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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
Date of Report (Date of earliest event reported): November 9, 1999
-------------------------
Purina Mills, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 33-66606 43-1359249
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1401 S. Hanley Road, St. Louis, Missouri 63144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 768-4100
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(Former name, former address and former fiscal year, if changed since last
report)
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ITEM 5. OTHER EVENTS.
In connection with ongoing restructuring negotiations, Purina
Mills, Inc. ("Purina") entered into confidentiality agreements (collectively,
the "Confidentiality Agreements") with certain holders (collectively, the
"Noteholders") of their 9% Senior Subordinated Notes Due 2010 (the "Notes").
Pursuant to the Confidentiality Agreements, Purina provided certain
confidential, nonpublic information to the Noteholders, and the Noteholders
agreed to hold such information confidential for an established period of time.
In addition, under the terms of the Confidentiality Agreements and certain
related agreements, Purina agreed to publicly disclose all confidential
information provided to the Noteholders no later than November 9, 1999. If
Purina does not disclose the confidential information, the Noteholders are
permitted to disclose this information pursuant to the terms of the
Confidentiality Agreements.
To comply with Purina's disclosure obligations under the
Confidentiality Agreements, Purina is filing this Form 8-K with the attached
preliminary drafts of a Joint Plan of Reorganization of Purina Mills, Inc. and
Its Debtor Subsidiaries (the "Plan") and a related disclosure statement (the
"Disclosure Statement"). The Plan and the Disclosure Statement have not been
filed in the chapter 11 cases of Purina and its affiliated debtors and debtors
in possession (collectively, the "Debtors") pending in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Debtors do not intend to file the Plan and the Disclosure Statement with the
Bankruptcy Court or to solicit votes on the Plan as currently drafted from the
Debtors' claim and interest holders. The Debtors anticipate that the Plan and
the Disclosure Statement will be revised and updated prior to their filing with
the Bankruptcy Court.
As described on page 19 of the Disclosure Statement, a
potential settlement has been negotiated between (a) Koch Industries, Inc. and
certain of its affiliates and (b) an unofficial committee representing the
Noteholders. The Debtors have been informed of the terms of the proposed
settlement, but are not parties to the settlement. The Debtors will review and
evaluate the terms of the proposed settlement. If the Debtors determine that
the settlement is appropriate, the Debtors will (a) revise and update the Plan
and the Disclosure Statement to include provisions consistent with the proposed
settlement and (b) file the revised Plan and Disclosure Statement with the
Bankruptcy Court in the near term.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
NOT APPLICABLE
(b) PRO FORMA FINANCIAL INFORMATION.
NOT APPLICABLE
(c) EXHIBITS.
Exhibit No. Exhibit Description
99.1 Preliminary Draft Joint Plan of Reorganization.
99.2 Preliminary Draft Disclosure Statement.
2
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SIGNATURE
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.
Purina Mills, Inc.
Date: November 9, 1999 By: /s/ Del G. Meinz
______________________________
Name: Del G. Meinz
Title: Vice President, Treasurer
and Controller
3
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EXHIBIT INDEX
Exhibit No. Exhibit Description
99.1 Preliminary Draft Joint Plan of Reorganization.
99.2 Preliminary Draft Disclosure Statement.
4
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PRELIMINARY DRAFT
Exhibit 99.1
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
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IN RE: : JOINTLY ADMINISTERED
: CASE NO. 99-3938(SLR)
PURINA MILLS, INC., :
A DELAWARE CORPORATION, ET AL., : CHAPTER 11
:
DEBTORS. :
___________________________________________________ :
(PURINA MILLS, INC.) : (CASE NO. 99-3938)(SLR)
(CAROLINA AGRI-PRODUCTS, INC.) : (CASE NO. 99-3939)(SLR)
(COASTAL AG-DEVELOPMENT, INC.) : (CASE NO. 99-3940)(SLR)
(COLE GRAIN COMPANY, INC.) : (CASE NO. 99-3941)(SLR)
(DAIRY MANAGEMENT SERVICES, L.L.P.) : (CASE NO. 99-3942)(SLR)
(PM NUTRITION COMPANY, INC.) : (CASE NO. 99-3943)(SLR)
(PMI AGRICULTURE L.L.C.) : (CASE NO. 99-3944)(SLR)
(PMI NUTRITION, INC.) : (CASE NO. 99-3947)(SLR)
(PMI NUTRITION INTERNATIONAL, INC.) : (CASE NO. 99-3945)(SLR)
(PURINA LIVESTOCK MANAGEMENT SERVICES, INC.) : (CASE NO. 99-3946)(SLR)
JOINT PLAN OF REORGANIZATION
OF PURINA MILLS, INC. AND ITS
DEBTOR SUBSIDIARIES
___________________________________________________ _____________________________
THOMAS L. AMBRO (DE 677)
DANIEL J. DEFRANCESCHI (DE 2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
- and -
RICHARD M. CIERI (OH 0032464)
JEFFREY B. ELLMAN (OH 0055558)
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
HENRY L. GOMPF (TX 08116400)
JONES, DAY, REAVIS & POGUE
2727 North Harwood
Dallas, Texas 75201
(214) 220-3939
PROPOSED ATTORNEYS FOR DEBTORS AND DEBTORS IN
POSSESSION
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___________, 1999
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TABLE OF CONTENTS
Page
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INTRODUCTION.......................................................................................................1
ARTICLE I. - DEFINED TERMS, RULES OF INTERPRETATION AND COMPUTATION OF TIME........................................1
A. Defined Terms....................................................................................1
1. "Administrative Claim"..................................................................1
2. "Administrative Trade Claim"............................................................1
3. "Allowed Claim".........................................................................1
4. "Allowed . . . Claim"...................................................................1
5. "Assumed Customer Guarantees"...........................................................1
6. "Ballot"................................................................................1
7. "Bank Loan Claim".......................................................................2
8. "Bankruptcy Code".......................................................................2
9. "Bankruptcy Court"......................................................................2
10. "Bankruptcy Rules"......................................................................2
11. "Bar Date"..............................................................................2
12. "Bar Date Order"........................................................................2
13. "Business Day"..........................................................................2
14. "CAP Plan"..............................................................................2
15. "Cash Investment Yield".................................................................2
16. "Cash Management Order".................................................................2
17. "Chase Bank"............................................................................2
18. "Claim".................................................................................2
19. "Claims Objection Bar Date".............................................................2
20. "Claims Resolution Committee"...........................................................2
21. "Class".................................................................................2
22. "Confirmation"..........................................................................2
23. "Confirmation Date".....................................................................3
24. "Confirmation Hearing"..................................................................3
25. "Confirmation Order"....................................................................3
26. "Creditors' Committee"..................................................................3
27. "Cure Amount Claim".....................................................................3
28. "Debtors"...............................................................................3
29. "DIP Credit Agreement"..................................................................3
30. "DIP Lender"............................................................................3
31. "Disbursing Agent"......................................................................3
32. "Disclosure Statement"..................................................................3
33. "Disputed Claim"........................................................................3
34. "Disputed Insured Claim" and "Disputed Uninsured Claim".................................3
35. "Distribution Record Date"..............................................................3
36. "Document Reviewing Centers"............................................................4
37. "Effective Date"........................................................................4
38. "Equity Incentive Plan".................................................................4
39. "Estate"................................................................................4
40. "Executory Contract and Unexpired Lease"................................................4
41. "Exit Financing Facility"...............................................................4
42. "Face Amount"...........................................................................4
43. "Fee Claim".............................................................................4
44. "Fee Order".............................................................................4
45. "File," "Filed" or "Filing".............................................................4
46. "Final Order"...........................................................................4
47. "Indenture Trustee".....................................................................5
48. "Insured Claim".........................................................................5
49. "Intercompany Claim"....................................................................5
50. "Interest"..............................................................................5
51. "IRS"...................................................................................5
52. "Koch Agriculture"......................................................................5
53. "Koch Entities".........................................................................5
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54. "Koch Industries".......................................................................5
55. "Koch Purchase Transaction".............................................................5
56. "Koch Unsecured Claim"..................................................................5
57. "National Securities Exchange"..........................................................5
58. "New Common Stock"......................................................................5
59. "New Prepetition Credit Facility Notes".................................................5
60. "New Revolving Notes"...................................................................5
61. "New Swap Claim Notes"..................................................................5
62. "New Tranche A Notes"...................................................................5
63. "New Tranche B Notes"...................................................................5
64. "New Tax Sharing Agreement".............................................................6
65. "Old Common Stock of . . .".............................................................6
66. "Old Prepetition Credit Facility Notes".................................................6
67. "Old Revolving Note Claim"..............................................................6
68. "Old Senior Subordinated Note Claim"....................................................6
69. "Old Senior Subordinated Notes".........................................................6
70. "Old Tranche A Note Claim"..............................................................6
71. "Old Tranche B Note Claim"..............................................................6
72. "Ordinary Course Professionals Order"...................................................6
73. "Petition Date".........................................................................6
74. "Plan"..................................................................................6
75. "PM Holdings"...........................................................................6
76. "PMI"...................................................................................6
77. "PMI Entities"..........................................................................6
78. "PMI Subsidiary Debtors"................................................................6
79. "Prepetition Credit Facility"...........................................................6
80. "Prepetition Indenture".................................................................6
81. "Priority Claim"........................................................................6
82. "Priority Tax Claim"....................................................................6
83. "Professional"..........................................................................7
84. "Pro Rata"..............................................................................7
85. "Quarterly Distribution Date"...........................................................7
86. "Real Property Executory Contract and Unexpired Lease"..................................7
87. "Recovery Actions"......................................................................7
88. "Reinstated" or "Reinstatement".........................................................7
89. "Reorganization Case"...................................................................8
90. "Reorganized . . .".....................................................................8
91. "Reserved Shares".......................................................................8
92. "Restructuring Transactions"............................................................8
93. "Schedules".............................................................................8
94. "Secondary Liability Claim".............................................................8
95. "Secured Claim".........................................................................8
96. "Securities Act"........................................................................8
97. "Stipulation of Amount and Nature of Claim".............................................8
98. "Swap Agreement"........................................................................8
99. "Swap Claims"...........................................................................9
100. "Third Party Disbursing Agent"..........................................................9
101. "Tort Claim"............................................................................9
102. "Trade Claim"...........................................................................9
103. "Uninsured Claim".......................................................................9
104. "Unsecured Claim".......................................................................9
105. "Unsecured Claims Reserve"..............................................................9
106. "Voting Deadline".......................................................................9
107. "Workers' Compensation Order"...........................................................9
B. Rules of Interpretation and Computation of Time..................................................9
1. Rules of Interpretation.................................................................9
2. Computation of Time.....................................................................9
ARTICLE II. - CLASSES OF CLAIMS AND INTERESTS.....................................................................10
A. Unimpaired Classes of Claims....................................................................10
1. Class 1 (Unsecured Priority Claims)....................................................10
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2. Class 3 (Non-Bank Secured Claims)......................................................10
3. Class 8 (PMI Subsidiary Debtors Old Common Stock Interests)............................10
B. Impaired Classes of Claims and Interests........................................................10
1. Class 2 (Convenience Claims)...........................................................10
2. Class 4 (Bank Loan Claims).............................................................10
3. Class 5 (General Unsecured Claims).....................................................10
4. Class 6 (Intercompany Claims)..........................................................10
5. Class 7 (PMI Old Common Stock Interests)...............................................10
ARTICLE III. - TREATMENT OF CLAIMS AND INTERESTS..................................................................10
A. Unclassified Claims.............................................................................10
1. Payment of Administrative Claims.......................................................10
a. Administrative Claims in General..............................................10
b. Statutory Fees................................................................11
c. Ordinary Course Liabilities...................................................11
d. Claims Under DIP Credit Agreement.............................................11
e. Bar Dates for Administrative Claims...........................................11
i. General Bar Date Provisions...........................................11
ii. Bar Dates for Certain Administrative Claims...........................11
A. Professional Compensation....................................11
B. Ordinary Course Liabilities..................................11
C. Claims Under DIP Credit Agreement............................12
2. Payment of Priority Tax Claims.........................................................12
a. Priority Tax Claims...........................................................12
b. Other Provisions Concerning Treatment of Priority Tax Claims..................12
B. Unimpaired Classes of Claims....................................................................12
1. Class 1 (Unsecured Priority Claims)....................................................12
2. Class 3 (Non-Bank Secured Claims)......................................................12
3. Class 8 Interests (PMI Subsidiary Debtors Old Common Stock Interests)..................12
C. Impaired Classes of Claims and Interests........................................................13
1. Class 2 Claims (Convenience Claims)....................................................13
2. Class 4 Claims (Bank Loan Claims)......................................................13
3. Class 5 Claims (General Unsecured Claims)..............................................13
4. Class 6 Claims (Intercompany Claims)...................................................13
5. Class 7 Interests (PMI Old Common Stock Interests).....................................13
D. Special Provisions Regarding Treatment of Allowed Secondary Liability Claims....................13
E. Special Provisions Regarding Indenture Trustee Charging Liens...................................13
ARTICLE IV. - MEANS FOR IMPLEMENTATION OF THE PLAN................................................................14
A. Continued Corporate Existence and Vesting of Assets in the Reorganized Debtors..................14
B. Restructuring Transactions......................................................................14
1. Restructuring Transactions Generally...................................................14
2. Obligations of Any Successor Corporation in a Restructuring Transaction................14
C. Corporate Governance, Directors and Officers, Employment-Related Agreements and Compensation
Programs........................................................................................14
1. Certificates of Incorporation and By-Laws..............................................14
a. Reorganized PMI...............................................................15
b. Reorganized PMI Subsidiary Debtors............................................15
2. Directors and Officers of the Reorganized Debtors......................................15
3. New Employment, Retirement, Indemnification and Other Related Agreements and Incentive
Compensation Programs..................................................................15
4. Corporate Action.......................................................................15
D. Exit Financing Facility, Obtaining Cash for Plan Distributions and Transfers of Funds Among the
Debtors.........................................................................................16
E. Preservation of Rights of Action; Settlement Agreements and Releases............................16
1. Preservation of Rights of Action by the Debtors and Reorganized Debtors................16
2. Releases...............................................................................16
a. Releases by Holders of Claims or Interests....................................16
b. Injunction Related to Releases................................................16
F. Continuation of Certain Employee, Retiree and Workers' Compensation Benefits....................17
1. Employee Benefits......................................................................17
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2. Retiree Medical Benefits...............................................................17
3. Workers' Compensation Benefits.........................................................17
G. Limitations on Amounts to Be Distributed to Holders of Allowed Insured Claims...................17
H. Cancellation and Surrender of Instruments, Securities and Other Documentation...................17
I. Other Agreements Related to Implementation of the Plan..........................................17
J. Release of Liens................................................................................18
K. Effectuating Documents; Further Transactions; Exemption from Certain Transfer Taxes.............18
ARTICLE V. - TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................................18
A. Executory Contracts and Unexpired Leases to Be Assumed or Assumed and Assigned..................18
1. Assumption and Assignment Generally....................................................18
2. Assumptions and Assignments of Real Property Executory Contracts
and Unexpired Leases...................................................................19
3. Assignments Related to the Restructuring Transactions..................................19
4. Approval of Assumptions and Assignments................................................19
B. Payments Related to Assumption of Executory Contracts and Unexpired Leases......................19
C. Executory Contracts and Unexpired Leases to Be Rejected.........................................19
D. Bar Date for Rejection Damages..................................................................20
E. Special Executory Contract and Unexpired Lease Issues...........................................20
1. Obligations to Indemnify Directors, Officers and Employees.............................20
2. Reinstatement of Allowed Secondary Liability Claims Arising From or Related to Executory
Contracts or Unexpired Leases Assumed by the Debtors...................................20
3. Assumed Customer Guarantees............................................................21
F. Contracts and Leases Entered Into After the Petition Date.......................................21
ARTICLE VI. - PROVISIONS GOVERNING DISTRIBUTIONS..................................................................21
A. Distributions for Claims Allowed as of the Effective Date.......................................21
1. Distributions to Be Made on the Effective Date.........................................21
2. Distributions on Effective Date in Respect of Class 5 General Unsecured Claims.........21
B. Method of Distributions to Holders of Claims....................................................21
C. Compensation and Reimbursement for Services Related to Distributions............................21
D. Provisions Governing the Unsecured Claims Reserve...............................................22
1. Funding of the Unsecured Claims Reserve................................................22
2. Property Held in Unsecured Claims Reserve..............................................22
a. Dividends and Distributions...................................................22
b. Recourse......................................................................22
E. Delivery of Distributions and Undeliverable or Unclaimed Distributions..........................22
1. Delivery of Distributions in General...................................................22
2. Undeliverable Distributions Held by Disbursing Agents..................................22
a. Holding and Investment of Undeliverable Distributions.........................22
b. After Distributions Become Deliverable........................................23
c. Failure to Claim Undeliverable Distributions..................................23
F. Distribution Record Date........................................................................23
G. Means of Cash Payments..........................................................................23
H. Timing and Calculation of Amounts to Be Distributed.............................................24
1. Allowed Claims in Classes Other Than Class 5...........................................24
2. Allowed Claims in Class 5..............................................................24
a. Initial Distributions.........................................................24
b. Additional Quarterly Distributions on Account of Previously Allowed Claims....24
3. Distributions of New Common Stock......................................................24
4. De Minimis Distributions...............................................................24
5. Compliance with Tax Requirements.......................................................25
I. Setoffs.........................................................................................25
J. Surrender of Canceled Instruments or Securities.................................................25
1. Tender of Old Senior Subordinated Notes................................................25
2. Lost, Stolen, Mutilated or Destroyed Old Senior Subordinated Notes.....................25
3. Failure to Surrender Canceled Untendered Securities....................................26
4. Old Prepetition Credit Facility Notes..................................................26
ARTICLE VII. - PROCEDURES FOR RESOLVING DISPUTED CLAIMS...........................................................26
A. Prosecution of Objections to Claims.............................................................26
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1. Objections to Claims...................................................................26
2. Authority to Prosecute Objections......................................................26
B. Treatment of Disputed Claims....................................................................26
C. Distributions on Account of Disputed Claims Once Allowed........................................27
D. Tax Requirements for Income Generated by Unsecured Claims Reserve...............................27
ARTICLE VIII. - SUBSTANTIVE CONSOLIDATION OF THE DEBTORS..........................................................27
ARTICLE IX. - CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN...................................28
A. Conditions to Confirmation......................................................................28
B. Conditions to Effective Date....................................................................28
C. Waiver of Conditions to Confirmation or Effective Date..........................................28
D. Effect of Nonoccurrence of Conditions to Effective Date.........................................28
ARTICLE X. - CRAMDOWN.............................................................................................29
ARTICLE XI. - DISCHARGE, TERMINATION, INJUNCTION AND SUBORDINATION RIGHTS.........................................29
A. Discharge of Claims and Termination of Interests................................................29
B. Injunctions.....................................................................................29
C. Termination of Subordination Rights and Settlement of Related Claims and Controversies..........30
ARTICLE XII. - RETENTION OF JURISDICTION..........................................................................30
ARTICLE XIII. - MISCELLANEOUS PROVISIONS..........................................................................31
A. Dissolution of the Creditors' Committee and Creation of the Claims Resolution Committee.........31
1. Creditors' Committee...................................................................31
2. Claims Resolution Committee............................................................32
a. Function and Composition of the Claims Resolution Committee...................32
b. Committee Procedures..........................................................32
c. Employment of Professionals by the Claim Resolution Committee and Reimbursement
of Committee Members..........................................................32
d. Dissolution of the Committee..................................................32
B. Limitation of Liability.........................................................................32
C. Modification of the Plan........................................................................33
D. Revocation of the Plan..........................................................................33
E. Severability of Plan Provisions.................................................................33
F. Successors and Assigns..........................................................................33
G. Service of Certain Plan Exhibits and Disclosure Statement Exhibits..............................33
H. Service of Documents............................................................................33
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TABLE OF EXHIBITS(1)
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Exhibit I.A.5 Assumed Customer Guarantees(2)
Exhibit III.C.2 Terms of New Prepetition Credit Facility Notes(3)
Exhibit IV.C.1.a(i) Certificate of Incorporation of Reorganized PMI(3)
Exhibit IV.C.1.a(ii) By-Laws of Reorganized PMI(3)
Exhibit IV.C.1.b(i) Certificates of Incorporation of each Reorganized PMI Subsidiary Debtor(3)
Exhibit IV.C.1.b(ii) By-Laws of each Reorganized PMI Subsidiary Debtor(3)
Exhibit IV.C.2 Initial directors and officers of each of the Reorganized Debtors(2)
Exhibit IV.C.3.a Initial grants under Equity Incentive Plan(2)
Exhibit IV.C.3.b Employment and other agreements and plans that are in effect and/or will take effect
as of the Effective Date(2)
Exhibit IV.I.1 New Tax Sharing Agreement(2)
Exhibit V.A.1 Schedule of Executory Contracts and Unexpired Leases to be Assumed and Assigned(2)
Exhibit V.C Nonexclusive Schedule of Executory Contracts and Unexpired Leases to be Rejected(2)
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(1) Except as otherwise indicated, all Exhibits will be available for review at
the Document Reviewing Centers.
(2) To be Filed and available for review at the Document Reviewing Centers no
later than ten days before the hearing on Confirmation of the Plan.
(3) To be Filed and available for review at the Document Reviewing Centers no
later than thirty days before the hearing on the Disclosure Statement.
VI
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INTRODUCTION
Purina Mills, Inc. ("PMI") and the other above-captioned
debtors and debtors in possession (collectively, the "Debtors") propose the
following joint plan of reorganization (the "Plan") for the resolution of the
outstanding claims against and equity interests in the Debtors. The Debtors are
proponents of the Plan within the meaning of section 1129 of the Bankruptcy
Code, 11 U.S.C. Section 1129. Reference is made to the Debtors' disclosure
statement, filed contemporaneously with the Plan (the "Disclosure Statement"),
for a discussion of the Debtors' history, businesses, results of operations,
historical financial information, projections and properties, and for a summary
and analysis of the Plan. There also are other agreements and documents, which
are or will be filed with the Bankruptcy Court, that are referenced in the Plan
or the Disclosure Statement and that will be available for review.
ARTICLE
DEFINED TERMS, RULES OF INTERPRETATION
AND COMPUTATION OF TIME
A. DEFINED TERMS
As used in the Plan, capitalized terms have the meanings set
forth below. Any term that is not otherwise defined herein, but that is used in
the Bankruptcy Code or the Bankruptcy Rules, will have the meaning given to that
term in the Bankruptcy Code or the Bankruptcy Rules, as applicable.
1. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date of preserving the respective Estates and
operating the businesses of the Debtors (such as wages, salaries, commissions
for services and payments for inventories, leased equipment and premises); (b)
compensation for legal, financial advisory, accounting and other services and
reimbursement of expenses awarded or allowed under sections 330(a) or 331 of the
Bankruptcy Code; (c) all fees and charges assessed against the Estates under
chapter 123 of title 28, United States Code, 28 U.S.C. Section Section
1911-1930; (d) Claims for reclamation allowed in accordance with section
546(c)(2) of the Bankruptcy Code and section 2-702 of the Uniform Commercial
Code; and (e) all Intercompany Claims accorded priority pursuant to section
364(c)(1) of the Bankruptcy Code or the Cash Management Order.
2. "ADMINISTRATIVE TRADE CLAIM" means an Administrative Claim with
respect to the sales of goods or rendition of services on or after the Petition
Date in the ordinary course of the applicable Debtor's business, including
Administrative Claims of employees for ordinary course wages, expense
reimbursement and health and welfare benefits.
3. "ALLOWED CLAIM" means:
a. a Claim that (i) has been listed by a particular Debtor
on its Schedules as other than disputed, contingent or unliquidated and
(ii) is not otherwise a Disputed Claim;
b. a Claim (i) for which a proof of Claim or request for
payment of Administrative Claim has been Filed by the applicable Bar
Date or otherwise been deemed timely Filed under applicable law and
(ii) that is not otherwise a Disputed Claim; or
c. a Claim that is allowed: (i) in any Stipulation of Amount
and Nature of Claim executed by the applicable Reorganized Debtor and
Claim holder on or after the Effective Date; (ii) in any contract,
instrument or other agreement entered into in connection with the Plan;
(iii) in a Final Order; or (iv) pursuant to the terms of the Plan.
4. "ALLOWED . . . CLAIM" means an Allowed Claim in the particular
Class or category specified. Any reference herein to a particular Allowed Claim
includes both the secured and unsecured portions of such Claim.
5. "ASSUMED CUSTOMER GUARANTEES" means the guarantees or other
agreements of a Debtor listed on Exhibit I.A.5.
6. "BALLOT" means the form or forms distributed to each holder of
an impaired Claim entitled to vote on the Plan on which the holder indicates
acceptance or rejection of the Plan or any election for treatment of such Claim
under the Plan.
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2
7. "BANK LOAN CLAIM" means an Old Tranche A Note Claim, Old
Tranche B Note Claim, Old Revolving Note Claim or a Swap Claim.
