thereunder and all amendments to such statute or regulations in force from time
to time.
SECTION 1.6 SUCCESSORS AND ASSIGNS
This Plan shall be binding upon and shall enure to the benefit of the
heirs, administrators, executors, legal personal representatives, successors
and assigns of any Person named or referred to in this Plan.
SECTION 1.7 SCHEDULES
The following are the Schedules to this Plan, which are incorporated by
reference into this Plan and form part of it:
Schedule "A" - Canadian Subsidiaries
Schedule "B" - Affected Unsecured Claims List
ARTICLE 2
PURPOSE AND EFFECT OF THE PLAN
SECTION 2.1 BACKGROUND
The circumstances and events leading up to this Plan and the U.S. Plan are
summarized in the Disclosure Statement to be circulated to Affected Creditors
in connection with this Plan and to be distributed in accordance with the U.S.
Bankruptcy Code in connection with the U.S. Plan.
SECTION 2.2 PERSONS AFFECTED
This Plan and the U.S. Plan provide for a coordinated restructuring of
claims and interests against PSC, PSI, the Canadian Subsidiaries and the U.S.
Subsidiaries. This Plan will become effective on the Effective Date and shall
be binding on and enure to the benefit of the Applicants and the Creditors.
SECTION 2.3 PERSONS NOT AFFECTED
For greater certainty this Plan does not affect the holders of Unaffected
Obligations. Nothing shall affect any Applicant's rights and defences, both
legal and equitable, with respect to any Unaffected Obligations including, but
not limited to, all rights with respect to legal and equitable defenses to
setoffs or recoupments against such Claims. Notwithstanding the substantive
consolidation of Claims against the Applicants for certain purposes under this
Plan, Claims which are not Affected Claims of any particular Applicant remain
the obligations solely of such Applicant and shall not become obligations of
any other Applicant.
ARTICLE 3
CLASSIFICATION OF CREDITORS, VALUATION OF CLAIMS AND RELATED MATTERS
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SECTION 3.1 CLASSES OF CLAIMS
The classes of Creditors for the purpose of considering and voting on the
Plan shall be Creditors holding Affected Secured Lender Claims and Affected
Unsecured Claims.
SECTION 3.2 AFFECTED CLAIMS
Creditors holding Affected Claims shall prove their Claims, vote in
respect of the Plan and receive the rights provided for under and pursuant to
this Plan.
SECTION 3.3 CREDITORS' MEETINGS
The Creditors' Meetings shall be held in accordance with this Plan, the
Creditors' Meetings Order and any further Order. The only persons entitled to
attend a Creditors' Meeting are those persons, including the holders of
proxies, entitled to vote at the Creditors' Meeting, their legal counsel and
advisors and the officers, directors and legal counsel of the Applicants. Any
other Person may be admitted on invitation of the chair of the relevant
Creditors' Meeting.
SECTION 3.4 APPROVAL BY CREDITORS
In order to be approved, the Plan must receive the affirmative vote of the
Required Majority of each Class of Creditors.
SECTION 3.5 ORDER TO ESTABLISH PROCEDURE FOR VALUING CLAIMS
The procedure for valuing Claims and resolving disputes is set forth in
the Creditors' Meetings Order. The Applicants reserve the right to seek the
assistance of the Court in valuing the Claim of any Affected Creditor, if
required, or to ascertain the result of any vote on the Plan or the amount
payable or to be distributed to such Affected Creditor under the Plan, as the
case may be.
SECTION 3.6 CLAIMS FOR VOTING PURPOSES
Each Creditor having a Claim in a Class entitled to vote shall be entitled
to attend and to vote at the Creditors' Meeting for such Class. Each Creditor
of a Class who is entitled to vote shall be entitled to that number of votes at
the Creditors' Meeting for such Class as is equal to the dollar value of its
Claim for voting purposes as determined in accordance with this Article 3 and
the provisions of the Creditors' Meetings Order.
ARTICLE 4
PROCEDURE FOR RESOLVING DISPUTED CLAIMS
SECTION 4.1 PROSECUTION OF OBJECTIONS
After the Confirmation Date, only the Applicants shall have the authority
to file objections, settle, compromise, withdraw or litigate to judgment
objections to Claims. From and after the Effective Date, the Applicants may
settle or compromise any Disputed Unsecured Claim without approval of the
Court.
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SECTION 4.2 NO DISTRIBUTIONS PENDING ALLOWANCE
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made with respect to all or any portion of a Disputed
Unsecured Claim unless and until some portion thereof, has become a Proven
Unsecured Claim.
SECTION 4.3 DISPUTED CLAIMS RESERVE
On the Effective Date (or as soon thereafter as is practicable) the
Disbursing Agent shall establish the Disputed Claims Reserve by withholding
from the initial distribution on account of Proven Unsecured Claims an amount
of New Unsecured PIK Notes and New Common Shares calculated as if all Affected
Unsecured Claims and U.S. Impaired Unsecured Claims were Proven Unsecured
Claims and allowed U.S. Impaired Unsecured Claims under the U.S. Plan as of
such date, in an amount equal to one hundred percent (100%) of their Disputed
Claim Amount and disputed U.S. Impaired Unsecured Claim amount under the U.S.
Plan.
SECTION 4.4 DISTRIBUTIONS AFTER DISPUTED CLAIMS RESOLVED
The Disbursing Agent shall make payments and distributions from the
Disputed Claims Reserve to each holder of a Disputed Unsecured Claim that has
become a Proven Unsecured Claim in accordance with the provisions of the Plan,
and to each holder of a disputed U.S. Impaired Unsecured Claim that has become
an allowed claim under the U.S. Plan. On the next succeeding interim
distribution date after the date that the value of a Proven Unsecured Claim has
been determined in accordance with this Plan, the Disbursing Agent shall
distribute to the holder of such Claim any New Unsecured PIK Notes and PSC
Common Shares in the Disputed Claims Reserve that would have been distributed
on the Distribution Date had such Claim been a Proven Unsecured Claim on the
Distribution Date (after giving effect to the Stock Consolidation). After a
Final Order has been entered, or other final resolution has been reached, with
respect to each Disputed Unsecured Claim and each disputed U.S. Impaired
Unsecured Claim (i) any New Unsecured PIK Notes and PSC Common Shares that
remain in the Disputed Claims Reserve shall be distributed pro rata to holders
of Proven Unsecured Claims and holders of U.S. Impaired Unsecured Claims
allowed under the U.S. Plan. All distributions made under this Article 4 on
account of a Proven Unsecured Claim shall be made together with any payments or
other distributions made on account of, as well as any obligations arising
from, the distributed property, as if such Proven Unsecured Claim had been a
Proven Unsecured Claim on the Distribution Date. Notwithstanding the
foregoing, the Disbursing Agent shall not be required to make distributions
under this Article 4 more frequently than once every 180 days.
ARTICLE 5
TREATMENT OF AFFECTED CREDITORS
SECTION 5.1 AFFECTED CLASSES
(1) Affected Secured Lender Claims
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(a) On the Effective Date, the Credit Facility Agreements shall be
amended and restated by the Amended and Restated Term Credit
Agreement without any further action by any party. Each holder of a
Proven Secured Lender Claim, in full satisfaction, settlement,
release and discharge of and in exchange for such Proven Secured
Lender Claim and its allowed Class 6 Claim in the U.S. Plan, shall
receive on or as soon as practicable after the Distribution Date its
pro rata share of (a) the Net Asset Sale Proceeds Pool, (b) the New
Secured PIK Debt, (c) the New Senior Secured Term Debt and (d) (i) if
the holders of U.S. Impaired Unsecured Claims vote to accept the U.S.
Plan and the holders of Proven Unsecured Claims vote to accept the
Plan, 5,967,052,592 New Common Shares which shall be ninety-one
percent (91%) of the PSC Common Shares issued and outstanding as of
the Effective Date (which shall equal 21,840,000 PSC Common Shares
after giving effect to the Stock Consolidation) subject to Dilution,
or (ii) if the holders of U.S. Impaired Unsecured Claims vote to
reject the U.S. Plan, but the holders of Proven Unsecured Claims vote
to accept the Plan, 22,800,000 PSC Common Shares which shall be
ninety-five percent (95%) of the PSC Common Shares issued and
outstanding as of the Effective Date plus an amount of PSC Common
Shares equal to the aggregate number of PSC Common Shares that would
have been available for distribution to holders of U.S. Impaired
Unsecured Claims under the U.S. Plan had such holders voted to accept
the U.S. Plan (based on the Applicants' estimate of the aggregate
allowed amount of such claims), subject to Dilution, and an amount of
New Unsecured PIK Notes equal to the amount that would have been
distributed to holders of U.S. Impaired Unsecured Claims under the
U.S. Plan had such holders voted to accept the U.S. Plan (based on
the Applicants' estimate of the aggregate allowed amount of such
claims).
(b) Each LC Lender will fund its pro rata share of the Unfunded LC
Claim (i) in cash, or (ii) by foregoing distributions that it would
otherwise receive in respect of a Claim in the amount of its pro rata
share of the Unfunded LC Claim. If the distributions that would
otherwise be received by an LC Lender are insufficient to fund its
pro rata share of the Unfunded LC Claim, such deficiency may be
funded by foregoing distributions to the extent necessary by the
Lender that is an affiliate of such LC Lender. Any such cash paid or
distributions foregone shall be reallocated pro rata among the
holders of Proven Secured Lender Claims. Letters of credit issued
pursuant to the Credit Agreement that remain outstanding and undrawn
on the Effective Date shall be replaced or, with the consent of the
issuers of such letters of credit, supported by letters of credit
issued under the Exit Facility.
(c) On the Effective Date, PSC shall record the holders of Proven
Secured Lender Claims as holders of record of such New Common Shares.
Each holder of a Secured Lender Claim shall vote the New Common
Shares distributed to it
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under the Plan in favour of each of the matters set forth in Section
6.1(2)(c) hereof.
(2) Affected Unsecured Claims
Subject to Section 5.2, on or as soon as reasonably practicable after, the
later of (i) the Distribution Date or (ii) the date such Affected Unsecured
Claim becomes a Proven Unsecured Claim,
(a) if the holders of Proven Unsecured Claims vote to accept the
Plan then each holder of a Proven Unsecured Claim shall receive in
full satisfaction, settlement, release and discharge of and in
exchange for such Proven Unsecured Claim, its pro rata share
(determined as described below) of (i) US$60 million of New Unsecured
PIK Notes to be issued pursuant to Article 7 of this Plan and the
U.S. Plan (subject to certain election rights of holders of U.S.
Impaired Unsecured Claims) and (ii) 327,860,033 New Common Shares
which shall be five percent (5%) of the PSC Common Shares issued and
outstanding as of the Effective Date (which shall equal 1,200,000 PSC
Common Shares, after giving effect to the Stock Consolidation),
subject to Dilution (in each case, such distribution shall be shared
pro rata with the holders of U.S. Impaired Unsecured Claims under the
U.S. Plan) and the holders of Affected Unsecured Lender Claims shall
be deemed to have waived any and all distributions to which they
would be entitled under the Plan as holders of Affected Unsecured
Lender Claims, including the benefit of any and all contractual
subordination provisions in respect of their Unsecured Lender Claims;
or
(b) if the holders of Proven Unsecured Claims vote to reject the
Plan, then the holders of such Claims shall not receive anything on
account of such Claims.
For purposes of distributions to holders of Proven Unsecured Claims, the
pro rata calculations shall include in the determination of the Face Amount of
all Proven Unsecured Claims (i) if the class of holders of U.S. Impaired
Unsecured Claims under the U.S. Plan votes to accept the U.S. Plan, the
aggregate amount of all allowed U.S. Impaired Unsecured Claims or (ii) if the
class of holders of U.S. Impaired Unsecured Claims under the U.S. Plan votes to
reject the U.S. Plan, the Applicant's estimate of the aggregate amount of all
allowed U.S. Impaired Unsecured Claims. Claims under the Canadian Plan will be
converted to United States' dollars ("US$") for purposes of distributions at a
rate of CDN$1.465097244 per US$1.00.
SECTION 5.2 SETTLEMENT OF CERTAIN CLAIMS
The proposed treatment of Affected Creditors set forth in Section 5.1 is
subject to the satisfaction of the following conditions prior to October 27,
1999:
(a) (i) the claims of the Applicants and the Lenders against Deloitte &
Touche, the Securities Actions, and all Contribution and Indemnity
Claims shall have been settled among all parties on mutually
acceptable terms,
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including as to the amount and voting of the Contribution and
Indemnity Claims; or
(ii) the amounts of the Contribution and Indemnity Claims
shall have been agreed to by the holders of such Claims, the
Applicants and the Lenders and the holders of the Contribution
and Indemnity Claims shall have agreed to vote such Claims in
favour of this Plan, and
(b) the Canadian Securities Action shall have been settled between
PSC and the plaintiffs and the settlement shall have been approved by
the Court.
ARTICLE 6
MEANS FOR IMPLEMENTATION OF THE PLAN
SECTION 6.1 PLAN IMPLEMENTATION
Subject to Section 5.2, if the Required Majority of each Class of
Creditors vote to accept the Plan, the transactions described in Section 6.1(1)
and the corporate actions described in Section 6.1(2) shall occur.
(1) Plan Transactions
(a) New Securities. As of the Effective Date the issuance by PSC
of US$100 million in principal amount of New Secured PIK Debt, up to
US$60 million in principal amount of New Unsecured PIK Notes, up to
6,426,056,637 New Common Shares, and Management Options to purchase
PSC Common Shares pursuant to the terms of the Management Option Plan
to be adopted by the new board of directors of PSC referred to in
Section 6.1(2)(d) on or after the Effective Date, subject to Dilution
(except with respect to the New Secured PIK Debt), is hereby
authorized without further act or action under applicable law,
regulation, order or rule.
(b) New Senior Secured Term Debt. On the Effective Date, PSC and
PSI shall execute and deliver the Amended and Restated Term Credit
Agreement to govern the New Secured PIK Debt and the New Senior
Secured Term Debt.
(c) New Guarantees. On the Effective Date, the Canadian
Subsidiaries shall enter into the New Guarantees and the related
security.
(d) Exit Facility. PSC and PSI, together with the Subsidiaries,
expect to enter into a post-confirmation loan facility, the Exit
Facility, in order to (a) refinance amounts outstanding on the
Effective Date under the DIP Facility, (b) make other payments
required to be made on the Effective Date or the Distribution Date,
and (c) provide the additional borrowing capacity required by PSC,
PSI and the Subsidiaries following the Effective Date to maintain
their operations.
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(e) Tax Related Transactions. The following transactions shall
occur immediately prior to implementation of the Plan: (a) each
holder of a Claim under the Credit Agreement shall be deemed to have
exchanged such Claim for an undivided co-ownership interest in all of
the Claims under the Credit Agreement in the same aggregate principal
amount as the Claim so exchanged, and (b) each holder of a Claim
against one or more of the Applicants which becomes a Proven
Unsecured Claim shall be deemed to have exchanged such Claim for an
undivided co-ownership interest in all Proven Unsecured Claims in the
same aggregate amount.
(2) Corporate Action
1 Shareholder Rights Plan. On the Effective Date, PSC shall implement the
Shareholder Rights Plan.
2 Stock Consolidation. On the Effective Date, if the holders of U.S.
Impaired Unsecured Claims under the U.S. Plan have voted to accept the U.S.
Plan and the holders of Affected Unsecured Claims under this Plan have voted
to accept this Plan, PSC shall take all steps necessary to implement the Stock
Consolidation.
(c) Shareholder Approval. On or immediately after the Effective
Date and the distribution of New Common Shares to holders of Affected
Secured Lender Claims, PSC shall hold a meeting of its shareholders
for the purposes of: (i) approving and ratifying the Shareholder
Rights Plan; (ii) electing the new board of directors referred to in
Section 6.1(2)(d); (iii) amending the articles of incorporation of
PSC to allow for the implementation of the Stock Consolidation; (iv)
authorizing the continuance of PSC under the laws of New Brunswick;
and (v) if the holders of U.S. Impaired Unsecured Claims reject the
U.S. Plan, cancelling the Common Shares outstanding immediately prior
to the Effective Date.
(d) Directors and Officers. On the Effective Date, the new board
of directors for PSC will consist of nine (9) directors, who will be
nominated by holders of Lender Claims. The nominees of the holders
of Lender Claims shall include two (2) members of the existing PSC
board of directors and will include two (2) members nominated by High
River Limited Partnership ("High River") provided that High River and
any holders of Lender Claims acting in concert with it beneficially
own at least twenty-five (25%) of the Lender Claims. If one or both
of the nominees from the existing board is a nominee on that board of
High River or persons acting in concert with it, that person will be
counted as a High River nominee on the slate for the new board of
directors.
SECTION 0.1 ASSET TRANSFERS
If the conditions set forth in Section 5.2 are not met, or if the holders
of Proven Unsecured Claims vote to reject this Plan, the reorganization of the
Applicants will be effected through the transfer of the business of the
Applicants as a going concern to one or more direct
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or indirect subsidiaries of PSI. This transfer will occur in conjunction with
the implementation of the U.S. Plan through the enforcement of remedies
available to the Lenders, and will be more fully described in a supplement to
this Plan (the "Plan Supplement") that will be filed prior to the meeting of
the holders of Affected Secured Lender Claims. The transferee(s) will assume
the Claims which would have been Unaffected Obligations if the arrangement
described in Section 5.1 had been implemented. The proceeds paid on the
transfers will be distributed in accordance with the legal priority of the
claims against the transferred assets. In that case, the Affected Unsecured
Claims will not be compromised, but it is expected that no distributions will
be made to the holders of such Claims. The holders of Affected Unsecured
Claims will have the right, but will not be required, to elect to participate
in distributions under the U.S. Plan as provided in that plan.
SECTION 0.2 PLAN RELEASES
Subject to Section 5.2 and to the approval of the Plan by the Required
Majority of each Class of Creditors, the following releases will become
effective on the Effective Date:
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(1) Releases by Applicants
As of the Effective Date, for good and valuable consideration, the
adequacy of which is hereby confirmed, the Applicants and the Subsidiaries will
be deemed to release forever, waive and discharge all claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action and
liabilities (other than the rights of the Applicants to enforce the Plan and
the contracts, instruments, releases, indentures, and other agreements or
documents delivered thereunder) whether liquidated or unliquidated, fixed or
contingent, matured or unmatured, known or unknown, foreseen or unforeseen,
then existing or thereafter arising, in law, equity or otherwise that are based
in whole or part on any act, omission, transaction, event or other occurrence
taking place on or prior to the Effective Date in any way relating to the
Applicants or the Subsidiaries, the parties released pursuant to this Section
6.3(1), the CCAA Proceedings, the Lender Lock-Up Agreement or the Plan, and
that could have been asserted by or on behalf of the Applicants or their
Subsidiaries against (i) directors, officers and employees of the Applicants or
the Subsidiaries in each case, as of the Date of Filing or that have become
officers and/or directors thereafter but prior to the Effective Date (other
than for indebtedness owed by any such directors, officers or employees to any
of the Applicants or their Subsidiaries) and the Applicants' or Subsidiaries'
agents and professionals (including, for greater certainty, the Monitor but
excluding Deloitte & Touche and any insurance brokers retained by the
Applicants), (ii) the Lenders (other than any person excluded from the releases
in this Plan which has become a Lender), (iii) the ad hoc steering committee
and any other committee of holders of Lender Claims, (iv) CIBC, as
administrative agent and co-arranger under the Credit Agreement, (v) BTCo as
Syndication Agent and co-arranger under the Credit Agreement, (vi) any official
committees appointed by the Court in connection with the CCAA Proceedings or
the Chapter 11 Cases, (vii) the DIP Agent, the DIP Co-Arrangers and the holders
of DIP Facility Claims (other than any entity specifically excluded from the
releases in this Plan which has become a holder of a DIP Facility Claim),
(viii) the Security Agent, (ix) the Account Intermediaries, (x) any individual,
corporation or other entity that was at any time formerly one of the released
parties identified in subclauses (ii) - (viii) of this Section 6.3(1), and (xi)
the respective affiliates, current and former officers, directors, employees,
agents, shareholders and professionals (including, for greater certainty, the
Monitor but excluding Deloitte & Touche, Robert Waxman, Greg Madesker, Rik
Barrese and any insurance brokers retained by the Applicants) (including the
current and former directors, officers, employees, agents, shareholders and
professionals of the released professionals) of the entities released in
subclauses (ii)-(viii) of this Section 6.3(1) acting in such capacity;
provided, however, that the releases provided to any director, officer or
employee of the Applicants described in clause (i) of this Section 6.3(1) may
be revoked by the Applicants by written notice to such director, officer or
employee, in the event that the Applicants reasonably determine that any such
director, officer or employee has failed to provide factual information as
reasonably requested by the Applicants or any successor to the Applicants with
authority to direct such claim, or by the Administrative Agent, in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or related to the same nucleus of operative facts
alleged as of the Date of Filing in the Securities Actions, the Chazen Actions
or the Liff Actions (as defined in the U.S. Plan), including, without
limitation, providing information and documents, attendance at meetings and
interviews,
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assisting counsel, attendance at discoveries, if required, assistance at
pre-trial preparation and attendance at trial, including as a witness, but
subject in the case of any person who is at the relevant time no longer a
director, officer or employee of any of the Applicants, to reimbursement of
that person's foregone income and reasonable expenses.
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(2) Releases by Holders of Lender Claims
As of the Effective Date, in consideration for the obligations of the
Applicants and the Subsidiaries under the Plan and the Lender Lock-up
Agreement, and the cash, securities, contracts, instruments, releases and other
agreements or documents to be delivered in connection with the Plan, each of
the holders of Lender Claims, the ad hoc steering committee and any other
committee of holders of Lender Claims, CIBC as Administrative Agent and
co-arranger under the Credit Agreement, BTCo as Syndication Agent and
co-arranger under the Credit Agreement, the DIP Agent, the DIP Co-Arrangers,
the holders of DIP Facility Claims, the Security Agent, the Account
Intermediaries, and any individual, corporation or other entity that was at any
time formerly one of the foregoing releasing parties will be deemed to forever
release, waive and discharge all claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action and liabilities (other than
the rights to enforce the Applicants' obligations under the Plan and the
securities, contracts, instruments, releases and other agreements and documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, in law, equity or otherwise that are based in whole or
in part on any act, omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Applicants
and Subsidiaries, the CCAA Proceedings, the Lender Lock-up Agreement or the
Plan against (i) the Applicants and Subsidiaries; provided, however that this
release in clause (i) shall not be given by any Account Intermediary who is a
current Bank Account Services Provider, (ii) the directors, officers and
employees of the Applicants or Subsidiaries in each case as of the Date of
Filing (and in addition, those who become officers and/or directors thereafter
but prior to the Effective Date), (iii) the Lenders (other than any person
excluded from the releases in this Plan that has become a Lender), (iv) the ad
hoc steering committee and any other committee of holders of Lender Claims, (v)
CIBC, as Administrative Agent and co-arranger under the Credit Agreement, (vi)
BTCo as Syndication Agent and co-arranger under the Credit Agreement, (vii) any
official committees appointed in the CCAA Proceedings or the Chapter 11 Cases,
(viii) the DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility
Claim (other than any entity specifically excluded from the releases granted in
this Section 6.3(2) that has become a holder of a DIP Facility Claim, (ix) the
Security Agent, (x) the Account Intermediaries, (xi) any individual,
corporation or other entity that was at any time formerly one of the released
parties identified in subclauses (iii)-(ix) of this Section 6.3(2), or (xii)
the respective current and former professionals of the entities in subclauses
(i)-(ix) of this Section 6.3(2) (including, for greater certainty, the Monitor
but excluding Deloitte & Touche and any insurance brokers retained by the
Applicants) (including the current and former officers, directors, employees,
shareholders and professionals of the released professionals), acting in such
capacity; provided, however, that the releases provided to any director,
officer or employee of the Applicants described in clause (ii) of this Section
6.3(2) may be revoked by the Administrative Agent or its successor, by written
notice to such director, officer or employee, in the event that the
Administrative Agent or its successor reasonably determines that any such
director, officer or employee has failed to provide factual information
reasonably requested by the Administrative Agent or its successor in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or relating to the same nucleus of operative facts
alleged as of the Date
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of Filing in the Securities Actions, the Chazen Actions or the Liff Actions,
including, without limitation, providing information and documents, attendance
at meetings and interviews, assisting counsel, attendance at discoveries, if
required, assistance at pre-trial preparation and attendance at trial,
including as a witness, but subject in the case of any person who is at the
relevant time no longer a director, officer or employee of any of the
Applicants, to reimbursement of that person's foregone income and reasonable
expenses, provided further, that nothing contained herein shall affect the
rights and obligations of the parties designated in clauses (iii), (v), (vi),
(ix) and (x) of this Section 6.3(2) under the Priority and Subordination
Agreement, dated as of December 4, 1998, the Security Sharing Agreement, dated
as of November 30, 1998 and the Intercreditor Agreement, dated as of June 25,
1999.