8. "BANKRUPTCY CODE" means title 11 of the United States Code, 11
U.S.C. Section Section 101-1330, as now in effect or hereafter amended.
9. "BANKRUPTCY COURT" means the United States District Court
having jurisdiction over the Reorganization Cases and, to the extent of any
reference made pursuant to 28 U.S.C. Section 157, the bankruptcy unit of such
District Court.
10. "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court, as now in
effect or hereafter amended.
11. "BAR DATE" means the applicable bar date by which a proof of
Claim must be or must have been Filed, as established by an order of the
Bankruptcy Court, including the Bar Date Order and the Confirmation Order.
12. "BAR DATE ORDER" means an order of the Bankruptcy Court
establishing Bar Dates for Filing proofs of Claims in the Reorganization Cases,
as the same may be amended, modified or supplemented.
13. "BUSINESS DAY" means any day, other than a Saturday, Sunday or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
14. "CAP PLAN" means, collectively, PMI's (a) 1987 Capital
Accumulation Plan for Key Employees, (b) 1988 Capital Accumulation Plan for Key
Employees, (c) 1989 Capital Accumulation Plan for Key Employees (Non-Executive),
(d) 1989 Capital Accumulation Plan for Key Employees (Executive), (e) 1990
Capital Accumulation Plan for Key Employees (Non-Executive), (f) 1990 Capital
Accumulation Plan for Key Employees (Executive) and (g) Discretionary (1992)
Capital Accumulation Plan for Key Employees, a frozen, nonqualified employee
benefit program maintained prior to the Petition Date for the benefit of certain
current and former employees who made contributions thereunder prior to 1993.
15. "CASH INVESTMENT YIELD" means the net yield earned by the
applicable Disbursing Agent from the investment of cash held pending
distribution pursuant to the Plan (including any cash received by such
Disbursing Agent on account of dividends and other distributions on New Common
Stock), which investment will be in a manner consistent with the Reorganized
Debtors' investment and deposit guidelines.
16. "CASH MANAGEMENT ORDER" means the Order (A) Approving Cash
Management Systems, Certain Intercompany Transaction with Nondebtor Affiliates,
Use of Existing Bank Accounts and Business Forms and Proposed Investment and
Deposit Guidelines and (B) According Superpriority Status to All Postpetition
Intercompany Claims tendered by the Debtors to the Bankruptcy Court on the
Petition Date in such form as that Order is entered by the Bankruptcy Court.
17. "CHASE BANK" means Chase Bank of Texas, National Association.
18. "CLAIM" means a "claim," as defined in section 101(5) of the
Bankruptcy Code, against any Debtor.
19. "CLAIMS OBJECTION BAR DATE" means, for all Claims, other than
those Claims allowed in accordance with Section I.A.3.c, the latest of: (a) 120
days after the Effective Date; (b) 60 days after the Filing of a proof of claim
for such Claim; and (c) such other period of limitation as may be specifically
fixed by the Plan, the Confirmation Order, the Bankruptcy Rules or a Final Order
for objecting to such Claim.
20. "CLAIMS RESOLUTION COMMITTEE" means the committee to be
established pursuant to Section XIII.A.2.
21. "CLASS" means a class of Claims or Interests, as described in
Article II.
22. "CONFIRMATION" means the entry of the Confirmation Order on
the docket of the Bankruptcy Court.
23. "CONFIRMATION DATE" means the date on which the Bankruptcy
Court enters the Confirmation Order on its docket, within the meaning of
Bankruptcy Rules 5003 and 9021.
24. "CONFIRMATION HEARING" means the hearing held by the Bankruptcy
Court on Confirmation of the Plan, as such hearing may be continued from time to
time.
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25. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
26. "CREDITORS' COMMITTEE" means the official committee of
unsecured creditors of the Debtors appointed by the United States Trustee in the
Reorganization Cases pursuant to section 1102 of the Bankruptcy Code.
27. "CURE AMOUNT CLAIM" means a Claim based upon a Debtor's
defaults pursuant to an Executory Contract or Unexpired Lease at the time such
contract or lease is assumed by that Debtor under section 365 of the Bankruptcy
Code.
28. "DEBTORS" means, collectively, the above-captioned debtors and
debtors in possession specifically identified on the cover page to this Plan.
29. "DIP CREDIT AGREEMENT" means, collectively: (a) the
Postpetition Loan and Security Agreement, dated as of October , 1999, as it may
be subsequently amended and modified, among the Debtors (as borrowers), those
entities identified therein as "Lenders" and their respective successors and
assigns and Chase Bank (as agent bank); (b) all amendments thereto and
extensions thereof; and (c) all security agreements and instruments related to
the documents identified in (a) and (b).
30. "DIP LENDER" means, collectively: (a) those entities
identified as "Lenders" in the DIP Credit Agreement and their respective
successors and assigns, and (b) Chase Bank (as agent bank).
31. "DISBURSING AGENT" means Reorganized PMI, in its capacity as a
disbursing agent pursuant to Article VI.B, or any Third Party Disbursing Agent.
32. "DISCLOSURE STATEMENT" means the disclosure statement
(including all exhibits and schedules thereto or referenced therein) that
relates to the Plan, as approved by the Bankruptcy Court pursuant to section
1125 of the Bankruptcy Code, as the same may be amended, modified or
supplemented.
33. "DISPUTED CLAIM" means:
a. if no proof of Claim has been Filed by the applicable Bar
Date or has otherwise been deemed timely Filed under applicable law:
(i) a Claim that is listed on a Debtor's Schedules as other than
disputed, contingent or unliquidated, but as to which the applicable
Debtor, Reorganized Debtor or, prior to the Confirmation Date, any
other party in interest, has Filed an objection by the Claims Objection
Bar Date or (ii) a Claim that is listed on a Debtor's Schedules as
disputed, contingent or unliquidated; or
b. if a proof of Claim or request for payment of an
Administrative Claim has been Filed by the Bar Date or has otherwise
been deemed timely Filed under applicable law: (i) a Claim for which no
corresponding Claim is listed on a Debtor's Schedules; (ii) a Claim for
which a corresponding Claim is listed on a Debtor's Schedules as other
than disputed, contingent or unliquidated, but the nature or amount of
the Claim as asserted in the proof of Claim varies from the nature and
amount of such Claim as it is listed on the Schedules; (iii) a Claim
for which a corresponding Claim is listed on a Debtor's Schedules as
disputed, contingent or unliquidated; (iv) a Claim for which an
objection has been Filed by the applicable Debtor, Reorganized Debtor
or, prior to the Confirmation Date, any other party in interest, by the
Claims Objection Bar Date, and such objection has not been withdrawn or
denied by a Final Order; or (v) a Tort Claim.
34. "DISPUTED INSURED CLAIM" and "DISPUTED UNINSURED CLAIM" mean,
respectively, an Insured Claim or an Uninsured Claim that is also a Disputed
Claim.
35. "DISTRIBUTION RECORD DATE" means the Confirmation Date.
36. "DOCUMENT REVIEWING CENTERS" means, collectively: (a) the
offices of Jones, Day, Reavis & Pogue located at North Point, 901 Lakeside
Avenue, Cleveland, Ohio 44114, and (b) any other locations designated by the
Debtors at which any party in interest may review all of the exhibits and
schedules to the Plan and the Disclosure Statement.
37. "EFFECTIVE DATE" means a Business Day, as determined by the
Debtors, that (a) is as soon as reasonably practicable after the Confirmation
Date and (b) is the day on which (i) all conditions to the Effective Date in
Section IX.B have been met or waived pursuant to Section IX.C and (ii) no stay
of the Confirmation Order is in effect.
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38. "EQUITY INCENTIVE PLAN" means the equity incentive plan adopted
as of the Effective Date, on substantially the terms described in Exhibit
IV.C.3.b, for the benefit of employees and directors of PMI and Reorganized PMI.
39. "ESTATE" means, as to each Debtor, the estate created for that
Debtor in its Reorganization Case pursuant to section 541 of the Bankruptcy
Code.
40. "EXECUTORY CONTRACT AND UNEXPIRED LEASE" means a contract or
lease to which one or more of the Debtors is a party that is subject to
assumption or rejection under section 365 of the Bankruptcy Code.
41. "EXIT FINANCING FACILITY" means a revolving credit facility to
be entered into by the Debtors on the Effective Date in an amount and on terms
satisfactory to the Debtors.
42. "FACE AMOUNT" means:
a. when used with reference to a Disputed Insured Claim, either
(i) the full stated amount claimed by the holder of such Claim in any
proof of Claim Filed by the Bar Date, or otherwise deemed timely Filed
under applicable law, if the proof of Claim specifies only a liquidated
amount, (ii) if no proof of Claim is Filed by the Bar Date or otherwise
deemed timely filed under applicable law, the full amount of the Claim
listed on the Debtors' Schedules, provided that such amount is not
listed as disputed, contingent or unliquidated; or (iii) the applicable
deductible under the relevant insurance policy, minus any reimbursement
obligations of the applicable Debtor to the insurance carrier for sums
expended by the insurance carrier on account of such Claim (including
defense costs), if such amount is less than the amount specified in (i)
or (ii) above or the proof of Claim specifies an unliquidated amount;
and
b. when used with reference to a Disputed Uninsured Claim,
either (i) the full stated amount claimed by the holder of such Claim
in any proof of Claim Filed by the Bar Date or otherwise deemed timely
Filed under applicable law, if the proof of Claim specifies only a
liquidated amount or (ii) the amount of the Claim acknowledged by the
applicable Debtor or Reorganized Debtor in any objection Filed to such
Claim, estimated by the Bankruptcy Court pursuant to section 502(c) of
the Bankruptcy Code or proposed by the Debtors or the Reorganized
Debtors and approved by the Creditors' Committee or Claims Resolution
Committee, if no proof of Claim has been Filed by the Bar Date or has
otherwise been deemed timely Filed under applicable law or if the proof
of Claim specifies an unliquidated amount.
43. "FEE CLAIM" means a Claim under sections 330(a), 331, 503 or
1103 of the Bankruptcy Code for compensation of a Professional or other entity
for services rendered or expenses incurred in the Reorganization Cases.
44. "FEE ORDER" means the Administrative Order, Pursuant to
Sections 105 and 331 of the Bankruptcy Code, Establishing Procedures for Interim
Compensation and Reimbursement of Expenses of Professionals tendered by the
Debtors to the Bankruptcy Court on the Petition Date in such form as that Order
is entered by such Court.
45. "FILE," "FILED" or "FILING" means file, filed or filing with
the Bankruptcy Court or its authorized designee in the Reorganization Cases.
46. "FINAL ORDER" means an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction, as entered on the docket in any
Reorganization Case or the docket of any other court of competent jurisdiction,
that has not been reversed, stayed, modified or amended, and as to which the
time to appeal or seek certiorari has expired, and no appeal or petition for
certiorari has been timely taken, or as to which any appeal that has been taken
or any petition for certiorari that has been timely filed has been resolved by
the highest court to which the order or judgment was appealed or from which
certiorari was sought.
47. "INDENTURE TRUSTEE" means Bank One Trust Company, N.A., f/k/a
The First National Bank of Chicago, or its successor, as indenture trustee under
the Prepetition Indenture, or any successor thereto.
48. "INSURED CLAIM" means any Claim arising from an incident or
occurrence alleged to have occurred prior to the Effective Date that is covered
under an insurance policy, other than a workers' compensation insurance policy,
applicable to the Debtors or their businesses.
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49. "INTERCOMPANY CLAIM" means, collectively: (a) any account
reflecting intercompany book entries by one Debtor with respect to any other
Debtor and (b) any Claim not reflected in such book entries that is held by a
Debtor against another Debtor, but in no event shall a claim relating to any
Recovery Action constitute an Intercompany Claim.
50. "INTEREST" means the rights of the holder of the Old Common
Stock of any Debtor and the rights of any entity to purchase or demand the
issuance of any of the foregoing, including: (a) redemption, conversion,
exchange, voting, participation and dividend rights; (b) liquidation
preferences; and (c) stock options and warrants.
51. "IRS" means the Internal Revenue Service of the United States
of America.
52. "KOCH AGRICULTURE" means Koch Agriculture Company, a Nebraska
corporation, and the parent corporation of Holdings.
53. "KOCH ENTITIES" means, collectively, Koch Industries, Koch
Agriculture and any affiliates, subsidiaries and divisions of the foregoing,
other than the PMI Entities.
54. "KOCH INDUSTRIES" means Koch Industries, Inc., a Kansas
corporation.
55. "KOCH PURCHASE TRANSACTION" means, collectively and
individually, the acquisition and merger transactions, including any related
financing or other related transactions, by which Koch Agriculture acquired PM
Holdings on or about March 12, 1998, or which were entered into in connection
therewith.
56. "KOCH UNSECURED CLAIM" means an Unsecured Claim held by any of
the Koch Entities against one or more of the Debtors.
57. "NATIONAL SECURITIES EXCHANGE" means any exchange registered
pursuant to Section 6(a) of the Securities Exchange Act of 1934, as amended,
including the National Association of Securities Dealers Automated Quotation
System.
58. "NEW COMMON STOCK" means the shares of common stock, par value
$.01 per share, of Reorganized PMI, authorized pursuant to the certificate of
incorporation of Reorganized PMI.
59. "NEW PREPETITION CREDIT FACILITY NOTES" means, collectively the
New Revolving Notes, New Swap Claims Notes, New Tranche A Notes and New Tranche
B Notes.
60. "NEW REVOLVING NOTES" mean the notes of Reorganized PMI
substantially on the terms set forth in Exhibit III.C.2.
61. "NEW SWAP CLAIM NOTES" means the swap notes of Reorganized PMI,
substantially on the terms set forth in Exhibit III.C.2.
62. "NEW TRANCHE A NOTES" means the Tranche A notes of Reorganized
PMI, substantially on the terms set forth in Exhibit III.C.2.
63. "NEW TRANCHE B NOTES" means the Tranche B notes of Reorganized
PMI, substantially on the terms set forth in Exhibit III.C.2.
64. "NEW TAX SHARING AGREEMENT" means the tax sharing agreement
among the Reorganized Debtors and certain of the other PMI Entities,
substantially in the form of Exhibit IV.I.1.
65. "OLD COMMON STOCK OF . . ." means, when used with reference to
a particular Debtor or Debtors, the common stock, membership interests or
partnership interests issued by such Debtor or Debtors and outstanding
immediately prior to the Petition Date.
66. "OLD PREPETITION CREDIT FACILITY NOTES" mean the notes under
the Prepetition Credit Facility evidencing an Old Revolving Note Claim, an Old
Tranche A Note Claim or an Old Tranche B Note Claim.
67. "OLD REVOLVING NOTE CLAIM" means a Claim in respect of a
Revolving Note under the Prepetition Credit Facility.
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68. "OLD SENIOR SUBORDINATED NOTE CLAIM" means a Claim under or
evidenced by the Prepetition Indenture.
69. "OLD SENIOR SUBORDINATED NOTES" means the senior subordinated
notes issued by PMI pursuant to the Prepetition Indenture.
70. "OLD TRANCHE A NOTE CLAIM" means a Claim in respect of a
Tranche A Note under the Prepetition Credit Facility.
71. "OLD TRANCHE B NOTE CLAIM" means a Claim in respect of a
Tranche B Note under the Prepetition Credit Facility.
72. "ORDINARY COURSE PROFESSIONALS ORDER" means the Order
Authorizing Debtors and Debtors in Possession to Retain, Employ and Pay
Professionals in the Ordinary Course of the Debtors' Businesses tendered by the
Debtors to the Bankruptcy Court on the Petition Date in such form as that Order
is entered by the Bankruptcy Court.
73. "PETITION DATE" means October , 1999.
74. "PLAN" means this joint plan of reorganization for the Debtors,
to the extent applicable to any Debtor, and all Exhibits attached hereto or
referenced herein, as the same may be amended, modified or supplemented.
75. "PM HOLDINGS" means PM Holdings Corporation, a Delaware
corporation, the parent corporation of PMI.
76. "PMI" means Purina Mills, Inc., a Delaware corporation, one of
the Debtors and the parent corporation of each of the PMI Subsidiary Debtors.
77. "PMI ENTITIES" means PMI and all of its direct or indirect
debtor and nondebtor subsidiaries.
78. "PMI SUBSIDIARY DEBTORS" means, individually or collectively, a
Debtor or Debtors other than PMI.
79. "PREPETITION CREDIT FACILITY" means the Credit Agreement, dated
as of March 12, 1998, among PMI, the lender parties named therein and Chase Bank
(individually, as an issuing bank and as administrative agent), as the same may
have been subsequently modified, amended or supplemented, together with all
instruments and agreements related thereto.
80. "PREPETITION INDENTURE" means the Indenture, dated as of March
12, 1998, between PMI and the Indenture Trustee, concerning the 9% Senior
Subordinated Notes Due 2010, as the same may have been subsequently modified,
amended or supplemented, together with all instruments and agreements related
thereto.
81. "PRIORITY CLAIM" means a Claim that is entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code that is not an
Administrative Claim or a Priority Tax Claim.
82. "PRIORITY TAX CLAIM" means a Claim that is entitled to priority
in payment pursuant to section 507(a)(8) of the Bankruptcy Code.
83. "PROFESSIONAL" means any professional employed in the
Reorganization Cases pursuant to sections 327 or 1103 of the Bankruptcy Code or
any professional or other entity seeking compensation or reimbursement of
expenses in connection with the Reorganization Cases pursuant to section
503(b)(4) of the Bankruptcy Code.
84. "PRO RATA" means:
a. when used with reference to a distribution of New
Common Stock to holders of Allowed Claims in Class 5 pursuant to
Article III, proportionately so that with respect to a particular
Allowed Claim in Class 5, the ratio of (i)(A) the amount of property
distributed on account of such Claim to (B) the amount of such Claim,
is the same as the ratio of (ii)(A) the amount of property distributed
on account of all Allowed Claims in Class 5 to (B) the amount of all
Allowed Claims in Class 5; and
b. when used with reference to distributions of cash to
holders of Allowed Claims in Class 5, including the Cash Investment
Yield, the portion of cash allocable to a particular Allowed Claim in
Class 5 on the basis of the amount of the dividends and other
distributions on account of New Common Stock being distributed on
account of such Claim and any related Cash Investment Yield.
Calculations of the Pro Rata shares of the cash to be
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distributed at any particular time will be based on the cash and
related Cash Investment Yield generated as of the last day of the month
prior to the month in which such distributions are to be made.
85. "QUARTERLY DISTRIBUTION DATE" means the last Business Day of
the month following the end of each calendar quarter after the Effective Date;
provided, however, that if the Effective Date is within 45 days of the end of a
calendar quarter, the first Quarterly Distribution Date will be the last
Business Day of the month following the end of the first calendar quarter after
the calendar quarter in which the Effective Date falls.
86. "REAL PROPERTY EXECUTORY CONTRACT AND UNEXPIRED LEASE" means an
Executory Contract or Unexpired Lease relating to a Debtor's interest in real
property, and any Executory Contracts and Unexpired Leases appurtenant to the
applicable real property, including all easements; licenses; permits; rights;
privileges; immunities; options; rights of first refusal; powers; uses;
usufructs; reciprocal easement or operating agreements; vault, tunnel or bridge
agreements or franchises; development rights; and any other interests in real
estate or rights in rem related to the applicable real property.
87. "RECOVERY ACTIONS" means, collectively, any actions, causes of
action, liabilities, obligations, rights, suits, damages, judgments, claims and
demands held by the Debtors or their Estates or assertable by the Debtors or
their Estates on behalf of creditors of their Estates against: (a) any of the
Koch Entities or other parties, including former shareholders of PM Holdings,
involved in the Koch Purchase Transaction (other than the PMI Entities) or their
respective present and former shareholders, members, directors, officers,
employees, agents, attorneys, accountants, investment bankers and other
representatives; or (b) any of the Debtors' former officers and directors no
longer affiliated with any of the Debtors in such capacity as of the Petition
Date. Among other things, the Recovery Actions include: (a) preference,
fraudulent conveyance and other avoidance actions under sections 544, 547, 548,
549 and 550 of the Bankruptcy Code and other applicable nonbankruptcy law; (b)
claims arising out of illegal dividends or similar theories of liability; (c)
claims based on piercing the corporate veil, alter ego liability or similar
legal theories; (d) claims based on unjust enrichments; and (e) any other causes
of action for damages arising out of the Koch Purchase Transaction or the Koch
Entities' ownership or operation of the Debtors following the Koch Purchase
Transaction including any such cause of action against any Koch Entity relating
to maintenance of the CAP Plan, the provision of retiree medical benefits and
the provision of director and officer liability insurance or indemnification.
88. "REINSTATED" or "REINSTATEMENT" means rendering a Claim or
Interest unimpaired within the meaning of section 1124 of the Bankruptcy Code.
Unless the Plan specifies a particular method of Reinstatement, when the Plan
provides that an Allowed Claim or Allowed Interest will be Reinstated, such
Claim or Interest will be Reinstated, at the applicable Reorganized Debtor's
sole discretion, in accordance with one of the following:
a. The legal, equitable and contractual rights to which
such Claim or Interest entitles the holder will be unaltered; or
b. 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:
i. any such default that occurred before or
after the commencement of the applicable Reorganization Case,
other than a default of a kind specified in section 365(b)(2)
of the Bankruptcy Code, will be cured;
ii. the maturity of such Claim or Interest as
such maturity existed before such default will be reinstated;
iii. the holder of such Claim or Interest will be
compensated for any damages incurred as a result of any
reasonable reliance by such holder on such contractual
provision or such applicable law; and
iv. the legal, equitable or contractual rights
to which such Claim or Interest entitles the holder of such
Claim or Interest will not otherwise be altered.
89. "REORGANIZATION CASE" means: (a) when used with reference to a
particular Debtor, the chapter 11 case pending for that Debtor in the Bankruptcy
Court and (b) when used with reference to all Debtors, the chapter 11 cases
pending for the Debtors in the Bankruptcy Court.
90. "REORGANIZED . . ." means, when used in reference to a
particular Debtor, such Debtor on and after the Effective Date.
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91. "RESERVED SHARES" means 10,000,000 shares of New Common Stock
to be placed in the Unsecured Claims Reserve for distribution to holders of
Allowed Claims in Class 5.
92. "RESTRUCTURING TRANSACTIONS" means, collectively, those
mergers, consolidations, restructurings, dispositions, liquidations or
dissolutions that the Debtors or Reorganized Debtors determine to be necessary
or appropriate to effect a corporate restructuring of their respective
businesses or otherwise to simplify the overall corporate structure of the
Reorganized Debtors.
93. "SCHEDULES" means the schedules of assets and liabilities and
the statements of financial affairs Filed by the Debtors, as required by section
521 of the Bankruptcy Code and the Official Bankruptcy Forms, as the same may
have been or may be amended, modified or supplemented.
94. "SECONDARY LIABILITY CLAIM" means an Unsecured Claim that
arises from a Debtor being liable as a guarantor of, or otherwise being jointly,
severally or secondarily liable for, any contractual, tort or other obligation
of another Debtor, including any Unsecured Claim based on: (a) guaranties of
collection, payment or performance; (b) indemnity bonds, obligations to
indemnify or obligations to hold harmless; (c) performance bonds; (d) contingent
liabilities arising out of contractual obligations or out of undertakings
(including any assignment or other transfer) with respect to leases, operating
agreements or other similar obligations made or given by a Debtor relating to
the obligations or performance of another Debtor; (e) vicarious liability; (f)
liabilities arising out of piercing the corporate veil, alter ego liability or
similar legal theories; or (g) any other joint or several liability that any
Debtor may have in respect of any obligation that is the basis of a Claim.
95. "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 applicable Estate's interest in such property or to the
extent of the amount subject to setoff, as applicable, as determined pursuant to
sections 506(a) and, if applicable, 1129(b) of the Bankruptcy Code.
96. "SECURITIES ACT" means the Securities Act of 1933, 15 U.S.C.
Section Section 77a-77aa, as now in effect or hereafter amended.
97. "STIPULATION OF AMOUNT AND NATURE OF CLAIM" means a stipulation
or other agreement between the applicable Debtor or Reorganized Debtor and a
holder of a Claim or Interest, or an agreed order of the Bankruptcy Court,
establishing the amount and nature of a Claim or Interest.
98. "SWAP AGREEMENT" means any interest rate swap agreement or
similar agreement giving rise to a Claim against any Debtor constituting a
Secured Claim under the Prepetition Credit Facility.
99. "SWAP CLAIMS" means the interest rate swap Claims and arising
under the Swap Agreement.
100. "THIRD PARTY DISBURSING AGENT" means an entity designated by
Reorganized PMI to act as a Disbursing Agent pursuant to Section VI.B.
101. "TORT CLAIM" means any Claim that has not been settled,
compromised or otherwise resolved that (a) arises out of allegations of personal
injury, wrongful death, property damage, products liability or similar legal
theories of recovery or (b) arises under any federal, state or local statute,
rule, regulation or ordinance governing, regulating or relating to health,
safety, hazardous substances or the environment.
102. "TRADE CLAIM" means any Unsecured Claim arising from or with
respect to the sale of goods or rendition of services prior to the Petition
Date, in the ordinary course of the applicable Debtor's business, including any
Claim of an employee that is not a Priority Claim.
103. "UNINSURED CLAIM" means any Claim that is not an Insured Claim.
104. "UNSECURED CLAIM" means any Claim that is not an Administrative
Claim, Priority Claim, Priority Tax Claim, Secured Claim or Intercompany Claim.
105. "UNSECURED CLAIMS RESERVE" means the reserve of Reserved Shares
established pursuant to Section VI.D.1 for Claims in Class 5, which reserve will
be maintained in trust for holders of Allowed Claims in Class 5 and will not
constitute property of any of the Reorganized Debtors.
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106. "VOTING DEADLINE" means the deadline for submitting Ballots to
accept or reject the Plan in accordance with section 1126 of the Bankruptcy
Code, as specified in the Disclosure Statement.
107. "WORKERS' COMPENSATION ORDER" means the Order Authorizing
Debtors and Debtors in Possession to (A) Continue Their Participation in
Workers' Compensation Insurance Programs Paid for or Maintained by Koch
Industries, Inc. and (B) Reimburse Koch Industries, Inc. for Certain Prepetition
Workers' Compensation Premiums, tendered by the Debtors to the Bankruptcy Court
on the Petition Date in the form entered by the Bankruptcy Court.
B. RULES OF INTERPRETATION AND COMPUTATION OF TIME
1. RULES OF INTERPRETATION
For purposes of the Plan, unless otherwise provided herein: (a)
whenever from the context it is appropriate, each term, whether stated in the
singular or the plural, will include both the singular and the plural; (b)
unless otherwise provided in the Plan, any reference in the Plan to a contract,
instrument, release or other agreement or document being in a particular form or
on particular terms and conditions means that such document will be
substantially in such form or substantially on such terms and conditions; (c)
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 pursuant to the Plan or Confirmation Order; (d) any
reference to an entity as a holder of a Claim or Interest includes that entity's
successors, assigns and affiliates; (e) all references in the Plan to Sections,
Articles and Exhibits are references to Sections, Articles and Exhibits of or to
the Plan; (f) the words "herein," "hereunder" and "hereto" refer to the Plan in
its entirety rather than to a particular portion of the Plan; (g) 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; (h) subject to the provisions of any contract, certificates of
incorporation, by-laws, similar constituent documents, instrument, release or
other agreement or document entered into in connection with the Plan, the rights
and obligations arising under the Plan shall be governed by, and construed and
enforced in accordance with, federal law, including the Bankruptcy Code and the
Bankruptcy Rules; and (i) the rules of construction set forth in section 102 of
the Bankruptcy Code will apply.
2. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the
Plan, the provisions of Bankruptcy Rule 9006(a) will apply.
ARTICLE I
CLASSES OF CLAIMS AND INTERESTS
All Claims and Interests, except Administrative Claims and
Priority Tax Claims, are placed in the following Classes. In accordance with
section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority
Tax Claims, as described in Section III.A, have not been classified and thus are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class and is classified in other Classes to the extent
that any remainder of the Claim or Interest qualifies within the description of
such other Classes.
A. UNIMPAIRED CLASSES OF CLAIMS
1. CLASS 1 (UNSECURED PRIORITY CLAIMS): Priority Claims against
any Debtor that are entitled to priority under sections 507(a)(3), 507(a)(4) or
507(a)(6) of the Bankruptcy Code.
2. CLASS 3 (NON-BANK SECURED CLAIMS): Secured Claims against any
Debtor that are not classified in Class 4.
3. CLASS 8 (PMI SUBSIDIARY DEBTORS OLD COMMON STOCK INTERESTS):
Interests on account of the Old Common Stock of the PMI Subsidiary Debtors.
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B. IMPAIRED CLASSES OF CLAIMS AND INTERESTS
1. CLASS 2 (CONVENIENCE CLAIMS): All Unsecured Claims against any
Debtor that otherwise would be classified in Class 5, but with respect to which
all such Claims of a particular claim holder aggregate $1,000 or less or as to
which such holder elects to reduce all of such Claims to $1,000 on the Ballot
provided for voting on the Plan, by the Voting Deadline.
2. CLASS 4 (BANK LOAN CLAIMS): Bank Loan Claims against any Debtor.
3. CLASS 5 (GENERAL UNSECURED CLAIMS): Unsecured Claims against any
Debtor that are not otherwise classified in Classes 1, 2, 4 or 6, including Old
Senior Subordinated Note Claims, Trade Claims, Tort Claims and Koch Unsecured
Claims.
4. CLASS 6 (INTERCOMPANY CLAIMS): Intercompany Claims.
5. CLASS 7 (PMI OLD COMMON STOCK INTERESTS): Interests of PM Holdings
on account of the Old Common Stock of PMI.
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS
A. UNCLASSIFIED CLAIMS
1. PAYMENT OF ADMINISTRATIVE CLAIMS
a. ADMINISTRATIVE CLAIMS IN GENERAL
Except as specified in this Section III.A.1, and subject to the
bar date provisions herein, unless otherwise agreed by the holder of an
Administrative Claim and the applicable Debtor or Reorganized Debtor, each
holder of an Administrative Claim will receive, in full satisfaction of its
Claim, cash equal to the Allowed amount of such Administrative Claim on the
Effective Date or, if the Administrative Claim is not allowed as of the
Effective Date, 30 days after the date on which an order allowing such Claim
becomes a Final Order or a Stipulation of Amount and Nature of Claim is executed
by the applicable Reorganized Debtor and Claim holder.
b. STATUTORY FEES
On or before the Effective Date, Administrative Claims for fees
payable pursuant to 28 U.S.C. ' 1930 as determined by the Bankruptcy Court at
the Confirmation Hearing, will be paid in cash equal to the amount of such
Administrative Claims. All fees payable pursuant to 28 U.S.C. ' 1930 will be
paid by the Reorganized Debtors in accordance therewith until the closing of the
Reorganization Cases pursuant to section 350(a) of the Bankruptcy Code.
c. ORDINARY COURSE LIABILITIES
Administrative Claims based on liabilities incurred by a Debtor
in the ordinary course of its business (including Administrative Trade Claims,
Administrative Claims of governmental units for taxes (including tax audit
Claims related to tax years commencing after the Petition Date) and
Administrative Claims arising from those contracts and leases of the kind
described in Section V.F) will be paid by the applicable Reorganized Debtor
pursuant to the terms and conditions of the particular transaction giving rise
to such Administrative Claims, without any further action by the holders of such
Claims.
d. CLAIMS UNDER DIP CREDIT AGREEMENT
On the Effective Date or at a later date determined pursuant to
the DIP Credit Agreement, Administrative Claims under or evidenced by the DIP
Credit Agreement will be paid in cash equal to the amount of such Administrative
Claims.
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e. BAR DATES FOR ADMINISTRATIVE CLAIMS
i. GENERAL BAR DATE PROVISIONS
Except as otherwise provided in Section III.A.1.e.ii, unless
previously Filed, requests for payment of Administrative Claims must be Filed
and served on the Reorganized Debtors, pursuant to the procedures specified in
the Confirmation Order and the notice of entry of the Confirmation Order, no
later than 30 days after the Effective Date. Holders of Administrative Claims
that are required to File and serve a request for payment of such Claims and
that do not File and serve a request by the applicable bar date will be forever
barred from asserting such Claims against the Debtors, the Reorganized Debtors
or their respective property and such Claims will be deemed discharged as of the
Effective Date. Objections to such requests must be Filed and served on the
Reorganized Debtors and the requesting party by the later of: (A) 120 days after
the Effective Date or (B) 60 days after the Filing of the applicable request for
payment of Administrative Claims.
ii. BAR DATES FOR CERTAIN ADMINISTRATIVE CLAIMS
A. PROFESSIONAL COMPENSATION
Professionals or other entities asserting a Fee Claim for
services rendered before the Effective Date must File and serve on the
Reorganized Debtors and such other entities who are designated by the Bankruptcy
Rules, the Confirmation Order or other order of the Bankruptcy Court, an
application for final allowance of such Fee Claim no later than 60 days after
the Effective Date; provided, however, that any Professional who may receive
compensation or reimbursement of expenses pursuant to the Ordinary Course
Professionals Order may continue to receive such compensation and reimbursement
of expenses for services rendered before the Effective Date, without further
Bankruptcy Court review or approval, pursuant to the Ordinary Course
Professionals Order. Objections to any Fee Claim must be Filed and served on the
Reorganized Debtors and the requesting party by the later of: (A) 90 days after
the Effective Date or (B) 30 days after the Filing of the applicable request for
payment of the Fee Claim. To the extent necessary, the Confirmation Order shall
amend and supersede any previously entered order of the Bankruptcy Court,
including the Fee Order, regarding the payment of Fee Claims.
B. ORDINARY COURSE LIABILITIES
Holders of Administrative Claims based on liabilities incurred
by a Debtor in the ordinary course of its business (including Administrative
Trade Claims, Administrative Claims of governmental units for taxes (including
tax audit Claims arising after the Petition Date) and Administrative Claims
arising from those contracts and leases of the kind described in Section V.F)
will not be required to File or serve any request for payment of such Claims.
Such Claims will be satisfied pursuant to Section III.A.1.c.
C. CLAIMS UNDER DIP CREDIT AGREEMENT
Holders of Administrative Claims under or evidenced by the DIP
Credit Agreement will not be required to File or serve any request for payment
of such Claims. Such Claims will be satisfied pursuant to Section III.A.1.d.
2. PAYMENT OF PRIORITY TAX CLAIMS
a. PRIORITY TAX CLAIMS
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code,
unless otherwise agreed by the holder of a Priority Tax Claim and the applicable
Debtor or Reorganized Debtor, each holder of a Priority Tax Claim will receive,
in full satisfaction of its Claim, deferred cash payments over a period not
exceeding six years from the date of assessment of such Claim. Payments will be
made in equal annual installments of principal, plus simple interest accruing
from the Effective Date at 7% per annum on the unpaid portion of each Priority
Tax Claim (or upon such other terms determined by the Bankruptcy Court to
provide the holders of Priority Tax Claims with deferred cash payments having a
value, as of the Effective Date, equal to such Claims). Unless otherwise agreed
by the holder of such Claim and the applicable Debtor or Reorganized Debtor, the
first payment will be payable one year after the Effective Date or, if the
Priority Tax Claim is not allowed within one year after the Effective Date, the
first Quarterly Distribution Date after the date on which (i) an order allowing
such Claim becomes a Final Order or (ii) a Stipulation of Amount and Nature of
Claim is executed by the applicable Reorganized Debtor and Claim holder;
provided, however, that the Reorganized Debtors will have the right to pay any
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty.
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b. OTHER PROVISIONS CONCERNING TREATMENT OF PRIORITY
TAX CLAIMS
Notwithstanding the provisions of Section III.A.2.a. the holder
of an Allowed Priority Tax Claim will not be entitled to receive any payment on
account of any penalty arising with respect to or in connection with the Allowed
Priority Tax Claim. Any such Claim or demand for any such penalty (i) will be
subject to treatment in Class 5 and (ii) the holder of an Allowed Priority Tax
Claim will not assess or attempt to collect such penalty from the Reorganized
Debtors or their property.
B. UNIMPAIRED CLASSES OF CLAIMS
1. CLASS 1 (UNSECURED PRIORITY CLAIMS) ARE UNIMPAIRED. On the Effective
Date, each holder of an Allowed Claim in Class 1 will receive cash equal to the
amount of such Claim.
2. CLASS 3 (NON-BANK SECURED CLAIMS) ARE UNIMPAIRED. On the Effective
Date, unless otherwise agreed by a Claim holder and the applicable Debtor or
Reorganized Debtor, each holder of an Allowed Claim in Class 3 will receive
treatment on account of such Allowed Claim in the manner set forth in Option A
or B below, at the election of the applicable Debtor. The applicable Debtor or
Reorganized Debtor will be deemed to have elected Option B except with respect
to any Allowed Claim as to which the applicable Debtor elects Option A in a
certification Filed prior to the conclusion of the Confirmation Hearing.
Option A: Allowed Claims in Class 3 with respect to which the
applicable Debtor or Reorganized Debtor selects Option A will be paid
in cash, in full, by such Reorganized Debtor, unless the holder of such
Claim agrees to less favorable treatment.
Option B: Allowed Claims in Class 3 with respect to which the
applicable Debtor or Reorganized Debtor selects Option B will be
Reinstated.
3. CLASS 8 INTERESTS (PMI SUBSIDIARY DEBTORS OLD COMMON STOCK
INTERESTS) ARE UNIMPAIRED. On the Effective Date, Allowed Interests in Class 8
will be Reinstated.
C. IMPAIRED CLASSES OF CLAIMS AND INTERESTS
1. CLASS 2 CLAIMS (CONVENIENCE CLAIMS) ARE IMPAIRED. On the Effective
Date, each holder of an Allowed Claim or Claims in Class 2 will receive cash
equal to the aggregate amount of such Claims (as reduced, if applicable,
pursuant to an election by the holder thereof in accordance with Section
II.B.1).
2. CLASS 4 CLAIMS (BANK LOAN CLAIMS) ARE IMPAIRED. On the Effective
Date, (a) each holder of an Allowed Bank Loan Claim in Class 4 constituting an
Old Tranche A Note Claim or an Old Tranche B Note Claim under the Prepetition
Credit Facility will receive a New Tranche A Note or New Tranche B Note,
respectively, in the amount of such Claim, in accordance with the terms of
Exhibit III.C.2, (b) each holder of an Allowed Bank Loan Claim in Class 4
constituting an Old Revolving Note Claim under the Prepetition Credit Facility
will receive a New Revolving Note in the amount of such Claim in accordance with
the terms of Exhibit III.C.2 and (c) each holder of an Allowed Bank Loan Claim
in Class 4 constituting a Swap Claim will receive a New Swap Claim Note in the
amount of such Claim in accordance with the terms of Exhibit III.C.2.
3. CLASS 5 CLAIMS (GENERAL UNSECURED CLAIMS) ARE IMPAIRED. On the
Effective Date, each holder of an Allowed Claim in Class 5 will receive, in full
satisfaction of such Allowed Claim, its Pro Rata share, based upon the principal
amount of each holder's Allowed Claim, of the Reserved Shares.
4. CLASS 6 CLAIMS (INTERCOMPANY CLAIMS) ARE IMPAIRED. No property will
be distributed to or retained by the Debtors on account of Claims in Class 6,
and such Claims will be discharged as of the Effective Date. Notwithstanding
this treatment of Class 6 Claims, each of the Debtors holding an Intercompany
Claim in Class 6 shall be deemed to have accepted the Plan.
5. CLASS 7 INTERESTS (PMI OLD COMMON STOCK INTERESTS) ARE IMPAIRED. No
property will be distributed to or retained by the holders of Allowed Interests
in Class 7, and such Interests will be canceled as of the Effective Date.
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D. SPECIAL PROVISIONS REGARDING TREATMENT OF ALLOWED SECONDARY LIABILITY
CLAIMS
The classification and treatment of Allowed Claims under the
Plan takes into consideration all Allowed Secondary Liability Claims. On the
Effective Date, Allowed Secondary Liability Claims will be treated as follows:
1. The Allowed Secondary Liability Claims arising from or related to
any Debtor's joint or several liability for the obligations under any: (a)
Allowed Claim that is being Reinstated under the Plan or (b) Executory Contract
or Unexpired Lease that is being assumed by another Debtor or under any
Executory Contract or Unexpired Lease that is being assumed by and assigned to
another Debtor or any other entity, will be Reinstated.
2. Except as provided in Sections III.D.1 and consistent with Article
VIII, holders of Allowed Secondary Liability Claims will be entitled to only one
distribution in respect of such underlying Allowed Claim. No multiple recovery
on account of any Allowed Secondary Liability Claim will be provided or
permitted.
E. SPECIAL PROVISIONS REGARDING INDENTURE TRUSTEE CHARGING LIENS
In full satisfaction of Allowed Claims secured by the Indenture
Trustee's charging lien under the Prepetition Indenture, the Indenture Trustee
will receive from the Reorganized Debtors cash equal to the amount of such
Claims, and any Indenture Trustee charging lien will be released. Distributions
received by holders of Allowed Claims in respect of Old Senior Subordinated
Notes pursuant to the Plan will not be reduced on account of payment of Allowed
Claims secured by the Indenture Trustee charging lien. Notwithstanding any other
provisions of the Plan, upon: (a) submission of appropriate documentation to the
Reorganized Debtors regarding fees and expenses incurred by the Indenture
Trustee in connection with the Reorganization Cases through the Effective Date
that are secured by the Indenture Trustee charging lien and (b) the failure of
the Reorganized Debtors to object on the grounds of reasonableness, as
determined under the terms of the applicable Old Indenture, to the payment of
such fees and expenses within 10 days after receipt of such documentation, such
Indenture Trustee will be deemed to hold an Allowed Claim for such fees and
expenses, which the Reorganized Debtors will pay in cash within 30 days after
the receipt of the documentation regarding the fees and expenses of such
Indenture Trustee, without further Bankruptcy Court approval.
ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN THE REORGANIZED
DEBTORS
Except as otherwise provided herein, each Debtor will, as a
Reorganized Debtor, continue to exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under applicable law and
without prejudice to any right to alter or terminate such existence (whether by
merger, dissolution or otherwise) under applicable state law. Except as
otherwise provided herein, as of the Effective Date, all property of the
respective Estates of the Debtors, and any property acquired by a Debtor or
Reorganized Debtor under the Plan, will vest in the applicable Reorganized
Debtor, free and clear of all Claims, liens, charges, other encumbrances and
Interests. On and after the Effective Date, each Reorganized Debtor may operate
its businesses and may use, acquire and dispose of property, and compromise or
settle any Claims or Interests without supervision or approval by the Bankruptcy
Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules,
other than those restrictions expressly imposed by the Plan or the Confirmation
Order. Without limiting the foregoing, each Reorganized Debtor may pay the
charges that it incurs on or after the Effective Date for professionals' fees,
disbursements, expenses or related support services without application to the
Bankruptcy Court.
B. RESTRUCTURING TRANSACTIONS
1. RESTRUCTURING TRANSACTIONS GENERALLY
On or after the Effective Date, the applicable Debtor or
Reorganized Debtors 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 or to otherwise simplify the overall corporate structure
of the Reorganized Debtors. Such restructuring may include one or more mergers,
consolidations, restructurings, dispositions, liquidations or dissolutions, as
may be determined by the Debtors or Reorganized Debtors to be necessary or
appropriate. The actions to effect these transactions may include: (a) 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
<PAGE> 21
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applicable state law and such other terms to which the applicable entities may
agree; (b) 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; (c) the filing of
appropriate certificates or articles of merger, consolidation or dissolution
pursuant to applicable state law; and (d) 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.
2. OBLIGATIONS OF ANY SUCCESSOR CORPORATION IN A RESTRUCTURING
TRANSACTION
The Restructuring Transactions may include one or more mergers,
consolidations, restructurings, dispositions, liquidations or dissolutions, as
may be determined by the Debtors or 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.
C. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS, EMPLOYMENT-RELATED
AGREEMENTS AND COMPENSATION PROGRAMS
1. CERTIFICATES OF INCORPORATION AND BY-LAWS
a. REORGANIZED PMI
As of the Effective Date, the certificate of incorporation and
the by-laws of Reorganized PMI will be substantially in the forms of Exhibits
IV.C.1.a(i) and IV.C.1.a(ii), respectively. The initial certificates of
incorporation and by-laws of Reorganized PMI, among other things, will: (i)
prohibit the issuance of nonvoting equity securities to the extent required by
section 1123(a) of the Bankruptcy Code and (ii) authorize the issuance of New
Common Stock in amounts not less than the amounts necessary to permit the
distributions thereof required or contemplated by the Plan. After the Effective
Date, Reorganized PMI may amend and restate its certificates of incorporation or
by-laws as permitted by the Delaware General Corporation Law, subject to the
terms and conditions of such constituent documents.
b. REORGANIZED PMI SUBSIDIARY DEBTORS
As of the Effective Date, the certificates of incorporation and
the by-laws or similar constituent documents of each Reorganized PMI Subsidiary
Debtor will be substantially in the forms of Exhibits IV.C.1.b(i) and
IV.C.1.b(ii), respectively. The initial certificates of incorporation and
by-laws or similar constituent documents of each Reorganized PMI Subsidiary
Debtor, among other things, will prohibit the issuance of nonvoting equity
securities to the extent required by section 1123(a) of the Bankruptcy Code.
After the Effective Date or the effective time of any applicable Restructuring
Transaction, each such entity may amend and restate its certificates of
incorporation or by-laws or similar constituent documents as permitted by
applicable state law, subject to the terms and conditions of such constituent
documents.
2. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS
The initial board of directors and officers of each of the
Reorganized Debtors will consist of the individuals identified on Exhibit
IV.C.2. Each such director and officer will serve from and after the Effective
Date until his or her successor is duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the certificates of incorporation and by-laws or similar constituent
documents of the applicable Reorganized Debtor and applicable state law. Exhibit
IV.C.2 identifies the initial term for each director in accordance with the
provisions of the Reorganized Debtors' respective certificates of incorporation
and by-laws.
3. NEW EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER RELATED
AGREEMENTS AND INCENTIVE COMPENSATION PROGRAMS
As of the Effective Date, the Reorganized Debtors will have
authority to: (a) maintain, amend or revise existing employment, retirement,
welfare, incentive, severance, indemnification and other agreements with their
active directors, officers and employees, subject to the terms and conditions of
any such agreement; (b) enter into new employment,
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retirement, welfare, incentive, severance, indemnification and other agreements
for active and retired employees; and (c) make the initial grants under the
Equity Incentive Plan as described on Exhibit IV.C.3.a Exhibit IV.C.3.b provides
(i) a list of the employment agreements and plans that are in effect on the
Effective Date and (ii) a description of the Equity Incentive Plan that will
take effect as of the Effective Date. In addition, the Disclosure Statement
provides a schedule and a summary and description of the Debtors' employment,
retirement, severance, indemnification and other related agreements and
incentive compensation programs that are to take or remain in effect on or as of
the Effective Date.
4. CORPORATE ACTION
The Restructuring Transactions; the adoption of new or amended
and restated certificates of incorporation and by-laws or similar constituent
documents for the Reorganized Debtors; the initial selection of directors and
officers for the Reorganized Debtors; the entry into the Exit Financing
Facility; the distribution of cash pursuant to the Plan; the issuance and
distribution of New Common Stock pursuant to the Plan; the adoption, execution,
delivery and implementation of all contracts, leases, instruments, releases and
other agreements or documents related to any of the foregoing; the adoption,
execution and implementation of employment, retirement and indemnification
agreements, incentive compensation programs, retirement income plans, welfare
benefit plans and other employee plans and related agreements, including the
plans and agreements described on Exhibit IV.C.3.b; the entry into the New Tax
Sharing Agreement; and the other matters provided for under the Plan involving
the corporate structure of any Debtor or Reorganized Debtor or corporate action
to be taken by or required of any Debtor or Reorganized Debtor will occur and be
effective as of the Effective Date, and will be authorized and approved in all
respects and for all purposes without any requirement of further action by
stockholders or directors of any of the Debtors or the Reorganized Debtors.
D. EXIT FINANCING FACILITY, OBTAINING CASH FOR PLAN DISTRIBUTIONS AND
TRANSFERS OF FUNDS AMONG THE DEBTORS
On the Effective Date, the Reorganized Debtors will execute and
deliver those documents necessary or appropriate to obtain the Exit Financing
Facility. All cash necessary for the Reorganized Debtors to make payments
pursuant to the Plan will be obtained from the Reorganized Debtors' cash
balances and operations or the Exit Financing Facility. Cash payments to be made
pursuant to the Plan will be made by Reorganized PMI; provided, however, that
the Debtors and the Reorganized Debtors will be entitled to transfer funds
between and among themselves as they determine to be necessary or appropriate to
enable Reorganized PMI to satisfy its obligations under the Plan. Any
Intercompany Claims resulting from such transfers will be accounted for and
settled in accordance with the Debtors' historical intercompany account
settlement practices.
E. PRESERVATION OF RIGHTS OF ACTION; SETTLEMENT AGREEMENTS AND RELEASES
1. PRESERVATION OF RIGHTS OF ACTION BY THE DEBTORS AND
REORGANIZED DEBTORS
Except as provided in the Plan or in any contract, instrument,
release or other agreement entered into in connection with the Plan, in
accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors
will retain and may enforce any claims, demands, rights and causes of action
that any Debtor or Estate may hold against any entity, including the Recovery
Actions. The Reorganized Debtors or their successors may pursue such retained
claims, demands, rights or causes of action, as appropriate, in accordance with
the best interests of the Reorganized Debtors or their successors holding such
claims, demands, rights or causes of action. Further, the Reorganized Debtors
retain their rights to File and pursue any adversary proceedings against any
trade creditor or vendor related to debit balances or deposits owed to any
Debtor.