(3) Holders of Claims
As of the Effective Date, to the fullest extent permitted under applicable
law, in consideration for the obligations of the Applicants under the Plan and
the securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, and the benefits
provided by the Lenders and the Account Intermediaries under the Plan, each
present and former holder of a Claim (other than the parties referred to in
Section 6.3(2) above or any individual, corporation or other entity that was at
any time formerly one of the foregoing releasing parties) will be deemed to
release forever, waive and discharge all claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action and liabilities (other than
the rights to enforce the Applicants' obligations under the Plan and the
securities, contracts, instruments, releases and other agreements and documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, in law, equity or otherwise that are based in whole or
in part on any act, omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Applicants
or Subsidiaries, the parties released pursuant to this Section 6.3(3), the CCAA
Proceedings, the Lender Lock-up Agreement or the Plan against (i) the
Applicants and Subsidiaries, (ii) the Lenders as of September 15, 1999 or an
entity that subsequently becomes a Lender subject to the Applicants' consent,
the ad hoc steering committee or any other committee of holders of Lender
Claims, CIBC as Administrative Agent and co-arranger under the Credit
Agreement, BTCo as Syndication Agent and co-arranger under the Credit
Agreement, any official committees appointed in the CCAA Proceedings or the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims as of September 15, 1999 or an entity that subsequently becomes
a holder of a DIP Facility Claim subject to the Applicants' consent, and the
Security Agent, (iii) the Account Intermediaries, (iv) any individual,
corporation or other entity that was formerly one of the foregoing released
parties identified in subclause (ii) of this Section 6.3(3) and (v) the
respective affiliates, current and former officers, directors, employees,
agents, shareholders and professionals of the entities referred to in subclause
(ii) of this Section 6.3(3) (excluding Deloitte & Touche and any insurance
brokers retained by the Applicants) acting in such capacity. Under the Plan,
holders of Claims (other than the Lenders) are not deemed to have released any
non-Applicant third party other than the Lenders and those parties explicitly
listed in clauses (ii), (iii), (iv) and (v) above.
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SECTION 0.3 INJUNCTION RELATED TO RELEASES
The Confirmation Order will enjoin the prosecution, whether directly,
derivatively or otherwise, of any claim, obligation, suit, judgment, damage,
demand, debt, right, cause of action, liability or interest released,
discharged or terminated pursuant to the Plan.
SECTION 0.4 REVOCATION OF CERTAIN RELEASES
The revocation of any release of any director, officer or employee
pursuant to Section 6.3 hereof shall be void ab initio to the extent that a
court of competent jurisdiction, including, but not limited to the Court,
determines that such director, officer or employee has provided the factual
information reasonably requested by the Applicants or any successor pursuant to
Section 6.3(1) or the Administrative Agent or its successor pursuant to Section
6.3(2).
SECTION 0.5 SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING AFFECTED CLAIMS
The Plan is premised upon the substantive consolidation of the Applicants
only for purposes of treating Affected Secured Lender Claims and Affected
Unsecured Claims under the Plan, including for voting, Plan sanction and
distribution purposes. This Plan does not contemplate substantive
consolidation of the Applicants with respect to Unaffected Obligations.
Subject to Section 5.2 and the approval of the Plan by the Required Majority of
each Class of Creditors, on the Effective Date, (a) all guarantees of any
Applicants of the payment, performance or collection of another Applicant with
respect to Affected Claims shall be deemed eliminated and cancelled; (b) any
obligation of any Applicant and all guarantees with respect to Affected Claims
thereof executed by one or more of the other Applicants shall be treated as a
single obligation and any obligation of two or more Applicants, and all
multiple Affected Claims against such entities on account of such joint
obligations, shall be treated and allowed only as a single Affected Unsecured
Claim against the consolidated Applicants; and (c) each Affected Claim of any
Applicant shall be deemed filed against the consolidated Applicants and shall
be deemed one Affected Claim against and obligation of the consolidated
Applicants. Except as set forth in this Section 6.6, such substantive
consolidation shall not (other than for purposes related to the Plan) (a)
affect the legal and corporate structures of the Applicants, (b) cause any
Applicant to be liable for any Claim under the Plan, for which it otherwise is
not liable and the liability of any Applicant for any such Claim shall not be
affected by such substantive consolidation, (c) affect Intercompany Claims of
Applicants against Applicants, or (d) affect Subsidiary Interests.
SECTION 0.6 ASSUMED INDEMNIFICATION OBLIGATIONS
The Assumed Indemnification Obligations (other than Excluded
Indemnification Obligations) shall be deemed effective as of the Effective Date
without any further action by any party.
ARTICLE 1
PROVISIONS GOVERNING DISTRIBUTIONS
SECTION 1.1 DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE
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Except as otherwise provided herein or as ordered by the Court,
distributions to be made on account of Claims that are Proven Unsecured Claims
and Proven Secured Lender Claims as of the Effective Date shall be made not
later than the Distribution Date. Distributions on account of Claims that
first become Proven Unsecured Claims or a Proven Secured Lender Claim after the
Effective Date shall be made pursuant to Articles 4,5 and 7 of this Plan.
Notwithstanding the date on which any distribution of securities is actually
made to a holder of a Claim that is a Proven Unsecured Claim or a Proven
Secured Lender Claim on the Effective Date, as of the date of the distribution
such holder shall be deemed to have the rights of a holder of such securities
distributed as of the Effective Date.
SECTION 1.2 INTEREST ON CLAIMS
Unless otherwise specifically provided for in this Plan or the
Confirmation Order, interest shall not accrue or be paid on Claims after the
Date of Filing, and no holder of a Claim shall be entitled to interest accruing
on or after the Date of Filing on any Claim. Interest shall not accrue or be
paid upon any Disputed Unsecured Claim in respect of the period from the Date
of Filing to the date a final distribution is made thereon if and after such
Disputed Unsecured Claim becomes a Proven Unsecured Claim.
SECTION 1.3 DISTRIBUTIONS BY DISBURSING AGENT
(a) The Disbursing Agent shall make all distributions required
under this Plan (subject to the provisions of Articles 4, 5 and 7
hereof). If the Disbursing Agent is an independent third party
designated by the Applicants to serve in such capacity, such
Disbursing Agent shall receive, without further Court approval,
reasonable compensation for distribution services rendered pursuant
to the Plan and reimbursement of reasonable out-of-pocket expenses
incurred in connection with such services from the Applicants on
terms acceptable to the Applicants. No Disbursing Agent shall be
required to give any bond or surety or other security for the
performance of its duties unless otherwise ordered by the Court.
(b) At the close of business on the Distribution Record Date, the
transfer records for the Lender Claims shall be closed, and there
shall be no further changes in the record holders of Lender Claims.
The Applicants, the Disbursing Agent and the Administrative Agent for
the Lenders shall have no obligation to recognize any transfer of
Lender Claims after the Distribution Record Date and shall be
entitled instead to recognize and deal for all purposes hereunder
with only those record holders as of the close of business on the
Distribution Record Date.
SECTION 1.4 CALCULATION OF DISTRIBUTION AMOUNTS
(1) Common Shares
No fractional New Common Shares shall be issued or distributed under the
Plan or by PSC or the Disbursing Agent. Each Person entitled to receive New
Common Shares will receive the total number of whole New Common Shares to which
such Person is entitled. Whenever any distribution to a particular Person
would otherwise call for distribution of a fraction of a New
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Common Share, the actual distribution of shares shall be rounded to the next
higher or lower whole number as follows: (a) fractions ? or greater shall be
rounded to the next higher whole number, and (b) fractions of less than ? shall
be rounded to the next lower whole number. The total number of New Common
Shares to be distributed to a Class of Claims shall be adjusted as necessary to
account for the rounding provided for in this Section 7.4. No consideration
shall be provided in lieu of fractional shares that are rounded down.
(2) New Unsecured PIK Notes
New Unsecured PIK Notes will be issued in denominations of US$1,000 and
such fractions thereof as is necessary.
SECTION 1.5 DELIVERY OF DISTRIBUTIONS
Distributions to holders of Proven Unsecured Claims shall be made by the
Disbursing Agent (a) at the last known address of such persons or at the
addresses set forth on the Proofs of Claim filed by such holders (b) at the
addresses reflected in the Affected Unsecured Creditors List, or (c) at the
addresses set forth in any written notices of address changes delivered to the
Disbursing Agent after the date of any related Proof of Claim. If any holder's
distribution is returned as undeliverable, no further distributions to such
holder shall be made unless and until the Disbursing Agent is notified of such
holder's then current address, at which time all missed distributions shall be
made to such holder without interest. No undeliverable distributions will go
back to the Applicants. All claims for undeliverable distributions in respect
of Proven Unsecured Claims must be made on or before the expiration of the
eighteenth (18th) month following the Effective Date, after which date all
unclaimed property shall be distributed pro rata to the other holders of Proven
Unsecured Claims and the Claim of any holder or successor of such holder with
respect to such property shall be discharged, and forever barred,
notwithstanding any federal or provincial laws to the contrary. Nothing
contained in the Plan shall require the Applicants or any Disbursing Agent to
attempt to locate any holder of a Proven Unsecured Claim.
SECTION 1.6 WITHHOLDING AND REPORTING REQUIREMENTS
In connection with this Plan and all distributions hereunder, the
Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state,
provincial, local, or foreign taxing authority, and all distributions hereunder
shall be subject to any such withholding and reporting requirements. The
Disbursing Agent shall be authorized to take any and all actions that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan: (i) each
holder of a Proven Claim that is to receive a distribution pursuant to the Plan
shall have sole and exclusive responsibility for the satisfaction and payment
of any tax obligations imposed by any governmental unit, including income,
withholding and other tax obligations, on account of such distribution, and
(ii) no distribution shall be made to or on behalf of such holder pursuant to
the Plan unless and until such holder has made arrangements satisfactory to the
Disbursing Agent for the payment and satisfaction of such tax obligations. Any
distributions to be distributed pursuant to the Plan shall, pending the
implementation of such arrangements, be
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treated as an undeliverable distribution pursuant to Section 7.5. It is the
Applicants' intent that distributions under the Plan to holders of Claims are
in respect of, and to be applied to, principal first and then interest.
SECTION 1.7 SET-OFF TO APPLY
The Applicants may, but shall not be required to, set off against any
Claim, and the payments or other distributions to be made pursuant to the Plan
in respect of such Claims, claims of any nature whatsoever that the Applicants
may have against the holder of such Claim, provided, however, that neither the
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Applicants of any such claim that the Applicants may
have against such holder. Notwithstanding anything to the contrary, the
Applicants will not exercise any right of setoff against any Lender, any agents
under the Credit Agreements or the DIP Facility Agreement, the Account
Intermediaries or the DIP Lenders.
ARTICLE 2
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
SECTION 2.1 CONTRACTS AND LEASES
Except as otherwise provided in the Plan, or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, as of the Effective Date each Applicant shall be deemed to have
ratified each executory contract and unexpired lease to which it is a party,
unless such contract or lease (i) was previously repudiated or terminated by
such Applicant, (ii) previously expired or terminated pursuant to its own
terms, or (iii) as otherwise set forth in an amendment to the Affected
Unsecured Claims List as being an executory contract or unexpired lease to
repudiate or terminate. Without limiting the foregoing, all obligations of the
Applicants with respect to Other Equity Securities and Excluded Indemnification
Obligation shall be terminated and cancelled.
ARTICLE 3
MISCELLANEOUS
SECTION 3.1 CONFIRMATION OF PLAN
(a) Provided that the conditions in Section 5.2 are satisfied by
the deadline set forth therein and the Plan is approved by the
Required Majority of each Class of Creditors, the Applicants will
seek the Confirmation Order (which as proposed shall be in form and
substance acceptable to the Applicants and the Required Lenders) for
the sanction and approval of the Plan as provided in Sections 5.1 and
6.1; and
(b) subject only to the Confirmation Order being granted and
becoming a Final Order in form and substance reasonably acceptable to
the Applicants and the Required Lenders and the satisfaction of those
conditions precedent to implementation of
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the Plan described in Section 9.8, the Plan will be implemented by
the Applicants and will be binding upon the Applicants and all
Creditors.
SECTION 3.2 PARAMOUNTCY
Subject to the obligations of the Applicants pursuant to the Exit Facility
or the Amended and Restated Term Credit Agreement, from and after the Effective
Date, any conflict between the Plan and the covenants, warranties,
representations, terms, conditions, provisions or obligations, expressed or
implied, of any contract, mortgage, security agreement, indenture, trust
indenture, loan agreement, commitment letter, agreement for sale, by-laws of
the Applicants, lease or other agreement, written or oral and any and all
amendments or supplements thereto existing between one or more of the Creditors
and the Applicants as at the Effective Date will be deemed to be governed by
the terms, conditions and provisions of the Plan and the Confirmation Order,
which shall take precedence and priority.
SECTION 3.3 WAIVER OF DEFAULTS
Other than in relation to the Exit Facility or the Amended and Restated
Term Credit Agreement, from and after the Effective Date, each Creditor shall
be deemed to have waived any and all defaults then existing or previously
committed by the Applicants in any covenant, warranty, representation, term,
provision, condition or obligation, expressed or implied, in any contract,
agreement, mortgage, security agreement, indenture, trust indenture, loan
agreement, commitment letter, agreement for sale, lease or other agreement,
written or oral and any and all amendments or supplements thereto, existing
between such Creditor and the Applicants and any and all notices of default and
demands for payment under any instrument, including, without limitation any
guarantee, shall be deemed to have been rescinded.
SECTION 3.4 COMPROMISE EFFECTIVE FOR ALL PURPOSES
The payment, compromise or other satisfaction of any Claim under the Plan,
if sanctioned and approved by the Court shall be binding upon such Creditor,
its heirs, executors, administrators, successors and assigns, for all purposes.
SECTION 3.5 PARTICIPATION IN DIFFERENT CAPACITIES
Creditors whose Claims are affected by this Plan may be affected in more
than one capacity. Each such Creditor shall be entitled to participate
hereunder in each such capacity. Any action taken by a Creditor in any one
capacity shall not affect the Creditor in any other capacity unless the
Creditor agrees in writing.
SECTION 3.6 MODIFICATION OF PLAN
Subject to the consent of the Required Lenders, the Applicants reserve the
right to file any modification of, amendment or supplement to the Plan by way
of a supplementary plan or plans of compromise or arrangement or both filed
with the Court at any time or from time to time prior to the Creditors'
Meetings Dates, in which case any such supplementary plan or plans of
compromise or arrangement or both shall, for all purposes, be and be deemed to
be a part of and incorporated into the Plan. The Applicants shall give notice
by publication or otherwise to all
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Creditors in an affected Class of the details of any modifications or
amendments prior to the vote being taken to approve the Plan. Subject to the
consent of the Required Lenders, the Applicants may propose an alteration or
modification to the Plan at any Creditors' Meeting. After such Creditors'
Meetings (and both prior to and subsequent to the Confirmation Order) and
subject to the consent of the Required Lenders, the Applicants may at any time
and from time to time vary, amend, modify or supplement the Plan if the Court
determines that such variation, amendment, modification or supplement is of a
minor, immaterial or technical nature that would not be materially prejudicial
to the interests of any of the Creditors under the Plan or the Confirmation
Order and is necessary in order to give effect to the substance of the Plan or
the Confirmation Order.
SECTION 3.7 DEEMING PROVISIONS
In this Plan, the deeming provisions are not rebuttable and are
conclusive and irrevocable.
SECTION 3.8 CONDITIONS PRECEDENT TO IMPLEMENTATION OF PLAN
The implementation of the Plan is subject to the following conditions
precedent which may not be waived by the Applicants without the consent of the
Required Lenders:
(a) the Confirmation Order sanctioning the Plan, as such Plan may
have been modified, in form and substance reasonably satisfactory to
the Applicants and the Required Lenders, shall have been entered and
the operation and effect of the Confirmation Order shall not have
been stayed, reversed or amended, and shall provide that:
(i) the Applicants are authorized and directed to take all actions
necessary or appropriate to enter into, implement and
consummate the contracts, instruments, releases, leases,
indentures and other agreements or documents created in
connection with the Plan;
(ii) the provisions of the Confirmation Order are nonseverable and
mutually dependent;
(iii) PSC is authorized to issue the New Unsecured PIK Notes, New
Common Shares, and Management Options and incur the New Senior
Secured Term Debt and New Secured PIK Debt; and
(iv) the New Secured PIK Debt, New Unsecured PIK Notes, and the New
Common Shares issued under the Plan in exchange for Claims
against the Applicants and the first trade of such securities
are exempt from the dealer registration and prospectus
requirements of applicable Canadian securities laws except to
the extent that holders of New Secured PIK Debt, New Unsecured
PIK Notes and New Common Shares are control block holders for
the purposes of applicable Canadian securities laws.
(b) the Applicants shall have credit availability under the Exit
Facility in an amount,
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form and substance acceptable to the Applicants and the Required
Lenders, to provide the Applicants and the Subsidiaries with working
capital to meet ordinary and peak requirements and additional
borrowings to support further projects;
(c) the following agreements, in form and substance satisfactory to
the Applicants and the Required Lenders shall have been executed and
delivered, and all conditions precedent thereto shall have been
satisfied:
(i) New Unsecured PIK Notes Indenture;
(ii) Amended and Restated Term Credit Agreement;
(iii) New Guarantees and related security documents;
(iv) Registration Rights Agreement;
(v) Exit Facility;
(vi) Shareholder Rights Plan; and
(vii) Agreements evidencing sufficient bonding to meet the
Applicants' projected bonding requirements;
(d) all actions, documents and agreements necessary to implement
the Plan shall have been effected or executed;
(e) the U.S. Bankruptcy Court shall have issued a final order under
the U.S. Bankruptcy Code confirming the U.S. Plan and all conditions
to the effectiveness of the U.S. Plan shall have been satisfied other
than the condition that this Plan shall have become effective; and
(f) the new board of directors of PSC referred to in Section
6.1(2)(d) shall have been appointed.
SECTION 3.9 WAIVER OF CONDITIONS
Each of the conditions set forth in Section 5.2 and 9.8 above, may be
waived in whole or in part by the Applicants with the written consent of the
Required Lenders, without any other notice to parties in interest or the Court
and without a hearing. The failure to satisfy or waive any condition to the
Effective Date may be asserted by the Applicants regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by an Applicant). The failure of an
Applicant to exercise any of the foregoing rights shall not be deemed a waiver
of any other rights, and each such right shall be deemed an ongoing right that
may be asserted at any time.
SECTION 3.10 DISCLOSURE STATEMENT
<PAGE> 225
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Copies of the Plan and the applicable Disclosure Statement will be mailed
in accordance with the procedures approved by the Court.
SECTION 3.11 NOTICES
Any notices or communication to be made or given hereunder shall be in
writing and shall refer to this Plan and may, subject as hereinafter provided,
be made or given by personal delivery, by courier, by prepaid mail or by
telecopier addressed to the respective parties as follows:
(a) if to the Applicants:
Philip Services Corp.
100 King Street West
Hamilton, Ontario
L8N 4J6
Attention: Colin Soule
Executive Vice-President, General Counsel and
Corporate Secretary
Telecopier: (905) 521-9160
(b) if to a Creditor:
to the address for such Creditor specified in the Proof of Claim
filed by a Creditor or, if no Proof of Claim has been filed, to such
other address at which the notifying party may reasonably believe
that the Creditor may be contacted.
(c) if to the Monitor:
P.O. Box 251
Ernst & Young Tower
222 Bay Street, 21st Floor
Toronto-Dominion Centre
Toronto, Ontario
M5K 1J7
Attention: Murray McDonald
President
Telecopier: (416) 943-3300
or to such other address as any party may from time to time notify the others
in accordance with this Section 9.11. In the event of any strike, lock-out or
other event which interrupts postal service in any part of Canada, all notices
and communications during such interruption may only be given or made by
personal delivery or by telecopier and any notice or other communication
<PAGE> 226
- 33 -
given or made by prepaid mail within the five (5) Business Day period
immediately preceding the commencement of such interruption, unless actually
received, shall be deemed not to have been given or made. All such notices and
communications shall be deemed to have been received, in the case of notice by
telecopier or by delivery prior to 5:00 p.m. (local time) on a Business Day,
when received or if received after 5:00 p.m. (local time) on a Business Day or
at any time on a non-Business Day, on the next following Business Day and, in
the case of notice mailed as aforesaid, on the fifth Business Day following the
date on which such notice or other communication is mailed. The unintentional
failure by the Applicants to give notice contemplated hereunder to any
particular Creditor shall not invalidate this Plan or any action taken by any
Person pursuant to this Plan.
SECTION 3.12 SEVERABILITY OF PLAN PROVISIONS
If, prior to the Confirmation Date, any term or provision of the Plan is
held by the Court to be invalid, void or unenforceable, the Court, at the
request of any Applicant, with the consent of the Required Lenders, and to the
extent of any modification to the treatment of the Account Intermediaries as
holders of Other Secured Claims, the consent of the Account Intermediaries,
shall have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision shall then be applicable as altered
or interpreted. Notwithstanding any such holding, alteration or
interpretation, the remainder of the terms and provisions of the Plan shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated by such holding, alteration or interpretation. The Confirmation
Order shall constitute a judicial determination and shall provide that each
term and provision of the Plan, as it may have been altered or interpreted in
accordance with the foregoing, is valid and enforceable pursuant to its terms.
SECTION 3.13 SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
SECTION 3.14 EXCULPATION AND LIMITATION OF LIABILITY
Neither the Applicants, the Subsidiaries, the Lenders, any individual,
corporation or other entity that was at any time formerly a Lender, the ad hoc
steering committee or any other committee of holders of Lender Claims, CIBC as
Administrative Agent and co-arranger under the Credit Agreement, BTCo as
Syndication Agent and co-arranger under the Credit Agreement, any official
committees appointed in the CCAA Proceedings, the DIP Agent, the DIP
Co-Arrangers and the holders of DIP Facility Claims, the Security Agent, and
the Account Intermediaries, or any of their respective present or former
members, officers, directors, employees, advisors, attorneys, or agents, shall
have or incur any liability to any holder of a Claim or any other party in
interest, or any of their respective agents, employees, representatives,
financial advisors, attorneys, or affiliates, or any of their successors or
assigns, for any act or omission in connection with, relating to, or arising
out of, the CCAA Proceedings or the Chapter 11 Cases, formulating, negotiating
or implementing the Plan or the Lender Lock-up Agreement,
<PAGE> 227
- 34 -
the solicitation of acceptances of the Plan or the Lender Lock-up Agreement,
the pursuit of confirmation of the Plan, the confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the property to
be distributed under the Plan, except for their willful misconduct, and in all
respects shall be entitled to rely reasonably upon the advice of counsel with
respect to their duties and responsibilities under the Plan.