2. RELEASES
a. RELEASES BY HOLDERS OF CLAIMS OR INTERESTS
As of the Effective Date, to the fullest extent permissible
under applicable law, in consideration for the obligations of the Debtors and
Reorganized Debtors under the Plan and the cash, New Common Stock, New
Prepetition Credit Facility Notes and other contracts, instruments, releases,
agreements or documents to be delivered in connection with the Plan, each entity
(other than a Debtor) that has held, holds or may hold (directly, derivatively
or otherwise) a Claim or Interest will be deemed to forever release, waive and
discharge all claims, demands, debts, rights, causes of action or liabilities
(other than the right to enforce the Debtors' or the Reorganized Debtors'
obligations under the Plan and the contracts, instruments, releases, 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, that are based in whole or in
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part on any act, omission or other occurrence taking place on or prior to the
Effective Date in any way relating to a Debtor, the Reorganization Cases or the
Plan that such entity has, had or may have against any Debtor (which release
will be in addition to the discharge of Claims and termination of Interests
provided herein and under the Confirmation Order and the Bankruptcy Code) and
its present and former directors, officers, employees, agents, attorneys,
accountants, investment bankers and other representatives of any of the
foregoing, acting in such capacity. Notwithstanding the foregoing, nothing in
this Section IV.E.2.a. shall constitute a release by any Debtor of any claims,
demands, debts, rights, causes of action or liabilities, whether held directly,
derivatively or otherwise, in respect to the Recovery Actions, all of which
shall be treated as contemplated by Section 4.E.1.
b. INJUNCTION RELATED TO RELEASES
As further provided in Section XI.B, the Confirmation Order
will permanently enjoin the commencement or prosecution by any entity, whether
directly, derivatively or otherwise, of any claim, demand, debt, right, cause of
action or liability released pursuant to the Plan.
F. CONTINUATION OF CERTAIN EMPLOYEE, RETIREE AND WORKERS' COMPENSATION
BENEFITS
1. EMPLOYEE BENEFITS
Except as modified or replaced by the agreements, plans and
programs described in Exhibit IV.C.3.b, from and after the Effective Date, the
Reorganized Debtors will continue (or continue as modified or replaced) their
existing employee benefit policies, plans and agreements, including: (a)
medical, dental, life, travel accident and accidental death and dismemberment
insurance, (b) sick pay, short-term disability pay and long-term disability
insurance, (c) vacation and holiday pay, (d) bonus and severance programs, (e)
tuition assistance policy and (f) a qualified deferred compensation and profit
sharing plan.
2. RETIREE MEDICAL BENEFITS
From and after the Effective Date, the Reorganized Debtors will
be obligated to pay retiree benefits (as defined in section 1114(a) of the
Bankruptcy Code) and any similar health and medical benefits in accordance with
the terms of the retiree benefit plans or other agreements governing the payment
of such benefits, subject to any rights to amend, modify or terminate such
benefits under the terms of the applicable retiree benefits plan, other
agreement or applicable nonbankruptcy law.
3. WORKERS' COMPENSATION BENEFITS
From and after the Effective Date, the Reorganized Debtors will
continue to pay the Koch Entities for the Claims arising before the Petition
Date under the Koch Entities' workers' compensation programs that the Debtors
obtained authority to pay pursuant to the Workers' Compensation Order.
G. LIMITATIONS ON AMOUNTS TO BE DISTRIBUTED TO HOLDERS OF ALLOWED INSURED
CLAIMS
Distributions under the Plan to each holder of an Allowed
Insured Claim will be in accordance with the treatment provided under the Plan
for the Class in which such Allowed Insured Claim is classified, but solely to
the extent that such Allowed Insured Claim is not satisfied from proceeds
payable to the holder thereof under any pertinent insurance policies and
applicable law. Nothing in this Section IV.G will constitute a waiver of any
claim, demand, debt, right, cause of action or liability that any entity may
hold against any other entity, including the Debtors' insurance carriers.
H. CANCELLATION AND SURRENDER OF INSTRUMENTS, SECURITIES AND OTHER
DOCUMENTATION
Except as provided in any contract, instrument or other
agreement or document created in connection with the Plan, on the Effective Date
and concurrently with the applicable distributions made pursuant to Article III,
the Prepetition Credit Facility, the Old Prepetition Credit Facility Notes, the
Prepetition Indenture, the Old Senior Subordinated Notes and the Old Common
Stock of PMI will be canceled and of no further force and effect, without any
further action on the part of any Debtor or Reorganized Debtor. The holders of
or parties to such canceled instruments, securities and other documentation will
have no rights arising from or relating to such instruments, securities and
other documentation or the cancellation thereof, except the rights provided
pursuant to the Plan; provided, however, that no distribution under the Plan
will be made to or on behalf of any holder of an Allowed Claim evidenced by such
canceled instruments or securities unless and until such instruments or
securities are received by the applicable Disbursing Agent to the extent
required in Section VI.J.
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I. OTHER AGREEMENTS RELATED TO IMPLEMENTATION OF THE PLAN
1. As of the Effective Date, the Reorganized Debtors and certain of the
other PMI Entities will enter into the New Tax Sharing Agreement substantially
in the form of Exhibit IV.I.1, which will, among other things, allocate among
the parties thereto responsibility for any post-Effective Date tax obligations
and benefits between and among them.
2. As of the Effective Date, the Equity Incentive Plan, which is
included as part of Exhibit IV.C.3.b, becomes effective under its own terms and
as provided in Section IV.C.4. As of the date the Equity Incentive Plan becomes
effective, the Equity Incentive Plan and the initial grants thereunder as
contemplated by Section IV.C.3.a will be deemed authorized and approved in all
respects and for all purposes without any requirements of further action by
shareholders or directors of PMI or Reorganized PMI.
J. RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract,
instrument, release or other agreement or document created in connection with
the Plan, on the Effective Date and concurrently with the applicable
distributions made pursuant to Article III, all mortgages, deeds of trust, liens
or other security interests against the property of any Estate will be fully
released and discharged, and all of the right, title and interest of any holder
of such mortgages, deeds of trust, liens or other security interests, including
any rights to any collateral thereunder, will revert to the applicable
Reorganized Debtor and its successors and assigns.
K. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; EXEMPTION FROM CERTAIN
TRANSFER TAXES
The Chairman of the Board, Chief Executive Officer, President,
Executive Vice President, Chief Financial Officer, Chief Operating Officer,
Senior Vice President or any Vice President of each Debtor or Reorganized Debtor
will be authorized to execute, deliver, file or record such contracts,
instruments, releases and other agreements or documents and take such actions as
may be necessary or appropriate to effectuate and implement the provisions of
the Plan. The Secretary or any Assistant Secretary of each Debtor or Reorganized
Debtor will be authorized to certify or attest to any of the foregoing actions.
Pursuant to section 1146(c) of the Bankruptcy Code: (1) the issuance, transfer
or exchange of New Common Stock; (2) the creation of any mortgage, deed of
trust, lien or other security interest; (3) the making or assignment of any
lease or sublease; (4) the execution and delivery of the Exit Financing
Facility; or (5) the making or delivery of any deed or other instrument of
transfer under, in furtherance of or in connection with the Plan, including any
merger agreements; agreements of consolidation, restructuring, disposition,
liquidation or dissolution; deeds; bills of sale; or assignments executed in
connection with any Restructuring Transaction pursuant to the Plan will not be
subject to any stamp tax, real estate transfer tax or similar tax.
ARTICLE V.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED OR ASSUMED AND
ASSIGNED
1. ASSUMPTION AND ASSIGNMENT GENERALLY
Except as otherwise provided in the Plan or in any contract,
instrument, release or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will assume, or assume and assign, as indicated, each of the
Executory Contracts and Unexpired Leases listed on Exhibit V.A.1; provided,
however, that the Debtors and Reorganized Debtors reserve the right, at any time
prior to the Confirmation Date, to amend Exhibit V.A.1 to: (a) delete any
Executory Contract or Unexpired Lease listed therein, thus providing for its
rejection pursuant to Section V.C or (b) add any Executory Contract or Unexpired
Lease thereto, thus providing for its assumption or assumption and assignment
pursuant to this Section V.A.1. The Debtors or Reorganized Debtors will provide
notice of any amendments to Exhibit V.A.1 to the parties to the Executory
Contracts or Unexpired Leases affected thereby and to the parties on the then
applicable service list in the Reorganization Cases (including the Creditors'
Committee). Each contract and lease listed on Exhibit V.A.1 will be assumed only
to the extent that any such contract or lease constitutes an Executory Contract
or Unexpired Lease. Listing a contract or lease on Exhibit V.A.1 will not
constitute an admission by a Debtor or Reorganized Debtor that such contract or
lease (including any related agreements as
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described in Sections I.A.86 or V.A.2) is an Executory Contract or Unexpired
Lease or that a Debtor or Reorganized Debtor has any liability thereunder.
2. ASSUMPTIONS AND ASSIGNMENTS OF REAL PROPERTY EXECUTORY
CONTRACTS AND UNEXPIRED LEASES
Each Real Property Executory Contract and Unexpired Lease
listed on Exhibit V.A.1 will include any modifications, amendments, supplements,
restatements or other agreements made directly or indirectly by any agreement,
instrument or other document that in any manner affects such contract or lease,
irrespective of whether such agreement, instrument or other document is listed
on Exhibit V.A.1, unless any such modification, amendment, supplement,
restatement or other agreement is rejected pursuant to Section V.C and is listed
on Exhibit V.C.
3. ASSIGNMENTS RELATED TO THE RESTRUCTURING TRANSACTIONS
As of the effective time of the applicable Restructuring
Transaction, any Executory Contract or Unexpired Lease (including any related
agreements as described in Sections I.A.86 and V.A.2) to be held by any Debtor
or another surviving, resulting or acquiring corporation in the applicable
Restructuring Transaction, will be deemed assigned to the applicable entity,
pursuant to section 365 of the Bankruptcy Code.
4. APPROVAL OF ASSUMPTIONS AND ASSIGNMENTS
The Confirmation Order will constitute an order of the
Bankruptcy Court approving the assumptions and assignments described in this
Section V.A and Section V.E, pursuant to section 365 of the Bankruptcy Code, as
of the Effective Date. The order of the Bankruptcy Court approving the
Disclosure Statement or another order of the Bankruptcy Court entered on or
prior to the Confirmation Date will specify the procedures for providing notice
to each party whose Executory Contract or Unexpired Lease is being assumed or
assumed and assigned pursuant to the Plan of: (a) the contract or lease being
assumed or assumed and assigned; (b) the Cure Amount Claim, if any, that the
applicable Debtor believes it would be obligated to pay in connection with such
assumption; and (c) the procedures for such party to object to the assumption,
assignment or amount of the proposed Cure Amount Claim.
B. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
To the extent that such Claims constitute monetary defaults,
the Cure Amount Claims associated with each Executory Contract and Unexpired
Lease to be assumed pursuant to the Plan will be satisfied, pursuant to section
365(b)(1) of the Bankruptcy Code, at the option of the Debtor assuming such
contract or lease or the assignee of such Debtor, if any: (1) by payment of the
Cure Amount Claim in cash on the Effective Date or (2) on such other terms as
are agreed to by the parties to such Executory Contract or Unexpired Lease. If
there is a dispute regarding: (1) the amount of any Cure Amount Claim, (2) the
ability of the applicable 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 (3) any other
matter pertaining to assumption of such contract or lease, the cure payments
required by section 365(b)(1) of the Bankruptcy Code will be made following the
entry of a Final Order resolving the dispute and approving the assumption. For
assumptions of Executory Contracts or Unexpired Leases between Debtors, the
Reorganized Debtor assuming such contract may cure any monetary default (1) by
treating such amount as either a direct or indirect contribution to capital or
distribution (as appropriate) or (2) through an intercompany account balance in
lieu of payment in cash.
C. EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
On the Effective Date, except for an Executory Contract or
Unexpired Lease that was previously assumed, assumed and assigned or rejected by
an order of the Bankruptcy Court or that is assumed pursuant to Section V.A
(including any related agreements assumed pursuant to Sections I.A.86 and
V.A.2), each Executory Contract and Unexpired Lease entered into by a Debtor
prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Executory Contracts and Unexpired Leases to be rejected
will include the Executory Contracts and Unexpired Leases listed on Exhibit V.C.
Each contract and lease listed on Exhibit V.C will be rejected only to the
extent that any such contract or lease constitutes an Executory Contract or
Unexpired Lease. Listing a contract or lease on Exhibit V.C will not constitute
an admission by a Debtor or Reorganized Debtor that such contract or lease
(including related agreements as described above in Sections I.A.86) is an
Executory Contract or Unexpired Lease or that a Debtor or Reorganized Debtor has
any liability thereunder. Any Executory Contract and Unexpired Lease not listed
on Exhibit V.A.1 will be rejected irrespective of whether such contract is
listed on Exhibit V.C. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.
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D. BAR DATE FOR REJECTION DAMAGES
Notwithstanding anything in the Bar Date Order to the contrary,
if the rejection of an Executory Contract or Unexpired Lease pursuant to Section
V.C gives rise to a Claim (including any Claims arising from those
indemnification obligations described in Section V.E.1) by the other party or
parties to such contract or lease, such Claim will be forever barred and will
not be enforceable against the Debtors, the Reorganized Debtors, their
respective successors or their respective properties unless a proof of Claim is
Filed and served on the Reorganized Debtors, pursuant to the procedures
specified in the Confirmation Order and the notice of the entry of the
Confirmation Order or another order of the Bankruptcy Court, no later than 30
days after the Effective Date.
E. SPECIAL EXECUTORY CONTRACT AND UNEXPIRED LEASE ISSUES
1. OBLIGATIONS TO INDEMNIFY DIRECTORS, OFFICERS AND EMPLOYEES
a. The obligations of each Debtor or Reorganized Debtor to
indemnify any person serving as one of its directors, officers or employees as
of or following the Petition Date, by reason of such person's prior or future
service in such a capacity, or as a director, officer or employee of another
corporation, partnership or other legal entity (other than any of the Koch
Entities), to the extent provided in the applicable certificates of
incorporation, by-laws or similar constituent documents or by statutory law or
written agreement of or with such Debtor, will be deemed and treated as
executory contracts that are assumed by the applicable Debtor or Reorganized
Debtor pursuant to the Plan and section 365 of the Bankruptcy Code as of the
Effective Date. Accordingly, such indemnification obligations will survive and
be unaffected by entry of the Confirmation Order, irrespective of whether such
indemnification is owed for an act or event occurring before or after the
Petition Date.
b. The obligations of each Debtor or Reorganized Debtor to
indemnify any person who, as of the Petition Date, was no longer serving as a
director, officer or employee of such Debtor or Reorganized Debtor, which
indemnity obligation arose by reason of such person's prior service in any such
capacity, or as a director, officer or employee of another corporation,
partnership or other legal entity, whether provided in the applicable
certificates of incorporation, by-laws or similar constituent documents or by
statutory law, written agreement, policies or procedures of or with such Debtor,
will terminate and be discharged pursuant to section 502(e) of the Bankruptcy
Code or otherwise, as of the Effective Date; provided, however, that, to the
extent that such indemnification obligations no longer give rise to contingent
Claims that can be disallowed pursuant to section 502(e) of the Bankruptcy Code,
such indemnification obligations will be deemed and treated as executory
contracts that are rejected by the applicable Debtor pursuant to the Plan and
section 365 of the Bankruptcy Code, as of the Effective Date, and any Claims
arising from such indemnification obligations (including any rejection damage
claims) will be subject to the bar date provisions of Section V.D.
c. The obligations of each Debtor or Reorganized Debtor to
indemnify any person serving as one of its directors, officers or employees as
of or following the Petition Date, by reason of such person's prior or future
service as a director, officer or employee of any of the Koch Entities will be
treated in accordance with Section V.E.1.b. In all other respects, the Debtors'
indemnity obligations to such a person shall be as specified in Section V.E.1.a.
2. REINSTATEMENT OF ALLOWED SECONDARY LIABILITY CLAIMS ARISING
FROM OR RELATED TO EXECUTORY CONTRACTS OR UNEXPIRED LEASES
ASSUMED BY THE DEBTORS
On the Effective Date, in accordance with Section III.D.1, any
Allowed Secondary Liability Claim arising from or related to any Debtor's joint
or several liability for the obligations under or with respect to: (a) any
Executory Contract or Unexpired Lease that is being assumed or deemed assumed
pursuant to section 365 of the Bankruptcy Code by another Debtor; (b) any
Executory Contract or Unexpired Lease that is being assumed by and assigned to
another Debtor; or (c) a Reinstated Claim will be Reinstated. Accordingly, such
Allowed Secondary Liability Claims will survive and be unaffected by entry of
the Confirmation Order.
3. ASSUMED CUSTOMER GUARANTEES
The obligations of each Debtor or Reorganized Debtor under any
Assumed Customer Guarantee listed on Exhibit I.A.5 will be deemed and treated as
executory contracts that are assumed by the applicable Debtor or Reorganized
Debtor pursuant to the Plan and section 365 of the Bankruptcy Code as of the
Effective Date. Accordingly, such obligations will survive and be unaffected by
entry of the Confirmation Order.
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F. CONTRACTS AND LEASES ENTERED INTO AFTER THE PETITION DATE
Contracts and leases entered into after the Petition Date by
any Debtor, including any Executory Contracts and Unexpired Leases assumed by
such Debtor, will be performed by the Debtor or Reorganized Debtor liable
thereunder in the ordinary course of its business. Accordingly, such contracts
and leases (including any assumed Executory Contracts and Unexpired Leases) will
survive and remain unaffected by entry of the Confirmation Order.
ARTICLE VI.
PROVISIONS GOVERNING DISTRIBUTIONS
A. DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE
1. DISTRIBUTIONS TO BE MADE ON THE EFFECTIVE DATE
Except as otherwise provided in this Article VI, distributions
of cash, New Common Stock and New Prepetition Credit Facility Notes to be made
on the Effective Date to holders of Claims that are allowed as of the Effective
Date will be deemed made on the Effective Date if made on the Effective Date or
as promptly thereafter as practicable, but in any event no later than: (a) 60
days after the Effective Date or (b) such later date when the applicable
conditions of Section V.B (regarding cure payments for Executory Contracts and
Unexpired Leases being assumed), Section VI.E.2 (regarding undeliverable
distributions) or Section VI.J (regarding surrender of canceled instruments and
securities) are satisfied. Distributions on account of Claims that become
Allowed Claims after the Effective Date will be made pursuant to Sections VI.H
and VII.C.
2. DISTRIBUTIONS ON EFFECTIVE DATE IN RESPECT OF CLASS 5 GENERAL
UNSECURED CLAIMS
From and after the Effective Date, New Common Stock to be
distributed on account of Class 5 Claims (and any cash generated from dividends
or distributions thereon) will be maintained by and in the name of the
applicable Disbursing Agent in the Unsecured Claims Reserve in accordance with
Article VII and held in trust pending distribution by the Disbursing Agent for
the benefit of the holders of such Claims, accounted for separately and will not
constitute property of any of the Reorganized Debtors. The Disbursing Agent will
invest any cash in a manner consistent with the Reorganized Debtors' investment
and deposit guidelines. Distributions of cash on account of each Allowed Class 5
Claim will include a Pro Rata share of the Cash Investment Yield from such
investment of cash. New Common Stock to be issued and distributed on account of
Class 5 Claims will be deemed issued as of the Effective Date, irrespective of
the date on which it actually is distributed.
B. METHOD OF DISTRIBUTIONS TO HOLDERS OF CLAIMS
Reorganized PMI, or such Third Party Disbursing Agents as
Reorganized PMI may employ in its sole discretion, will make all distributions
of cash, New Common Stock, New Prepetition Credit Facility Notes and other
instruments or documents required under the Plan. Each Disbursing Agent will
serve without bond, and any Disbursing Agent may employ or contract with other
entities to assist in or make the distributions required by the Plan.
C. COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO DISTRIBUTIONS
Each Third Party Disbursing Agent providing services related to
distributions pursuant to the Plan will receive from Reorganized PMI, without
further Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with Reorganized
PMI, and will not be deducted from distributions to be made pursuant to the Plan
to holders of Allowed Claims (including any distributions of Cash Investment
Yield) receiving distributions from a Third Party Disbursing Agent.
D. PROVISIONS GOVERNING THE UNSECURED CLAIMS RESERVE
1. FUNDING OF THE UNSECURED CLAIMS RESERVE
On the Effective Date, the Reserved Shares will be placed in
the Unsecured Claims Reserve for the benefit of holders of Allowed Claims in
Class 5.
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2. PROPERTY HELD IN UNSECURED CLAIMS RESERVE
a. DIVIDENDS AND DISTRIBUTIONS
Cash dividends and other distributions on account of New Common
Stock held in the Unsecured Claims Reserve will be transferred to the Unsecured
Claims Reserve concurrently with the transfer of such dividends and other
distributions to other holders of New Common Stock. Cash held in the Unsecured
Claims Reserve as a result of such dividends and other distributions will be
deposited in a segregated bank account in the name of the applicable Disbursing
Agent, held in trust for the benefit of the potential claimants of such funds,
accounted for separately and will not constitute property of the Reorganized
Debtors. The Disbursing Agent will invest the cash held in the applicable
Unsecured Claims Reserve in a manner consistent with the Reorganized Debtors'
investment and deposit guidelines. The Disbursing Agent also will place in the
Unsecured Claims Reserve the Cash Investment Yield from such investment of cash.
b. RECOURSE
Each holder of an Allowed Claim (or a Disputed Claim that
ultimately becomes an Allowed Claim) in Class 5 will have recourse only to the
undistributed cash and New Common Stock held in the Unsecured Claims Reserve for
satisfaction of the distributions to which holders of Allowed Class 5 Claims are
entitled under the Plan, and not to any Reorganized Debtor, its property or any
assets previously distributed on account of any Allowed Claim.
E. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to holders of Allowed Claims will be made by a
Disbursing Agent (a) at the addresses set forth on the respective proofs of
Claim by holders of such Claims; (b) at the addresses set forth in any written
certification of address change delivered to the Disbursing Agents after the
date of Filing of any related proof of Claim; or (c) at the addresses reflected
in the applicable Debtor's Schedules if no proof of Claim has been Filed and the
Disbursing Agent has not received a written notice of a change of address.
2. UNDELIVERABLE DISTRIBUTIONS HELD BY DISBURSING AGENTS
a. HOLDING AND INVESTMENT OF UNDELIVERABLE DISTRIBUTIONS
i. If any distribution to an Allowed Claim
holder is returned to a Disbursing Agent as undeliverable, no further
distributions will be made to such holder unless and until the applicable
Disbursing Agent is notified by written certification of such holder's
then-current address. Undeliverable distributions will remain in the possession
of the applicable Disbursing Agent pursuant to this Section VI.E.2.a.i until
such time as a distribution becomes deliverable. Undeliverable cash (including
dividends or other distributions on undeliverable New Common Stock) will be held
in segregated bank accounts in the name of the applicable Disbursing Agent for
the benefit of the potential claimants of such funds. Any Disbursing Agent
holding undeliverable cash will invest such cash in a manner consistent with the
Reorganized Debtors' investment and deposit guidelines. Undeliverable New Common
Stock will be held by the applicable Disbursing Agent for the benefit of the
potential claimants of such securities.
ii. Pending the distribution of any New Common
Stock, the applicable Disbursing Agent will cause all of the New Common Stock
held by it in its capacity as Disbursing Agent (i.e., all New Common Stock in
the Unsecured Claims Reserve, whether relating to undeliverable distributions or
simply undelivered distributions) to be (a) represented in person or by proxy at
each meeting of the stockholders of Reorganized PMI, (b) voted in any election
of directors of Reorganized PMI for the nominees recommended by the board of
directors of Reorganized PMI and (c) voted with respect to any other matter as
recommended by the board of directors of Reorganized PMI.
b. AFTER DISTRIBUTIONS BECOME DELIVERABLE
On each Quarterly Distribution Date, the applicable Disbursing
Agents will make all distributions that become deliverable to holders of Allowed
Claims during the preceding calendar quarter. Each such distribution will
include, to the extent applicable: (i) a Pro Rata share of dividends or other
distributions, if any, that were previously paid to the Disbursing Agent in
respect of any New Common Stock included in such distribution and (ii) a Pro
Rata share of the Cash Investment Yield from the investment of any undeliverable
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cash (including dividends or other distributions on undeliverable New Common
Stock) from the date that such distribution would have first been due had it
then been deliverable to the date that such distribution becomes deliverable.
c. FAILURE TO CLAIM UNDELIVERABLE DISTRIBUTIONS
Any holder of an Allowed Claim that does not assert a claim
pursuant to the Plan for an undeliverable distribution to be made by a
Disbursing Agent within two years after the later of (i) the Effective Date and
(ii) the last date on which a distribution was deliverable will have its claim
for such undeliverable distribution discharged and will be forever barred from
asserting any such claim against the Reorganized Debtors or their respective
property. In such cases with respect to Allowed Claims in Class 5, cash and New
Common Stock will be retained in the Unsecured Claims Reserve, for
redistribution Pro Rata to holders of Allowed Claims in such Class, pursuant to
Section VI.H.2.b. For purposes of this redistribution, each Allowed Claim in
Class 5 for which such distributions are undeliverable will be deemed disallowed
in its entirety. In such cases with respect to Allowed Claims in any other
Class, unclaimed cash will become property of Reorganized PMI, free of any
restrictions thereon, and any such cash held by a Third Party Disbursing Agent
will be returned to Reorganized PMI. Nothing contained in the Plan will require
any Debtor, Reorganized Debtor or Disbursing Agent to attempt to locate any
holder of an Allowed Claim.
F. DISTRIBUTION RECORD DATE
1. A Disbursing Agent will have no obligation to recognize the transfer
of, or the sale of any participation in, any Allowed Bank Loan Claim that occurs
after the close of business on the Distribution Record Date, and will be
entitled for all purposes herein to recognize and distribute only to those
holders of Allowed Bank Loan Claims who are holders of such Claims, or
participants therein, as of the close of business on the Distribution Record
Date.
2. As of the close of business on the Distribution Record Date, the
respective transfer registers for the Old Senior Subordinated Notes, as
maintained by the Debtors or the Indenture Trustee, will be closed. The
applicable Disbursing Agent will have no obligation to recognize the transfer or
sale of any Old Senior Subordinated Note Claim that occurs after the close of
business on the Distribution Record Date, and will be entitled for all purposes
herein to recognize and distribute only to those holders of Senior Subordinated
Note Claims who are holders of such Claims as of the close of business on the
Distribution Record Date.
3. Except as otherwise provided in a Final Order of the Bankruptcy
Court, the transferees of Claims in Class 5 that are transferred pursuant to
Bankruptcy Rule 3001 on or prior to the Distribution Record Date will be treated
as the holders of such Claims for all purposes, notwithstanding that any period
provided by Bankruptcy Rule 3001 for objecting to such transfer has not expired
by the Distribution Record Date.
G. MEANS OF CASH PAYMENTS
Except as otherwise specified herein, cash payments made
pursuant to the Plan will be in U.S. dollars by checks drawn on a domestic bank
selected by the applicable Debtor or Reorganized Debtor, or by wire transfer
from a domestic bank, at the option of the applicable Debtor or Reorganized
Debtor; provided, however, that cash payments to foreign holders of Allowed
Trade Claims may be made, at the option of the applicable Debtor or Reorganized
Debtor, in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction.
H. TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
1. ALLOWED CLAIMS IN CLASSES OTHER THAN CLASS 5
Subject to Section VI.A, on the Effective Date, each holder of
an Allowed Claim in a Class other than Class 5 will receive the full amount of
the distributions that the Plan provides for Allowed Claims in the applicable
Class. On each Quarterly Distribution Date, distributions also will be made,
pursuant to Section VII.C, to holders of Disputed Claims in any such Class that
were allowed during the preceding calendar quarter. Such quarterly distributions
also will be in the full amount that the Plan provides for Allowed Claims in the
applicable Class.
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2. ALLOWED CLAIMS IN CLASS 5
a. INITIAL DISTRIBUTIONS
The amount of distributions to be made on the Effective Date
(subject to Section VI.A) to holders of Allowed Claims in Class 5 on account of
such Claims will be made from the Unsecured Claims Reserve and will be
calculated as if each Disputed Claim in Class 5 were an Allowed Claim in its
Face Amount. On each Quarterly Distribution Date, distributions also will be
made, pursuant to Section VII.C, to holders of Disputed Claims in Class 5 that
were allowed during the preceding calendar quarter. Such quarterly distributions
also will be calculated pursuant to the provisions set forth in this Section
VI.H.2.a.
b. ADDITIONAL QUARTERLY DISTRIBUTIONS ON ACCOUNT OF
PREVIOUSLY ALLOWED CLAIMS
On each Quarterly Distribution Date, each holder of a Claim
previously allowed in Class 5 will receive an additional distribution from the
Unsecured Claims Reserve on account of such Claim in an amount equal to: (i) the
amount of New Common Stock that such holder would have been entitled to receive
pursuant to Section VI.H.2.a as if such Claim had become an Allowed Claim on the
applicable Quarterly Distribution Date, minus (ii) the aggregate amount of New
Common Stock previously distributed on account of such Claim. Each such
quarterly additional distribution also will include, on the basis of the amount
then being distributed: (i) a Pro Rata share of any dividends or other
distributions made on account of the New Common Stock held in the Unsecured
Claims Reserve and (ii) a Pro Rata share of the related Cash Investment Yield
from the investment of any cash dividends and other distributions in the
Unsecured Claims Reserve, from the date such cash was deposited into the
Unsecured Claims Reserve to the date that such distribution is made.
3. DISTRIBUTIONS OF NEW COMMON STOCK
Notwithstanding any other provision of the Plan, only whole
numbers of shares of New Common Stock will be issued. When any distribution on
account of an Allowed Claim in Class 5 would otherwise result in the issuance of
a number of shares of New Common Stock that is not a whole number, the actual
distribution of shares of such stock will be rounded to the next higher or lower
whole number as follows: (a) fractions equal to or greater than 2 will be
rounded to the next higher whole number and (b) fractions less than 2 will be
rounded to the next lower whole number. The total number of shares of New Common
Stock to be distributed on account of Allowed Claims will be adjusted as
necessary to account for the rounding provided for in this Section VI.H.3. No
consideration will be provided in lieu of fractional shares or units that are
rounded down.
4. DE MINIMIS DISTRIBUTIONS
No Disbursing Agent will be required to distribute cash to the
holder of an Allowed Claim in an impaired Class if the amount of cash to be
distributed on account of such Claim is less than $25. Any holder of an Allowed
Claim on account of which the amount of cash to be distributed is less than $25
will have its claim for such distribution discharged and will be forever barred
from asserting any such claim against the Reorganized Debtors or their
respective property. Any cash not distributed pursuant to this Section VI.H.4
with respect to Claims in a Class other than Class 5 will be the property of
Reorganized PMI, free of any restrictions thereon, and any such cash held by a
Third Party Disbursing Agent will be returned to Reorganized PMI. Any cash not
distributed pursuant to this Section VI.H.4 with respect to Allowed Claims in
Class 5, including dividends or other distributions made on account of New
Common Stock held in the Unsecured Claims Reserve, will be retained in the
Unsecured Claims Reserve for redistribution Pro Rata to holders of Allowed
Claims in Class 5, pursuant to Section VI.H.2.b. For purposes of this
redistribution, each Allowed Claim in Class 5 for which distributions are less
than $25 will have its claim for such distribution discharged and will be
forever barred from asserting any such claim against the Unsecured Claims
Reserve or otherwise.
5. COMPLIANCE WITH TAX REQUIREMENTS
a. In connection with the Plan, to the extent applicable, each
Disbursing Agent will comply with all tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Plan will be subject to such withholding and reporting requirements. Each
Disbursing Agent will be authorized to take any actions that may be necessary or
appropriate to comply with such withholding and reporting requirements.
b. Notwithstanding any other provision of the Plan, each entity
receiving a distribution of cash or New Common Stock pursuant to the Plan will
have sole and exclusive responsibility for the satisfaction and payment of any
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tax obligations imposed on it by any governmental unit on account of such
distribution, including income, withholding and other tax obligations.
I. SETOFFS
Except with respect to claims of a Debtor or Reorganized Debtor
released pursuant to the Plan or any contract, instrument, release or other
agreement or document created in connection with the Plan, the Reorganized
Debtors or, with instructions from the applicable Reorganized Debtor, a Third
Party Disbursing Agent may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim) the claims, rights and causes
of action of any nature that the applicable Debtor or Reorganized Debtor may
hold against the holder of such Allowed Claim; provided, however, that neither
the failure to effect such a setoff nor the allowance of any Claim hereunder
will constitute a waiver or release by the applicable Debtor or Reorganized
Debtor of any such claims, rights and causes of action that the Debtor or
Reorganized Debtor may possess against such holder.
J. SURRENDER OF CANCELED INSTRUMENTS OR SECURITIES
As a condition precedent to receiving any distribution pursuant
to the Plan on account of an Allowed Claim evidenced by the notes, instruments,
securities or other documentation canceled pursuant to Section IV.H, the holder
of such Claim will tender, as specified in this Section VI.J, the applicable
notes, instruments, securities or other documentation evidencing such Claim to
the applicable Disbursing Agent, together with any letter of transmittal
required by such Disbursing Agent. Any distributions pursuant to the Plan on
account of any such Claim will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section VI.E.2.
1. TENDER OF OLD SENIOR SUBORDINATED NOTES
Except as provided in Section VI.J.2 for lost, stolen,
mutilated or destroyed Old Senior Subordinated Notes, each holder of an Allowed
Claim evidenced by an Old Senior Subordinated Note will tender such Note to the
applicable Disbursing Agent in accordance with a letter of transmittal to be
provided to such holders by the Disbursing Agent as promptly as practicable
following the Effective Date. The letter of transmittal will include, among
other provisions, customary provisions with respect to the authority of the
holder of the applicable Untendered Security to act and the authenticity of any
signatures required thereon. All surrendered Old Senior Subordinated Notes will
be marked as canceled and delivered to the appropriate Reorganized Debtor.
2. LOST, STOLEN, MUTILATED OR DESTROYED OLD SENIOR SUBORDINATED
NOTES
Any holder of a Claim evidenced by an Old Senior Subordinated
Note that has been lost, stolen, mutilated or destroyed will, in lieu of
surrendering such Note, deliver to the applicable Disbursing Agent: (a) evidence
satisfactory to the Disbursing Agent of the loss, theft, mutilation or
destruction and (b) such security or indemnity as may be required by the
Disbursing Agent to hold the Disbursing Agent and the Reorganized Debtors, as
applicable, harmless from any damages, liabilities or costs incurred in treating
such individual as a holder of an Old Senior Subordinated Note. Upon compliance
with this Section VI.J.2 by a holder of a Claim evidenced by an Old Senior
Subordinated Note, such holder will, for all purposes under the Plan, be deemed
to have surrendered such Note.
3. FAILURE TO SURRENDER CANCELED UNTENDERED SECURITIES
Any holder of an Old Senior Subordinated Note that fails to
surrender or be deemed to have surrendered the Untendered Security within two
years after the Effective Date will have its claim for a distribution pursuant
to the Plan on account of such Note discharged and will be forever barred from
asserting any such claim against the Reorganized Debtors or their respective
property. In such cases, any cash or New Common Stock held for distribution on
account of such claim will be disposed of pursuant to the provisions set forth
in Section VI.E.2.c.
4. OLD PREPETITION CREDIT FACILITY NOTES
Holders of Allowed Bank Loan Claims will be required to
surrender any Old Prepetition Credit Facility Notes or, if not evidenced by a
note, any other instrument evidencing their respective Allowed Claims as and
when such entities receive New Prepetition Credit Facility Notes. If any such
entity's notes or their instruments evidencing its Allowed Claims are lost,
stolen, mutilated or destroyed, such entity will be required, in lieu of
surrendering such note or other instrument, to
<PAGE> 32
25
deliver to the applicable Disbursing Agent evidence satisfactory to the
Disbursing Agent of the loss, theft, mutilation or destruction.
ARTICLE VII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
A. PROSECUTION OF OBJECTIONS TO CLAIMS
1. OBJECTIONS TO CLAIMS
All objections to Claims must be Filed and served on the
holders of such Claims by the Claims Objection Bar Date, and (a) if Filed prior
to the Effective Date, such objections shall be served on the parties on the
then applicable service list in the Reorganization Cases and (b) if Filed after
the Effective Date, such objections shall be served on the Claims Resolution
Committee. If an objection has not been Filed to a proof of Claim or a scheduled
Claim by the Claims Objection Bar Date, the Claim to which the proof of Claim or
scheduled Claim relates will be treated as an Allowed Claim if such Claim has
not been allowed earlier. An objection is deemed to have been timely Filed as to
all Tort Claims, thus making each such Claim a Disputed Claim as of the Claims
Objection Bar Date. Each such Claim will remain a Disputed Claim until it
becomes an Allowed Claim in accordance with Section I.A.3.
2. AUTHORITY TO PROSECUTE OBJECTIONS
After the Confirmation Date, only the Debtors or Reorganized
Debtors will have the authority to File objections, settle, compromise, withdraw
or litigate to judgment objections to Claims. After the Effective Date, the
Reorganized Debtors may settle or compromise any Disputed Claim without approval
of the Bankruptcy Court; provided, however, that (a) the Reorganized Debtors
shall promptly serve on the Claims Resolution Committee and File with the
Bankruptcy Court a written notice of any settlement or compromise of a Claim
with a Face Amount in excess of $500,000 and (b) the Claims Resolution Committee
shall be authorized to contest the proposed settlement or compromise by Filing a
written objection with the Bankruptcy Court and serving such objection on the
Reorganized Debtors within ten days of the service of the settlement notice. If
no such objection is Filed, the applicable settlement or compromise shall be
final without further action of the Bankruptcy Court.
B. TREATMENT OF DISPUTED CLAIMS
Notwithstanding any other provisions of the Plan, no payments
or distributions will be made on account of a Disputed Claim until such Claim
becomes an Allowed Claim. In lieu of distributions under the Plan to holders of
Disputed Claims in Class 5, if allowed, the Unsecured Claims Reserve will be
established on the Effective Date to hold property for the benefit of these
Claim holders, as well as holders of Allowed Claims in Class 5. Reorganized PMI
will fund the Unsecured Claims Reserve with New Common Stock as described in
Section VI.D.1.
C. DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE ALLOWED
On each Quarterly Distribution Date, the applicable Disbursing
Agent will make all distributions on account of any Disputed Claim that has
become an Allowed Claim during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class, including the incremental distribution provisions set forth in
Section VI.H.2. Holders of Disputed Claims in Class 5 that ultimately are
allowed also will be entitled to receive, on the basis of the amount ultimately
allowed, the net amount of: (1) the Pro Rata share of any dividends or other
distributions received on account of the shares of New Common Stock to be
distributed and (2) a Pro Rata share of the Cash Investment Yield from the
investment of any cash in the Unsecured Claims Reserve from the date that such
cash was deposited to the date that such distributions are made from the
Unsecured Claims Reserve.
D. TAX REQUIREMENTS FOR INCOME GENERATED BY UNSECURED CLAIMS RESERVE
The recovery of holders of Claims in Class 5 consists of the
treatment set forth herein and post-Effective Date interest on the cash portion
of such Claims, if any, at a rate determined by the Cash Investment Yield.
Therefore, the Reorganized Debtors and the holders of all Allowed Claims in
Class 5 will treat cash distributions of the Cash Investment Yield as interest
for all income tax purposes, and the applicable Reorganized Debtor will cause
such information returns to be issued to such holders consistent with this
treatment as may be required by any governmental unit. The applicable
<PAGE> 33
26
Reorganized Debtor will include in its tax returns all items of income,
deduction and credit of the Unsecured Claims Reserve; provided, however, that no
distribution will be made to the applicable Reorganized Debtor out of the
Unsecured Claims Reserves as a result of this inclusion. The applicable
Disbursing Agent will pay, or cause to be paid, out of the funds held in the
Unsecured Claims Reserve, any tax imposed on the Unsecured Claims Reserve (as
opposed to the applicable Reorganized Debtor or the holders of Claims in a Class
5) by any governmental unit with respect to income generated by the funds and
New Common Stock held in the Unsecured Claims Reserve. The applicable Disbursing
Agent also will file or cause to be filed any tax or information return related
to the applicable Unsecured Claims Reserve that is required by any governmental
unit.
ARTICLE VIII.
SUBSTANTIVE CONSOLIDATION OF THE DEBTORS
Pursuant to the Confirmation Order, the Bankruptcy Court shall
approve the substantive consolidation of the Debtors for all purposes related to
the Plan, including for purposes of voting, Confirmation and distributions to be
made under the Plan. Pursuant to such order, (A) all assets and liabilities of
the PMI Subsidiary Debtors shall be deemed merged or treated as though they were
merged into and with the assets and liabilities of PMI, (B) all guarantees by
one Debtor of the obligations of any other Debtor shall be deemed eliminated so
that any Claim against any Debtor and any guarantee thereof executed by any
other Debtor and any joint or several liability of any of the Debtors shall be
deemed to be one obligation of the consolidated Debtors and (C) each and every
Claim Filed or to be Filed in the Reorganization Case of any of the Debtors
shall be deemed Filed against the consolidated Debtors, and shall be deemed one
Claim against and a single obligation of the consolidated Debtors. Such
substantive consolidation shall not (other than for purposes related to the
Plan) affect (A) the legal and corporate structures of the Reorganized Debtors,
subject to the right of the Debtors or Reorganized Debtors to affect
restructurings as provided in Section IV.B of the Plan, (B) Old Common Stock of
the PMI Subsidiary Debtors and (C) pre- and post-Effective Date guarantees that
are required to be maintained (1) in connection with contracts or leases that
were entered into during the Reorganization Cases or Executory Contracts and
Unexpired Leases that have been or will be assumed or (2) pursuant to the Plan.
ARTICLE IX.
CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The Bankruptcy Court will not enter the Confirmation Order
unless and until the following condition has been satisfied or duly waived by
the Debtors pursuant to Section IX.C: The Confirmation Order shall be
reasonably acceptable in form and substance to the Debtors and the Creditors'
Committee, including by approving the substantive consolidation of the Debtors
as contemplated by Article VIII.
B. CONDITIONS TO EFFECTIVE DATE
The Effective Date will not occur and the Plan will not be
consummated unless and until each of the following conditions has been satisfied
or duly waived by the Debtors pursuant to Section IX.C:
1. The New Common Stock shall have been registered under the Securities
Exchange Act of 1934 (the "Exchange Act") pursuant to a Form-10 Registration
Statement that has become effective under the Exchange Act.
2. The New Common Stock shall have been authorized for listing on or
accepted for quotation through a National Securities Exchange.
3. The Bankruptcy Court shall have entered an order (contemplated to be
part of the Confirmation Order) approving and authorizing the Debtors and the
Reorganized Debtors to take all actions necessary or appropriate to implement
<PAGE> 34
27
the Plan, including completion of the Restructuring Transactions and the other
transactions contemplated by the Plan and the implementation and consummation of
the contracts, instruments, releases and other agreements or documents created
in connection with the Plan.
C. WAIVER OF CONDITIONS TO CONFIRMATION OR EFFECTIVE DATE
The conditions to Confirmation and the Effective Date set forth
in Sections IX.A and IX.B may be waived in whole or part by the Debtors at any
time without an order of the Bankruptcy Court after three Business Days' written
notice of such waiver to and consent of the Creditors' Committee. The failure to
satisfy or waive a condition may be asserted by a Debtor regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by the Debtors).
D. EFFECT OF NONOCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to the Effective Date must be satisfied
or duly waived in accordance with Article IX within 60 days after the
Confirmation Date, or by such later date, after notice and a hearing, as is
proposed by the Debtors. If each condition to the Effective Date has not been
satisfied or duly waived pursuant to Section IX.C by such date, then upon motion
by the Debtors or the Creditors' Committees made before the time that each of
such conditions has been satisfied or duly waived and upon notice to such
parties in interest as the Bankruptcy Court may direct, the Confirmation Order
will be vacated by the Bankruptcy Court; provided, however, that,
notwithstanding the Filing of such motion, the Confirmation Order may not be
vacated if each of the conditions to the Effective Date is either satisfied or
duly waived before the Bankruptcy Court enters an order granting such motion. If
the Confirmation Order is vacated pursuant to this Section IX.D, (1) the Plan
will be null and void in all respects, including with respect to: (a) the
discharge of Claims and termination of Interests pursuant to section 1141 of the
Bankruptcy Code; (b) the assumptions, assignments or rejections of Executory
Contracts or Unexpired Leases pursuant to Sections V.A and V.C and (c) the
substantive consolidation of the Debtors; and (2) nothing contained in the Plan
will: (a) constitute a waiver or release of any claims by or against, or any
Interest in, the Debtors; or (b) prejudice in any manner the rights of the
Debtors or any other party in interest.
ARTICLE X.
CRAMDOWN
The Debtors request Confirmation under section 1129(b) of the
Bankruptcy Code with respect to any impaired Class that does not accept the Plan
pursuant to section 1126 of the Bankruptcy Code. 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. Such modifications may
include reclassification of certain Claims in Class 5 to reflect the differing
interests of certain creditors or groups of creditors holding Unsecured Claims
in such Class.
ARTICLE XI.
DISCHARGE, TERMINATION, INJUNCTION
AND SUBORDINATION RIGHTS
A. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
1. Except as provided in the Plan or in the Confirmation Order, the
rights afforded under the Plan and the treatment of Claims and Interests under
the Plan will be in exchange for and in complete satisfaction, discharge and
release of all Claims and termination of all Interests arising on or before the
Effective Date, including any interest accrued on Claims from the Petition Date.
Except as provided in the Plan or in the Confirmation Order, Confirmation will,
as of the Effective Date: (a) discharge the Debtors from all Claims or other
debts that arose on or before the Effective Date, and all debts of the kind
specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or
not (i) a proof of Claim based on such debt is Filed or deemed Filed pursuant to
section 501 of the Bankruptcy Code, (ii) a Claim based on such debt is allowed
pursuant to section 502 of the Bankruptcy Code or (iii) the holder of a Claim
based on such debt has accepted the Plan; and (b) terminate all Interests and
other rights of equity security holders in the Debtors.
<PAGE> 35
28
2. In accordance with the foregoing, except as provided in the Plan or
the Confirmation Order, the Confirmation Order will be a judicial determination,
as of the Effective Date, of a discharge of all such Claims and other debts and
liabilities against the Debtors and termination of all such Interests and other
rights of equity security holders in the Debtors, pursuant to sections 524 and
1141 of the Bankruptcy Code, and such discharge will void any judgment obtained
against a Debtor at any time, to the extent that such judgment relates to a
discharged Claim or terminated Interest.
B. INJUNCTIONS
1. Except as provided in the Plan or the Confirmation Order, as of the
Effective 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 terminated pursuant to the terms of the Plan
are permanently enjoined from taking any of the following actions on account of
any such discharged Claims, debts or liabilities or terminated Interests or
rights: (a) commencing or continuing in any manner any action or other
proceeding against the Debtors, the Reorganized Debtors or their respective
property, other than to enforce any right pursuant to the Plan to a
distribution; (b) enforcing, attaching, collecting or recovering in any manner
any judgment, award, decree or order against the Debtors, the Reorganized
Debtors or their respective property, other than as permitted pursuant to (a)
above; (c) creating, perfecting or enforcing any lien or encumbrance against the
Debtors, the Reorganized Debtors or their respective property; (d) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to the Debtors or the Reorganized 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.
2. 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 the Plan are permanently enjoined from taking any of the
following actions against any released entity or its property on account of such
released claims, 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.
3. By accepting distributions pursuant to the Plan, each holder of an
Allowed Claim receiving distributions pursuant to the Plan will be deemed to
have specifically consented to the injunctions set forth in this Section XI.
C. TERMINATION OF SUBORDINATION RIGHTS AND SETTLEMENT OF RELATED CLAIMS
AND CONTROVERSIES
1. The classification and manner of satisfying all Claims and Interests
under the Plan take into consideration all subordination rights, whether arising
under general principles of equitable subordination, contract, section 510(c) of
the Bankruptcy Code or otherwise, that a holder of a Claim or Interest may have
against other Claim or Interest holders with respect to any distribution made
pursuant to the Plan. All subordination rights that a holder of a Claim may have
with respect to any distribution to be made pursuant to the Plan will be
discharged and terminated, and all actions related to the enforcement of such
subordination rights will be permanently enjoined. Accordingly, distributions
pursuant to the Plan to holders of Allowed Claims will not be subject to payment
to a beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by a beneficiary of such
terminated subordination rights. Notwithstanding the foregoing, nothing in the
Plan or the Confirmation Order shall affect any subordination right or claim
that any Debtor or Reorganized Debtor or any holder of a Claim or Interest may
have against any Koch Entity or any other entity potentially liable in respect
of the Recovery Actions, including any subordination right or claim arising out
of, relating to or in connection with the Koch Purchase Transaction or any
Recovery Action.
2. Except as provided in Section XI.C.1, pursuant to Bankruptcy Rule
9019 and in consideration for the distributions and other benefits provided
under the Plan, the provisions of the Plan will constitute a good faith
compromise and settlement of all claims or controversies relating to the
subordination rights that a holder of a Claim may have with respect to any
Allowed Claim or any distribution to be made pursuant to the Plan on account of
any Allowed Claim. The entry of the Confirmation Order will constitute the
Bankruptcy Court's approval, as of the Effective Date, of the compromise or
settlement of all such claims or controversies and the Bankruptcy Court's
finding that such compromise or settlement is in the best interests of the
Debtors, the Reorganized Debtors and their respective property and Claim and
Interest holders, and is fair, equitable and reasonable.
<PAGE> 36
29
ARTICLE XII.