Notwithstanding any other provision of this Plan, no holder of a Claim, no
other party in interest, none of their respective agents, employees,
representatives, financial advisors, attorneys, or affiliates, and no
successors or assigns of the foregoing, shall have any right of action against
any Applicant, Subsidiary, any Lender, any individual, corporation or other
entity that was at any time formerly a Lender, the ad hoc steering committee or
any other committee of holders of Lender Claims, CIBC as Administrative Agent
and co-arranger under the Credit Agreement, BTCo as Syndication Agent and
co-arranger under the Credit Agreement, any official committees appointed in
CCAA Proceedings or the Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers
and the holders of DIP Facility Claims, the Security Agent, and the Account
Intermediaries, or any of their respective present or former members, officers,
directors, employees, advisors, attorneys, affiliates, or agents, for any act
or omission in connection with, relating to, or arising out of, the CCAA
Proceedings, formulating, negotiating or implementing the Plan or the Lender
Lock-up Agreement, the solicitation of acceptances of the Plan or the Lender
Lock-up Agreement, the pursuit of confirmation of the Plan, the consummation of
the Plan, the confirmation of the Plan, or the administration of the Plan or
the property to be distributed under the Plan, except for their willful
misconduct.
The Applicants and the Subsidiaries hereby jointly and severally fully
indemnify each of the Lenders, any individual, corporation or other entity that
was at any time a Lender, the ad hoc steering committee or any other committee
of holders of Lender Claims, CIBC as Administrative Agent and co-arranger under
the Credit Agreement, BTCo as Syndication Agent and co-arranger under the
Credit Agreement, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims, the Security Agent, and the Account Intermediaries, and their
respective agents, affiliates, directors, officers, employees, and
representatives, including counsel (collectively, the "Indemnitees") against
any manner of actions, causes of action, suits, proceedings, liabilities and
claims of any nature, costs and expenses (including reasonable legal fees)
which may be incurred by such Indemnitee or asserted against such Indemnitee
arising out of or during the course of, or otherwise in connection with or in
any way related to, the negotiation, preparation, formulation, solicitation,
dissemination, implementation, confirmation and consummation of the Plan, other
than any liabilities to the extent arising from the gross negligence or willful
or intentional misconduct of any Indemnitee as determined by a final judgment
of a court of competent jurisdiction. If any claim, action or proceeding is
brought or asserted against an Indemnitee in respect of which indemnity may be
sought from any of the Applicants or any of the Subsidiaries, the Indemnitee
shall promptly notify the Applicants in writing, and the Applicants may assume
the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnitee, and the payment of all costs and expenses. The
Indemnitee shall have the right to employ separate counsel in any such claim,
action or proceeding and to consult with the Applicants in the defense thereof
and the fees and expenses
<PAGE> 228
- 35 -
of such counsel shall be at the expense of the Applicants unless and until the
Applicants shall have assumed the defense of such claim, action or proceeding.
If the named parties to any such claim, action or proceeding (including any
impleaded parties) include both the Indemnitee and any of the Applicants or
Subsidiaries, and the Indemnitee reasonably believes that the joint
representation of such entity and the Indemnitee may result in a conflict of
interest, the Indemnitee may notify the Applicants in writing that it elects to
employ separate counsel at the expense of the Applicants, and the Applicants
shall not have the right to assume the defense of such action or proceeding on
behalf of the Indemnitee. In addition, the Applicants shall not effect any
settlement or release from liability in connection with any matter for which
the Indemnitee would have the right to indemnification from the Applicants,
unless such settlement contains a full and unconditional release of the
Indemnitee, or a release of the Indemnitee satisfactory in form and substance
to the Indemnitee.
SECTION 3.15 BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Applicants
and all present and former holders of Claims.
SECTION 3.16 REVOCATION, WITHDRAWAL, OR NON-CONSUMMATION
Subject to the approval of the Required Lenders, the Applicants reserve
the right to revoke or withdraw the Plan at any time prior to the Confirmation
Date and to file subsequent plans of reorganization or arrangement. If the
Applicants revoke or withdraw the Plan, or if the Confirmation does not occur,
(i) the Plan shall be null and void in all respects, (ii) any settlement or
compromise embodied in the Plan (including the fixing or limiting to an amount
certain any Claim or Class of Claims), assumption or termination, repudiation
of executory contracts or leases effected by the Plan, and any document or
agreement executed pursuant to the Plan shall be deemed null and void, and
(iii) nothing contained in the Plan, and no acts taken in preparation for
consummation of the Plan, shall (a) constitute or be deemed to constitute a
waiver or release of any Claims by or against any Applicant or any other
Person; (b) prejudice in any manner the rights of any Applicant or any Person
in any further proceedings involving an Applicant; or (c) constitute an
admission of any sort by any Applicant or any other Person.
SECTION 3.17 GOVERNING LAW
This Plan shall be governed by and construed in accordance with the laws
of the Province of Ontario and the federal laws of Canada applicable therein.
Subject to the Protocol, any questions as to the interpretation or application
of this Plan and all proceedings taken in connection with this Plan and its
provisions shall be subject to the exclusive jurisdiction of the Court.
<PAGE> 229
- 36 -
SCHEDULE "A"
CANADIAN SUBSIDIARIES
2766906 Canada Inc. ServTech Canada, Inc.
721646 Alberta Ltd. ST Delta Canada, Inc.
Allwaste of Canada Ltd. Sablix Inc.
Caligo Reclamation Ltd. Philip Analytical Services Corporation
Philip Enterprises Inc./
Les Entreprises Philip Inc. Philip Environmental (Atlantic) Limited
1195613 Ontario Inc. Philip Environmental (Elmira) Inc.
1233793 Ontario Inc. Philip Environmental Services Limited
2842-7979 Quebec Inc. Delsan Demolition Limited
800151 Ontario Inc. Philip Investment Corp.
842578 Ontario Limited. Philip Plasma Metals Inc.
912613 Ontario Ltd. PSC/IML Acquisition Corp.
Nortru, Ltd. Recyclage d'Aluminium Quebec Inc./Quebec
Aluminium Recycling Inc.
Allies Staffing Ltd.
<PAGE> 230
- 1 -
SCHEDULE "B"
AFFECTED UNSECURED CLAIMS LIST
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
39 Anne Street South, Barrie, ON L4N
2C7, attention Brian D. Smith,
1066424 Ontario Ltd. President 573,000
- -------------------- --------------------------------------- ---------
Mr. Rod Hudson, 48 Moorehead Crescent,
1348040 Ontario Ltd. Brampton, ON L6Z 4K4 1,743,693
- -------------------- --------------------------------------- ---------
1100 Boulevard Cremazie est, bureau
805, Montreal, Quebec H2P 2X2,
2418711 Canada Inc. attention Mr. Paul Boyer 0
- ------------------- --------------------------------------- ---------
1100 Boulevard Cremazie est, bureau
805, Montreal, Quebec H2P 2X2,
2819635 Canada Inc. attention Mr. Paul Boyer 22,000
- ------------------- --------------------------------------- ---------
220 John St., Barrie, ON L4N 2L3,
759082 Ontario Inc. attention Mary Kitchener 38,000
- ------------------- --------------------------------------- ---------
c/o William R. Gilmour, Prouse, Dasht
& Crouch, 201-37 George Street West,
963767 Ontario Inc. Brampton, Ontario L6X 1R5 0
- ------------------- --------------------------------------- ---------
53 Challenger Cres., Scarborough,
Ablack, Krish Ontario, M1C 4Z4 74,000
- ------------- --------------------------------------- ---------
c/o William Black, McCarthy Tetrault,
Suite 4700, Toronto Dominion Bank
Agglo Venture Inc., Tower, Toronto Dominion Centre,
Agglo Inc. Toronto, Ontario, M5K 1E6 500,000
- ------------------- --------------------------------------- ---------
c/o David Wires of McCague, Wires,
Peacock, Borlack, McInnis & Lloyd,
Suite 2700, P.O. Box 136, The Exchange
Tower, 2 First Canadian Place,
Alexander Brown Inc. Toronto, Ontario, M5X 1C7 500,000
- -------------------- --------------------------------------- ---------
250 University Avenue, 2nd. Floor,
Toronto, ON M5H 3E5, attention Mr.
B.A.C.C. Capital Corporation Terry Jaszkowski, Regional Manager 2,324,747
- ---------------------------- --------------------------------------- ---------
2265 Roland Therrien Blvd., Longueil,
QC J4N 1C5, attention M. Corbeil
Bell Canada Inc. Corporate Purchasing 260,000
- ---------------- --------------------------------------- ---------
26 Rue du Coteau, Vaudreuil
Bernadin, Gilles Sur-le-Lac, Quebec, J7V 8P3 40,000
- ---------------- --------------------------------------- ---------
</TABLE>
<PAGE> 231
- 2 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
2023 Cheviot Cr.,
Burlington, Ontario, L7P
Boughton, Marvin 1N7 40,000
- ---------------- ---------------------------- ----------
199 Bay St., 6th Floor,
Commerce Court West,
Toronto, Ontario M5L 1A2,
Canadian Imperial Bank of Commerce attention Mr. Wim Faassen 22,058,824
- ---------------------------------- ---------------------------- ----------
CIBC Wood Gundy Capital, a
division of Canadian
Imperial Bank of Commerce,
BCE Place, 161 Bay Street,
6th. Floor, Toronto, ON,
M5J 2S8; Ontario Teachers'
Pension Plan Board, 5650
Yonge Street, North York,
ON, M2M 4H5, attention
Portfolio Manager, Special
Situations and Legal
Counsel, Investments;
1067892 Ontario Limited, 1
Toronto Street, Suite 806,
Toronto, ON, M5C 2V6,
attention Derrick Rolf;
and, C.D.P.Q. Venture
Canadian Imperial Bank of Capital Inc., 1981 McGill
Commerce/Ontario College, Montreal, QC, H3A
Teachers' Pension Plan Board/1067892 3C7, attention
Ontario Limited/C.D.P.Q. Venture Vice-President, National
Capital Inc. Corporate Investments 0
---------------------------- ----------
C/o Cassels Brock &
Blackwell, Barristers &
Solicitors, Scotia Plaza,
Suite 2100, Toronto, ON M5H
Chesterton Investments Limited & 3C2, attention Lorne S.
Morris Investments Limited Silver 1,004,000
- -------------------------------------- ---------------------------- ----------
157 Beechwood Avenue,
Willowdale, Ontario, M2L
Chodos, Peter 1J9 700,000
- ------------- ---------------------------- ----------
C/o Newcourt Credit Group
Inc., Newcourt Centre, 207
Queens Quay West, Suite
700, Toronto, ON, Canada,
M5J 1A7, attention Dan
CIBC Equipment Finance Limited Billard 75,000
- ------------------------------ ---------------------------- ----------
C/o Newcourt Credit Group
Inc., Newcourt Centre, 207
Queens Quay West, Suite
700, Toronto, ON, Canada,
M5J 1A7, attention Dan
CIBC Equipment Finance Limited Billard 621,726
- ------------------------------ ---------------------------- ----------
C/o Feigt Nawrocki & Baker
Company, Suite 3300, 130
Adelaide Street West,
Cinicorp Holdings Limited Toronto, Ontario M5H 3P5 312,000
- ------------------------- ---------------------------- ----------
</TABLE>
<PAGE> 232
- 3 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
C/o Conway Kleinman
Kornhauser & Gotlieb,
390 Bay Street, 5th.
Floor, Toronto, ON M5H
City of Toronto Economic Development 2Y2, attention Michael
Corporation A. Kleinman 1,494,000
- ------------------------------------------ ------------------------ ----------
c/o Mr. Shane M.
Watson, Barrister and
Solicitor, 760 Brant
Street, Suite 407B,
Clark, Brad Burlington, ON L7R 4B7 2,000
- ----------- ------------------------ ----------
PO Box 520, Alliston,
Close Quarters Inc. ON L9R 1V9 162,744
- ------------------- ------------------------ ----------
PO Box 520, Alliston,
Close Quarters Inc. / Tom Close ON L9R 1V9 745,313
- ------------------------------- ------------------------ ----------
Royal Bank Plaza, South
Tower, 200 Bay Street,
Suite 2200, Toronto, ON
Comdisco Canada Ltd. M5J 2J3 0
- -------------------- ------------------------ ----------
C/o Chaurette Levesque,
410 Saint-Nicholas,
Bureau 006, Montreal,
QC, H2Y 2P5, attention
Compagnie de Gestion, M.P.F. Inc. Alida Gualtieri 2,426,000
- --------------------------------- ------------------------ ----------
257 Lakeview Road, Bell
Coristine, Bruce River, Ontario N0R 1A0 366,176
- ---------------- ------------------------ ----------
257 Lakeview Road, Bell
Coristine, Bruce River, Ontario N0R 1A0 61,765
- ---------------- ------------------------ ----------
257 Lakeview Road, Bell
Coristine, Bruce River, Ontario N0R 1A0 745,313
- ---------------- ------------------------ ----------
257 Lakeview Road, Bell
Coristine, Bruce / Close Quarters Inc. River, Ontario N0R 1A0 229,102
- -------------------------------------- ------------------------ ----------
213 Chebucto Dr.,
Oakville, Ontario L6J
Crawford, Kevin 5R1 90,000
- --------------- ------------------------ ----------
c/o Corrent & Macri,
Barristers and
Solicitors, 110
Tecumseh Road East,
Windsor, ON N8X 2P8,
D'Allessandro, Gino attention John L. Rossi 0
- ------------------- ------------------------ ----------
c/o Koskie Minsky, 20
Queen Street West,
Suite 900, Box 52,
Toronto, Ontario M5H
3R5, attention Larry
Enterprises Delcapitale Limitee Banack 0
- ------------------------------- ------------------------ ----------
c/o Canadian Imperial
Bank of Commerce, 199
Bay St., 6th Floor,
Commerce Court West,
Toronto, Ontario M5L
1A2, attention Mr. Wim
FP Commodity Master Trust Faassen 24,849,240
- ------------------------- ------------------------ ----------
RR#1, 1087 Old Mohawk
Road, Ancaster,
Fracassi, Philip Ontario, L9G 3K9 76,000
- ---------------- ------------------------ ----------
</TABLE>
<PAGE> 233
- 4 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
c/o Findlay & McCarthy,
Barristers and Solicitors,
66 James Street North,
Hamilton, ON L8R 2K5,
Gallagher, John attention Mr. John Findlay 20,000
- --------------- ---------------------------- ---------
45 St. James Place,
Goldblatt, Marvin Hamilton, Ontario L8P 2N4 1,216,000
- ----------------- ---------------------------- ---------
c/o McCarthy Tetrault,
Barristers and Solicitors,
Suite 2000, One London
Place, 255 Queens Avenue,
Gore, Reginald J., Gore, Alma P., London, ON N6A 5R8,
Gore, Larry R., Sebele, Sandra P., and attention Ms. Alissa K.
Sebele, Terry C. Mitchell 1,280,000
- --------------------------------------- ---------------------------- ---------
c/o Weir & Foulds,
Barristers and Solicitors,
Exchange Tower, Suite 1600,
130 King Street West,
Toronto, ON M5X 1J5,
Green, John/Green, Lilla/Stasiuk, attention Mr. Gary M.
John/Dynamic Industrial Services Inc. Caplan 35,000
- --------------------------------------- ---------------------------- ---------
c/o Re-Tech Products
Limited, 582 Bowes Rd.,
Concord, Ontario L4K 1K2,
GUSO Ltd. attention Gary Grant 31,695
- --------- ---------------------------- ---------
605 James Street North,
Hamilton Harbour Commissioners Hamilton, Ontario L8L 1K1 825,000
- ------------------------------ ---------------------------- ---------
c/o Findlay & McCarthy,
Barristers and Solicitors,
66 James Street North,
Hamilton, ON L8R 2K5,
Hilson, Michael attention Mr. John Findlay 10,000
- --------------- ---------------------------- ---------
2005 Woodglen Crescent,
Gloucester, Ontario, K1J
Hoey, Graham 6G7 29,000
- ------------ ---------------------------- ---------
c/o Imperial Oil Limited,
237 Fourth Avenue, Station
"M", Calgary, Alberta, T2P
Imperial Oil Limited/McColl Frontenac 3M9, attention Mr. D. J.
Petroleum Inc. Saretzky, Contracts Manager 0
- --------------------------------------- ---------------------------- ---------
c/o Willoughby, MacLeod,
734 Arlington Park Place,
Kimco Steel Sales Limited Kingston, Ontario K7M 8H9 6,000
- ------------------------- ---------------------------- ---------
41 Terrace Drive, Dundas,
Kumer, Sheldon Ontario L9H 3X1 512,000
- -------------- ---------------------------- ---------
151 Yonge Street, Suite
1710 Toronto, Ontario M5C
2W7 Attention: Rick
Leasing Solutions (Canada) Inc. Morrison 0
- ------------------------------- ---------------------------- ---------
</TABLE>
<PAGE> 234
- 5 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
c/o of Elliot, Porter,
McFayden & McFayden, Kendall
Street. Point Edwards,
Ontario, N7V 4G6, attention
Lethbridge, Thomas George F. McFayden 29,000
- ------------------ ------------------------------ ---------
Lions Wrecking Ltd.; Lions Disposal
and Excavation; Lions Disposal C/o Polsinelli and DaRe, 3700
Excavation & Demolition Ltd.; Jose Steeles Ave. West, Suite 502,
Nunes; Honorina Nunes; Olivio Woodbridge, Ontario, L4L 8K8,
Ricardo; Maria Ricardo attention John DaRe 0
- ------------------------------------- ------------------------------ ---------
C/o Armstrong, Meakings,
Barristers, Solicitors,
Notaries, 111 Toronto Street,
Barrie, ON L4N 1V1, attention
Liquid Cargo Lines Limited Gordon V. Meakings Esq. 0
- -------------------------- ------------------------------ ---------
34 Davidson Blvd., Dundas,
McQuillan, Peter Ontario, L9H 6X9 31,000
- ---------------- ------------------------------ ---------
c/o SITQ Inc. / Division
Industrielle, 3300 Blvd. Cote
MD Realty Canada Inc. Vertu, Suite 400, Ville Saint
Abrim 11 Inc. & 132001 Canada Inc., Laurent, QC H4R 2B7,
Sitq Inc. attention Charles Bourgeois 62,000
- ------------------------------------ ------------------------------ ---------
MDS Inc. 100 International
Blvd., Etobicoke, ON M9W
6J6, attention Peter E.
Brent, Vice-President, Legal
Affairs and Corporate
MDS Environmental Services Limited Secretary 1,200,000
- ---------------------------------- ------------------------------ ---------
3310 South Service Road, PO
Box 906, Burlington, ON, L7R
3Y7, attention Kelly Peters,
MTC Leasing Inc. Collections Department 24,000
- ---------------- ------------------------------ ---------
Myrtle Eva Harrington; Harrington c/o Winchie, Lamont,
Acquisition Corporation; Nancy Paquette, 105 Main Street
Hamilton; Myrtle Eva Harrington as East, Suite 1001, Hamilton,
Trustee for the estate of Frederick ON L8N 1G6, attention Terry
John Harrington; Bruce Hamilton Winchie 250,000
- ------------------------------------- ------------------------------ ---------
Newcourt Centre, 207 Queens
Quay West, Suite 700,
Newcourt Credit Group Inc./Newcourt Toronto, ON, Canada, M5J 1A7,
Financial Ltd. attention Gunther Boenisch 746,000
- ------------------------------------- ------------------------------ ---------
8200 Dixie Road, Brampton, ON
Nortel Networks Corporation L6T 5P6 1,018,000
- --------------------------- ------------------------------ ---------
P.O. Box 5027, 4145 North
OE Leasing, a division of OE Service Road, #401,
Financial Services Inc. Burlington, Ontario, L7R 3Y8 1,320
- ------------------------------------- ------------------------------ ---------
</TABLE>
<PAGE> 235
- 6 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
-------- ------------------ ---------
<S> <C> <C>
c/o of Piersanti &
Company Royal Centre,
3300 Highway Number 7,
Suite #800, Vaughan,
Ontario, L4K 4M3,
attention David
Ontario Paving Inc.; Carmen Alfano D'Angela 0
- ---------------------------------- ------------------------ -----------
c/o Weir & Foulds,
Barristers and
Solicitors, Exchange
Tower, Suite 1600, 130
King Street West,
Toronto, ON M5X 1J5,
attention Mr. Barnet H.