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court will retain such
jurisdiction over the Reorganization Cases after the Effective Date as is
legally permissible, including jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or Interest,
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;
2. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the Plan
for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption, assumption and
assignment or rejection of any Executory Contract or Unexpired Lease to which
any Debtor is a party or with respect to which any Debtor or Reorganized Debtor
may be liable and to hear, determine and, if necessary, liquidate any Claims
arising therefrom, including Cure Amount Claims;
4. Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan;
5. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters, including the Recovery Actions, and
grant or deny any applications involving the Debtors that may be pending on the
Effective Date or brought thereafter;
6. Enter such orders as may be necessary or appropriate to 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;
7. Resolve any cases, controversies, suits or disputes that may arise
in connection with the Recovery Actions or the consummation, interpretation or
enforcement of the Plan or any contract, instrument, release or other agreement
or document that is executed or created pursuant to the Plan, or any entity's
rights arising from or obligations incurred in connection with the Plan or such
documents;
8. Resolve any disputes relating to the activities of the Claims
Resolution Committee, including any fee disputes or requests to extend the term
of the Claims Resolution Committee in accordance with Sections XIII.A.2.c and
XIII.2.d.
9. Modify the Plan before or after the Effective Date pursuant to
section 1127 of the Bankruptcy Code or modify 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, or remedy any defect or omission or reconcile any
inconsistency in any Bankruptcy Court order, 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, in such manner as may be necessary or appropriate to
consummate the Plan;
10. Issue injunctions, enforce the injunctions contained in the Plan
and the Confirmation Order, enter and implement other orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;
11. Enter and implement such orders as are necessary or appropriate if
the Confirmation Order is for any reason or in any respect modified, stayed,
reversed, revoked or vacated or distributions pursuant to the Plan are enjoined
or stayed;
12. Determine any other matters that may arise in connection with or
relate 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;
13. Enter a final decree closing the Reorganization Cases; and
<PAGE> 37
30
14. Determine matters concerning state, local and federal taxes in
accordance with sections 346, 505 and 1146 of the Bankruptcy Code.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
A. DISSOLUTION OF THE CREDITORS' COMMITTEE AND CREATION OF THE CLAIMS
RESOLUTION COMMITTEE
1. CREDITORS' COMMITTEE
On the Effective Date, the Creditors' Committee will dissolve
and the members of the Creditors' Committee will be released and discharged from
all duties and obligations arising from or related to the Reorganization Cases.
The Professionals retained by the Creditors' Committee and the members thereof
will not be entitled to assert any Fee Claim for any services rendered or
expenses incurred after the Effective Date, except for services rendered and
expenses incurred in connection with any applications for allowance of
compensation and reimbursement of expenses pending on the Effective Date or
Filed and served after the Effective Date pursuant to Section III.A.1.e.ii.A and
in connection with any appeal of the Confirmation Order.
2. CLAIMS RESOLUTION COMMITTEE
a. FUNCTION AND COMPOSITION OF THE CLAIMS RESOLUTION
COMMITTEE
On the Effective Date, the Claims Resolution Committee will be
established. Its sole functions will be to monitor the Reorganized Debtors'
progress in (i) reconciling and resolving Disputed Claims in Class 5 (including
the exercise of the Claims Resolution Committee's rights pursuant to Section
VII.A.2) and (ii) making distributions on account of such Claims once resolved
(including the exercise of the Claims Resolution Committee's rights pursuant to
Section I.A.42.b). The Claims Resolution Committee will consist of up to three
holders of Claims in Class 5 who will be designated by the Creditors' Committee
in writing prior to the Effective Date.
b. COMMITTEE PROCEDURES
The Claims Resolution Committee will adopt by-laws that will
control its functions. These by-laws, unless modified by the Claims Resolution
Committee, will provide the following: (i) a majority of the Claims Resolution
Committee will constitute a quorum; (ii) one member of the Claims Resolution
Committee will be designated by the majority of its members as its chairperson;
(iii) meetings of the Claims Resolution Committee will be called by its
chairperson on such notice and in such manner as its chairperson may deem
advisable; and (iv) the Claims Resolution Committee will function by decisions
made by a majority of its members in attendance at any meeting.
c. EMPLOYMENT OF PROFESSIONALS BY THE CLAIM RESOLUTION
COMMITTEE AND REIMBURSEMENT OF COMMITTEE MEMBERS
The Claims Resolution Committee will be authorized to retain
and employ one law firm as counsel. The Claims Resolution Committee also will be
authorized to retain and employ one accounting firm; provided, however, that the
Claims Resolution Committee must deliver a written notice to the Reorganized
Debtors before each request for substantial services from its accountants, which
notice will describe the services to be requested, an estimate of the cost for
such services and the reason why such services are necessary and reasonable. The
role of the Claims Resolution Committee's professionals will be strictly limited
to assisting the Claim Resolution Committee in its functions as set forth
herein. The Claims Resolution Committee will use its best faith efforts to limit
the amount of its professionals' fees and expenses. The Reorganized Debtors will
pay the actual, necessary, reasonable and documented fees and expenses of the
professionals retained by the Claims Resolution Committee, as well as the
actual, necessary, reasonable and documented expenses incurred by each committee
member in the performance of its duties, in accordance with Reorganized PMI's
normal business practices for compensating and reimbursing professionals. Other
than as specified in the preceding sentence, the members of the Claims
Resolution Committee will serve without compensation. If there is any unresolved
dispute between the Reorganized Debtors and the Claims Resolution Committee, its
professionals or a member thereof as to any fees or expenses, such dispute will
be submitted to the Bankruptcy Court for resolution.
<PAGE> 38
31
d. DISSOLUTION OF THE COMMITTEE
Subject to further order of the Bankruptcy Court, the Claims
Resolution Committee will dissolve on the earlier of (i) the 18-month
anniversary of the Effective Date or (ii) the final distribution (other than on
account of Undeliverable Distribution pursuant to Section VI.E.2) of all New
Common Stock in the Unsecured Claims Reserve. The members of and the
professionals retained by the Claims Resolution Committee will not be entitled
to compensation or reimbursement of expenses for any services rendered after the
date of dissolution of the Claims Resolution Committee.
B. LIMITATION OF LIABILITY
The Debtors, the Reorganized Debtors and their respective
directors, officers, employees and Professionals, acting in such capacity, and
the Creditors' Committee and its members and Professionals, acting in such
capacity, will neither have nor incur any liability to any entity for any act
taken or omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, Confirmation or consummation of the
Plan, the Disclosure Statement or any contract, instrument, release or other
agreement or document created or entered into, or any other act taken or omitted
to be taken, in connection with the Plan; provided, however, that the foregoing
provisions of this Section XIII.B will have no effect on: (1) the liability of
any entity that would otherwise result from the failure to perform or pay any
obligation or liability under the Plan or any contract, instrument, release or
other agreement or document to be delivered or distributed in connection with
the Plan or (2) the liability of any entity that would otherwise result from any
such act or omission to the extent that such act or omission is determined in a
Final Order to have constituted gross negligence or willful misconduct.
C. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in
section 1127 of the Bankruptcy Code, the Debtors or the Reorganized Debtors, as
applicable, with the consent of the Creditors' Committee, reserve the right to
alter, amend or modify the Plan before its substantial consummation.
D. REVOCATION OF THE PLAN
The Debtors reserve the right to revoke or withdraw the Plan as
to any or all of the Debtors prior to the Confirmation Date. If the Debtors
revoke or withdraw the Plan as to any or all of the Debtors, or if Confirmation
as to any or all of the Debtors does not occur, then, with respect to such
Debtors, the Plan will be null and void in all respects, and nothing contained
in the Plan will: (1) constitute a waiver or release of any claims by or
against, or any Interests in, such Debtors or (2) prejudice in any manner the
rights of any such Debtors.
E. 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 will 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 then will be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will 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.
F. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or
referred to in the Plan will be binding on, and will inure to the benefit of,
any heir, executor, administrator, successor or assign of such entity.
G. SERVICE OF CERTAIN PLAN EXHIBITS AND DISCLOSURE STATEMENT EXHIBITS
Because the Exhibits to the Plan are voluminous, the Exhibits
are not being served with copies of the Plan and the Disclosure Statement. Any
party in interest may review the Plan Exhibits during normal business hours
(9:00 a.m. to 4:30 p.m., local time) in the Document Reviewing Centers.
<PAGE> 39
32
H. SERVICE OF DOCUMENTS
Any pleading, notice or other document required by the Plan or
Confirmation Order to be served on or delivered to the Debtors, the Reorganized
Debtors, the Creditors' Committee or the DIP Lender must be sent by overnight
delivery service, facsimile transmission, courier service or messenger to:
<TABLE>
<S> <C>
PURINA MILLS, INC. Lewis Kruger, Esq.
1401 South Hanley Road STROOCK & STROOCK & LAVAN LLP
St. Louis, Missouri 63144 180 Maiden Lane
Fax: (314) 768-4470 New York, New York 10038-4982
Attn: David G. Kabbes, General Counsel Fax: (212) 806-6006
Richard M. Cieri, Esq. (Counsel to the DIP Lender and Lenders under the
Jeffrey B. Ellman, Esq. Prepetition Credit Facility)
JONES, DAY, REAVIS & POGUE
North Point John D. McLaughlin, Jr., Esq.
901 Lakeside Avenue OFFICE OF THE UNITED STATES TRUSTEE
Cleveland, Ohio 44114 Curtis Center, Suite 950 West
Fax: (216) 579-0212 Philadelphia, Pennsylvania 19106
Fax: (215) 597-5795
Henry L. Gompf, Esq.
JONES, DAY, REAVIS & POGUE
2727 North Harwood
Dallas, Texas 75201
Fax: (214) 969-5100
Thomas L. Ambro (DE 677)
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Fax: (302) 658-6548
(Counsel to the Debtors and Reorganized Debtors)
Daniel H. Golden, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD LLP
590 Madison Avenue
New York, New York 10022
Fax: (212) 872-1002
(Counsel to the Unofficial Noteholders' Committee)
</TABLE>
<PAGE> 40
33
Dated: ___________, 1999 Respectfully submitted,
PURINA MILLS, INC. (for itself and
on behalf of the PMI Subsidiary Debtors)
By:
-----------------------------------
Name: David G. Kabbes
Title: Vice President, Secretary and
General Counsel
Counsel:
THOMAS L. AMBRO (DE 677)
DANIEL J. DEFRANCESCHI (DE 2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
- and -
RICHARD M. CIERI (OH 0032464)
JEFFREY B. ELLMAN (OH 0055558)
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
HENRY L. GOMPF (TX 08116400)
JONES, DAY, REAVIS & POGUE
2727 North Harwood
Dallas, Texas 75201
(214) 220-3939
PROPOSED ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
<PAGE> 1
PRELIMINARY DRAFT
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
IN RE: : JOINTLY ADMINISTERED
: CASE NO. 99-3938 (SLR)
PURINA MILLS, INC. :
A DELAWARE CORPORATION, ET AL., : CHAPTER 11
:
DEBTORS. :
:
- ------------------------------------------:
:
(PURINA MILLS, INC.) : (CASE NO. 99-3938 (SLR))
(CAROLINA AGRI-PRODUCTS, INC.) : (CASE NO. 99-3939 (SLR))
(COASTAL AG-DEVELOPMENT, INC.) : (CASE NO. 99-3940 (SLR))
(COLE GRAIN COMPANY, INC.) : (CASE NO. 99-3941 (SLR))
(DAIRY MANAGEMENT SERVICES, L.L.P.) : (CASE NO. 99-3942 (SLR))
(PM NUTRITION COMPANY INC.) : (CASE NO. 99-3943 (SLR))
(PMI AGRICULTURE L.L.C.) : (CASE NO. 99-3944 (SLR))
(PMI NUTRITION, INC.) : (CASE NO. 99-3947 (SLR))
(PMI NUTRITION INTERNATIONAL, INC.) : (CASE NO. 99-3945 (SLR))
(PURINA LIVESTOCK MANAGEMENT : (CASE NO. 99-3946 (SLR))
SERVICES, INC.) :
:
: DISCLOSURE STATEMENT PURSUANT
: TO SECTION 1125 OF THE
: BANKRUPTCY CODE FOR THE JOINT
: PLAN OF REORGANIZATION OF
: PURINA MILLS, INC. AND ITS
- ------------------------------------------: DEBTOR SUBSIDIARIES
-----------------------------------
<PAGE> 2
THOMAS L. AMBRO (DE377)
DANIEL J. DEFRANCESCHI (DE2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
- and -
RICHARD M. CIERI
(OH 0032464)
CHRISTOPHER M. KELLY
(NY C1217587)
SEAN M. MCAVOY (OH 0060119)
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
HENRY L. GOMPF (TX 08116400)
JONES, DAY, REAVIS & POGUE
2727 NORTH HARWOOD
DALLAS, TEXAS 75201
(214) 220-3939
PROPOSED ATTORNEYS FOR DEBTORS
AND DEBTORS IN POSSESSION
, 1999
-------------------
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT FOR
SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE JOINT PLAN OF REORGANIZATION
DESCRIBED HEREIN (THE "PLAN"). THEREFORE, THIS IS NOT A SOLICITATION OF
ACCEPTANCES OR REJECTIONS OF THE PLAN. ACCEPTANCES OR REJECTIONS OF THE PLAN MAY
NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE
BANKRUPTCY COURT.
<PAGE> 3
DISCLOSURE STATEMENT, DATED , 1999
---------------
SOLICITATION OF VOTES
WITH RESPECT TO THE
JOINT PLAN OF REORGANIZATION
OF
PURINA MILLS, INC. AND ITS DEBTOR SUBSIDIARIES
---------------------
THE BOARDS OF DIRECTORS OF PURINA MILLS, INC. ("PMI") AND EACH OF ITS
DEBTOR SUBSIDIARIES LISTED ON EXHIBIT I (COLLECTIVELY, THE "DEBTORS") BELIEVE
THAT THE JOINT PLAN OF REORGANIZATION OF PMI AND ITS DEBTOR SUBSIDIARIES, DATED
NOVEMBER __, 1999, IS IN THE BEST INTERESTS OF CREDITORS AND EQUITY HOLDERS. ALL
CREDITORS ENTITLED TO VOTE THEREON ARE URGED TO VOTE IN FAVOR OF THE PLAN.
VOTING INSTRUCTIONS ARE SET FORTH AT PAGE __ OF THIS DISCLOSURE STATEMENT. TO BE
COUNTED, YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED AND RECEIVED BY 5:00 P.M.,
EASTERN TIME, ON ____________, 1999 (THE "VOTING DEADLINE"), UNLESS EXTENDED.
---------------------
THE CONFIRMATION AND EFFECTIVENESS OF THE PROPOSED PLAN ARE SUBJECT TO
MATERIAL CONDITIONS PRECEDENT, SOME OF WHICH MAY NOT BE SATISFIED. SEE "OVERVIEW
OF THE PLAN -- CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE OF THE PLAN" AND
"VOTING AND CONFIRMATION OF THE PLAN -- ACCEPTANCE OR CRAMDOWN." THERE IS NO
ASSURANCE THAT THESE CONDITIONS WILL BE SATISFIED OR WAIVED.
---------------------
No person is authorized by any of the Debtors in connection with the
Plan or the solicitation of acceptances of the Plan to give any information or
to make any representation other than as contained in this Disclosure Statement
and the exhibits and schedules attached 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 any of the Debtors. Although
the Debtors will furnish to creditors entitled to vote on acceptance of the Plan
such additional information as may be required by applicable law prior to the
Voting Deadline, the delivery of this Disclosure Statement will not under any
circumstances imply that the information herein is correct as of any time
subsequent to the date hereof.
---------------------
ALL CREDITORS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED AS EXHIBIT II AND THE MATTERS
DESCRIBED UNDER "RISK FACTORS," PRIOR TO SUBMITTING BALLOTS PURSUANT TO THIS
SOLICITATION.
---------------------
The summaries of the Plan and the other documents contained in this
Disclosure Statement are qualified by reference to the Plan itself, the exhibits
thereto and documents described therein as being Filed prior to approval of the
Disclosure Statement.
The information contained in this Disclosure Statement, including the
information regarding the history, businesses and operations of the Debtors, the
historical and projected financial information regarding the Debtors and the
liquidation analyses relating to the Debtors, is included for purposes of
soliciting acceptances of the Plan, but, as to contested matters and adversary
proceedings, is not to be construed as admissions or stipulations, but rather as
statements made in settlement negotiations.
---------------------
ALL CAPITALIZED TERMS IN THIS DISCLOSURE STATEMENT NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS GIVEN TO THEM IN THE PLAN.
<PAGE> 4
TABLE OF CONTENTS
-----------------
PAGE
----
INTRODUCTION ................................................................ 1
OVERVIEW OF THE PLAN ........................................................ 1
Introduction............................................................ 1
General Information Concerning Treatment of Claims and Interests ....... 2
Summary of Classes and Treatment of Claims and Interests ............... 2
Additional Information Regarding Assertion and Treatment of
Administrative Claims and Priority Tax Claims ........................ 5
Special Provisions Regarding Treatment of Allowed Secondary
Liability Claims ..................................................... 7
Summary of Terms of Certain Securities to be Issued
Pursuant to the Plan ................................................. 7
Conditions to Confirmation and Effective Date of the Plan .............. 8
Conditions to Confirmation ........................................ 8
Conditions to Effective Date ...................................... 8
Waiver of Conditions to Confirmation and Effective Date ........... 8
Effect of Nonoccurrence of Conditions to Effective Date ........... 8
Substantive Consolidation .............................................. 9
Exit Financing Facility ................................................ 9
Modification or Revocation of the Plan ................................. 9
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS .................... 9
Prepetition Events ..................................................... 9
General ........................................................... 9
1998 Merger ....................................................... 10
Transactions with Koch Industries ................................. 11
Changes in Board of Directors and Management ...................... 12
Agricultural Industry Market Conditions ........................... 12
Swine Operations and Market Risk .................................. 13
Credit Risk Including Loan Guarantees ............................. 13
Vitamin Litigation and Proposed Settlement ........................ 14
Prepetition Operations and Liquidity ................................... 14
OPERATIONS DURING THE REORGANIZATION CASES .................................. 15
Commencement of Cases and Related Case Administration Activities ....... 15
Commencement of Reorganization Cases and First Day Relief ......... 15
Rejection of Certain Burdensome Executory Contracts and
Unexpired Leases ................................................ 16
Assumption of Doane Pet Care Company Agreement .................... 16
Key Employee Retention Program .................................... 17
Transition Services Agreement ..................................... 17
Claims Process and Bar Date ....................................... 17
Postpetition Operations and Liquidity .................................. 18
Debtor in Possession Financing .................................... 18
Prepetition Restructuring Negotiations ................................. 18
CERTAIN RECOVERY ACTIONS .................................................... 20
Introduction ........................................................... 20
Preference Claims ...................................................... 20
"Veil Piercing" Claims ................................................. 20
Illegal Dividend Actions ............................................... 21
Fraudulent Conveyance Actions .......................................... 22
Breach of Fiduciary Duty Actions ....................................... 23
Other Potential Claims ................................................. 24
REORGANIZED PMI ............................................................. 24
Restructuring Transactions ............................................. 24
Business and Properties of Reorganized PMI ............................. 24
Business .......................................................... 24
Properties ........................................................ 25
i
<PAGE> 5
PAGE
----
Additional Information ............................................ 25
Business Plan and Strategy for Reorganized PMI .................... 25
Dealer Business Group Strategy .................................... 26
Livestock Production Systems Group Strategy ....................... 26
Manufacturing Strategy ............................................ 27
Administrative Strategy ........................................... 27
Human Resource Strategy ........................................... 27
Selected Historical Financial Information .............................. 27
Projected Financial Information ........................................ 30
Introduction ...................................................... 30
Principal Assumptions ............................................. 30
Projections ....................................................... 32
Management ............................................................. 39
Current Executive Officers and Directors of PMI ................... 39
Executive Compensation ............................................ 41
Reorganized PMI Board of Directors ................................ 41
Board Committees .................................................. 42
Director Nomination Procedures .................................... 43
Director Compensation ............................................. 43
Employee Benefit Matters ............................................... 43
Existing Benefit Plans and Agreements ............................. 43
New Benefit Programs; Continuation or Termination of
Existing Plans and Agreements ................................... 46
Certain Corporate Governance Matters ................................... 47
Indemnity Arrangements ................................................. 48
Existing Indemnification Obligations .............................. 48
Treatment of Existing Indemnification Obligations
Under the Plan .................................................. 49
New Indemnification Arrangements .................................. 50
SECURITIES TO BE ISSUED PURSUANT TO THE PLAN ................................ 50
Reorganization Value ................................................... 50
New Common Stock ....................................................... 51
New Preferred Stock .................................................... 52
General ........................................................... 52
New Class A Preferred Stock ....................................... 52
New Class B Preferred Stock ....................................... 52
New Class C Preferred Stock ....................................... 52
Future Issuances of Stock .............................................. 52
Rights Agreement ....................................................... 53
New Prepetition Credit Facility Notes .................................. 54
RISK FACTORS ................................................................ 54
Projections ............................................................ 54
Competitive Industry Conditions ........................................ 55
Fluctuations in Commodity Prices ....................................... 55
Integration of Commodity Purchasing and Other Business Functions ....... 56
Business Strategy Risks ................................................ 56
Substantial Leverage ................................................... 56
Federal Income Tax ..................................................... 56
Treatment Of Claims .................................................... 57
Seasonality ............................................................ 57
Consumer Trends ........................................................ 57
Year 2000 Compliance ................................................... 57
Regulatory Compliance .................................................. 58
Certain Anti-Takeover Effects .......................................... 58
Lack of Established Market for New Common Stock; Certain
Investment Limitations; Possible Volatility .......................... 58
Security Interests ..................................................... 58
ii
<PAGE> 6
PAGE
----
Dividend Policies; Restrictions on Payment of Dividends ................ 59
Noncomparability of Historical Financial Information ................... 59
Dilution ............................................................... 59
GENERAL INFORMATION CONCERNING THE PLAN ..................................... 59
Legal Effects of the Plan .............................................. 59
Discharge of Claims and Termination of Interests;
Related Injunction .............................................. 59
Preservation of Rights of Action Held by the Debtors or
Reorganized Debtors ............................................. 60
Releases and Related Injunction ................................... 61
Continuation of Certain Employee, Retiree and Workers'
Compensation Benefits ........................................... 61
Executory Contracts and Unexpired Leases .......................... 61
Substantive Consolidation .............................................. 63
DISTRIBUTIONS UNDER THE PLAN ................................................ 63
General ................................................................ 63
Methods of Distributions ............................................... 63
Distributions to Holders of Allowed Claims and Interests ......... 64
Compensation and Reimbursement for Services Related to
Balloting and Distributions .................................... 64
Delivery of Distributions in General ............................. 64
Undeliverable or Unclaimed Distributions ............................... 64
Distribution Record Date ............................................... 65
Means of Cash Payments ................................................. 65
Timing and Calculation of Amounts to be Distributed .................... 65
Distributions of New Common Stock ................................ 66
De Minimis Distributions ......................................... 66
Compliance with Tax Requirements ................................. 66
Surrender of Canceled Securities or Other Instruments .................. 66
Setoffs ................................................................ 67
Disputed Claims; Reserve and Estimations ............................... 67
Funding of Disputed Claims Reserves .............................. 67
Distributions on Account of Disputed Claims Once
They Are Allowed ............................................... 68
Payment of Post-Effective Date Interest from Cash
Investment Yield ..................................................... 68
Objections to Claims or Interests and Authority to
Prosecute Objections ................................................. 68
Dissolution of the Creditors' Committees and Creation of
the Claims Resolution Committee ...................................... 68
Function and Composition of the Claims Resolution
Committee ...................................................... 68
Claims Resolution Committee Procedures ........................... 69
Employment of Professionals by the Claims Resolution
Committee and Reimbursement of Committee Members ............... 69
Dissolution of the Claims Resolution Committee ................... 69
VOTING AND CONFIRMATION OF THE PLAN ......................................... 69
General ................................................................ 69
Voting Procedures and Requirements ..................................... 70
Confirmation Hearing ................................................... 70
Confirmation ........................................................... 71
Acceptance or Cramdown ................................................. 71
Best Interests Test; Liquidation Analysis .............................. 72
Feasibility ............................................................ 73
Compliance with Applicable Provisions of the Bankruptcy Code ........... 73
Alternatives to Confirmation and Consummation of the Plan .............. 73
FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN ................. 73
General ................................................................ 73
Federal Income Tax Consequences to the Debtors ......................... 74
Reduction of Debtors' Indebtedness ............................... 74
Federal Income Tax Consequences To Holders ............................. 74
Definition of Tax Securities ..................................... 75
iii
<PAGE> 7
PAGE
----
Holders of Claims Constituting Tax Securities .................... 75
Holders of Claims Not Constituting Tax Securities ................ 75
Dividend and Interest Income Earned by Unsecured
Claims Reserve ................................................. 75
Certain Other Tax Considerations for Holders of Claims ................. 76
Receipt of Pre-Effective Date Interest ........................... 76
Receipt of Dividend and Interest Income Earned by
Unsecured Claims Reserve ....................................... 76
Reinstatement of Claims .......................................... 76
Receipt by Holders of Bank Loan Claims of New
Prepetition Credit Facility Notes .............................. 76
Bad Debt Deduction ............................................... 76
Information Reporting and Backup Withholding ..................... 77
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS .................. 77
Applicability of Certain Federal and State Securities Laws ............. 77
Bankruptcy Code Exemptions from Registration Requirements ........ 77
Certain Transactions by Stockbrokers ............................. 79
ADDITIONAL INFORMATION ...................................................... 79
RECOMMENDATION AND CONCLUSION ............................................... 80
TABLE OF EXHIBITS
Exhibit I PMI Debtor Subsidiaries
Exhibit II Joint Plan of Reorganization of Purina Mills, Inc. and Its
Debtor Subsidiaries
Exhibit III Purina Mills, Inc., form 10-K Annual Report for the year
ended December 31, 1998, form 10-Q Quarterly Report for the
quarter ended March 31, 1999, and form 10-Q Quarterly Report
for the quarter ended June 30, 1999
Exhibit IV Liquidation Analysis
iv
<PAGE> 8
INTRODUCTION
The Debtors are seeking approval of the Plan, a copy of which is
attached hereto as Exhibit II. This Disclosure Statement is submitted by the
Debtors in connection with the solicitation of acceptances of the Plan.