Palango, Paul Kussner 0
- ------------- ------------------------ -----------
4480 Paletta Court,
Paletta International Corporation Burlington, ON L7L 5R2 2,035,000
- --------------------------------- ------------------------ -----------
c/o Bishop & McKenzie,
2500, 10104-103rd Ave.,
Edmonton, Alberta T5J
1V3, attention Robert
PDQ Mechanical A. Fariner 13,000
- -------------- ------------------------ -----------
1494 Powerline Rd.
West, RR#2 Lynden,
Perron, Victor Ontario, L0R 1T0 31,000
- -------------- ------------------------ -----------
65 Wembley Road,
Toronto, Ontario, M6C
Poplack, Bernard 2G1 121,000
- ---------------- ------------------------ -----------
c/o Boily Morency,
Advocates, 70
Dalhousie, bureau 230,
Quebec City, QC G1K
4B2, attention
Port of Quebec Authority Jean-Paul Boily 98,832
- ------------------------ ------------------------ -----------
20 King Street West,
9th. Floor, Toronto, ON
M5H 1C4, attention
Bernie A. A, LaCroix,
Vice-President,
Royal Bank of Canada Business Banking 3,676,471
- -------------------- ------------------------ -----------
Suite 1500, 151 Yonge
Street, Toronto,
Teperman and Sons Inc. Ontario, M5C 2W7 0
- ---------------------- ------------------------ -----------
22 Green Mountain Rd.
W., Stoney Creek,
Ontario L8J 2W4,
attention Susan
Utter, Christopher/ Buleychuk, Susan Buleychuk 0
- ------------------------------------ ------------------------ -----------
88 Highland Park Drive,
Dundas, Ontario L9H
Woodcroft, John 6G8 1,053,000
- --------------- ------------------------ -----------
430 Springbank Avenue
South, Woodstock, ON
N4V 1B2, attention Bill
Woodstock Sufferance Warehouse Ltd. Hamilton 271,487
- ----------------------------------- ------------------------ -----------
33 Bloor Street East,
Xerox Canada Ltd. Toronto, ON M4W 3H1 8,621
- ----------------- ------------------------ -----------
TOTAL $76,769,069
----- -----------
</TABLE>
<PAGE> 236
APPENDIX B
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
CORPORATE STRUCTURE OF PHILIP SERVICES CORP.,
PHILIP SERVICES (DELAWARE), INC. AND SUBSIDIARY DEBTORS
<PAGE> 237
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C> <C>
Philip Services Corp. Ontario
Luntz Corporation 81% Delaware 98-016592
Luntz Acquisition (Delaware) Corporation 100% Delaware 52-2062642
21st Century Environmental Management, Inc. 100% Delaware 05-0476857
21st Century Environmental Management, Inc. of Nevada 100% Nevada 88-0315217
21st Century Environmental Management, Inc. of Puerto Rico 100% Delaware 65-0577580
21st Century Environmental Management, Inc. of Rhode Island 100% Rhode Island 05-0475858
Chemical Pollution Control, Inc. of Florida 100% Florida 65-0475480
Chemical Pollution Control, Inc. of New York 100% New York 11-3202344
Northland Environmental, Inc. 100% Delaware 05-0436875
RESI Acquisition (Delaware) Corporation 100% Delaware 98-0171911
Chem-Freight, Inc. 100% Ohio 34-1659465
Republic Environmental Recycling (New Jersey), Inc. 100% New Jersey 22-2601518
Republic Environmental Systems (Pennsylvania), Inc. 100% Pennsylvania 23-2146567
Republic Environmental Systems (Technical Services Group), Inc. 100% New Jersey 22-2713662
Republic Environmental Systems (Transportation Group), Inc. 100% Pennsylvania 25-1509265
Philip Enterprises Inc./Les Entreprises Philip Inc. (Non-filing entity) 100% Ontario
</TABLE>
<PAGE> 238
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- -------- --------- ------------
<S> <C> <C> <C>
Philip Enterprises Inc./Les Enterprises Philip Inc. (Non-filing entity)
Luntz Corporation 19% Delaware 98-0165922
Philip Services (Delaware), Inc. 100% Delaware 96-0131394
Philip Industrial Services (USA), Inc. 100% Texas 98-0185025
Cousins Waste Control Corporation 100% Ohio 34-1852236
Nortru Inc. 100% Michigan 38-2387251
Allworth Inc. 100% Alabama 63-1059703
Chemical Reclamation Service, Inc. 100% Texas 75-1730470
</TABLE>
<PAGE> 239
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C> <C>
Philip Reclamation Services, Houston, Inc. 100% Texas 76-0284668
Southeast Environmental Services, Inc. 100% Texas 76-0493864
CyanoKEM, Inc. 100% Michigan 38-2263067
Rho-Chem Corporation 100% California 95-2139931
ThermalKEM, Inc. 100% Delaware 23-2246990
Philip Environmental (Idaho) 100% Delaware 37-1340690
Philip Environmental (Washington) Inc. 100% Washington 91-1677847
Burlington Environmental Inc. 100% Delaware 91-1420691
Burlington Environmental Inc. 100% Washington 91-0656173
Resource Recovery Corporation 100% Washington 91-1358675
Termco Corporation 100% Washington 91-0951797
Gasoline Tank Service Company Inc. 100% Washington 91-0724168
United Drain Oil Service Inc. 100% Washington 91-0898030
Philip Environmental Services Corporation 100% Missouri 37-1021508
Solvent Recovery Corporation 100% Missouri 43-1196595
Philip Industrial Services Group, Inc. 100% Delaware 72-2427167
ALRC, Inc. 100% Delaware 51-0369902
APLC, Inc. 100% Delaware 51-0370285
Allwaste Asbestos Abatement Holdings, Inc. 100% Delaware 76-0347893
Allwaste Asbestos Abatement, Inc. 100% Delaware 76-0240995
Allwaste Asbestos Abatement of New England, Inc. 100% Massachusetts 04-3072029
Oneida Asbestos Removal, Inc. 100% New York 16-1162689
Oneida Asbestos Abatement, Inc. 100% Delaware 16-1313624
Allwaste Tank Cleaning, Inc. 100% Georgia 58-1615191
Allwaste Railcar Cleaning, Inc. 100% Delaware 76-0294899
Allwaste Recovery Systems, Inc. 100% Georgia 76-0309456
Georgia Recovery Systems 7.5% Georgia 76-0309458
GRS/Lake Charles, Ltd. 50% Louisiana 76-0309459
Georgia Recovery Systems (a general partnership) 92.5% Georgia 76-0309458
GRS/Lake Charles, Ltd. (a limited partnership) 50% Louisiana 76-0309459
</TABLE>
<PAGE> 240
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C> <C>
Philip Industrial Services Group, Inc.
Philip Environmental Services, Inc. 100% Delaware 76-0241692
Ace/Allwaste Environmental Services of Indiana, Inc. 100% Illinois 36-2999642
AllScaff, Inc. 100% Tennessee 62-1354747
Allwaste Environmental Services/North Central, 100% Illinois 76-0520913
All Safety and Supply, Inc. 100% Texas 74-2517209
Allwaste Texquisition Inc. 100% Texas 76-0516301
Industrial Construction Services Co., Inc. 100% Alabama 63-0981654
James & Luther Services, Inc. 100% Delaware 74-2473241
Allwaste Services of El Paso, Inc. 100% Delaware 76-0311655
Jesco Industrial Service, Inc. 100% Kentucky 61-1090858
Philip Automotive, Ltd. 100% Pennsylvania 25-1420632
Deep Clean, Inc. 100% Michigan 38-3411761
Philip Services Hawaii, Ltd. 100% Hawaii 99-0218068
Philip Industrial Services of Texas Inc. 100% Texas 76-0123203
Philip Services/Louisiana, Inc. 100% Louisiana 76-0221047
Philip Mid-Atlantic, Inc. 100% Maryland 52-1070911
Philip Services/Missouri, Inc. 100% Delaware 76-0485735
Philip Services/Mobile, Inc. 100% Alabama 63-0910227
BCE/Philip Inc. 100% Alabama 63-0499474
Philip Services/North Atlantic, Inc. 100% Delaware 01-0469413
Philip Services/North Central, Inc. 100% Illinois 42-1167435
</TABLE>
<PAGE> 241
<TABLE>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C> <C>
Philip Environmental Services Inc.
Philip Services/Ohio, Inc. 100% Ohio 31-1388231
Philip Oil Recycling, Inc. 100% North Dakota 45-0408694
Philip Services/Oklahoma, Inc. 100% Oklahoma 76-0226995
Philip Plant Services, Inc. 100% Delaware 74-2678443
Philip Scaffold Corporation 100% Colorado 84-0685455
Philip Services/Atlanta, Inc. 100% Georgia 58-1215331
Philip Services/Southwest, Inc. 100% Arizona 86-0486938
Philip Services South Central, Inc. 100% Colorado 84-0806648
Philip West Industrial Services, Inc. 100% California 76-0234169
Philip Transportation and Remediation, Inc. 100% California 95-3484009
Philip/J.D. Meagher, Inc. 100% Massachusetts 04-2996197
Philip/Whiting, Inc. 100% Delaware 76-0474965
PSC Enterprises, Inc. 100% Delaware 76-0491466
Allies Staffing, Inc. 100% Delaware 76-0479977
Allquest Capital, Inc. 100% Delaware 76-0517516
Philip ST, Inc. 100% Texas 74-1396757
Philip Chemisolv Holdings, Inc. 100% Delaware 76-0380074
Philip Chemi-Solv, Inc. 100% Texas 76-0230090
DM Acquisition Corporation 100% Nevada 86-0291611
Industrial Services Technologies, Inc. 100% Colorado 84-1103940
</TABLE>
<PAGE> 242
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C> <C>
Industrial Services Technologies, Inc.
Advanced Environmental Systems, Inc. 100% Colorado 84-1059226
Advanced Energy Corporation 100% Colorado 76-0262307
IST Holding Corp. 100% Colorado 84-1216114
Chem-Fab, Inc. 100% Texas 74-1937645
Piping Holdings Corp. 100% Oklahoma 84-1144710
Piping Companies, Inc. 100% Oklahoma 73-0619652
Piping Mechanical Corp. 100% Colorado 33-0449964
Hydro-Engineering & Service, Inc. 100% Texas 74-1888655
Mac-Tech, Inc. 100% Texas 74-1396758
Philip Enterprise Service Corporation 100% North Carolina 56-1752650
Philip Mechanical Services of Louisiana, Inc. 100% Louisiana 72-1067641
Philip Refractory and Corrosion Corporation 100% Nevada 76-0350313
Hartney Corporation 100% Nevada 76-0109676
Philip Corrosion Services, Inc. 100% Nevada 76-0292240
Total Refractory Systems, Inc. 100% Nevada 76-0109675
United Industrial Materials, Inc. 100% Nevada 76-0317881
Philip Refractory Services, Inc. 100% Nevada 76-0283174
Philip ST Piping, Inc. 100% Texas 76-0317640
Philip Technical Services, Inc. 100% Texas 76-0427657
Philip/SECO Industries, Inc. 100% Louisiana 72-0628047
TIPCO Acquisition Corp. 100% Texas 76-0396382
PRS Holding, Inc. 100% Texas 76-0500096
Philip Petro Recovery Systems, Inc. 100% Texas 76-0362573
Serv-Tech EPC, Inc. 70% Nevada 72-1265495
Serv-Tech Engineers, Inc. 100% Louisiana 72-1212309
</TABLE>
<PAGE> 243
<TABLE>
<CAPTION>
COMPANY OWNERSHIP JURISDICTION
- ------- --------- ------------
<S> <C> <C>
Philip ST, Inc.
Serv-Tech International Sales, Inc. 100% U.S. Virgin Islands
Serv-Tech Construction and Maintenance, Inc. 100% Texas 76-0396055
Serv-Tech EPC, Inc. 30% Nevada 72-1265495
Serv-Tech EPC, Inc. 70% Nevada 72-1265495
Serv-Tech Engineers, Inc. 100% Louisiana 72-1212309
Serv-Tech of New Mexico, Inc. 100% New Mexico 96-0185027
Serv-Tech Services, Inc. 100% Texas 76-0092646
Terminal Technologies, Inc. 100% Texas 76-0362572
RMF Global, Inc. 100% Ohio 52-2026970
RMF Industrial Contracting, Inc. 100% Ohio 38-2736173
RMF Environmental, Inc. 100% Ohio 31-1262167
Philip Industrial Services (Delaware), Inc. 100% Delaware 52-2064372
Philip Metals Recovery (Delaware), Inc. 100% Delaware 52-2064371
Philip Metals (USA), Inc. 100% Ohio 98-0185026
D & L, Inc. (formerly D & L Holding, Inc.) 100% Pennsylvania 25-1538512
Intermetco US Inc. 100% Michigan 38-2120662
Butco Inc. 100% New York 06-1113143
Intermetco USA Ltd. 100% New York 16-1053968
Cappco Tubular Products USA, Inc. 100% Georgia 58-1647392
Philip Metals Recovery (USA) Inc. 100% Arizona 86-0795633
Philip Metals (New York), Inc. 100% New York 15-0433570
Philip Metals Inc. 100% Ohio 31-1574374
Philip Services (Pennsylvania), Inc. 100% Pennsylvania 98-0175247
</TABLE>
<PAGE> 244
<PAGE> 245
APPENDIX C
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIST OF CANADIAN DEBTORS
<PAGE> 246
APPENDIX C
CANADIAN DEBTORS
2766906 Canada Inc.
721646 Alberta Ltd.
Allwaste of Canada Ltd.
Caligo Reclamation Ltd.
Philip Enterprises Inc./Les Entreprises Philip Inc.
1195613 Ontario Inc.
1233793 Ontario Inc.
2842-7979 Quebec Inc.
800151 Ontario Inc.
842578 Ontario Limited
912612 Ontario Ltd.
Nortru, Ltd
Allies Staffing Ltd.
ServTech Canada, Inc.
ST Delta Canada, Inc.
Sablix Inc.
Philip Analytical Services Corporation
Philip Environmental (Atlantic) Limited
Philip Environmental (Elmira) Inc.
Philip Environmental Services Limited
Delsan Demolition Limited
Philip Investment Corp.
Philip Plasma Metals Inc.
PSC/IML Acquisition Corp.
Recyclage d'Aluminum Quebec Inc./Quebec Aluminum Recycling Inc.
<PAGE> 247
APPENDIX D-1
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
PHILIP SERVICES (DELAWARE) INC., ET AL.'S 10-K FOR YEAR ENDED DECEMBER 31, 1998
Due to the voluminous nature of this Appendix,
copies have not been included in this distribution.
You may obtain a copy, if you so desire, by written request to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Joseph E. Miller, III, Esq.
<PAGE> 248
APPENDIX D-2
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
PHILIP SERVICES (DELAWARE) INC., ET AL.'S 10-Q FOR QUARTER ENDED JUNE 30, 1999
Due to the voluminous nature of this Appendix,
copies have not been included in this distribution.
You may obtain a copy, if you so desire, by written request to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Joseph E. Miller, III, Esq.
<PAGE> 249
APPENDIX E
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIQUIDATION ANALYSIS
<PAGE> 250
APPENDIX E
CONSOLIDATED PSC HYPOTHETICAL LIQUIDATION ANALYSIS (NOTE 1)
(IN THOUSANDS OF US DOLLARS)
ESTIMATED AS AT OCTOBER 31, 1999
<TABLE>
<CAPTION>
PROJECTED NEW ESTIMATED
BOOK VALUE AS AT LIQUIDATION
NOTES OCTOBER 31, 1999 PROCEEDS
----- ---------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash 2 $ 67,707 $ 67,707
Accounts Receivable, net 3 284,298 87,825
Inventory 4 39,872 29,904
Other Current Assets 5 73,861 6,601
Landfill 6 14,508 12,500
Land, Buildings & Leaseholds, net 7 125,421 46,589
Equipment, net 8 204,088 73,015
Other Non-Current Assets 9 50,070 14,573
Other assets 10 - -
Other asset Recoveries:
o Investment in Phencorp Finance 11 - 5,000
o Investment in Phencorp Reinsurance 12 37,392 5,900
--------- ---------
$ 897,217 $ 349,614
=========
Less:
o Estimated Costs of Liquidation 13 (52,107)
o Estimated DIP Facility Claim 14 (20,000)
--------
Amount Available for Distribution 277,507
o Secured Lender Claims 15 (1,004,226)
o Restricted Cash Applied Against Debt: 16
Pre-Petition Proceeds Account 33,277
Excess Proceeds Account 5,777
o Secured letters of credit, net of cash collateral 17 (38,615)
---------
Shortfall to Secured Lender Claims $(726,280)
=========
Available to Unsecured Priority and Ordinary Creditor Claims $ -
=========
</TABLE>
THE ANALYSIS SHOULD BE READ ONLY IN CONJUNCTION WITH THE ASSUMPTIONS,
QUALIFICATIONS, AND EXPLANATIONS AS SET OUT IN THE ATTACHED NOTES AND THE
DISCUSSION UNDER ARTICLE "XI.C FEASIBILITY OF THE PLAN AND BEST INTERESTS OF
CREDITORS--BEST INTEREST TESTS" AND "XII. ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN".
1
<PAGE> 251
NOTE 1
The Liquidation Analysis reflects an estimate by Ernst and Young Inc.
with input from the management of PSC (the "Management") of the proceeds that
would be realized if the Debtors, the Canadian Debtors and the non-filing
Subsidiaries (collectively "Consolidated PSC") were to be liquidated in
accordance with the respective insolvency legislation in the jurisdiction
governing the individual Subsidiaries (e.g. Chapter 7 of the United States
Bankruptcy Code for United States Subsidiaries, the Canadian Bankruptcy and
Insolvency Act for Canadian Subsidiaries, etc.). The Liquidation Analysis is
based on the projected assets as at October 31, 1999. The Liquidation Analysis
assumes that all operations will cease effective October 31, 1999.
It is foreseeable that a trustee under a Chapter 7 filing in the United
States, under Canadian Bankruptcy and Insolvency Act or under comparable
bankruptcy legislation in other jurisdictions would identify certain operations
which may be able to continue as profitable operations during the filing and the
trustee may be able to obtain additional recovery under a going-concern sale.
Such operation would require operating financing without assurance as to
ultimate sales proceeds. As a result, realizations may be higher or lower than
those anticipated in the above Liquidation Analysis. However, given the level of
the secured debt outstanding, any additional potential recovery would only serve
to improve the position of the Secured Lenders and would not likely result in
any recovery to the unsecured creditors.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by Management,
are inherently subject to significant business, economic and competitive
uncertainties and contingencies beyond the control of Consolidated PSC and
Management, and upon assumptions with respect to a liquidation, decisions which
could be subject to change. Accordingly, there can be no assurance that the
values reflected in the Liquidation Analysis would be realized of Consolidated
PSC were, in fact, to undergo such a liquidation, nor can there be any assurance
that the Bankruptcy Court will accept such analysis or concur with such
assumptions in making its determinations under section 1129(a) of the Bankruptcy
Code. In addition, any liquidation ultimately undertaken necessarily would take
place under future circumstances that cannot presently be predicted with
certainty. Accordingly, although the analysis that follows is necessarily
presented with numerical specificity, if Consolidated PSC's estates were in fact
liquidated, the actual liquidation proceeds could vary from the amounts set
forth above. Such actual liquidation proceeds could be materially lower or
higher than the amounts set forth above, and no representation or warranty can
be or is being made with respect to the actual proceeds that would be generated
in liquidations of Consolidated PSC under Chapter 7 of the United States
Bankruptcy Code, under the Canadian Bankruptcy and Insolvency Act or under
comparable legislation in other jurisdictions. The liquidation valuations have
been prepared solely for purposes of estimating the proceeds available in a
Chapter 7, Canadian and/or other liquidation of Consolidated PSC's assets and do
not represent values that may be appropriate for any other purpose, including
the values applicable in the context of the Plan. Nothing contained in these
valuations is intended as or constitutes a concession or admission for any
purpose other than the presentation of a hypothetical liquidation analysis.
NOTE 2
Cash is based on the estimated book balances as at October 31, 1999,
plus an estimate for outstanding checks of $37.0 million which would be added to
the Cash book balance as at October 31, 1999, based on the Company's
disbursement patterns from January to May 1999 and assuming cheques remain
outstanding for an average of 7 days. The estimated book balance excludes any
estimate of restricted cash or cash which may be held in escrow by the Secured
Lenders or DIP Lender (refer to Note 16). No setoff against the DIP Facility
Claim has been calculated. These amounts may be subject to right of setoff and
combination of account in favor of the DIP lenders. In such case, the amount of
the DIP Facility Claim and the amount available for distribution would be
affected without impact on the net shortfall to the Secured Lender Claim. The
Liquidation Analysis assumes that operations during the liquidation period cease
and therefore no additional Cash will be available for distribution except for
net proceeds generated by liquidating non-Cash assets.
2
<PAGE> 252
NOTE 3
Accounts Receivable is based on receivables net of a provision for
doubtful accounts as all receivables for which allowances have previously been
established are assumed to be uncollectible. In addition, accounts which would
be subject to a trade creditor's right of setoff have been assumed to be
approximately 2% of net receivables and accounts receivable where collection may
be impaired as a result of the bonding companies collecting the receivables or
payments applicable to project completion costs have been estimated to be
approximately 2% of net receivables.
The recovery of receivables is based on Management's estimate of
receivables, given such factors as the aging of the receivables, the time and
effort necessary to make inquiries and the potential uncollectible accounts. The
estimated realization range is below book value as it is assumed that credit
quality will deteriorate once Consolidated PSC ceases to be a continuing entity.
It is assumed that off-set claims, warranty and similar claims will be advanced
in such circumstances.
NOTE 4
Inventory is projected to consist of unprocessed metal scrap. The
inventory is assumed to be liquidated for 75% of net book value, before
operating costs and liquidation consultant fees based on Management's estimate.
No reductions have been made for potential reclamation Claims and/or 30-day good
Claims which would otherwise reduce the recovery value.
NOTE 5
Other Current Assets consists of additional third party receivables,
work in process, miscellaneous parts and supplies not held for resale, and
prepaid expenses relating to insurance and professional fees. The October 31,
1999 forecast balances have been allocated to these categories based on
Consolidated PSC's historical information. Proceeds from prepaid expenses and
third party receivables have been assumed to be recoverable at 0% and 31% of the
estimated book value at October 31, 1999 respectively. Work in process and
parts/supplies have been assumed to be recoverable at 0% and 10% of the
estimated book value at October 31, 1999 respectively.
NOTE 6
Landfill includes the landfill site, capitalized costs relating to the
landfill and the cost of the operating licenses. For the purposes of the
liquidation value, it has been assumed that the operating licenses can be
transferred to a purchaser and the landfill site can be sold in a liquidation.
In consideration for the license transfer, it is assumed the purchaser will
assume the environmental liabilities associated with this site.
NOTE 7
Land, Buildings & Leaseholds are included at the estimated net book
value and may include improvements to properties which are under lease
agreements. All leaseholds at non-owned locations are assumed to have no
recovery value as the leases would be abandoned at the date of the liquidation.
No assessment of the potential value of leases which may have been below market
lease rates has been calculated or included in the liquidation value. The value
of the owned real estate has been based on recent appraisals and tax
assessments, to the extent they are available, Management's estimates of the
current real estate market conditions, the environmental condition of the
property and the estimated effect of liquidation of these properties in a
relatively short period of time.
NOTE 8
Equipment includes equipment that is under capital leases, furniture
and fixtures, heavy machinery (including cranes, scales, shredders and
containers), vehicles, office equipment and computers (including hardware and
software). Proceeds are estimated net of an estimate of the amount of secured
capital lease claims. The recovery value has been based on Management's estimate
for market conditions, the costs of
3
<PAGE> 253
removal and transportation of certain of the heavy equipment to the purchaser's
location, and the effect of liquidating the equipment in a relatively short
period of time.
NOTE 9
Other Non-Current Assets are forecast to include third-party
investments, intangibles, long term receivables from third parties and
miscellaneous long term assets. These have been valued based on estimated
recoveries provided by Management. Third-party investments have been valued
based on current market values, if available, expressions of interest and
Management's estimate of the investments' underlying asset values. Recoveries
for third-party investments are assumed to be $13.7 million. Recoveries for
intangibles are assumed to be zero. Recoveries for long term receivables are
assumed to be approximately $0.4 million. Recoveries for miscellaneous assets
are assumed to be approximately $0.5 million.
NOTE 10
Estimated recoveries for potential assets which are not reflected in
the forecast balance sheet have not been quantified but may include recoveries
from outstanding lawsuits, fidelity insurance coverage, potential pension
surpluses, proprietary technology and potential equity in operating leases. The
valuation and inclusion of these items would in no way effect the position of
the unsecured creditors and would only serve to increase the estimated recovery
by the Secured Lenders.
NOTE 11
Phencorp International Finance Inc. ("Phencorp"), a wholly-owned Irish
captive finance Subsidiary of Consolidated PSC, has loaned funds to certain of
PSC's Subsidiaries and its assets comprise intercompany long-term receivables
and Cash on hand. Phencorp has no material third party receivables. A
liquidation of all PSC's Subsidiaries would result in Phencorp's operations
being wound up and its intercompany receivables being written off thereby
generating tax losses. Management has estimated that approximately $5.0 million
could be recovered from the carryback of these losses.
NOTE 12
Phencorp Reinsurance Company Inc. ("Phencorp Reinsurance"), a
wholly-owned Barbados insurance Subsidiary of PSC has forecast October 31, 1999
net book value of assets of $37.4 million, the estimated gross recovery of which
is estimated at $39.5 million. In order to realize on this investment, Phencorp
Reinsurance would be wound up and all obligations satisfied. Based on
discussions with Management, the value of the potential insurance claims against
Phencorp Reinsurance are estimated at approximately $25.9 million, and the
estimated tax liability and other costs of windup have been estimated to be $7.7
million resulting in a net liquidation value of approximately $5.9 million.
NOTE 13
Estimated Costs of Liquidation. Professional Fees have been estimated
at 3% of the net realizations on the assets. Additional out-of-pocket expenses,
professional fees, operating and administrative overhead costs have been
included. The completion of the majority of asset realizations is assumed to
take approximately six months to complete and therefore substantial overhead
costs would continue to be incurred during the liquidation period. No potential
statutory lien claimants, reclamation claimants, employee termination and
related costs, or secured creditors (other than the Secured Lenders, as defined
in the Plan) have been included in this Liquidation Analysis. These costs would
only serve to reduce the net realization on the assets and in no way would
change the amount distributable to the holders of the Unsecured Claims.
NOTE 14
The DIP Facility Claim has been forecast to be $20.0 million at October
31, 1999 under the assumption that the Company will have fully utilized the DIP
Letter of Credit Facility. It is assumed at October 31, 1999 that the Company
will not have drawn on the remainder of the DIP Facility. The DIP Facility has a
first charge on the assets, in priority to the secured Lender claims.
4
<PAGE> 254
NOTE 15
Secured Lender Claim. The amount estimated for the debt
outstanding under the Pre-Petition Credit Agreement is based on the projected
balance at October 31, 1999 and has not been adjusted to reflect any right of
setoff. Interest on the Pre-Petition Credit Facility Debt has been accrued to
June 25, 1999. It is assumed that the Secured Lenders Claim is properly secured,
valid and enforceable over all the assets of Consolidated PSC.
NOTE 16
Restricted Cash represents an estimate of the remaining cash
held in escrow by the Secured Lenders or DIP Lender as a result of asset
divestiture proceeds. Approximately $33.3 million is estimated to be available
from the first $93.0 million of asset divestiture proceeds and approximately
$5.8 million is estimated to be available from the excess asset divestiture
proceeds. It is assumed that these funds will be offset against the Secured
Lender Claim.
NOTE 17
Secured and outstanding letters of credit have been estimated to be
$65.2 million (at face value) which are assumed to be called upon the conversion
of the case to a Chapter 7 in the United States and concurrent liquidation
proceedings in Canada and other jurisdictions. This amount has been reduced by
$26.6 million of cash collateral forecast to be held by the administrative agent
on behalf of the Secured Lenders.
5
<PAGE> 255
APPENDIX F
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
PROJECTED FINANCIAL INFORMATION
<PAGE> 256
APPENDIX F
PROJECTED FINANCIAL INFORMATION
A. INTRODUCTION
This projected financial information (the "Projections") was prepared to show
the estimated consolidated financial position, results of operations and cash
flows, and capitalization of Philip Services Corp. , the Debtors, the Canadian
Debtors and the non-filing Subsidiaries (collectively the "Company" or
"Consolidated PSC") following December 31, 1999, which is assumed to be the date
the Plan is implemented (the "Effective Date") and assume that the Canadian
Reorganization Plan is implemented. The Projections are based on the assumptions
discussed below and should be read together with the information in Article VII
of the Disclosure Statement entitled "Certain Factors to be Considered".
All capitalized terms not defined in this exhibit have the same meanings
ascribed to them in the Disclosure Statement to which this exhibit is attached.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
("AICPA"), THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") OR THE CANADIAN
INSTITUTE OF CHARTERED ACCOUNTANTS ("CICA") REGARDING PROJECTIONS OR FUTURE
ORIENTED FINANCIAL INFORMATION. FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN
AUDITED OR REVIEWED BY THE COMPANY'S INDEPENDENT AUDITORS. THE INDEPENDENT
AUDITORS OR THE FINANCIAL ADVISORS OF THE COMPANY HAVE NOT EXAMINED OR COMPILED
THE PROJECTIONS PRESENTED HEREIN AND, ACCORDINGLY, ASSUME NO RESPONSIBILITY FOR
THEM. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON
A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH ALTHOUGH DEVELOPED AND CONSIDERED
REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. CONSEQUENTLY,
THE PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
COMPANY, OR ANY OTHER PERSON, AS TO THE ACCURACY OF THE PROJECTIONS OR THAT THE
PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
PRESENTED IN THESE PROJECTIONS.
The Projections included herein are:
1. Projected Pro Forma Consolidated Balance Sheet, Statement of Earnings, and
Statement of Cash Flows of Consolidated PSC as at December 31, 1999 based
on an opening historical consolidated balance sheet as at June 30, 1999
adjusted for the effects of projected operating activity up to the
Effective Date (assumed to be December 31, 1999), and reflecting the
financial transactions necessary to implement the Plan including
adjustments necessary to reflect "fresh start" accounting as promulgated by
the AICPA Statement of Position 90-7 entitled "Financial Reporting By
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7").
2. Projected Consolidated Balance Sheets of Reorganized Consolidated PSC as at
December 31, 1999, December 31, 2000 and December 31, 2001.
3. Projected Consolidated Statements of Earnings of Reorganized Consolidated
PSC for the two fiscal years in the period ending December 31, 2001.
4. Projected Consolidated Statements of Cash Flows of Reorganized Consolidated
PSC for each of the two fiscal years in the period ending December 31,
2001.
<PAGE> 257
5. Projected Capitalization Table of Reorganized Consolidated PSC as at
December 31, 1999, December 31, 2000 and December 31, 2001.
The projections have been prepared on the basis of generally accepted accounting
principles of the United States, consistent with those currently utilized by the
Company in the preparation of its historical consolidated financial statements
except as noted in the accompanying assumptions. The Projections should be read
in conjunction with the significant assumptions, qualifications and notes set
forth below and with the audited consolidated financial statements for fiscal
year ended December 31, 1998 included in the 1998 Annual Form 10-K and June 30,
1999 Form 10-Q as filed with the Securities and Exchange Commission included in
Exhibit D of the Disclosure Statement.
The Projections present managements' estimate of the expected consolidated
financial position, results of operations, cash flows, and capitalization of
Reorganized Consolidated PSC. Accordingly, the Projections reflect managements'
judgement, as of the date of this Disclosure Statement, of expected future
operating and business conditions which are subject to change. All estimates and
assumptions shown within the Projections were developed by management. The
assumptions disclosed herein are those management believes are significant to
the Projections. There will be differences between projected and actual results
because events and circumstances frequently do not occur as expected.
The Projections assume implementation of the Plan on December 31, 1999 and
adjustments necessary to reflect "fresh start" accounting. The Projections are
based on a number of estimates and assumptions that, although developed and
considered reasonable by management, are inherently subject to significant
business, economic and competitive uncertainties and contingencies, some of
which are beyond the control of the Company and its management. Accordingly,
there can be no assurance the projected results will be realized and actual
results may vary materially from those projected. If actual results are lower
than those projected or if the assumptions used in formulating the Projections
are not realized, Reorganized Consolidated PSC's operating results and cash
flows, may be materially and adversely affected.
The Company does not, as a matter of course, publish its business plans and
strategies or projections of its anticipated financial position, results of
operations or cash flows. Accordingly, the Company does not intend, and
disclaims any obligation to, (a) furnish updated business plans or projections
to holders of Claims or Equity Interests, or (b) include such updated
information in any documents which may be required to be filed with the
Securities and Exchange Commission or applicable Canadian Securities Regulatory
Authorities. The Company does not intend to update or otherwise revise the
Projections to reflect circumstance existing since their preparation or to
reflect the occurrence of unanticipated events, even in the event that any or
all of the underlying assumptions are shown to be in error. Furthermore, the
Company does not intend to update or revise the Projections to reflect regular
quarterly and annual financial statements, and the accompanying discussion and
analysis. The Company's Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K will contain disclosure concerning the Company's actual financial
condition and results of operations.
Management does not intend to revise the Projections solely to reflect
circumstances arising after the date of this Disclosure Statement or to reflect
the occurrence of unanticipated events. Management assumes no responsibility to
advise recipients of the Projections about any subsequent changes.
While management believes the assumptions underlying the projected financial
information for the projection period, when considered on an overall basis, are
reasonable in light of current circumstances and expectations, no assurance can
be given that the projections will be realized. The Company urges the holders of
claims to consider carefully the underlying assumptions in reaching their
determination of whether to accept or reject the Plan.
A. PHILIP SERVICES CORP.'S BUSINESS
The Company is an integrated metals recovery and industrial services company,
which provides metals recovery and processing services, by-products recovery and
industrial outsourcing services to major industry sectors from
<PAGE> 258
over 260 locations across North American and Europe. The Company's primary base
of operations is in the United States.
The Company's business is organized into two operating divisions, the Metals
Services Group and the Industrial Services Group.
Metals Services Group ("MSG")
MSG's primary business operations are ferrous processing and industrial metals
services
The ferrous metals operations include the collection and processing of ferrous
scrap materials for shipment to steel mills and the provision of significant
brokerage services for scrap materials. The industrial metals services include
engineering and construction management, on-site services, by-product management
and coil processing and distribution services to steel mills. MSG primarily
services the steel, foundry and automotive industries.
During 1998, the Company decided to discontinue its Non-Ferrous and Copper
operations. The operations related to the recovery of copper and aluminum from
wire and cable scrap, the management of material recycling centers for
telecommunications industry customers, the processing of aluminum dross and the
production of aluminum deoxidizing agents and aluminum alloys from aluminum
scrap.
Industrial Services Group ("ISG")
ISG is an integrated provider of by-products recovery and industrial outsourcing
with a network of over 230 facilities. By-products recovery includes solvent
distillation, paint overspray recovery, organic and inorganic waste collection
processing and polyurethane recycling. Industrial outsourcing services includes
cleaning and maintenance, waste collection and transportation, container and
tank cleaning, turnaround and outage services, mechanical contracting,
refractory services, decommissioning and remediation, analytical services and
emergency response services.
The Company historically provided municipal water and wastewater management
services in Ontario and the United States through its investment in Philip
Management Utilities Corporation ("PUMC"), which was sold on May 18, 1999 and is
now treated as a discontinued operation.
C. GENERAL IMPROVEMENTS
Overall, the Projections assume that the Company' operations will return to the
profitability levels achieved in early 1998 and that these levels will be
achieved by the end of 2000 and sustained for 2001.
Key Improvements encompassed in these Projections include:
MSG
MSG will decrease its emphasis on owning metal and the classic buy, process,
sell operations. Instead MSG will focus its strategy on dedicating its
processing capabilities and its commercial and technical expertise to its client
base - the steel industry. The foundation of this strategy will be long term
service contracts as well as supply arrangements. Furthermore, this strategy
will mitigate competing with MSG's customers for metals units, and concentrate
MSG's efforts on helping customers lower cost and increase productivity. This
strategic shift will also result in a redistribution of our total costs, not
only reducing costs of goods sold, but diminishing inventories and working
capital requirements.
MSG's integration program will be realized by removing the divisional barriers
through the Company's reorganization. MSG will rationalize facilities and
overhead, share functions and transfer skills as required.
<PAGE> 259
Furthermore, MSG will begin to run its metals recycling and brokerage business
without the marked differentiation between US and Canada.
Rather than trying to create market differentiation by becoming bigger than its
competitors, MSG will establish its goals to become the best, through a customer
focused, technology based and service driven mentality.
ISG
Despite the financial difficulties the Company experienced during 1998 and 1999,
ISG was generally successful in retaining customers by managing key customer
relationships. However, in order to retain these customers, ISG was forced to be
aggressive in pricing to retain volume and counter competitive attacks.
Financial uncertainty also contributed to increased costs as suppliers required
additional security to do business with the Company. Both factors contributed to
reduced margin. The Projections for fiscal 2001 assume a margin improvement due
to reduced costs as a result of returning to normal operating conditions
encompassing stabilized relationships with suppliers and customers.
D. SIGNIFICANT ASSUMPTIONS FOR PROJECTIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999 AND FOR THE TWO FISCAL YEARS IN THE PERIOD ENDING
DECEMBER 31, 2001
1. Consolidation
These Projections include PSC and its subsidiaries on a consolidated basis.
2. Economic Assumptions
The overall economic assumption with respect to MSG assumes that the domestic
steel market improves from that experienced in 1998. For ISG, the general
assumption is that the general trend of industrial companies to outsource
non-core industrial services continues. Manufacturers are seeking to improve
competitiveness by focusing on their core business and by reducing costs in
non-core, non-revenue producing activities. Three key trends that have developed
as a result are: (i) increased outsourcing of non-core services, (ii) a
reduction by manufacturers in the number of vendors from which outsourced
services are purchased and (iii) maximizing resource recovery opportunities from
waste and by-product streams.
3. Sales Growth
The Projections are based upon a return to the historical levels achieved by the
Company in the first quarter of fiscal 1998 which was prior to the financial
difficulties which caused erosion of revenue in the second half of 1998.
4. Operating Expenses
Included in the six-month 1999 and the fiscal year 2000 Projections are
approximately $26.2 million and $5.5 million respectively of non-recurring
expenses related to the professional fees incurred in connection with the
restructuring of the Company, expenses related to Key Employee Retention
Program, and consulting fees related to Year 2000 compliance issues. These costs
are not included in the Projections for fiscal 2001.
5. Selling, Administrative and General Expenses ("SG&A")
The new management team is currently reviewing the level of expenses and will
likely institute a variety of programs to streamline the organization,
potentially exiting certain lines of business and divesting of certain assets.
The Company has not included any costs of such reorganization in the
Projections, as they are not determinable at this time, but has shown a
reduction in the level of expenses in Fiscal 2001 projections.
<PAGE> 260
6. Income Taxes
The projected provisions for income taxes have been calculated in accordance
with FASB Statement No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
For purposes of the Projections, the provision for income taxes assume the
Company will have consolidated 1999 net operating loss ("NOL") carryforward
remaining after the debt forgiveness. On a consolidated income basis, as a
combined result of forecast operating losses and utilization of NOLs, the
Company will not be taxable in the six months ended December 31, 1999 and each
of the years 2000 and 2001, other than for US state taxes of approximately $2.0
million annually.
The above should be read together with the information in Article X of the
Disclosure Statement entitled "Income Tax Consequences of the Plan".
7. Dividends
These Projections assume no dividends are paid during the period ending December
31, 2001.
8. Capital Expenditures
These Projections assume aggregate capital expenditures of $28.9 million in the
six months ended December 31, 1999, $69.9 million in fiscal 2000 and $74.2
million in fiscal 2001. These amounts are estimated to be sufficient to replace
and maintain the Company's existing equipment with minimal growth expectations.
9. Inventory and Accounts Payable
These Projections anticipate trade credit terms gradually improving by mid
fiscal 2000, which represent historical levels enjoyed by the Company prior to
experiencing financial difficulties.
Inventory levels are assumed to increase to normal carrying levels by the end of
2000.
10. Exit Financing
These Projections assume the Company has access to a working capital facility in
the aggregate amount of $100.0 million to repay the debtor in possession
financing in an aggregate amount of up to $100.0 million, fund letter of credit
requirements and potential working capital needs. It is assumed that sufficient
eligible accounts receivable will be available to support the borrowing base
necessary to fully draw the Exit Financing, if necessary.
11. Bonding Facilities
The Projections assume that ISG continues to have the support of its Bonding
Companies and that the available bonding facility will be sufficient for ISG to
operate its business in the normal course and enable ISG to achieve its
projected revenues.
12. Basis of Fiscal 2000 and Fiscal 2001 forecasts
The Projections for fiscal years 2000 and 2001 have been prepared taking into
account projected results for fiscal 1999. The fiscal 2000 and 2001 Projections
are based on assumptions with respect to market demand, cost reductions and
selling prices. The nature of the Company's operations result in a minimal
backlog, typically less than $100.0 million, with respect to known customers and
sales volume. In view of this fact the Projections for fiscal years 2000 and
2001 may materially change depending on prevailing business conditions.
<PAGE> 261
13. Divestiture of Assets
Sale of PUMC
The Projections exclude the Company's 68% investment in Philip Utilities
Management Corp. ("PUMC") which was sold in May 1999 for gross proceeds of $70.1
million and the assumption of PUMC's bank indebtedness. Pursuant to the terms of
the amended Lock-Up Agreement the Company repaid $70.0 million of existing
Syndicate debt and the amount of New Senior Secured Term Debt was reduced from
$300.0 million to $250.0 million.
Sale of Other Assets
The Company has identified other non-core assets which are to be sold. The
Projections assume that the Company will receive net proceeds of $1.3 million
during the six months ended December 31, 1999 and $1.9 million in fiscal 2000
and $0 in fiscal 2001.
14. Risks and Uncertainties inherent in the Projections
The Projections include significant assumptions, including, the ability of the
Company to retain existing customers and obtain new customers, obtain projected
profit margins on existing and future business, return to more normal levels of
ferrous trading volumes and pricing, realize potential sales value of certain
non-core assets and the realization of cost savings and other efficiencies.
Other factors that could affect the Company's future operating results and
financial condition include the assumption by the Company of an ongoing trend by
industrial companies to outsource non-core industrial services, increased price
competition and the entrance of new competitors, the ability to fully integrate
previously acquired businesses and upgrading existing financial and management
information systems.
The assumptions and estimates underlying the Projections are inherently
uncertain and are subject to a wide variety of significant business, industry,
economic and competitive risks and uncertainties that could cause actual results
to differ materially from those projected, including, among others, risks and
uncertainties relating to: (i) the ability of the Company to achieve substantial
improvements in the results of the operations of its major divisions; (ii) the
potentially adverse effects that the filing of the Chapter 11 and CCAA cases
could have on the Company's business relationships, including relationships with
customers, suppliers, employees, regulators and bonding companies; (iii) the
ability of the Company to effect the Plan in a timely manner and within the
timeline contemplated by the Plan; (iv) the expected enhancements of the
Companies' ability to attract and profitable exploit new business opportunities;
(v) the ability of the Company to generate sufficient funds from operations and
to gain access to sufficient working capital financing to meet its working
capital and capital expenditure needs (vi) the ability of the Company to retain
key employees and senior management at the corporate and divisional level both
during the insolvency proceedings and after consummation of the Plan; (vii)
industry business cycles and the effect of economic downturns in the automotive,
petrochemical and steel industries and (viii) the effect that a new Board of
Directors will have on the implementation of the overall strategy underlying the
Company's Projections. The new Board of Directors and the new CEO are currently
reviewing the overall level of expenses and may institute a cost savings
program. The Company has not included any costs of reorganization in the
Projections.
E. SIGNIFICANT ASSUMPTIONS FOR THE PROJECTED CONSOLIDATED BALANCE SHEET OF
PHILIP SERVICES CORP. AS OF DECEMBER 31, 1999
1. The Projected Consolidated Balance Sheet assumes the Plan is confirmed by
the Bankruptcy Courts in the United States and Canada and the terms of the
Plan are implemented on the Effective Date.
2. "Fresh start" accounting adjustments have been made to reflect the
estimated adjustments necessary to develop "fresh start" reporting in
accordance with SOP 90-7. "Fresh Start" reporting requires that the
reorganization value of the Company be allocated to the Company's assets in
conformity with APB Opinion 16 "Business Combinations", for transactions
reported on the basis of the purchase method. Any reorganization value less
than the amount allocable to specific tangible or identified tangible
assets is to be allocated back to its tangible
<PAGE> 262
assets on a pro rata basis after offsetting the intangible assets. For
purposes of the Projections, the reorganization value was assumed to be
$550 million. Based on an assumed total debt (including capital lease
obligations) of $407.4 million, the equity book value of the Company is
calculated to be approximately $142.6 million.
The foregoing assumptions and related calculations were made solely
for purposes of preparing the Projections. The reorganized Company
will be required to determine the amount by which its reorganization value
as of the Effective Date exceeds, or is less than, the fair value of its
assets as of the Effective Date. Such determination will be based upon the
fair values as of that time, which could be materially greater or lower
than the values assumed in the foregoing computations, and may be based on
a different methodology, including, with respect to the valuation of
Reorganized Consolidated PSC's reorganization value. In all events, such
valuation, as well as the determination of its actual liabilities, will be
made as of the Effective Date, and the changes between the amounts of any
or all of the foregoing items as assumed in the Projections and the actual
amounts thereof as of the Effective Date may be material.
3. No assumptions have been made to reflect the number of shares to be issued
pursuant to the Plan and no assumptions have been made to reflect any share
consolidation which may occur in order to implement the Plan. Therefore,
projected 'Earnings per Share' information has not been disclosed in the
Projections, contrary to SOP 90-7.
4. The significant "fresh start" accounting adjustments are summarized as
follows:
- Based on the Reorganization value of the Reorganized Consolidated
PSC, the book value of the assets would require a total write down
of $79.0 million. The Company anticipates recognizing $50.0 million
of this write down prior to the Plan confirmation date. The remaining
$29.0 million will be recognized on the Effective Date.
- The fair value of the identifiable assets in excess of the
reorganization value ("Negative goodwill") of $29.0 million is
allocated to reduce the fair values of certain non-current assets in
accordance with generally accepted accounting principles.
<PAGE> 263
CONSOLIDATED PSC
PROJECTED PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands of US dollars)
<TABLE>
<CAPTION>
Projected
------------------------------------------------------------------------------
As at December 31, 1999
------------------------------------------------------------------------------
Reorganization Adjustments
--------------------------------
Pre Confirmation Debt Post Confirmation
Balance Sheet Discharge Fresh Start Balance Sheet
------------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,359 $ (5,623)(a) $ -- $ 58,736
Accounts receivable, net 270,522 -- -- 270,522
Inventory for resale 40,914 -- -- 40,914
Other current assets 98,345 -- -- 98,345
----------- ----------- ----------- --------
Total Current Assets 474,140 (5,623) -- 468,517
Fixed assets 339,481 -- (17,037)(d) 322,444
Other assets 83,639 -- (12,000)(d) 71,639
----------- ----------- ----------- --------
Total Assets $ 897,260 $ (5,623) $ (29,037) $862,600
----------- ----------- ----------- --------
----------- ----------- ----------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities Not Subject to Compromise:
Current liabilities:
Accounts payable $ 68,941 $ -- $ -- $ 68,941
Accrued liabilities 112,294 -- -- 112,294
Current maturities of long-term debt 13,822 -- -- 13,822
----------- ----------- ----------- --------
Total Current Liabilities 195,057 -- -- 195,057
Long-term debt 7,241 380,343 (b) -- 387,584
Deferred income taxes 18,018 22,500 (b) -- 40,518
Other liabilities 96,858 -- -- 96,858
Liabilities subject to compromise 1,128,911 (1,128,911)(b) -- --
----------- ----------- ----------- --------
Total Liabilities 1,446,085 (726,068) -- 720,017
Shareholders' equity (deficit)
Common stock 1,351,482 142,583 (b) (1,351,482)(c) 142,583
Retained earnings, opening balance (1,737,556) -- 1,737,556 (c) --
Earnings (90,748) -- 90,748 (c) --
Retained earnings -- effects of the
Plan -- debt discharge and fresh
start adjustments -- 577,862 (b) (29,037)(d) --
Retained earnings: effects of the
Plan -- fresh start adjustments -- -- (548,825)(c) --
Cumulative foreign currency translation
adjustment (72,003) -- 72,003 (c) --
----------- ----------- ----------- --------
Total Shareholders' equity (deficit) (548,825) 720,445 (b) (29,037) 142,583
----------- ----------- ----------- --------
Total Liabilities and Shareholders'
equity (deficit) $ 897,260 $ (5,623) $ (29,037) $862,600
----------- ----------- ----------- --------
----------- ----------- ----------- --------
</TABLE>
The financial projections should be read only in conjunction with the
accompanying assumptions, qualifications, and Notes to Projected
Financial Statements
<PAGE> 264
PHILIP SERVICES CORP.
NOTES TO PROJECTED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Under the terms of the Plan, the New Senior Secured Term Debt will be
reduced by 75% of the Excess Proceeds Pool, which has been forecast to be
approximately $7.5 million as at the Effective Date, resulting in a
reduction of the New Senior Secured Term Debt of approximately $5.6
million.
(b) To record the conversion of liabilities subject to compromise, and Secured
Lender Claims into $250.0 million of New Senior Secured Term Debt, $100.0
million of New Secured PIK Debt, $48.0 million of New Unsecured PIK Notes
(which have been discounted at a rate of 12%), $18.0 million of New
Unsecured Convertible Notes (which have been discounted at a rate of 12%)
and $142.6 million of common stock. The conversion is expected to result in
a post-tax gain on debt discharge of $577.9 million.
(c) To record the elimination of pre-confirmation accumulated deficit,
cumulative foreign exchange adjustment and capital stock.
(d) To record the write-down of other non-current assets for the fair value in
excess of the Reorganization Value ("Negative Goodwill") in accordance with
SOP 90-7 in the amount of $29.0 million.