The confirmation of a plan of reorganization, which is the vehicle for
satisfying the rights of holders of claims against and equity interests in a
debtor, is the overriding purpose of a chapter 11 case. The primary objectives
of the Plan are to: (a) alter the Debtors' debt and capital structures to permit
them to emerge from their chapter 11 cases with viable capital structures; (b)
maximize the value of the ultimate recoveries to all creditor groups on a fair
and equitable basis; and (c) settle, compromise or otherwise dispose of certain
claims and interests on terms that the Debtors believe to be fair and reasonable
and in the best interests of their respective estates, creditors and equity
holders. The Plan provides for, among other things: (i) the cancellation of
certain indebtedness in exchange for cash, for New Common Stock of Reorganized
PMI or for New Prepetition Credit Facility Notes; (ii) the discharge of
prepetition Intercompany Claims among the Debtors; (iii) the assumption or
rejection of executory contracts and unexpired leases to which any Debtor is a
party; (iv) the selection of boards of directors of the Reorganized Debtors; and
(v) the substantive consolidation of the Debtors.
Under the terms of the Plan, holders of allowed claims in respect of
PMI's 9% Senior Subordinated Notes due 2010 ("Old Senior Subordinated Notes"),
together with holders of allowed general unsecured claims against any Debtor
(other than certain employee claims and Convenience Class Claims as described
below) (collectively,"General Unsecured Creditors"), will receive their Pro Rata
share of 10,000,000 shares of New Common Stock of Reorganized PMI. Holders of
allowed general unsecured claims against the debtors aggregating $1,000 or less
(or as to which the holder consents to reduce its aggregate claims to $1,000)
("Convenience Class Claims") will receive cash equal to the amount of such
claims. Holders of claims against the Debtors arising under the Prepetition
Credit Facility ("Bank Loan Claims") will retain such claims in accordance with
the terms of the New Prepetition Credit Facility Notes to be issued pursuant to
the Plan. If the Plan is confirmed and consummated in accordance with its terms,
substantially all of the New Common Stock of Reorganized PMI initially will be
owned by prepetition unsecured creditors of the Debtors. Distributions of New
Common Stock pursuant to the Plan will be subject to dilution from issuance of
options for New Common Stock to Employees and Directors under the Equity
Incentive Plan. ______ shares, or approximately __% of the authorized shares of
New Common Stock, will be reserved for issuance under the Equity Incentive Plan
of which options for ______ shares will be issued on the Effective Date. See
"Reorganized PMI -- Employee Benefit Matters -- New Benefit Programs and
Agreements."
[BY ORDER OF THE BANKRUPTCY COURT DATED _____________, 1999 THIS
DISCLOSURE STATEMENT HAS BEEN APPROVED AS CONTAINING "ADEQUATE INFORMATION" FOR
CREDITORS AND EQUITY SECURITY HOLDERS OF THE DEBTORS IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE. THE BANKRUPTCY CODE DEFINES "ADEQUATE INFORMATION"
AS "INFORMATION OF A KIND, AND IN SUFFICIENT DETAIL, AS FAR AS IS REASONABLY
PRACTICABLE IN LIGHT OF THE NATURE AND THE HISTORY OF THE DEBTOR AND THE
CONDITION OF THE DEBTOR'S BOOKS AND RECORDS, THAT WOULD ENABLE A HYPOTHETICAL
REASONABLE INVESTOR TYPICAL OF HOLDERS OF CLAIMS OR INTEREST OF THE RELEVANT
CLASS TO MAKE AN INFORMED JUDGMENT ABOUT THE PLAN . . .." 11 U.S.C. SECTION.
1125(a)(1).]
THE BOARDS OF DIRECTORS OF THE DEBTORS BELIEVE THAT THE PLAN IS IN THE
BEST INTERESTS OF CREDITORS AND EQUITY HOLDERS. ALL CREDITORS ENTITLED TO VOTE
ARE URGED TO VOTE IN FAVOR OF THE PLAN BY NO LATER THAN 5:00 P.M., EASTERN TIME
ON THE ______________, 1999 VOTING DEADLINE.
The requirements for Confirmation, including the vote of creditors to
accept the Plan and certain of the statutory findings that must be made by the
Bankruptcy Court, are set forth in "Voting And Confirmation Of The Plan."
Confirmation of the Plan and the occurrence of the Effective Date are subject to
a number of significant conditions, which are summarized in "Overview of the
Plan -- Conditions to Confirmation and Effective Date of the Plan." There is no
assurance that these conditions will be satisfied or waived.
OVERVIEW OF THE PLAN
INTRODUCTION
The following is a brief overview of certain material provisions of the
Plan. This overview is qualified in its entirety by reference to the provisions
of the Plan, which is attached hereto as Exhibit II, and the exhibits thereto,
as
<PAGE> 9
amended from time to time, which are available for inspection at the Document
Reviewing Centers. See "Additional Information." For a description of certain
other significant terms and provisions of the Plan, see "General Information
Concerning The Plan" and "Distributions Under The Plan."
GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Plan provides that holders of Allowed Claims in certain Classes
will be entitled to distributions of cash or New Common Stock of Reorganized PMI
in respect of their Claims. See "Securities To Be Issued Pursuant To The Plan --
New Common Stock," for a description of the New Common Stock to be issued
pursuant to the Plan. The Plan also provides that the holders of certain Allowed
Secured Claims will have their Claims paid in full or respective Claims
Reinstated, at the option of the Debtors, or, in the case of the Bank Loan
Claims under the Prepetition Credit Facility, modified in accordance with the
terms of the New Prepetition Credit Facility Notes to be issued pursuant to the
Plan, see "Securities To Be Issued Pursuant To The Plan -- New Prepetition
Credit Facility Notes."
For purposes of computations of Claim amounts, administrative and other
expenses and similar computational purposes, the Effective Date is assumed to
occur on January 31, 2000. There is no assurance, however, as to if or when the
Effective Date will actually occur. Procedures for the distribution of cash and
securities pursuant to the Plan, including matters that are expected to affect
the timing of the receipt of distributions by holders of Claims in certain
Classes and that could affect the amount of distributions ultimately received by
such holders, are described in "Distributions Under The Plan."
The determination of the relative distributions to be received under
the Plan by the holders of Claims in certain Classes was based upon, among other
factors, estimates of the amounts of Allowed Claims in such Classes and the
relative priorities of such Allowed Claims. The estimates of the amounts of
Allowed Claims in each Class are set forth in "Overview Of The Plan -- Summary
of Classes and Treatment of Claims and Interests." The distributions to be
received by creditors in certain Classes could change if those estimates are not
accurate.
The "cramdown" provisions of section 1129(b) of the Bankruptcy Code
permit confirmation of a chapter 11 plan of reorganization in certain
circumstances even if the plan is not accepted by all impaired classes of claims
and interests. See "Voting And Confirmation Of The Plan -- Acceptance or
Cramdown." The Debtors have reserved the right to request Confirmation pursuant
to the cramdown provisions of the Bankruptcy Code and amend the Plan if any
Class of Claims fails to accept the Plan. If such request were granted by the
Bankruptcy Court, the dissenting Classes may, in certain cases, receive
alternative treatment under the Plan. For purposes of this Disclosure Statement,
however, it has been assumed that the Debtors will not be required to seek
Confirmation under the cramdown provisions of the Bankruptcy Code. Although the
Debtors believe that, if necessary, the Plan could be confirmed under the
cramdown provisions of the Bankruptcy Code, there is no assurance that the
requirements of such provisions would be satisfied.
SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS
The classification of Claims and Interests, the estimated aggregate
amount of Claims in each Class and the amount and nature of distributions to
holders of Claims or Interests in each Class are summarized in the table below.
In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims have not been classified. For a discussion of
certain additional matters related to Administrative Claims and Priority Tax
Claims, see "Overview Of The Plan -- Additional Information Regarding Assertion
and Treatment of Administrative Claims and Priority Tax Claims."
Because the Plan contemplates the substantive consolidation of all of
the Debtors (See "General Information Concerning The Plan -- Substantive
Consolidation"), the information set forth in the table below with respect to
each class of Claims is presented on a combined basis for all the Debtors to
which such information is applicable. The estimated aggregate amounts of Claims
are based on the Debtors' estimates of the aggregate amounts of such Claims,
which the Debtors believe will be asserted, upon resolution of all such Claims
that the Debtors believe will be Disputed Claims. Certain of these Disputed
Claims are likely to be material, and the total amount of all such Claims,
including Disputed Claims, may be materially in excess of the total amount of
Allowed Claims assumed in the development of the Plan.
2
<PAGE> 10
Since the Disclosure Statement has been prepared prior to any
applicable Bar Date for the filing of Claims, the actual amount of Claims filed
may differ significantly from the Debtors' estimates. Further, the amount of any
Disputed Claim that ultimately is allowed by the Bankruptcy Court may be
significantly more or less than the estimated amount of such Claim. THE ACTUAL
ULTIMATE AGGREGATE AMOUNT OF ALLOWED GENERAL UNSECURED CLAIMS IN CLASS 5 MAY
DIFFER SIGNIFICANTLY FROM THE ESTIMATE SET FORTH BELOW. ACCORDINGLY, THE AMOUNT
OF THE PRO RATA DISTRIBUTIONS OF NEW COMMON STOCK THAT ULTIMATELY WILL BE
RECEIVED BY A PARTICULAR HOLDER OF AN ALLOWED CLAIM IN CLASS 5 MAY BE ADVERSELY
OR FAVORABLY AFFECTED BY THE AGGREGATE AMOUNT OF CLAIMS ULTIMATELY ALLOWED IN
SUCH CLASS. DISTRIBUTIONS OF NEW COMMON STOCK TO HOLDERS OF ALLOWED CLAIMS IN
CLASS 5 WILL BE MADE ON AN INCREMENTAL BASIS UNTIL ALL DISPUTED CLAIMS IN SUCH
CLASS HAVE BEEN RESOLVED. SEE "DISTRIBUTIONS UNDER THE PLAN -- TIMING AND
CALCULATION OF AMOUNTS TO BE DISTRIBUTED -- DISTRIBUTIONS OF NEW COMMON STOCK"
AND "-- DISPUTED CLAIMS; RESERVE AND ESTIMATIONS."
Each amount shown in the table below as "Estimated Percentage Recovery"
for each Class is the quotient of the cash or the assumed value of the New
Common Stock or New Prepetition Credit Facility Notes to be distributed to all
holders of Allowed Claims in such Class, divided by the estimated aggregate
amount of Allowed Claims in such Class. For purposes of such computation, the
New Common Stock to be distributed to holders of General Unsecured Claims in
Class 5 under the Plan is assumed to have an aggregate value of $125 million. In
estimating this value, because of the inherent uncertainties of the potential
litigation involved, no value has been ascribed to the Recovery Actions. See
"Securities To Be Issued Pursuant To The Plan -- Reorganization Value" for a
description of the manner in which the number of shares of New Common Stock were
valued for purposes of the Plan, the assumptions used in connection with the
foregoing, and the limitations thereon, and "Risk Factors" for a discussion of
various other factors that could materially affect the value of New Common Stock
distributed pursuant to the Plan. In addition, Koch Industries, Inc. ("Koch
Industries") and certain of its affiliates (other than the Debtors) are believed
to have Unsecured Claims in excess of $25 million against PMI. The Estimated
Aggregate Claims Amount for General Unsecured Claims shown in the table below
does not include such Claims of Koch Industries and its affiliates. If such
Claims are Allowed, the "Estimated Percentage Recovery" in Class 5 would be
reduced accordingly.
Although the Debtors' management believes that these valuation
assumptions are reasonable, there is no assurance that the New Common Stock will
have the value assumed herein. See "Risk Factors." The foregoing valuation
assumptions are not a prediction or reflection of post-Effective Date trading
prices of the New Common Stock. The New Common Stock may trade at substantially
higher or lower prices because of a number of other factors, including those
discussed in "Risk Factors." The trading price of New Common Stock issued under
a plan of reorganization is subject to many unforeseeable circumstances and
therefore cannot be predicted. Moreover, as discussed above, there is no
assurance that the actual amounts of Allowed General Unsecured Claims in Class 5
will not materially exceed the estimated aggregate amounts shown in the table
below. Accordingly, no representation can be or is being made with respect to
whether the percentage recoveries shown in the table below will actually be
realized by the holder of an Allowed General Unsecured Claim in Class 5.
3
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION AND AMOUNT
OF CLAIMS OR INTERESTS TREATMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- - Class 1 (Unsecured Priority Claims): Unsecured Unimpaired; on the Effective Date, each holder of an
Claims entitled to priority under sections 507(a)(3), Allowed Claim in Class 1 will receive cash equal to the
507(a)(4) or 507(a)(6) of the Bankruptcy Code. amount of such Claim.
Estimated Aggregate Claims Amount: $500,000 Estimated Percentage Recovery: 100%
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 2 (Unsecured Convenience Class Claims): Impaired; on the Effective Date each holder of Allowed
Unsecured Claims against any Debtor that otherwise would Claims in Class 2 will receive cash equal to the
be classified in Class 5, but with respect to which all of aggregate amount of such Claims (as reduced, if
such Claims of a particular holder aggregate $1,000 or applicable, pursuant to an election by the holder
less, or as to which such holder elects to reduce all of thereof). Giving effect to the aggregation or election
such Claims to $1,000 on the Ballot providing for voting as to such Claims, the maximum aggregate distribution to
on the Plan, by the Voting Deadline. Multiple Claims of a any holder of Class 2 Claims shall not exceed $1,000.
holder against the Debtors will be aggregated for purposes
of classification, such that such holder will only have a Estimated Percentage Recovery: 100%
single Convenience Class Claim under the Plan equal to
not more than $1,000.
Estimated Aggregate Claims Amount: $1,000,000
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 3 (Non-Bank Secured Claims): Secured Unimpaired; on the Effective Date, unless otherwise
Claims other than Claims in Class 4 (Bank Claims). agreed by such holder and the applicable Debtor, each
holder of an Allowed Claim in Class 3 will be treated in
Estimated Aggregate Claims Amount: $2,800,000 the manner set forth in Option A or B below. The
applicable Debtor or Reorganized Debtor will be deemed
to have elected Option B except with respect to any
Allowed Claim as to which the applicable Debtor elects
Option A in a certification Filed prior to the
conclusion of the Confirmation Hearing.
Option A: Allowed Claims in Class 3 as to which the
applicable Debtor or Reorganized Debtor selects
Option A will be paid in cash, in full, by such
Reorganized Debtor, unless the holder of such claim
agrees to less favorable treatment.
Option B: Allowed Claims in Class 3 as to
which the applicable Debtor or Reorganized
Debtor selects Option B will be Reinstated.
Estimated Percentage Recovery: 100%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 12
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION AND AMOUNT
OF CLAIMS OR INTERESTS TREATMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- - Class 4 (Bank Loan Claims): Bank Loan Claims Impaired; on the Effective Date each holder of an
under the Prepetition Credit Facility. Allowed Bank Loan Claim in Class 4 will be treated as
follows:
Estimated Aggregate Claims Amount: $290,000,000
- Holders of Bank Loan Claims constituting an Old
Tranche A Note Claim or Old Tranche B Note Claim
under the Prepetition Credit Facility will receive a
New Tranche A Note or a New Tranche B Note,
respectively, in the amount of such Claims in
accordance with the terms of Exhibit III.C.2 of the
Plan.
- Holders of Bank Claims constituting an Old Revolving
Note Claim under the Prepetition Credit Facility will
receive a New Revolving Note in the amount of such
Claims under the New Revolving Credit Facility in
accordance with the terms of Exhibit III.C.2 of the
Plan.
- Holders of Bank Loan Claims constituting a Swap Claim
will receive a New Swap Claim Note in the amount of
such Claim in accordance with the terms of Exhibit
III.C.2 of the Plan.
Estimated Percentage Recovery: 100%
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 5 (General Unsecured Claims): Unsecured Impaired; each holder of an Allowed Claim in Class 5
Claims against any Debtor not otherwise classified in will receive its Pro Rata share of 10,000,000 shares of
Class 1 (Priority Claims), Class 2 (Convenience Class New Common Stock.
Claims), Class 4 (Bank Loan Claims) or Class 6
(Intercompany Claims) Estimated Recovery Percentage: 29.1%
Estimated Aggregate Claims: $430,000,000
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 6 (Intercompany Claims) Unsecured Claims of Impaired; no property will be distributed to or retained
any Debtor against any other Debtor. by the Debtors on account of Claims in Class 6, and such
Claims will be discharged as of the Effective Date.
Estimated Recovery Percentage: 0%
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 7 (PMI Old Common Stock Interests); Impaired; no property will be distributed or retained by
Interest of PM Holdings on account of the Old PMI Common the holder of Class 7 Interests.
Stock.
Estimated Percentage Recovery: 0%
- ----------------------------------------------------------------------------------------------------------------------------------
- - Class 8 (Subsidiary Interests): Interests of PMI Unimpaired; each Allowed Interest in this Class will be
or any Subsidiary Debtor in the Old Common Stock of a Reinstated.
Subsidiary Debtor.
Estimated Percentage Recovery: 100%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION REGARDING ASSERTION AND TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS
Administrative Claims
Allowed Administrative Claims will be paid in full in cash, unless
otherwise agreed by the holder of such a Claim and the respective Debtor.
Administrative Claims include Claims for costs and expenses of administration
allowed under sections 503(b), 507(b) or 1114(e)(2) of the Bankruptcy Code,
including: (a) the actual and necessary costs and expenses incurred after the
Petition Date of preserving the respective Estates and operating the businesses
of the Debtors (such as wages, salaries, commissions for services and payments
for inventories, leased equipment
5
<PAGE> 13
and premises); (b) compensation for legal, financial advisory, accounting and
other services and reimbursement of expenses awarded or allowed under sections
330(a) or 331 of the Bankruptcy Code; (c) all fees and charges assessed against
the Estates under chapter 123 of title 28, United States Code, 28 U.S.C. ss.ss.
1911-1930; (d) Claims for reclamation allowed in accordance with section 546
(c)(2) of the Bankruptcy Code and section 2-702 of the Uniform Commercial Code;
and (e) all Intercompany Claims accorded priority pursuant to section 364(c)(1)
of the Bankruptcy Code or the Cash Management Order. In addition to the types of
Administrative Claims described above, section 503(b) of the Bankruptcy Code
provides for payment of compensation or reimbursement of expenses to creditors
and other entities making a "substantial contribution" to a chapter 11 case and
to attorneys for and other professional advisors to such entities. The amounts,
if any, that such entities will seek or may seek for such compensation or
reimbursement are not known by the Debtors at this time. Requests for such
compensation or reimbursement must be approved by the Bankruptcy Court after
notice and a hearing at which the Debtors or Reorganized Debtors and other
parties in interest may participate and, if appropriate, object to the allowance
of any such compensation or reimbursement.
Except as otherwise provided below for Administrative Claims: (a) of
certain professionals or other entities requesting compensation or reimbursement
of expenses; (b) in respect of liabilities incurred by a Debtor in the ordinary
course of its business; and (c) on account of the Debtors' obligations under the
DIP Credit Agreement, requests for payment of Administrative Claims (unless
previously filed) must be Filed and served on the Reorganized Debtors, pursuant
to the procedures specified in the Confirmation Order and the notice of entry of
the Confirmation Order, no later than 30 days after the Effective Date. Holders
of Administrative Claims that are required to File and serve a request for
payment of such Claims and that do not File and serve a request by the
applicable bar date will be forever barred from asserting such Claims against
the Debtors, the Reorganized Debtors or their respective property, and such
Claims will be deemed discharged as of the Effective Date. Objections to such
requests must be Filed and served on the Reorganized Debtors and the requesting
party by the later of (i) 120 days after the Effective Date and (ii) 60 days
after the filing of the applicable request for payment of Administrative Claims.
Professionals or other entities asserting a Fee Claim for services
rendered before the Effective Date must File and serve on the Reorganized
Debtors and such other entities who are designated by the Bankruptcy Rules, the
Confirmation Order or other order of the Bankruptcy Court, an application for
final allowance of such Fee Claim no later than 60 days after the Effective
Date; provided, however, that any Professional who may receive compensation or
reimbursement of expenses pursuant to the Ordinary Course Professionals Order
may continue to receive such compensation and reimbursement of expenses for
services rendered before the Effective Date, without further Bankruptcy Court
review or approval, pursuant to the Ordinary Course Professionals Order.
Objections to any Fee Claim must be Filed and served on the Reorganized Debtors
and the requesting party by the later of: (a) 90 days after the Effective Date
or (b) 30 days after the Filing of the applicable request for payment of the Fee
Claim. The Reorganized Debtors will pay the reasonable fees and expenses of the
Indenture Trustee under the Prepetition Indenture. In addition, the Plan
provides that the Debtors will pay the reasonable fees and expenses incurred
after the Petition Date by counsel and financial advisors to the Noteholders
Committee, including the transaction fee payable to the Noteholders Committee's
financial advisors equal to 0.5% of the value of the New Common Stock received
by the holders of the Old Senior Subordinated Notes. With the consent of the
Noteholders Committee and its financial advisor, such payment may be made in
cash or in shares of new Common Stock. To the extent necessary, entry of the
Confirmation Order shall amend and supercede any previously entered order of the
Bankruptcy Court, including the Fee Order, regarding the payment of Fee Claims.
Finally, holders of: (a) Administrative Claims based on liabilities
incurred by a Debtor in the ordinary course of its business (including
Administrative Trade Claims); (b) Administrative Claims of governmental units
for taxes (including tax audit Claims arising after the Petition Date); (c)
Administrative Claims arising from or under those contracts and leases entered
into or assumed after the Petition Date; and (d) holders of Administrative
Claims under the DIP Credit Agreement will not be required to File or serve any
request for payment of such Claims.
Priority Tax Claims
Claims for taxes entitled to priority payment pursuant to section
507(a)(8) of Bankruptcy Code ("Priority Tax Claims") will, unless otherwise
agreed by the holder of such Claim and the applicable Debtor, receive, in full
satisfaction of such Claims, deferred cash payments over a period not exceeding
six years from the date of assessment of such Claim. Payments will be made in
equal annual installments of principal, plus simple interest accruing from the
Effective Date at 7% per annum on the unpaid portion of each Priority Tax Claim
(or upon such
6
<PAGE> 14
other terms determined by the Bankruptcy Court to provide the holders of
Priority Tax Claims with deferred cash payments having a value, as of the
Effective Date, equal to such Claims). Generally, the first payment will be
payable one year after the Effective Date. The Reorganized Debtors will have the
right to pay any Priority Tax Claim, or any remaining balance of such Claim, in
full at any time on or after the Effective Date, without premium or penalty.
Notwithstanding the foregoing, a holder of an Allowed Priority Tax
Claim will not be entitled to receive any payment on account of any penalty in
respect thereof. Any such penalty will be subject to treatment in Class 5.
SPECIAL PROVISIONS REGARDING TREATMENT OF ALLOWED SECONDARY LIABILITY CLAIMS
The classification and treatment of Allowed Claims under the Plan take
into consideration all Allowed Secondary Liability Claims. On the Effective
Date, Allowed Secondary Liability Claims will be treated as follows: (a) the
Allowed Secondary Liability Claims arising from or related to any Debtor's joint
or several liability for the obligations under any: (i) Allowed Claim that is
being Reinstated under the Plan or (ii) Executory Contract or Unexpired Lease
that is being assumed by another Debtor or under any Executory Contract or
Unexpired Lease that is being assumed by and assigned to another Debtor or any
other entity, will be Reinstated and (b) holders of all other Allowed Secondary
Liability Claims will be entitled to only a single distribution from the Debtor
that is primarily liable for the underlying Allowed Claim, which distribution
will be as provided in the Plan in respect of such underlying Allowed Claim. No
multiple recovery on account of any Allowed Secondary Liability Claim will be
provided or permitted.