<PAGE> 265
APPENDIX G
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
VALUATION ANALYSIS
<PAGE> 266
EXHIBIT G
VALUATION ANALYSIS
September 9, 1999
PRIVATE AND CONFIDENTIAL
Mr. Phillip C. Widman,
Executive Vice-President and
Chief Financial Officer
Philip Services Corp.
100 King Street West,
P.O. Box 2440, LCD 1,
Hamilton, Ontario
L8N 4J6
Dear Sirs: Re: Valuation of Philip Services Corp. for Purposes of
Restructuring Filings
In connection with the filing of a plan of reorganization under Chapter 11 of
the Bankruptcy Code in the United States and under the Companies' Creditors
Arrangement Act in Canada, for purposes of restructuring secured debt, certain
unsecured debt and shareholders' equity, Philip Services Corp. ("Philip", "PSC"
or "the Company", where these references are to the parent corporation and all
its subsidiaries as a consolidated entity) retained Ernst & Young Corporate
Finance Inc. ("EYCF") to prepare an estimate of the post-confirmation, going
concern total enterprise value of Philip. For purposes of our initial value
analysis we made reference to financial data for the Company's first quarter of
1999 ending March 31 together with business plan and financial projection data
for its 1999 and 2000 fiscal years, with all monetary amounts stated in United
States currency and expressed in financial statements prepared in accordance
with United States generally accepted accounting principles.
Subsequent to that initial analysis, the Company undertook a process of review
and updating of its business plans and projections with consequent revisions to
the expected amounts, patterns and timing of revenue and earnings recoveries
(with earnings defined as Earnings Before Interest, Taxes, Depreciation and
Amortization or "EBITDA") that are expected to accrue as the business emerges
from the uncertainties inherent in the restructuring process. These plan
revisions resulted in reductions of near term expected results to reflected a
management assessment that it would take longer to return the operations to
previously achieved performance levels (as adjusted for actions to exit
operations considered to be unattractive to the Company going forward into a
restructured operating environment.) The business plan revisions involved
<PAGE> 267
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restatement of 1999 and 2000 expected results and the addition of data for the
year 2001. For purposes of our valuation analysis, we performed a general review
of the basis for these adjustments to the previously reviewed plans and
incorporated the relevant revisions into our estimates of the post-confirmation,
going concern total enterprise value of Philip.
The valuation analysis reported on herein has been undertaken under an
assumption that the proposed restructuring has been completed and confirmed in
both the Canadian and United States jurisdictions with effect on or about
December 31, 1999 such that assumed conditions at the latter date are the
reference point for the value estimation process. The valuation estimates
developed by EYCF have been prepared for the sole purpose of the reorganization
filings and certain related and ancillary uses in connection with the
restructuring process. The valuation has accordingly not been prepared in
contemplation of any other uses and EYCF does not accept any responsibility for
costs or losses resulting from unauthorized use of this estimated value range
outside its intended context of consideration.
We have developed our valuation estimates by reference to the concept of fair
market value which we consider to have a comparable substantive meaning in
Canada and the United States although the conventional method of expression is
somewhat different in the two countries. In that regard, in Canada the concept
is expressed as "the highest cash price that would prevail in an open and
unrestricted market between willing and informed parties acting at arm's length
where neither party is under any compulsion to transact" while in the United
States the general wording is "the amount at which the property would change
hands between a willing seller and a willing buyer when neither is under
compulsion and when both have reasonable knowledge of the relevant facts". The
focus of the value analysis is upon the total enterprise value of the business
defined as the aggregate long term capital employed in the operations without
regard to how it might be financed with debt and equity funds and as viewed from
a trading market perspective on corporate worth.
In order to estimate a range of enterprise values for Philip, EYCF undertook a
review of both Company information and externally sourced data bearing on the
objective of analysing economic value. Included in such information were: (1)
historical financial and operating data respecting the different segments of the
businesses in which Philip is engaged (generally described as the Metal Services
Group ("MSG") and the Industrial Services Group ("ISG"); (2) management prepared
prospective operating and financial data for the ongoing businesses over the
period 1999 to 2001, including revisions to the data as originally reviewed; (3)
management prepared information on miscellaneous assets and operations to the
extent they were considered relevant to the estimation of post-confirmation
total enterprise value; (4) publicly available information on comparable
companies and comparable transactions in other businesses where market data were
considered to be relevant to the estimation of the enterprise value of a
restructured Philip and including an updating review of such data in conjunction
with the
<PAGE> 268
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revisions to the business plan data as referred to above; (5) general economic
and industry data considered to provide a relevant background to the estimation
of post-confirmation total enterprise value for the Philip operations; (6) such
details of the restructuring plan as were considered relevant to the estimation
of total enterprise value; and (7) such other information and analyses as EYCF
considered necessary or appropriate to its analysis and estimate of the value
range. EYCF applied selected analytical procedures to interpret the information
assembled from the Company and elsewhere in the process of formulating the
judgements necessary to the objective of estimating a range of total enterprise
values for PSC.
In preparing its analysis and estimate of a range of values on this basis, EYCF
assumed and relied upon the presumed accuracy and completeness of all of the
financial and other information that was made available to it by the Company or
its representatives, as well as the data obtained from public sources. EYCF did
not undertake any independent verification of such information and assumes no
responsibility for performing any such verification. EYCF has assumed that the
financial projections provided to it have been prepared by management in good
faith and on a basis reflecting the best available judgements and estimates of
the management of the Company and its operating segments as to the prospective
future financial performance of the businesses and that both original forecasts
and the subsequent revisions thereto reflect management's best judgements at the
time the relevant plans were prepared. To the extent these assumptions prove
unwarranted in the event -- and in the nature of the case the process of
forecasting future results of operations for a complex business such as PSC is
virtually certain to involve some deviation from plans and projections --
adjustments of the valuation results of the EYCF review as described herein may
be indicated, and such adjustments may be material. In this regard, in
accordance with the terms of its engagement, EYCF is under no obligation to
revise the value estimates developed herein which are solely predicated on the
assumptions required for their development.
In addition to the foregoing considerations, EYCF relied upon the following
major assumptions in developing the range of indicated values for PSC:
* That the total enterprise value of PSC is appropriately
ascertained as the aggregate of enterprise value estimates for its major
MSG and ISG operating segments less a deduction for the burden of corporate
overheads on such values plus estimated net values for its holdings of
redundant assets and other interests that should be viewed as relevant to
the value of the post-confirmation corporate entity.
* That the post-confirmation total enterprise value of the Company
should be ascertained on a basis which excludes the value of any assets
planned to be disposed of prior to the December 31, 1999 reference date as
set out in the Company's plans where such values will not be available to
the ongoing post-confirmation PSC entity.
<PAGE> 269
- 4 -
* That management estimates of provisions required to deal with such
matters as environmental liability exposures and lawsuits in which the
Company has been named as a defendant, viewed on a going concern basis as
to timing of possible expenditures, represent appropriate provisions for
the contingencies involved and their relevance to the estimation of going
concern enterprise value; and that the Company has made adequate provisions
and arrangements to deal with potential year 2000 computer issues in its
own operations and that the latter will not be seriously disrupted by such
problems as may originate with the Company's suppliers, customers or other
parties with which it is involved.
* That the confirmation applications will be successful and the
operating businesses will emerge from the restructuring process with
sufficient financial capacity to undertake the actions required to pursue
management's plans for the future of the restructured entity.
* That there will be a general continuation of the present
management group at Philip under conditions where pursuit of the plan
underlying the restructuring proposal will be the focus of future
development of the businesses so long as market and operating circumstances
warrant such actions.
* That for purposes of valuing PSC on a post-confirmation basis when
viewed as a stand alone going concern business, no recognition of a
possible control premium is warranted; nor should possible synergistic
benefits that might be available from a combination of the business with a
comparable sized operator having similar business attributes and, for
example, available fixed overhead cost capacity, be assumed for valuation
purposes.
On the basis of these assumptions and the various analyses, reviews, discussions
and considerations considered necessary to the formulation of the requisite
valuation judgements, EYCF has estimated the aggregate enterprise value of
Philip on a post-confirmation going concern basis to fall in a range from $ 500
million to $ 600 million. (Particulars of the manner in which this range of
values was ascertained are set out in the attached Appendix A although the
analysis has primarily been focused upon estimating the aggregate rather than
the component value amounts.) This value range represents a notional or
hypothetical value based on the application of valuation techniques and factors
to operating and financial position data for the businesses of PSC under
assumptions considered appropriate to the estimation of post-confirmation going
concern enterprise value. As such, this valuation range does not purport to
represent valuation levels that might be reflected in public markets for debt
and equity securities that might be issued by the Company under various
prospective capital market and operating circumstances which the Company might
encounter. This range of values is considered by EYCF to be warranted for PSC at
the total enterprise value level on the basis of the information
<PAGE> 270
- 5 -
respecting the Company and the environment in which it will operate as provided
to or developed by EYCF in the course of the valuation review described herein.
The following is a brief summary of the financial and valuation analyses
performed by EYCF in order to arrive at its estimates of the enterprise value of
Philip as described above.
* To obtain a framework and context for considering values for the
various components of Philip, EYCF compared selected data and ratios on
publicly traded companies having some similarities to the operations of the
Philip business segments where generally relevant valuation factors were
either observable from market data or could be derived with reasonable
facility. In appropriate circumstances such data included calculations of
revenue, EBITDA, and EBIT ratios for consideration in relation to relevant
operating data for the Philip business segments. While data for the
companies selected for this purpose was employed in formulating judgements
respecting the Philip businesses, none of the companies selected was
entirely comparable to the Company's business segments. As a result, direct
inferences from the observed valuation factors on the comparable companies
to the value of the Philip operating segments was not possible and various
analyses and judgements with respect to the complex of factors involved had
to be made in order to relate the public company data to the total
enterprise valuation of the Philip operations.
* Some consideration of valuation factors indicated by acquisition
transactions in shares of companies with operations having some similarity
to those of the Philip businesses was also undertaken. However, because of
changes in underlying market conditions and other factors, strong
comparisons with the PSC operations were not judged to be reflected in
these transactions so that only broad indications of the likely zone of
total enterprise valuation factors could be derived from these data.
* To develop valuation information based on the future business
plans and related projected cash flows of the Philip businesses, EYCF
estimated ranges of enterprise values for the different business segments
in relation to their estimated unlevered cash flows together with total
enterprise terminal values quantified on a capitalized perpetual return
basis. The discounted cash flow values indicated by these analyses resulted
from the application of discount rates developed to reflect estimates of
the cost of capital that would apply to the various business units at the
enterprise value level, under conditions where they were operating as
segments of the overall Philip business and on a going concern,
post-confirmation basis. While these calculations necessarily involved the
use of formulas to convert valuation factor and cash flow data into value
estimates, the inputs to such calculations were developed through a process
of judgement and not simply as a matter of applying observed data to the
subject company context.
<PAGE> 271
- 6 -
* EYCF applied a number of procedures to assess the sensitivity of
the valuation results to key factors involved in the estimation process to
assist with the process of formulating an overall valuation judgement as to
the range within which the estimated total enterprise value of Philip
should be judged to lie.
* In addition to the going concern valuation estimates for the
operating segments of Philip as developed on the basis described above,
EYCF also estimated values for a number of relatively minor ancillary
operations and asset positions of the overall Philip corporate undertaking
and assigned values to the net corporate level operating costs associated
with the Company's consolidated operating structure as a deduction from the
operations and asset values as otherwise determined.
The foregoing summary does not purport to be a full description of the
procedures and analyses that EYCF performed in order to develop the estimated
valuation range set out above. Philip is a complex business and development of
valuation estimates in relation to its various segments necessarily involved a
myriad of judgements, estimates and interpretations leading to an overall result
and the processes involved are not amenable to detailed description or
summarization. In addition, strong and clearly relevant comparisons of the
Philip operations to similar businesses could not be established on the basis of
available information, in part because of the unique attributes of the Company's
operations and in part because conditions in markets for certain of its segments
were generally in an unstable state over some part of the period of the review
with the result that unrepresentative financial performance was generally
pervasive in the industry. A general result of these conditions was that
necessary valuation judgements had to be based on a combination of currently
observable data informed by more general principles and considerations bearing
on the valuation of industrial business operations. EYCF gave various weights to
the variety of factors considered in performing its valuation analyses but does
not consider that any one factor or analysis should be viewed as determinative
of the results obtained as all such considerations interact in the development
of necessary valuation judgements.
Yours sincerely,
/s/ Ernst & Young Corporate Finance. Inc.
Ernst & Young Corporate Finance Inc.
rws:jw:cm:rm:am
<PAGE> 272
- 7 -
Appendix A
Philip Services Corp.
Summary of Estimated
Going Concern Total Enterprise Value
On a Post-Restructuring Basis As Of
December 31, 1999
<TABLE>
<CAPTION>
($US Millions) Low High
------------- --- ----
<S> <C> <C>
Metals Services Group $ 200 $ 235
Industrial Services Group 390 455
Other assets 30 35
Less Capitalized Corporate Overheads (120) (130)
----- -----
Total $ 500 $ 595
----- -----
Rounded $ 500 $ 600
===== =====
</TABLE>
<PAGE> 273
APPENDIX H-1
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIST OF IMPAIRED UNSECURED CLAIMS
<PAGE> 274
APPENDIX H-1
LIST OF IMPAIRED UNSECURED CLAIMS
Comparison of Scheduled vs. Claimed Amount
Claims as of September 9, 1999
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C>
1. 62 Land, Inc. 0 (1) Continental office building parking lot
lease (Canton, Ohio) rejected pursuant
to Global Rejection Motion. 62 Land,
Inc. is controlled by the Luntz family.
2. Aalborg Keystone, Inc. 0 325,510.47* Litigation against F.C. Schaffer primar-
ily and against Philip Services Corp. as
alter ego. Relates to Ethiopian services
contract.
3. ABN Amro Bank 0 Contingent liability under guarantee of
letter of credit which expired on June 8,
1999.
4. Advanta Business Services Corp. 26,808 ** Equipment lease #50-334807-166 for
photocopier.
5. Allen, Leslie 0 ** Litigation - Claim by Southdown against
Allen for breach of representation relat
ing to Allworth facility. Allen has filed a
thrid party claim against Allworth, Inc.,
the owner and operator of the facility,
and Nortru, Inc., parent company of All
worth, Inc.
6. Allwaste Debentures 27,500,000 28,233,047.46 Claim based on Allwaste debentures,
interest and attorneys' fees. Original
amount calculated at June 1, 1999. New
amount as of June 24, 1999 comes to
over $27,626,000.
7. AMBAC International Corporation 0 ** Litigation for breach of contract.
8. Arroyo, Krystela Yasmeen, et al. 0 ** Claim by residents of Pharr, Texas relat
ing to alleged damages for spill of haz
ardous waste materials.
9. Bader, Alfred 126,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis
counted present value of remaining pay
ments under Roth Brothers retirement
plan.
</TABLE>
- --------
1 This debt arises out of an executory lease obligation and is therefore
subject to change.
* Claims filed as unliquidated are subject to later adjustment as they become
liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
1
<PAGE> 275
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
10. Barnes, Donald 25,000 50,000.00 Litigation for wrongful termination.
11. Big "R" Towing 25,000 Litigation based on claimed breach
of contract for termination
without notice.
12. Bloomberg, L.P. 25,000 Information services and related equip
ment contract. Equipment was returned
and final invoice delivered prepetition.
13. Blue Box of Building and Construc- 12,000 ** Claim for amount owed for advertising
tion
14. Bramblatt, Jennifer 25,000 Sexual harassment litigation.
15. Bryan, J.J. 139,000 139,000.00 Remaining amounts owed under
amended and restated settlement agree-
ment pertaining to acquisition note.
16. BTM Capital Corporation 1,497,000 1,364,648.00* Master equipment lease included in
Global Rejection Motion.
17. Buck, Sam 42,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
18. C&S Associates, VIII 64,000 ** Real property lease at 495 Commerce
Drive, Suite 700, Amherst, NY.
19. Cadence Environmental Energy, Inc. 180,000 ** Fuel supply contract expiring April 30,
2000.
20. Caven Point Realty, Inc. 0 300,000.00* Damages alleged for repairs under real
property lease rejected pursuant to
Global Rejection Motion, plus additional
unliquidated amounts relating to poten-
tial environmental liabilities.
21. Chazen, Gary 503,000 503,000.00(2)* Remaining amounts owed under employ-
ment agreement rejected pursuant to
Global Rejection Motion.
</TABLE>
- --------
2 Gary and Bob Chazen, Michael Mallen, Dale Hixson and Jeff Straton each
submitted proofs of claim agreeing with the scheduled amount, but also
filed additional proofs of claim for administrative priority claims
in the amount of $4,300 each as employee wages/benefits earned within
90 days of the petition date. The attorney for these creditors sent the
Claims Agent a letter explaining that they did not disagree with the
amounts scheduled, but believed a portion was owed as an administrative
expense. The administrative expense amounts are not included in this list
as the amounts would not be part of Class 7 under the Plan.
* Claims filed as unliquidated are subject to later adjustment as they become
liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
2
<PAGE> 276
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
22. Chazen, Bob 201,000 201,000.004 * Remaining amounts owed under employ-
ment agreement rejected pursuant to
Global Rejection Motion.
23. Chiste, Robert 771,000 4,683,003.00(3) Present value of future obligations owed
under supplemental retirement plan.
Employment Agreement rejected pursu-
ant to Global Rejection Motion.
24. Chiste, Robert 435,000 Remaining amounts owed under sever-
ance plan. Settlement agreement re-
jected pursuant to Global Rejection Mo-
tion.
25. Comdisco, Inc. 0 ** Technology services agreement dated
June 17, 1998.
26. Commercial Portfolio Management 21,000 Real property lease rejected pursuant to
Corporation Global Rejection Motion
27. Credit Suisse First Boston Corpora- 0 ** Engagement letter dated June 19, 1998
tion
28. DA Consulting Group Inc. 50,000 ** Supplier of MIS consulting services to
ISG under engagement letter/projects
(Project JDE4 and JDE5).
29. Daerr, Richard 250,000 1,200,000.00(4)* Pending arbitration claim arising from
alleged breach of employment agreement
rejected pursuant to Global Rejection
Motion.
30. Dalton G., Karen A., Glen E., 25,000 Litigation relating to superfund site.
Nancy, Kirby., and Barbara Jane
Rinehart et al.
31. Driver, James 140,000 142,163.29(5) Balance due on promissory note.
32. Electric Systems, Inc. 250,000 Remaining amounts owed under cancel-
led purchase agreement rejected pursuant
to Global Rejection Motion, after deducting
estimated resale value of motor.
</TABLE>
- --------
3 A single proof of claim was filed by Robert Chiste, which includes $435,000
for as an undisputed amount. The remainder relates to supplemental
employee retirement plan and additional amounts.
4 The majority of this claim, $906,271.24, relates to stock options.
5 alleges claim is secured.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
3
<PAGE> 277
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
33. Emtech 9,000 9,000.00(6) Preference litigation in Emtech's chapter
11 proceedings.
34. Envetech Inc. 25,000 25,000.00 Litigation pertaining to trade secret in
fringement, breach of contract, unfair
competition, interference of economic
advantage.
5,000,000.00
35. F.C. Schaffer, Geralyn Graphia, 0 ** Claim for unpaid commissions, pursuant
Marian Schaffer-Whitaker, Jose de to employment agreements.
Spinoso, Marlan J. Mitch, Robert
Miller, and Harold Birkett
36. F.C. Schaffer, Geralyn Graphia, 0 ** Claim for unpaid vacation pay.
Marian Schaffer-Whitaker, Jose de
Spinoso, Marlan J. Mitch, Robert
Miller, and Harold Birkett
37. Fanta, David 109,000 169,794.75 Present value of future obligations owed
under supplemental retirement plan.
38. FC Schaffer Shareholders 0 ** Balance of purchase price due under pur-
chase and sale agreement.
39. Ferreira, Fred 151,000 Remaining amounts owed under sever-
ance plan. Settlement Agreement re-
jected pursuant to Global Rejection Mo-
tion.
40. Fifth Third Leasing Company 250,000 Fuchs 380 scraper equipment lease re-
jected pursuant to Global Rejection Mo-
tion.
41. Fillmore Partnership 222,000 Real property lease rejected pursuant to
Global Rejection Motion
42. Fleet Business Credit Corporation 1,139,000 94,915.60* Equipment lease pertaining to Brook
Park shredder rejected pursuant to
Global Rejection Motion.
43. Foster, Norman 1,400,000 1,487,724.56* Noncompetition and employment agree
ments rejected pursuant to Global Rejec-
tion Motion.
44. Franklin Iron and Metal Recycling, 25,000 25,000.00 Litigation pursuant to sale of crane.
Inc.
</TABLE>
- --------
6 Two additional proofs of claim filed by Emtech are superseded by this
claim, as noted on the claim by the attorney for Emtech's chapter 11
trustee.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
4
<PAGE> 278
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
45. Ginsky, Victor 437,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
46. Gooden, Howard P. 97,750 ** Real Property Lease - 2525 McAllister,
Houston, TX.
47. Group Dekko International, Inc. 0 0.00(7)* Estimated remaining obligations under
remediation agreement pursuant to
Global Rejection Motion.
48. Group Dekko International, Inc. 397,000 Real property lease rejected pursuant to
Global Rejection Motion
49. Hanson, Stefani 30,000 Litigation for wrongful discharge.
50. Harbison-Walker Refractories Com- 1,000,000 5,015,810.00 Breach of agreement to fund joint ven-
pany (Newminco Joint Venture) ture.
51. Hernandez, Elias 25,000 25,000.00(8) Employment discrimination litigation.
52. Hixson, Dale 353,000 353,000.00(9)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
53. Horlacher, Dale 300,000 335,747.21 Employment agreement rejected pursu-
ant to Global Rejection Motion.
54. IBS Incorporated 0 ** Claim for alleged amounts due to former
trade creditor.
55. Industrial Finishing Service, Inc. 230,000 Judgment for damages, interest and fees
in breach of contract litigation.
56. Ivey, Cecil 562,000 562,000.00 Remaining amounts owed under
amended and restated settlement agree-
ment pertaining to acquisition note.
57. Jay Alix and Associates 0 ** Engagement letter dated October 13,
1998
</TABLE>
- --------
7 Proof of claim states amount as "unknown," but is included as zero for
calculation purposes.
8 The Attorney for Elias Hernandez sent a letter accepting the $25,000 offer.
9 Gary and Bob Chazen, Michael Mallen, Dale Hixson and Jeff Straton each
submitted proofs of claim agreeing with the scheduled amount, but also
filed additional proofs of claim for administrative priority claims in
the amount of $4,300 each as employee wages/benefits earned within 90 days
of the petition date. The attorney for these creditors sent the Claims
Agent a letter explaining that they did not disagree with the amounts
scheduled, but believed a portion was owed as an administrative expense.
The administrative expense amounts are not included in this list as the
amounts would not be part of Class 7 under the Plan.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
5
<PAGE> 279
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
58. John Adams Transportation 150,000 150,000.00 Litigation arising from sale of real prop-
erty.
59. Jones, Dean 25,000 Wrongful discharge litigation.
60. Kilntech Environmental Services 500,000 20,000,000.00(10) Patent infringement litigation.
Inc; Rick W.
61. Kleingueti, Edward 20,000 20,000.00 Employment agreement rejected pursu-
ant to Global Rejection Motion.
62. Lee, Dwayne 0 Tort litigation claim.
63. Lentz, Allen D., as successor trustee 0 78,202.96(11)** Claim for payment of loan balance under
of the August 31, 1990 Liff Irrevoca- insurance policy on the lives of Noah
ble Life Insurance Trust and Judith Liff
64. Liberty Mutual Insurance Com- 316,000 Retro-premium adjustment.
pany/Liberty Mutual Fire Insurance
65. Liff, Noah; Liff, Adam; Liff, Daniel; 0 * Employment related claims.
Liff, Jan; Liff, Terence D.; Liff,
Zachary; Wilson, Robert H.;
Gellman, Herman; Gellman, Robert;
Shapiro, Daniel; Bierman, Leonard;
Baisley, Albert; Baisley, Elizabeth
66. Ludwig Bauch; TMT Industries 0 Patent infringement litigation.
67. Luntz, Greg 0 728,416.92(12)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
68. Luntz, Michelle 0 317,624.70(13)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
69. Luntz, Greg (Shareholders' Repre- 0 Promissory note re: acquisition of Luntz
sentative) Corporation.
</TABLE>
- --------
10 This entity was granted an extension until August 27, 1999 to file its
proof of claim.
11 To avoid double counting, claims added to Exhibit B after July 22,
1999 but for which claims were filed are included in the claimed amount in
the of this Appendix (rather than in the scheduled amount in Appendix H-3).
Although not on Amended Exhibit B, Allen Lentz filed two unliquidated
proofs of , one in the amount of $78,202.96 and one in the amount of zero.
12 This proof of claim indicates that $4,300 of the claimed amount should
be treated as a priority claim. In addition, Greg Luntz filed a duplicate
claim a lesser time period against the Luntz Corporation in the amount of
$372,280.28.
13 This proof of claim indicates that $4,300 of the claimed amount
should be treated as a priority claim. In addition, Michelle Luntz filed a
duplicate claim for a lesser time period against the Luntz Corporation in
the amount of $170,019.15.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
6
<PAGE> 280
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
70. Luntz, Drew (Andrew) 0 758,389.92(14)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
71. Mains Sr., Gilbert 150,000 155,000.00 Consulting agreement rejected pursuant
to Global Rejection Motion.
72. Mains Jr., Gilbert 600,000 200,000.00 Noncompetition agreement rejected pur-
suant to Global Rejection Motion.
73. Mallen, Michael 353,000 353,000.00(15)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
74. McCombs, Ernest 500,000 500,000.00(16) Antitrust litigation.
75. MDS Reading, Inc. 544,000 544,000.00 Remaining amounts owed under promis-
sory note.
76. Meier, Frank 100,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
77. Meltzer, Morton 254,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
78. Mertz, Forrest 18,000 37,500.00 Real property lease rejected pursuant to
Global Rejection Motion.
79. Metals USA, Inc. 0 ** Indemnification and contribution under
Stock Purchase Agreement dated June
24, 1998.
80. Nelson, Pamela 25,000 150,000.00 Sexual harassment litigation.
81. Nelson, Raymond 1,498,000 Present value of future obligations owed
under supplemental retirement plan.
</TABLE>
- --------
14 This proof of claim indicates that $4,300 of the claimed amount
should be treated as a priority claim. In addition, Andrew Luntz filed a
duplicate claim for a lesser time period against the Luntz Corporation in
the of $387,028.21.
15 Gary and Bob Chazen, Michael Mallen, Dale Hixson and Jeff Straton each
submitted proofs of claim agreeing with the scheduled amount, but also
filed proofs of claim for administrative priority claims in the amount of
$4,300 each as employee wages/benefits earned within 90 days of the
petition. The attorney for these creditors sent the Claims Agent a letter
explaining they did not disagree with the amounts scheduled, but believed
a portion owed as an administrative expense. The administrative expense
amounts are included in this list as the amounts would not be part of
Class 7 under the Plan.
16 The attorney for McCombs sent a letter electing not to file proof of
claim but instead to accept scheduled amount.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
7
<PAGE> 281
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
82. Nicholson, Mrs. 42,000 Based on actuarial calculation performed
by Benefit Plans Administrators of
discounted present value of
remaining pay ments under Roth Brothers
retirement plan.
83. P.A. Pipe, Inc. 0 ** Indemnification and contribution under Asset
Purchase Agreementd ated May 21, 1998.
84. Pardo, Felix 984,000 1,015,000.00 Employment agreement rejected pursu-
ant to Global Rejection Motion.
85. Pitney Bowes Credit Corp. 8,000 Agreed rejection damages claim amount
owed under equipment lease rejected
pursuant to Global Rejection Motion.
86. Plasma Processing Corpora- 2,417,000 2,417,000.00 Amount due under promissory note in
tion/Chem First Inc. litigation.
87. PNC Leasing Corp. 1,050,000 Equipment lease rejected pursuant to
Global Rejection Motion.
88. Powell, Randell F. 30,000 300,000.00 ADA litigation.
89. Ramirez, Michael 4,000 19,588.00(17) Present value of future obligations owed
under supplemental retirement plan.
90. Randazzo, Thomas 63,000 Employment agreement rejected pursu-
ant to Global Rejection Motion.
91. Recra Environmental, Inc. 200,000 200,000.00(18) Litigation for breach of contract con-
cerning conveyance agreement.
92. Reliable Uniform Services Inc. 0 Uniform service contract rejected pursu-
ant to Global Rejection Motion.
93. Renton Office V Realty, Inc. 362,000 Real property lease rejected pursuant to
Global Rejection Motion.
94. Republic Environmental Systems 7,650,000 $7,970,957.40(19)** Republic promissory note
(Brantford) Ltd.
</TABLE>
- --------
17 Michael Ramirez did not indicate an amount on his proof of claim, but
attached a supporting breakout of his claim in the amount of $19,588.00.
18 Recra filed identical claims for $200,000 each against Philip Services
Corp., Philip Services (Delaware), Inc. and Philip Environmental
Services Corp.
19 To avoid double counting, claims added to Exhibit B after July 22, 1999
but for which claims were filed are included in the claimed amount in the
total this Appendix (rather than in the scheduled amount in Appendix H-3).
Although on Amended Exhibit B, Republic Environmental Systems (Brantford)
Ltd. filed proof of claim in the amount of $7,970,957.40.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
8
<PAGE> 282
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
95. Republic Environmental Systems 4,533,000 4,548,980.37 Amount due under promissory notes in
Inc. litigation
96. Rief, James 648,000 1,698,208.00 Present value of future obligations owed
under supplemental retirement plan.
97. Roth, Eli 148,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
98. Roth, Larry 100,000 Balance due under consulting agreement
rejected pursuant to Global Rejection
Motion.
99. Rothschild, Sidney 130,000 Based on actuarial calculation performed
by Benefit Plans Administrators of dis-
counted present value of remaining pay-
ments under Roth Brothers retirement
plan.
100. Shonte Trumbo 25,000 Sexual harassment litigation.
101. Siemens Westinghouse, Inc./ 1,500,000 2,236,101.00 Estimated settlement amount for breach
Siemens Westinghouse Power Cor- of contract litigation.
poration
102. St. Paul Properties, Inc. 160,000 Damage cap calculation and arrearages
under real property lease rejected pursu-
ant to Global Rejection Motion.
103. Strata Corporation 0 ** Litigation - Claim for $666,975 for non-
payment under a contract to provide
landfill material.
104. Strategic Holdings, Inc.; Equus II 0 ** Indemnification under Agreement and
Incorporated; ARTI Partners I, Ltd.; Mutual Release dated November 13,
ARTI Partners II, LLC; ARI Glass 1998.
Newco, Inc.; and Strategic Materials,
Inc.
105. Straton, Jeff 303,000 303,000.00(20)* Employment agreement rejected pursu-
ant to Global Rejection Motion.
</TABLE>
- --------
20 Gary and Bob Chazen, Michael Mallen, Dale Hixson and Jeff Straton
each submitted proofs of claim agreeing with the scheduled amount, but also
filed additional proofs of claim for administrative priority claims in the
amount of $4,300 each as employee wages/benefits earned within 90 days of
the date. The attorney for these creditors sent the Claims Agent a letter
explaining that they did not disagree with the amounts scheduled, but
believed a was owed as an administrative expense. The administrative
expense are not included in this list as the amounts would not be part
of Class 7 under the Plan.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
9
<PAGE> 283
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
106. Tennessee Valley Steel Corp, Bank 25,000 ** Remaining amount owed on preference
ruptcy Trustee payment claimed by Trustee in creditor's
bankruptcy case.
107. Theodore M. Luntz, William L. 0 (21) Continental office building lease rejected
Luntz, Robert A. Luntz, and Joan pursuant to Global Rejection Motion.
Luntz Goulder
108. Theresa Adams, et al. 240,000 Agreed settlement Tort litigation claim.
Adams, Theresa 5,546.59
Betsill, William D. 6,597.37
Brown, Geraldine M. 9,616.18
Fahrenkamp, Kathleen M. 5,546.59
Johnson, Joey 14,182.32
Johnson, Robin 104,243.91
Lovell, Tanya 10,613.66
Reasor, Ann 11,582.59
Reid-Betsil, Lucinda 9,616.19
Viar, Sandra 64,152.20
109. Unifirst Corporation 20,000 35,231.06 Litigation for breach of contract.
110. Wallace, Becky 50,000 Sexual harassment litigation.
111. Wells, Frederick A. 249,000 Based on actuarial calculation performed
by Benefit Plans Administrators of
discounted present value of payments
under Roth Brothers retirement plan.
112. Westlake PetroChemicals Corp. 400,000 Product litigation claim.
113. Wheeler, Vikki 20,000 ** Litigation - Civil rights law suit
</TABLE>
- --------
21 This debt arises out of an executory lease obligation and is therefore
subject to change.
* Claims filed as unliquidated are subject to later adjustment as they
become liquidated.
** Claims not originally on Amended Exhibit B when filed with the Bankruptcy
Court on July 22, 1999.
10
<PAGE> 284
<TABLE>
<CAPTION>
SCHEDULED CLAIMED
CREDITOR AMOUNT AMOUNT DESCRIPTION
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
114. Yanarella 0 Tort litigation claim.
==================== ====================
65,508,558 95,222,262.27
Factoring in all other claims on
Amended Exhibit B not filing
proofs of claim and therefore
presumed to have accepted the
amount on Amended Exhibit B:(22) 7,236,000.00
====================
102,458,262.27
Factoring in all other claims
on Exhibit B-1 that have been
added since the filing of
Amended Exhibit B:(23) 475,558.00
====================
102,933,820.27
</TABLE>
- --------
22 See Appendix H-2.
23 See Appendix H-3.
11
<PAGE> 285
APPENDIX H-2
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIST OF U.S. CREDITORS NOT RESPONDING TO AUGUST 13, 1999 BAR DATE
<PAGE> 286
APPENDIX H-2
LIST OF U.S. CREDITORS NOT RESPONDING TO AUGUST 13, 1999 BAR DATE(1)
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<C> <S> <C>
1. 62 Land, Inc. 0
2. ABN Amro Bank 0
3. Bader, Alfred 126,000
4. Big "R" Towing 25,000
5. Bloomberg, L.P. 25,000
6. Bramblatt, Jennifer 25,000
7. Buck, Sam 42,000
8. Commercial Portfolio Management Corporation 21,000
9. Dalton G., et al. 25,000
10. Electric Systems, Inc. 250,000
11. Ferreira, Fred 151,000
12. Fifth Third Leasing Company 250,000
13. Fillmore Partnership 222,000
14. Ginsky, Victor 437,000
15. Group Dekko International, Inc. 397,000
16. Hanson, Stefani 30,000
17. Industrial Finishing Service, Inc. 230,000
18. Jones, Dean 25,000
19. Lee, Dwayne 0
20. Liberty Mutual Insurance Company/Liberty Mutual Fire 316,000
Insurance
21. Ludwig Bauch; TMT Industries 0
22. Luntz, Greg (Shareholders' Representative) 0
23. Meier, Frank 100,000
24. Meltzer, Morton 254,000
25. Nelson, Raymond 1,498,000
26. Nicholson, Mrs. 42,000
</TABLE>
- --------
(1) Excluding those creditors who were not on Amended Exhibit B as filed with
the Bankruptcy Court on July 22, 1999 and those creditors on Amended
Exhibit B but subsequently transferred to Exhibit C.
<PAGE> 287
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNt
-------- ---------
<C> <S> <C>
27. Pitney Bowes Credit Corp. 8,000
28. PNC Leasing Corp. 1,050,000
29. Randazzo, Thomas 63,000
30. Reliable Uniform Services Inc. 0
31. Renton Office V Realty, Inc. 362,000
32. Roth, Eli 148,000
33. Roth, Larry 100,000
34. Rothschild, Sidney 130,000
35. Shonte Trumbo 25,000
36. St. Paul Properties, Inc. 160,000
37. Theodore M. Luntz, William L. Luntz, Robert A. Luntz, and 0
Joan Luntz Goulder
38. Wallace, Becky 50,000
39. Wells, Frederick A. 249,000
40. Westlake PetroChemicals Corp. 400,000
41. Yanarella 0
=========
7,236,000
</TABLE>
2
<PAGE> 288
APPENDIX H-3
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIST OF U.S. CREDITORS ADDED TO EXHIBIT B AFTER JULY 22, 1999
<PAGE> 289
APPENDIX H-3
LIST OF U.S. CREDITORS ADDED TO EXHIBIT B AFTER JULY 22, 1999
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<C> <S> <C>
1. Advanta Business Services Corp. 26,808
2. Allen, Leslie 0
3. Blue Box of Building and Construction 12,000
4. C&S Associates, VIII 64,000
5. Cadence Environmental Energy, Inc. 180,000
6. Comdisco, Inc. 0
7. Credit Suisse First Boston Corporation 0
8. DA Consulting Group Inc. 50,000
9. F.C. Schaffer, Geralyn Graphia, Marian Schaffer-Whitaker, 0
Jose de Spinoso, Marlan J. Mitch, Robert Miller, and Harold
Birkett
10. F.C. Schaffer, Geralyn Graphia, Marian Schaffer-Whitaker, 0
Jose de Spinoso, Marlan J. Mitch, Robert Miller, and Harold
Birkett
11. FC Schaffer Shareholders 0
12. Gooden, Howard P. 97,750
13. IBS Incorporated 0
14. Jay Alix and Associates 0
15. Lentz, Allen D., as successor trustee of the August 31, 1990 (1)
Liff Irrevocable Life Insurance Trust
16. Metals USA, Inc. 0
17. P.A. Pipe, Inc. 0
18. Republic Environmental Systems (Brantford) Ltd. (2)
19. Strata Corporation 0
</TABLE>
- --------
(1) To avoid double counting, claims added to Exhibit B after July 22, 1999 but
for which claims were filed are included in the claimed amount in the total
of Appendix H-1 (rather than in the scheduled amount in this Appendix).
Allen D. Lentz, as successor trustee of the August 31, 1990 Liff
Irrevocable Life Insurance Trust, was added after the filing of Amended
Exhibit B in the amount of $0, but had previously filed a proof of claim in
the amount of $78,202.96 and has therefore been included in Exhibit B-1 in
that amount.
(2) To avoid double counting, claims added to Exhibit B after July 22, 1999 but
for which claims were filed are included in the claimed amount in the total
of Appendix H-1 (rather than in the scheduled amount in this Appendix).
Republic Environmen tal Systems (Brantford) Ltd. was added after the filing
of Amended Exhibit B in the amount of $7,650,000, but had previously filed
a proof of claim in the amount of $7,970,957.40 and has been included in
Exhibit B-1 in that amount.
<PAGE> 290
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT
-------- ---------
<C> <S> <C>
20. Strategic Holdings, Inc.; Equus II Incorporated; ARTI Partners 0
I, Ltd.; ARTI Partners II, LLC; ARI Glass Newco, Inc.; and
Strategic Materials, Inc.
21. Tennessee Valley Steel Corp, Bankruptcy Trustee 25,000
22. Wheeler, Vikki 20,000
=========
475,558
</TABLE>
2
<PAGE> 291
APPENDIX H-4
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF PHILIP SERVICES (DELAWARE), INC., et al.
LIST OF CANADIAN IMPAIRED UNSECURED CLAIMS
<PAGE> 292
APPENDIX H-4
LIST OF CANADIAN IMPAIRED UNSECURED CLAIMS
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
1. 1066424 Ontario, Inc. $389,640 Property lease at 200 Brock Street, Barrie, Ontario
(copper operations) including estimated repairs.
2. 1348040 Ontario Inc. 1,650,000+ Equipment lease rejected pursuant to Global
Rejection Motion. Equipment to be returned to lessor.
3. 2418711 Canada Inc. 0 Litigation re non-utilization of tax loss
carryforwards by Philip
4. 2819635 Canada Inc. 15,000 Litigation -- unpaid amounts for work performed
repairing sewers
5. 759082 Ontario Inc. 26,000 Property lease at 220 John Street East,
Barrie, ON (copper operations)
6. 963767 Ontario, Ltd. 0(1) + Litigation for beach of contract. Idle since 1995
7. Ablack, Krish 50,000(2) + Litigation based on severance under employment
contract rejected pursuant to Global Rejection
Motion. Alleged under the employment agreement
that we owed a year's severance. Based on Philip
Services Corp.'s calculations of what may have
been owed for a year, minus the payments made
(approx. $62,000).
8. Agglo Venture Inc., Agglo, Inc. 340,000+ Claimed breach of contract. Damages alleged
in excess of $12 million. Scheduled amount
based on prepetition settlement negotiations.
9. Alexander Brown, Inc. 340,000(3) + Claimed breach of contract. Claims $2.3
million in damages, plus attorneys fees,
interest and others. Scheduled amount
based on prepetition settlement negotiations.
</TABLE>
________________
1 Unliquidated Claim filed for $3,500,000 Canadian in the U.S. Bankruptcy
Cases, converted by 0.68254855, the Dow Jones Canadian to United States
exchange rate as of June 25, 1999 to U.S. $2,388,919.93.
2 Claim filed for $114,951.49 in the U.S. Bankruptcy Cases.
3 Claim filed for $3,552,000.00 in the U.S. Bankruptcy Cases.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
<PAGE> 293
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
10. B.A.C.C. Capital Corporation 1,580,828 Equipment lease # 97-321.
11. Bell Canada Inc. 176,800 Trade supplier to Barrie Copper operations
12. Bernadin, Gilles 27,000 Litigation - claim for unpaid bonus
13. Boughton, Marvin 27,000+ Severance for former CFO, based on employment
contract rejected pursuant to Global Rejection
Motion. Scheduled amount based on remaining
payments believed owed.
14. Canadian Imperial Bank of Commerce 15,000,000(4)+ Commitment fee pertaining to extension of line
of credit for proposed acquisition of Safety Kleen.
15. Canadian Imperial Bank of Commerce, Ontario 0 Investors Agreement & Subscription Agreement
Teachers' Pension Plan Board, 1067892 dated March 3, 1998 regarding Environmental
Ontario, Ltd., C.D.P.Q. Venture Capital Inc. Research & Development Capital Corporation.
16. Chesterton Investments Limited & 683,000 Property lease re 75 Windemere Road and 80
Morris Investments Limited Glow Avenue, Hamilton, ON
17. Chodos, Peter 476,000(5)+ Severance - former Exec VP Corp Development
18. CIBC Equipment Finance Limited 665,000(6)+ Lease of AFS wire reclamation system equipment
- rejected pursuant to Global Rejection Motion.
19. CIBC Equipment Finance Limited 51,000 Equipment lease # 553396 Electrostatic Line
(Firestone Plant, Hamilton, ON)
20. Cinicorp Holdings Limited 212,000+ Balance of payments owed under 5 year
consulting agreement.
21. City of Toronto Economic Development 1,016,000 Property lease re 595 Commissioners Street,
Toronto, ON
</TABLE>
_____________
4 CIBC in its representative capacity as administrative agent for the
Prepetition Bank Group filed an unliquidated claim for $1,039,042,345.00
in the U.S. Bankruptcy Cases. CIBC did not file a claim in response to
the fee on Amended Exhibit B.
5 Claim filed for $476,000.00 in the U.S. Bankruptcy Cases.
6 Claim filed for $69,958.66 in the U.S. Bankruptcy Cases. CIBC Equipment
Finance Limited filed an additional proof of claim in the U.S. Bankruptcy
Cases relating to lease of electrostatic equipment in the amount of
$69,138.81 which relates to a lease the debtors intend to reject in
the U.S. proceedings.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
2
<PAGE> 294
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
22. Clark, Brad 1,360 Litigation (Ontario Court) - claim is for
costs awarded pursuant to an endorsement by the
Ontario Court (General Division).
23. Close Quarters Inc. 110,666 Lynx promissory - note originally with a face
amount of $300,000 CDN
24. Close Quarters Inc. / Tom Close 506,813 Consulting agreement re acquisition of Lynx
Environmental Services Ltd.
25. Comdisco Canada, Ltd. 0 Technology services agreement dated May 25,
1998.
26. Compagnie de Gestion, M.P.F., Inc. / c/o 1,650,000 Obligation to confer benefit of tax losses
Chaurette Levesque stemming from Acquisition of Service Central
De Reservoirs (1990) Ltee.
27. Coristine, Bruce 563,000+ Balance owing on promissory note for
acquisition of Lynx Environmental Services Ltd.
28. Coristine, Bruce 249,000 Severance - employment contract
29. Coristine, Bruce 42,000 "Past performance" payment
30. Coristine, Bruce / Close Quarters Inc. 155,789 "Hyatt" note repayment
31. Crawford, Kevin 61,000 Severance - former VP Caligo
32. D'Allessandro, Gino 0 Litigation - plaintiff is claiming C$12,586
for the value of tools stolen from Philip's
premises (Lynx Environmental), C$50,000 in
punitive damages and solicitor costs
33. Enterprises Delcapitale Limitee 0+ Litigation pertaining to the purchase of
Delsan Demolition.
34. FP Commodity Master Trust 16,897,483(7) Copper Monetization Note
35. Fracassi, Philip 52,000+ Balances due under employment agreement
rejected pursuant to Global Rejection Motion.
36. Gallagher, John 13,600 Litigation (Ontario Court) - claim is for
costs awarded pursuant to an endorsement
by the Ontario Court (General Division).
</TABLE>
________________
7 Claim filed for $16,897,483.35 in the U.S. Bankruptcy Cases.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
3
<PAGE> 295
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
37. Goldblatt, Marvin 827,000+ Remaining amounts owed under employment
agreement rejected pursuant to Global Rejection Motion.
38. Gore, Reginald J., Gore, Alma P., Gore, 870,400 Claim for PSC to fund Philip Gore Landfill
Larry R., Sebele, Sandra P., and Inc. to satisfy redemption of Preference Shares
Sebele, Terry C. (100 shares per year at C$800 per share).
39. Green, John, Green, Lilla, Stasiuk, John, 23,800 Litigation claim for fees and expenses
Dynamic Industrial Services, Inc. relating to action for injunctive relief
brought by Philip Services Corp.
40. GUSO Ltd. 21,553 Property lease - 111 Ingram Drive, North York,
41. Hamilton Harbour Commissioners 561,000(8)+ Estimated rejection damages under real
property lease rejected pursuant to Global
Rejection Motion.
42. Hilson, Michael 6,800 Litigation (Ontario Court) - claim is for
costs awarded pursuant to an endorsement by the
Ontario Court (General Division).
43. Hoey, Graham 20,000+ Remaining severance amounts owed under
employment agreement rejected pursuant
to Global Rejection Motion.
44. Imperial Oil, a partnership of Imperial Oil 0 Demolition and waste removal agreement dated
Limited and McColl-Frontenac Petroleum Inc. February 9, 1998.
45. Kimco Steel Sales Limited 4,000 Litigation
46. Kumer, Sheldon 348,000(9)+ Settlement of remaining severance obligations
outstanding under employment contract rejected
pursuant to Global Rejection Motion.
47. Leasing Solutions (Canada), Inc. 0+ Estimated amount owed under master equipment
lease. Lease rejected pursuant to Global
Rejection Motion.
48. Lethbridge, Thomas 20,000 Litigation - breach of contract
</TABLE>
________________
8 Unliquidated Claim filed for $29,922.95 Canadian in the U.S. Bankruptcy
Cases, converted by 0.68254855, the Dow Jones Canadian to United States
exchange rate as of June 25, 1999 to U.S. $20,423.87.
9 Claim filed for $348,000.00 in the U.S. Bankruptcy Cases.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
4
<PAGE> 296
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
49. Lions Wrecking Ltd.; Lions Disposal and 0 Litigation - breach of contract
Excavation; Lions Disposal Excavation &
Demolition Ltd.; Jose Nunes; Honorina
Nunes; Olivio Ricardo; Maria Ricardo
50. Liquid Cargo Lines Limited 0 Damages to formerly leased property at 474
Southdown Road, Mississauga, ON. Philip has
vacated this site. The lease expired
January 31,1999.
51. McQuillan, Peter 21,000(10)+ Remaining balance of unpaid severance owed
under employment agreement rejected pursuant
to Global Rejection Motion.
52. MD Realty Canada Inc., Abrim 11 Inc., & 42,000+ Arrearages owed on month-to-month tenancy on
132001 Canada Inc, Sitq Inc. real property lease rejected pursuant to
Global Rejection Motion.
53. MDS Environmental Services Limited 816,000(11)+ Remaining amounts owed under promissory note.
54. MTC Leasing Inc. 16,000 Computer equipment leases #'s 049-66288-00-00002
and 049-66288-00-00001.
55. Myrtle Eva Harrington; Harrington 170,000+ Remaining amounts owed under promissory note.
Acquisition Corporation; Nancy
Hamilton; Myrtle Eva Harrington
as Trustee for the estate of
Frederick John Harrington; Bruce
Hamilton
56. Newcourt Credit Group, Inc./Newcourt 507,000(12)+ Remaining amounts owed under computer software
Financial Ltd. contract rejected pursuant to Global Rejection Motion.
57. Nortel Networks Corporation 692,000 Trade supplier to Barrie Copper operations
58. OE Leasing, a division of OE Financial 898 Equipment lease.
Services Inc.
59. Ontario Paving Inc.; Carmen Alfano 0 Litigation
60. Palango, Paul 0 Litigation - Defamation
</TABLE>
________________
10 Claim filed for $21,000.00 in the U.S. Bankruptcy Cases, indicating that
$4,300 of the claimed amount should be treated as a priority claim.
11 Claim filed for $816,000.00 in the U.S. Bankruptcy Cases.
12 Claim filed for $504,521.55 in the U.S. Bankruptcy Cases.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
5
<PAGE> 297
<TABLE>
<CAPTION>
SCHEDULED
CREDITOR AMOUNT DESCRIPTION
-------- --------- -----------
<S> <C> <C>
61. Paletta International Corporation 1,383,800 Mortgage on property at 272 First Road, Stoney
Creek, ON.
62. PDQ Mechanical 9,000 Litigation - breach of contract
63. Perron, Victor 21,000(13)+ Remaining severance amounts owed under
employment agreement rejected pursuant to
Global Rejection Motion.
64. Poplack, Bernard 82,000 Litigation - judgement under appeal
65. Port of Quebec Authority 67,206 Property leases: Lease Q-281(9) (Yard) and
Q-413(6) (Dock), Port of Quebec
66. Royal Bank of Canada 2,500,000(14)+ Anticipated rejection damages under equipment
leases rejected pursuant to Global Rejection Motion.
67. Teperman and Sons Inc. 0 Litigation - Breach of Contract
68. Utter, Christopher 0 Litigation
69. Woodcroft, John 716,000+ Remaining severance amounts owed under
employment agreement rejected pursuant to
Global Rejection Motion.
70. Woodstock Sufferance Warehouse Ltd. 184,611 Property lease re 415 Norwich Ave., Woodstock, ON
71. Xerox Canada Ltd. 5,862 Equipment leases (3) (3 photo copiers and 1 fax).
==========
52,964,909
</TABLE>
________________
13 Claim filed for $34,477.72 in the U.S. Bankruptcy Cases.
14 Royal Bank of Canada was granted an extension in the U.S. Bankruptcy
Cases to file a proof of claim.
+ This Claim was originally scheduled on Amended Exhibit B to the Plan.
6
<PAGE> 1
Exhibit 2.2.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:
In re : Chapter 11
:
PHILIP SERVICES (DELAWARE), INC.., et al., : Case No. 99-02385 (MFW)
:
Debtors. : Jointly Administered
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - -x
NOTICE OF (1) APPROVAL OF DISCLOSURE STATEMENT;
(2) HEARING ON CONFIRMATION OF PLAN;
(3) DEADLINE AND PROCEDURES FOR FILING OBJECTIONS TO CONFIRMATION OF PLAN;
(4) TREATMENT OF CERTAIN UNLIQUIDATED, CONTINGENT OR DISPUTED CLAIMS
FOR VOTING AND DISTRIBUTION PURPOSES;
(5) RECORD DATE; AND (6) VOTING DEADLINE FOR RECEIPT OF BALLOTS
TO ALL CREDITORS AND PRESENT AND FORMER EQUITY SECURITY HOLDERS OF PHILIP
SERVICES (DELAWARE), INC., PHILIP SERVICES CORP., THEIR SUBSIDIARIES AND
AFFILIATES, AND OTHER PARTIES IN INTEREST (See list set forth below for complete
list of Affiliate Debtors):
PLEASE TAKE NOTICE that Philip Services (Delaware), Inc. ("PSI"),
Philip Services Corp. ("PSC") and certain of their affiliates (the "Affiliate
Debtors") which are also debtors and debtors-in-possession in the above-
captioned cases (collectively, the "Debtors") are soliciting acceptances of the
First Amended Joint Plan of Reorganization of Philip Services (Delaware), Inc.,
et al. (as may be amended or modified, the "Plan"), from holders of certain
impaired claims who are (or may be) entitled to receive distributions under the
Plan.
PLEASE TAKE FURTHER NOTICE that the Plan consists of several plans
jointly filed by the various Debtors and terms of each individual Plan will be
binding on all holders of claims against, and all present and former holders of
equity security interests in, the respective Debtor should the individual Plan
be confirmed by the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court").
PLEASE TAKE FURTHER NOTICE that the Bankruptcy Court has signed an
order, dated September 21, 1999 (the "Solicitation Procedures Order"), approving
the Disclosure Statement with Respect to First Amended Joint Plan of
Reorganization of Philip Services (Delaware), Inc., et al. (the "Disclosure
Statement") and providing, among other things, that:
1. Confirmation Hearing Date. The hearing to consider confirmation of
the Plan (the "Confirmation Hearing"), shall commence on November 3, 1999 at
9:30 a.m. (prevailing Eastern time) or as soon thereafter as counsel can be
heard, before the Honorable Mary F. Walrath, United States Bankruptcy Judge, in
the United States Bankruptcy Court, Marine Midland Plaza, 824 Market Street, 6th
Floor, Wilmington, Delaware 19801. The Confirmation Hearing may be continued
from time to time by announcing such continuance in open court and the Plan may
be further modified, if necessary, pursuant to 11 U.S.C. ss. 1127 prior to,
during, or as a result of the Confirmation Hearing, without further notice to
parties in interest.
2. Voting Deadline. To be counted, ballots to accept or reject the Plan
must be RECEIVED by 5:00 p.m. (prevailing Eastern time) on October 25, 1999 (the
"Voting Deadline") by the Voting Agent, Logan & Company, Inc., at the following
address:
By Mail, Messenger or Overnight Courier:
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
Attn: Philip Services Corp.
Ballots may NOT be cast by facsimile transmission. BALLOTS THAT ARE NOT RECEIVED
BY THE VOTING DEAD LINE WILL NOT BE COUNTED.
3. Objections to Confirmation. October 25, 1999 at 5:00 p.m.
(prevailing Eastern time) is fixed as the last date for filing and serving
objections to confirmation of the Plan (the "Objection Deadline"). To be
considered, objections, if any, to confirmation of the Plan must (a) be in
writing, (b) comply with the Federal Rules of Bankruptcy Procedure and the Local
Bankruptcy Rules, (c) set forth the name of the objector, and the nature and
amount of any claim or interest asserted by the objector against the Debtor, its
estate or its property, (d) state with particularity the legal and factual bases
for the objection, and (e) be filed with the Bankruptcy Court together with
proof of service, and served by personal service, overnight delivery, or first
class mail, so as to be RECEIVED no later than the Objection Deadline by: (a)
counsel for the Debtors, Skadden, Arps, Slate, Meagher & Flom (Illinois), 333
West Wacker Drive, Chicago, Illinois 60606 (Attn: David S. Kurtz, Esq., Jeffrey
W. Linstrom, Esq., J. Gregory St. Clair, Esq.), Skadden, Arps, Slate, Meagher &
Flom LLP, One Rodney Square, P.O. Box 636, Wilmington, Delaware 19899-0636
(Attn: Gregg M. Galardi, Esq.) and Stikeman, Elliot, Commerce Court West, Suite
5300, Toronto, Ontario M5L 1B9 Canada (Attn: Sean F. Dunphy, Esq.), (b) the
Office of the United States Trustee, 601 Walnut Street, Curtis Center,
<PAGE> 2
Suite 950-W, Philadelphia, Pennsylvania 19106 (Attn: Daniel K. Astin, Esq.),
(c) counsel for the Creditors' Committee, Blank, Rome, Comisky McCauley LLP, One
Logan Square, Philadelphia, Pennsylvania 19103-6998 (Attn: Raymond L. Shapiro,
Esq.) and Blank, Rome, Comisky McCauley LLP, 1201 Market Street, Suite 2100,
Wilmington, Delaware 19801 (Attn: Bonnie Glantz Fatell, Esq.), and (d) counsel
for the Pre-Petition Agents and the Pre-Petition Lenders, White & Case, LLP,
1155 Avenue of the Americas, New York, New York 10036 (Attn: Howard S. Beltzer,
Esq.) and Blake Cassels & Graydon, Box 25, Commerce Court West, Toronto, Ontario
M5L 1A9 Canada (Attn: Susan M. Grundy, Esq.). OBJECTIONS NOT TIMELY FILED AND
SERVED IN THE MANNER SET FORTH ABOVE SHALL NOT BE CONSIDERED AND SHALL BE DEEMED
OVERRULED.
4. Treatment of Certain Claims. Any holder of a claim that was served
with a proof of claim setting their claim amount at zero or in an unknown amount
or as disputed, contingent or unliquidated, and did not timely, pursuant to
either the Bankruptcy Code or any order of the Bankruptcy Court, file a proof of
claim with the Bankruptcy Court or the Claims and Noticing Agent controverting
such classification of their claim, SHALL NOT BE TREATED AS A CREDITOR WITH
RESPECT TO SUCH CLAIM FOR PURPOSES OF (I) RECEIVING DISTRIBUTIONS UNDER THE
PLAN, OR (II) VOTING ON THE PLAN.
Please note that pursuant to the Plan, as of the Effective Date
each of the Debtors will be deemed to have assumed each executory contract and
unexpired lease to which it is a party, unless such contract or lease (i) was
previously assumed or rejected by one of the Debtors, (ii) previously expired or
terminated pursuant to its own terms, or (iii) as otherwise set forth in the
schedule to be provided in the Plan Supplement as being an executory contract or
unexpired lease to reject, provided however, that the Debtors reserve their
right, at any time prior to the Confirmation Date, to amend the schedule to be
provided in the Plan Supplement to delete an unexpired lease or executory
contract therefrom or add any unexpired lease or executory contract thereto. In
addition, the Plan calls for certain Restructuring Transactions by which certain
Debtors may be dissolved or merged into other Debtors. In such an event, certain
executory contracts and unexpired leases may be assigned from one Debtor to
another.
All creditors who are parties to executory contracts and unexpired
leases which are assumed according to the above procedures will be afforded an
opportunity assert claims for cure, if any, no later than 30 days after the
Confirmation Date.
5. Record Date. August 18, 1999, shall be the record date for
determining (a) the creditors and equity security holders entitled to receive
solicitation packages, and (b) the creditors entitled to vote to accept or
reject the Plan.
6. Information and Documents. Any party in interest wishing to obtain
information about the solicitation procedures or copies of the Disclosure
Statement, the Plan, or any exhibits thereto may request such information or
copies by writing to the Voting Agent, Logan & Company, Inc., 546 Valley Road,
Upper Montclair, New Jersey 07043, Attn: Philip Services Corp. or by telephoning
the Voting Agent at (201) 798-1031. All copies shall be provided solely at the
expense of the party requesting the documents unless otherwise specifically
required by Fed. R. Bankr. P. 3017(d). All documents that are filed with the
Bankruptcy Court may be reviewed during regular business hours (8:30 a.m. to
4:00 p.m. prevailing Eastern time, weekdays, except legal holidays) at the
United States Bankruptcy Court for the District of Delaware, Marine Midland
Plaza, 824 Market Street, Wilmington, Delaware 19801.
Dated: September 22, 1999
SKADDEN, ARPS, SLATE, MEAGHER SKADDEN, ARPS, SLATE, MEAGHER
& FLOM (ILLINOIS) & FLOM LLP
David S. Kurtz Gregg M. Galardi (No. 2991)
Jeffrey W. Linstrom One Rodney Square
J. Gregory St. Clair P.O. Box 636
333 West Wacker Drive Wilmington, DE 19899-0636
Chicago, IL 60606
Attorneys for the Debtors and Debtors-in-Possession
2
<PAGE> 3
INDEX OF DEBTORS
<TABLE>
<CAPTION>
DEBTOR CASE NO.
- ------ --------
<S> <C>
RESI Acquisition (Delaware) 99-02170
Corporation
Philip Services (Delaware), Inc. 99-02385
21st Century Environmental 99-02386
Management, Inc. of Rhode
Island
21st Century Environmental 99-02387
Management, Inc.
21st Century Environmental 99-02388
Management, Inc. of Nevada
21st Century Environmental 99-02389
Management, Inc. of Puerto
Rico
Ace/Allwaste Environmental Services 99-02390
of Indiana, Inc.
Advanced Energy Corporation 99-02391
Advanced Environmental Systems, Inc. 99-02392
All Safety and Supply, Inc. 99-02393
Allies Staffing, Inc. 99-02394
Allquest Capital, Inc. 99-02395
AllScaff, Inc. 99-02396
Allwaste Asbestos Abatement Holdings, 99-02397
Inc.
Allwaste Asbestos Abatement, Inc. 99-02398
Allwaste Asbestos Abatement of New 99-02399
England, Inc.
Allwaste Environmental Services/North 99-02400
Central, Inc.
Allwaste Railcar Cleaning, Inc. 99-02401
Allwaste Recovery Systems, Inc. 99-02402
Allwaste Services of El Paso, Inc. 99-02403
Allwaste Tank Cleaning, Inc. 99-02404
Allwaste Texquisition Inc. 99-02405
Allworth Inc. 99-02406
ALRC, Inc. 99-02407
APLC, Inc. 99-02408
BEC/Philip, Inc. 99-02409
Burlington Environmental Inc. (a 99-02410
Delaware Corporation)
Burlington Environmental Inc. (a 99-02411
Washington Corporation)
Butco Inc. 99-02412
Cappco Tubular Products USA, Inc. 99-02413
Chem-Fab, Inc. 99-02414
Chem-Freight, Inc. 99-02415
Chemical Pollution Control, Inc. of 99-02416
Florida
Chemical Pollution Control, Inc. of 99-02417
New York
Chemical Reclamation Services, Inc. 99-02418
Cousins Waste Control Corporation 99-02419
CyanoKEM, Inc. 99-02420
Deep Clean, Inc. 99-02421
DM Acquisition Corporation 99-02422
Gasoline Tank Service Company Inc. 99-02423
Georgia Recovery Systems 99-02424
GRS/Lake Charles, Ltd. 99-02425
Hartney Corporation 99-02426
Hydro-Engineering & Service, Inc. 99-02427
Industrial Construction Services Co., 99-02428
Inc.
Industrial Services Technologies, Inc. 99-02429
Intermetco US Inc. 99-02430
Intermetco USA Ltd. 99-02431
IST Holding Corp. 99-02432
James & Luther Services, Inc. 99-02433
Jesco Industrial Service, Inc. 99-02434
Luntz Acquisition (Delaware) 99-02435
Corporation
Luntz Corporation 99-02436
Mac-Tech, Inc. 99-02437
Northland Environmental Inc. 99-02438
Nortru, Inc. 99-02439
Oneida Asbestos Abatement, Inc. 99-02440
Oneida Asbestos Removal, Inc. 99-02441
Philip Automotive, Ltd. 99-02442
Philip Chemi-Solv, Inc. 99-02443
Philip Chemisolv Holdings, Inc. 99-02444
Philip Corrosion Services, Inc. 99-02445
Philip Enterprise Service Corporation 99-02446
Philip Environmental of Idaho 99-02447
Corporation
Philip Environmental Services, Inc. 99-02448
Philip Environmental Services 99-02449
Corporation
Philip Environmental Washington Inc. 99-02450
Philip Industrial Services 99-02451
(Delaware), Inc.
Philip Industrial Services (USA), Inc. 99-02452
Philip Industrial Services Group, Inc. 99-02453
Philip Industrial Services of Texas, 99-02454
Inc.
Philip/J.D. Meagher, Inc. 99-02455
Philip Mechanical Services of 99-02456
Louisiana, Inc.
Philip Metals, Inc. 99-02457
Philip Metals (New York) Inc. 99-02458
Philip Metals (USA), Inc. 99-02459
Philip Metals Recovery (Delaware) Inc. 99-02460
Philip Metals Recovery (USA) Inc. 99-02461
Philip Mid-Atlantic, Inc. 99-02462
Philip Oil Recycling, Inc. 99-02463
Philip Petro Recovery Systems, Inc. 99-02464
Philip Plant Services, Inc. 99-02465
Philip Reclamation Services, Houston, 99-02466
Inc.
Philip Refractory and Corrosion 99-02467
Corporation
Philip Refractory Services, Inc. 99-02468
Philip Scaffold Corporation 99-02469
Philip/SECO Industries, Inc. 99-02470
Philip Services/Atlanta, Inc. 99-02471
Philip Services Corp. 99-02472
Philip Services Hawaii, Ltd. 99-02473
Philip Services/Louisiana, Inc. 99-02474
Philip Services/Missouri, Inc. 99-02475
Philip Services/Mobile, Inc. 99-02476
Philip Services/North Atlantic, Inc. 99-02477
Philip Services/North Central, Inc. 99-02478
Philip Services/Ohio, Inc. 99-02479
Philip Services/Oklahoma, Inc. 99-02480
Philip Services (Pennsylvania), Inc. 99-02481
Philip Services/South Central, Inc. 99-02482
Philip Services/Southwest, Inc. 99-02483
Philip ST, Inc. 99-02484
Philip ST Piping, Inc. 99-02485
Philip Technical Services, Inc. 99-02486
Philip Transportation and 99-02487
Remediation, Inc.
Philip West Industrial Services, Inc. 99-02488
Philip/Whiting, Inc. 99-02489
Piping Companies, Inc. 99-02490
Piping Holdings Corp. 99-02491
Piping Mechanical Corp. 99-02492
PRS Holding, Inc. 99-02493
PSC Enterprises, Inc. 99-02494
Republic Environmental Recycling (New 99-02495
Jersey), Inc.
Republic Environmental Systems 99-02496
(Pennsylvania), Inc.
Republic Environmental Systems 99-02497
(Technical Services Group)
Inc.
Republic Environmental Systems 99-02498
(Transportation Group), Inc.
Resource Recovery Corporation 99-02499
Rho-Chem Corporation 99-02500
RMF Environmental, Inc. 99-02501
RMF Global, Inc. 99-02502
RMF Industrial Contracting, Inc. 99-02503
Serv-Tech Construction and 99-02504
Maintenance, Inc.
Serv-Tech Engineers, Inc. 99-02505
Serv-Tech EPC, Inc. 99-02506
Serv-Tech International Sales, Inc. 99-02507
Serv-Tech of New Mexico, Inc. 99-02508
Serv-Tech Services, Inc. 99-02509
Solvent Recovery Corporation 99-02510
Southeast Environmental Services Co., 99-02511
Inc.
Termco Corporation 99-02512
Terminal Technologies, Inc. 99-02513
ThermalKEM, Inc. 99-02514
TIPCO Acquisition Corp. 99-02515
Total Refractory Systems, Inc. 99-02516
United Drain Oil Service, Inc. 99-02517
United Industrial Materials, Inc. 99-02518
</TABLE>
<PAGE> 1
Exhibit 99.1
NEWS RELEASE
COMPANY FILES AMENDED RESTRUCTURING PLANS
LENDERS CONFIRM THEIR SUPPORT FOR PHILIP SERVICES
UNSECURED CREDITORS COMMITTEE SUPPORTS THE U.S. PLAN
Hamilton, Ontario - September 20, 1999: Philip Services Corp. (TSE/ME: PHV)
today announced that the Company has filed an Amended and Restated Plan of
Compromise and Arrangement in Canada (the "Canadian Plan") under the Companies'
Creditors Arrangement Act ("CCAA"), and an Amended Joint Plan of Reorganization
("the U.S. Plan") and a Disclosure Statement under Chapter 11 of the U. S.
Bankruptcy Code.
The amended Plans provide that the claims of Canadian creditors against Philip
Services Corp. will be dealt with in Canada under the CCAA proceedings. The
amended Canadian Plan also provides that in the event that certain conditions
are not satisfied or Canadian unsecured creditors vote to reject the Canadian
Plan, the Company can implement an alternative means to complete its
restructuring. Under the alternative structure, the restructuring of Philip
Services Corp. and its Canadian subsidiaries would be accomplished through the
transfer of their businesses as a going concern to one or more direct or
indirect subsidiaries of Philip Services (Delaware), Inc.
Philip's lending syndicate have confirmed their support of the Company's
amended Restructuring Plans. In addition, the official committee of unsecured
creditors appointed under the Chapter 11 proceedings, have confirmed their
support of Philip's U.S. Plan. The unsecured creditor committee, which
represents the Company's major unsecured creditors, has urged holders of
unsecured claims to vote in favour of the U.S. Plan. This is a major step
towards the successful and timely completion of Philip's financial
restructuring.
The Steering Committee of Philip's Syndicate Lenders made the following
statement regarding their ongoing support for Philip Services and the Company's
financial restructuring:
"Our desire is to recover the best return on our investment through a
strengthening of the going concern value of the Company. This is a long-term,
not a short-term view. We continue to believe that a restructured Philip
offers the best opportunity to achieve our goal. This is reflected in the fact
that the lenders have given their full support to the appointment of Anthony
Fernandes as CEO of Philip Services. We view this as a very positive step for
Philip."
"We want the business to be preserved as a going concern. We will continue to
work with Philip so that through the Restructuring Plan, or through other
rights available to the lenders, the restructuring of the business can proceed
in a timely manner for the benefit of Philip's employees, its clients and
others, including the lenders."
"We have the full support of our secured lenders for our financial
restructuring and the long term value of our business," said Robert Knauss,
Chairman of Philip's Board of Directors. "We have addressed the concerns
raised by the Court in the CCAA proceedings and we are well underway with
negotiations to complete our financial reorganization."
<PAGE> 2
Philip Services is an integrated metals recovery and industrial services
company, with operations throughout the United States, Canada and Europe.
Philip provides diversified metals services, together with by-products
management and industrial outsourcing services, to all major industry sectors.
# # #
Contact: Lynda Kuhn
Vice President Corporate Communications & Investor Relations
(905) 540-6658
2