SUMMARY OF TERMS OF CERTAIN SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
The Plan provides that as of the Effective Date, Reorganized PMI shall
be authorized to issue 50,000,000 shares of New Common Stock, par value $.01 per
share. Reorganized PMI will issue 10,000,000 shares of New Common Stock to
holders of Allowed General Unsecured Claims in Class 5.
Holders of New Common Stock will be entitled to receive ratably such
dividends as declared by Reorganized PMI's Board of Directors and will have no
preemptive, subscription, redemption or conversion rights. Subject to the terms
and conditions set forth in Reorganized PMI's Rights Agreement, each share of
New Common Stock issued pursuant to the Plan will be accompanied by a New PMI
Share Purchase Right.
In addition to the New Common Stock issued according to the Plan,
Reorganized PMI's Board of Directors shall have the authority to issue preferred
stock from time to time in one or more classes or series and to determine the
various rights and privileges thereof. Reorganized PMI will also be authorized
to issue additional shares of common stock from time to time following the
Effective Date under the provisions of the Amended Certificate of Incorporation
of Reorganized PMI (the "Amended Certificate"), the Amended Bylaws of
Reorganized PMI (the "Amended Bylaws") and applicable law.
Reorganized PMI does not anticipate paying any dividends on the New
Common Stock in the foreseeable future. In addition, covenants in certain debt
instruments to which Reorganized PMI will be a party will restrict, and may
prohibit, the ability of Reorganized PMI to pay dividends.
As of the Effective Date, holders of Allowed Claims under the
Prepetition Credit Facility, including Old Prepetition Credit Facility Notes,
will receive New Prepetition Credit Facility Notes in an estimated principal
amount of $290,000,000. The New Prepetition Credit Facility Notes will be
secured by a lien on substantially all of the assets of the Debtors and will be
on the terms specified in Exhibit III.C.2 to the Plan. See "Securities To Be
Issued Pursuant To The Plan -- New Prepetition Credit Facility Notes."
In addition, as of the Effective Date, the Debtors intend to enter into
the Exit Financing Facility. See "Overview of the Plan -- Exit Financing
Facility."
This summary is qualified by reference to the description of such
securities under "Securities To Be Issued Pursuant To The Plan."
7
<PAGE> 15
CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE OF THE PLAN
There are several conditions precedent to Confirmation and to the
Effective Date. Subject to applicable legal requirements, the Debtors, with the
consent of the Creditors' Committee, may waive any of these conditions upon the
terms and subject to the conditions set forth in Section IX.C of the Plan.
CONDITIONS TO CONFIRMATION
The Bankruptcy Court will not enter the Confirmation Order unless and
until the following condition has been satisfied or duly waived by the Debtors
pursuant to Section IX.C of the Plan: The Confirmation Order shall be
reasonably acceptable in form and substance to the Debtors and the Creditors'
Committee, including by approving the substantive consolidation of the Debtors
as contemplated by Article VIII of the Plan.
In addition to the foregoing conditions to Confirmation, there are a
number of substantial confirmation requirements under the Bankruptcy Code that
must be satisfied for the Plan to be confirmed. See "Voting And Confirmation Of
The Plan -- Confirmation."
CONDITIONS TO EFFECTIVE DATE
The Effective Date is defined in the Plan as a Business Day, as
determined by the Debtors, that is as soon as reasonably practicable after the
Confirmation Date and on which no stay of the Confirmation Order is in effect.
The Plan provides that the following conditions must be satisfied or duly waived
before the Plan will be consummated and the Effective Date will occur:
(a) The New Common Stock shall have been registered under the
Securities Exchange Act of 1934 (the "Exchange Act") pursuant
to a Form 10 Registration Statement that has become effective
under the Exchange Act.
(b) The New Common Stock shall have been authorized for listing on
or accepted for quotation through a National Securities
Exchange.
(c) The Bankruptcy Court shall have entered an order (contemplated
to be part of the Confirmation Order) approving and
authorizing the Debtors and the Reorganized Debtors to take
all actions necessary or appropriate to implement the Plan,
including completion of the transactions contemplated by the
Plan and the implementation and consummation of the contracts,
instruments, releases and other agreements or documents
created in connection with the Plan.
WAIVER OF CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE
The conditions to Confirmation and the Effective Date of the Plan may
be waived, in whole or part, by the Debtors at any time without an order of the
Bankruptcy Court after three Business Days' written notice of such waiver to and
consent of the Creditors' Committee. The failure to satisfy or waive a condition
may be asserted by a Debtor regardless of the circumstances giving rise to the
failure of such condition to be satisfied (including any action or inaction by
the Debtors).
EFFECT OF NONOCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to the Effective Date provided in the Plan must
be satisfied or duly waived within 60 days after the Confirmation Date, or by
such later date, after notice and a hearing, as is proposed by the Debtors. If
each condition to the Effective Date has not been satisfied or duly waived by
such date, then upon motion by the
8
<PAGE> 16
Debtors or the Creditors' Committee made before the time that each of such
conditions has been satisfied or duly waived and upon notice to such parties in
interest as the Bankruptcy Court may direct, the Confirmation Order will be
vacated by the Bankruptcy Court; provided, however, that, notwithstanding the
Filing of such motion, the Confirmation Order may not be vacated if each of the
conditions to the Effective Date is either satisfied or duly waived before the
Bankruptcy Court enters an order granting such motion. If the Confirmation Order
is vacated, the Plan will be null and void in all respects, including with
respect to the discharge of Claims and termination of Interests pursuant to
section 1141 of the Bankruptcy Code, the assumptions, assignments or rejections
of Executory Contracts or Unexpired Leases pursuant to Sections V.A and V.C of
the Plan and the substantive consolidation of the Debtors, and nothing contained
in the Plan will: (a) constitute a waiver or release of any claims by or
against, or any Interest in, the Debtors or (b) prejudice in any manner the
rights of the Debtors or any other party in interest.
SUBSTANTIVE CONSOLIDATION
As indicated above, the Confirmation of the Plan is conditioned on the
approval by the Bankruptcy Court of a substantive consolidation of the Debtors.
The Debtors believe that the circumstances involving the Debtors justify such an
action. Pursuant to such substantive consolidation, (a) all assets and
liabilities of the other Debtors will be deemed merged or treated as though they
were merged into and with the assets and liabilities of PMI, (b) all guarantees
of the Debtors of the obligations of any other Debtor will be deemed eliminated
so that any Claim against any Debtor and any guarantee thereof by another Debtor
and any joint liability of any of the Debtors will be deemed one obligation of
the consolidated Debtors and (c) each and every Claim filed or to be filed in
the Reorganization Case of any Debtor will be deemed filed against the
substantially consolidated Debtors and will be deemed to be one Claim against
and a single obligation of the substantially consolidated Debtors. Such
substantive consolidation will not affect the legal or corporate structures of
the Reorganized Debtors. See "General Information Concerning The Plan --
Substantive Consolidation."
EXIT FINANCING FACILITY
In order to implement the Plan on the Effective Date and operations
thereafter, the Debtors have determined that they will need a revolving credit
facility (the "Exit Financing Facility") in an estimated maximum amount of
$50,000,000. While the Debtors are currently engaged in negotiations in respect
of the Exit Financing Facility, no commitment for the Exit Financing Facility
has been obtained at this time. The existence of such a commitment satisfactory
to the Debtors is a condition to the Confirmation and Effective Date.
MODIFICATION OR REVOCATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127
of the Bankruptcy Code, the Debtors or Reorganized Debtors, as applicable, with
the consent of the Creditors' Committee, reserve the right to alter, amend or
modify the Plan before its substantial consummation. The Debtors reserve the
right to revoke or withdraw the Plan as to any or all of the Debtors prior to
the Confirmation Date. If the Debtors revoke or withdraw the Plan as to any or
all of the Debtors, or if Confirmation as to any or all of the Debtors does not
occur, then, with respect to such Debtors, the Plan will be null and void in all
respects, and nothing contained in the Plan will: (a) constitute a waiver or
release of any claims by or against, or any Interests in, such Debtors or (b)
prejudice in any manner the rights of any such Debtors.
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS
PREPETITION EVENTS
GENERAL
PMI and its predecessors have been in the animal nutrition business
since 1894. PMI is the market leader in the United States in developing,
manufacturing and marketing differentiated animal nutrition products and
programs for dairy cattle, beef cattle, hogs and horses. PMI also develops,
manufactures and sells poultry feeds as well as specialty feeds for rabbits, zoo
animals, laboratory animals, birds, fish and pets. For the year ended December
31, 1998, the product mix by volume was approximately 24% for dairy cattle, 28%
for beef cattle, 20% for hogs, 10% for horses, 8% for poultry and 10% for all
others. In the United States, PMI's products are marketed under the widely
recognized brand names Purina(R) and Chow(R) and the "Checkerboard" Nine Square
Logo(R) and other
9
<PAGE> 17
trademarks pursuant to an exclusive, perpetual royalty-free license from the
Ralston Purina Company, as well as under other brand names and trademarks owned
by PMI.
In 1993, PMI was acquired in a leveraged buy out sponsored by The
Sterling Group, Inc. As a result, PMI became a wholly owned subsidiary of PM
Holdings Corporation ("PM Holdings").
1998 MERGER
On March 12, 1998, Koch Agriculture Company ("Koch Agriculture")
acquired PMI through a merger of a subsidiary of Koch Agriculture with and into
PM Holdings (the "1998 Merger"). As a result of the 1998 Merger, Koch
Agriculture acquired 100% of PM Holdings, which owned 100% of PMI.
Koch Agriculture is a wholly owned subsidiary of Koch Industries, which
is one of the largest privately held corporations in the United States. Koch
Industries, based in Wichita, Kansas, reportedly has annual revenues in excess
of $30 billion and, together with its subsidiaries, employs over 13,000 people
worldwide. At the date of the 1998 Merger, Koch Agriculture and its affiliates
were involved in many aspects of the agriculture industry including cattle
feeding and meat production, the production and distribution of fertilizers,
agricultural commodity risk management, wheat production and flour milling.
As part of the financing for the 1998 Merger, PMI sold $350.0 million
aggregate principal amount of its Old Senior Subordinated Notes. The Old Senior
Subordinated Notes are subordinated in right of payment to all senior
indebtedness of PMI incurred under the Prepetition Credit Agreement. The Old
Senior Subordinated Notes are also structurally subordinated to all obligations
of PMI's subsidiaries.
In connection with the 1998 Merger, PMI entered into the Prepetition
Credit Agreement, providing for secured borrowings from a syndicate of lenders
consisting of: (a) a term loan facility consisting of two $100.0 million
tranches (the "Tranche A Term Loan," and the "Tranche B Term Loan,"
respectively) providing for an aggregate amount of $200.0 million (collectively,
the "Term Loan") and (b) a $100.0 million revolving credit facility, with a
$40.0 million sublimit for letters of credit (the "Revolving Credit Facility"
and collectively, the "Prepetition Credit Facility"). The Tranche A Term Loan
has a maturity date of March 12, 2005. The Tranche B Term Loan has a maturity
date of March 12, 2007. The Revolving Credit Facility has a maturity date of
March 12, 2005. The proceeds of the Term Loan were borrowed in full, in addition
to $9.9 million borrowed under the Revolving Credit Facility, to help finance
the 1998 Merger and related transactions, fees and expenses, including the
redemption of PMI's then outstanding industrial revenue bonds totaling $17.4
million and certain other indebtedness.
In connection with the 1998 Merger, PMI offered to purchase for cash
all $190.0 million of its outstanding 10 1/4% Senior Subordinated Notes due 2003
and PM Holdings offered to purchase for cash all $109.4 million of its
outstanding 11 1/2% Series B Subordinated Discount Debentures due 2005
(collectively, the "Tender Offers"). All except $15,000 of the existing
subordinated notes were accepted for payment in the tender offers. The remaining
$15,000 of subordinated notes were redeemed during the third quarter of 1998.
The total consideration paid in connection with the Tender Offers was
approximately $293.5 million.
The total amount of consideration paid to former equity holders of
Holdings in connection with the 1998 Merger was approximately $258.7 million.
Approximately $109.7 million of this consideration was funded by a cash
contribution by Koch Agriculture with the remainder (approximately $149.0
million) being funded from the proceeds of the Old Senior Subordinated Notes and
borrowings under the Prepetition Credit Facility. In connection with the 1998
Merger, PMI paid two dividends, totaling $237.1 million, to PM Holdings.
10
<PAGE> 18
The following table summarizes the sources and uses of funds in
connection with the 1998 Merger:
<TABLE>
<CAPTION>
Amount
(In millions)
-------------
<S> <C>
Sources of Funds:
Prepetition Credit Facility:
Revolving Credit Facility(a)................................ $ 9.9
Term Loans.................................................. 200.0
Old Senior Subordinated Notes................................... 350.0
Koch Agriculture cash contribution.............................. 109.7
--------
Total sources........................................... $ 669.6
========
Uses of Funds:
Purchase price for equity of PM Holdings........................ $ 258.7
Repayment of existing indebtedness(b)........................... 385.5
Other payments, fees and expenses............................... 25.4
---------
Total uses.............................................. $ 669.6
========
</TABLE>
- --------------------
(a) Immediately following the 1998 Merger, PMI had $90.1 million of
additional availability under the Revolving Credit Facility.
(b) Includes approximately $90.5 million and approximately $203.0 million,
respectively, required to fund the consummation of the Tender Offers.
In addition, includes approximately $92.0 million used to repay other
outstanding debt, consisting of approximately $17.4 million of
outstanding industrial revenue bonds that were repaid following the
consummation of the 1998 Merger, and approximately $74.6 million used
to repay an existing senior term loan.
As part of the 1998 Merger and anticipated relationship with Koch
Agriculture, specific synergies were expected to be achieved which would benefit
PMI in the areas of commodity purchasing, technology and operations. These
anticipated benefits included (a) leveraging Koch Agriculture's commodity
trading expertise through PMI entering into a commodity purchasing arrangement
with Koch Agriculture (as described below) and (b) applying Koch Agriculture's
patented Jet-Pro dewatering technology in selected PMI manufacturing facilities.
PMI's management believes that PMI has not achieved any significant benefits to
date due to these anticipated synergies.
TRANSACTIONS WITH KOCH INDUSTRIES
Following the 1998 Merger, PMI entered into an exclusive commodity
purchasing agreement with Koch Agriculture. Under the terms of the agreement,
Koch Agriculture's Nutrient Services Division agreed to supply PMI with its
requirements for feed ingredients, feed additives and feed packaging materials.
The contract provides that PMI and its subsidiaries will purchase feed
ingredients and feed additives at a price equal to the spot market price less a
discount to be agreed upon between PMI and Koch Agriculture. Until November 1,
1999, this discount was to be $3.50 per ton. As part of this exclusive
arrangement, PMI transferred all of its commodity purchasing operations to Koch
Agriculture. In the eight months ended August 31, 1999, PMI purchased
approximately $325.8 million in commodities from Koch Agriculture's Nutrient
Services division. As of the Petition Date, it is estimated that PMI had
outstanding payables under this agreement of at least $25 million. PMI has
entered into an arrangement to continue purchases under this agreement after the
Petition Date. See "Operations During the Reorganization Agreement -
Commencement of Reorganization Cases and First Day Relief - Transition Services
Agreement."
Since the 1998 Merger, PMI has also contracted with Koch Industries for
numerous administrative and support services, including all payroll systems and
most benefit programs. For the eight months ended August 31, 1999, the total
fees paid in connection with such services amounted to $3.3 million. PMI has
entered into an agreement as of October 27, 1999 to provide for the continuation
of certain of these services after the Petition Date. In connection with
entering into this agreement, prior to the Petition Date, PMI paid Koch
Industries approximately $1.9 million, after deducting approximately $600,000
that Koch Industries owed to PMI, in full satisfaction and settlement for Koch
11
<PAGE> 19
Industries' provision of administrative and support services during September
and October 1999, as well as for certain employee relocation services provided
by Koch Industries earlier in 1999, and the settlement of certain contract
claims. See "Operations During the Reorganization Agreement - Commencement of
Reorganization Cases and First Day Relief - Transition Services Agreement."
Commencing in May 1998, Koch Industries began funding all of PMI's
employee payroll, benefit and related costs. Beginning in late October 1998, PMI
began to periodically reimburse Koch Industries for such advances. In late
October and November 1998, PMI reimbursed Koch Industries approximately $53
million for payroll and associated employee benefit costs relating to the period
from May through September 1998.
Two tax sharing agreements were executed effective as of the date of
the 1998 Merger: (a) the Parent Tax Sharing Agreement, between Koch Industries
and PM Holdings; and (b) the Sub-Group Tax Sharing Agreement, between PM
Holdings and each of its subsidiaries (including PMI). The Sub-Group Tax Sharing
Agreement provides that the tax sharing liability of PM Holdings under the
Parent Tax Sharing Agreement shall be allocated among the members of the PM
Holdings sub-group on the basis of the percentage that each sub-group member's
total tax, if computed on a separate return, would bear to the total amount of
tax of all members of the sub-group so computed. If a sub-group member has a tax
loss in a particular year, it has no current liability to PM Holdings under the
Sub-Group Tax Sharing Agreement, and will be permitted to take its loss into
account in computing its stand-alone tax liability for tax sharing purposes in a
later tax year when the loss can be used on a stand-alone basis; however, PM
Holdings is not required to make any cash payment to the sub-group member
generating the loss. PMI's tax provision for all periods after March 12,
1998 has been computed on this basis. The results of operations of PMI after
March 12, 1998 have been included in the consolidated U.S. corporation income
tax return and certain consolidated state income tax returns of Koch Industries.
CHANGES IN BOARD OF DIRECTORS AND MANAGEMENT
PMI has experienced a significant number of leadership changes since
the 1998 Merger. The initial PMI Board of Directors, which was not formally
elected until August 1998, consisted of Scott Deeter, Dean Watson, Paul Wheeler
and Christopher Wilkins, all four of whom were Koch Industries employees, and
David Abbott, PMI's CEO. This Board of Directors did not conduct formal Board
meetings or participate in other customary corporate governance practices,
although certain individual Board members and other Koch Industries' officers
were extensively involved in the day-to-day operations of PMI in the months
following the 1998 Merger through March, 1999.
Mr. Abbott resigned as PMI's CEO effective December 31, 1998 and was
replaced by Dean Watson, who was also Koch Agriculture's President at the time.
On March 12, 1999, the initial PMI Board of Directors was replaced in its
entirety by the current PMI Board of Directors, James Dumler, Timothy Durkin and
Richard Knudson, all of whom are also Koch Industries employees. The incumbent
Board has conducted formal Board meetings and performed other customary
corporate governance activities. In late April 1999, Mr. Watson resigned as CEO,
and the incumbent Board of Directors implemented an interim three member Office
of the CEO consisting of the three members of the Board of Directors. For more
information on PMI's current management, see "Reorganized PMI -- Management --
Current Executive Officers and Directors of PMI."
AGRICULTURAL INDUSTRY MARKET CONDITIONS
The economic environment in the agricultural industry during 1998 and
1999 has been a difficult one for many individual producers and companies that
participate in the sector. Livestock commodity prices have been depressed and
reached historic lows in many markets. In addition to the overall economic
environment, there is significant continuing competition in all areas of
agriculture, including the feed industry.
Both the feed production and the livestock production industries are
consolidating, and this trend is expected to continue. This trend has been
particularly evident in swine production during the past few years.
Historically, as livestock production operations have increased in size, these
operations have sought to integrate their production business by acquiring or
constructing feed production facilities to meet some or all of their feed
requirements.
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In contrast with the challenging environment in the livestock
production industry, general economic and demographic trends in the lifestyle
animal owner market have been positive during the past few years. Overall U.S.
economic health, along with an increasing focus on "lifestyle", have combined to
create favorable current and expected industry conditions in PMI's non-livestock
feed markets.
SWINE OPERATIONS AND MARKET RISK
To capitalize on the consolidation of the hog industry, PMI implemented
a business strategy in 1997 that was expected to result in maintaining and
increasing feed sales in the swine sector. This strategy contemplated gaining
control over the feeding of approximately six million market hogs over four
years. The program provides a source of high quality weanlings and feeder pigs
("feeders") to independent hog producers and gains the related feed business for
PMI. Under this program, at September 30, 1999, PMI had future net purchase
commitments, subject to the counterparties' ability to perform, to acquire over
4.1 million feeders over the next eight years. Approximately 14% of these
commitments are at fixed prices and the other 86% of commitments vary based on
current or published futures prices.
Additionally, PMI has direct ownership of several hog operations that
are expected to produce an additional 2.0 million feeders over the next ten
years. As hog producers are experiencing severely depressed market prices for
their end products, PMI has significant exposure relating to its feeder pig
program, direct hog ownership and joint venture interests in hog operations. At
August 31, 1999 and December 31, 1998, PMI had $11.2 million and $10.3 million,
respectively, in hog inventory.
Based on published market prices at September 30, 1999, PMI's estimated
net commitment to purchase 4.1 million feeders totals approximately $160.0
million. This is a decrease of $90.0 million from such amount at December 31,
1998 due to feeder purchases during the first nine months of 1999, renegotiation
of future purchase agreements, additional contracts for the sale of feeders and
the change in hog market prices. Upon receipt of the feeders, PMI can either
sell them at current market prices, feed the pigs at PMI's owned or leased
facilities or contract with independent producers to feed the pigs.
Based on 1999 contractual commitments, estimated feed costs,
counterparty risks and current spot and futures prices, PMI estimates that its
1999 loss associated with its swine exposure will range between $15.0 million
and $20.0 million. PMI recorded a year to date loss through August 31, 1999 of
$11.1 million.
PMI's contract with Tyson Foods in particular resulted in significant
negative financial impacts on PMI during 1999. This contract involved the
purchase of feeders and was expected to ramp-up to over 500,000 feeders per
year. At this point, PMI intends to reject this contract and has filed a motion
seeking this relief. See "Operations During The Reorganization Cases --
Commencement of Cases and Related Case Administration Activities -- Rejection of
Certain Burdensome Executory Contracts and Unexpired Leases."
CREDIT RISK INCLUDING LOAN GUARANTEES
PMI has provided a guarantee of up to $11.5 million related to Purina
Ag Capital Corp. ("Purina Ag Capital"), a non-stock membership corporation
entity formed in 1995 to provide funding for the growth, consolidation and
expansion of PMI's network of independently-owned dealers and listed producers.
This $11.5 million guaranty consists of a $10 million guaranty to Purina Ag
Capital's back-stop funding banks, plus a $1.5 million guaranty related to a
working capital facility. Dealers or listed producers who are members of Purina
Ag Capital must have arrangements with PMI for purchases of PMI's products. PMI
recorded a loss reserve for the entire guarantee amount during the fourth
quarter of 1998. At August 31, 1999, PMI had funded $6.7 million on the
guarantee. Additionally, in August 1999, PMI issued a letter of credit for $3.3
million to secure the unfunded portion of the $10 million guarantee. PMI is not
a member of, and does not have an equity interest in, Purina Ag Capital;
however, PMI did loan $2.0 million to Purina Ag Capital to fund its
establishment and initial operation. PMI recorded a loss reserve for the $2.0
million loan during the fourth quarter of 1998, as well as writing-off other
miscellaneous start-up costs associated with Purina Ag Capital.
PMI also makes loan guarantees to banks to assist PMI's feed customers
in obtaining bank loans for working capital, lines of credit and additions to
property, plant and equipment. The guarantee arrangements essentially have the
same credit risk as that involved in extending loans to customers and are
subject to PMI's normal credit policies. Collateral (e.g., farm animals,
property, personal guarantees) is usually obtained based on management's
assessment of the specific customer's credit risk. PMI had guarantees of
approximately $5.6 million
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and $8.7 million at August 31, 1999 and December 31, 1998, respectively, under
these types of arrangements. A loss reserve of $1.2 million, recorded in 1998,
has been established for the above guarantees. The maturity dates of these
guarantees extend through January 2009 with the majority of the guarantees
maturing prior to 2003.
VITAMIN LITIGATION AND PROPOSED SETTLEMENT
A class action lawsuit was filed on behalf of all U.S. vitamin
purchasers, including animal feed companies, accusing six of the world's largest
vitamin makers of forming a cartel to artificially raise the prices of a wide
range of vitamins and seeking treble damages for overcharging under the
applicable antitrust statutes. Similar class action suits have been filed and
consolidated in one matter. PMI has filed an action which has been consolidated
in the class action proceeding. A proposed $1.2 billion settlement for the class
action proceeding has been announced ("Vitamin Settlement"). PMI will have the
option to recover damages as part of the class action settlement or to opt out
of the class action and pursue direct actions against the manufacturers. Based
on the volume of vitamins purchased by PMI and the extent of price fixing during
the relevant periods (as well as the potential to collect treble damages), PMI's
potential recovery in the Vitamin Settlement could range as high as $75 million
or more, but may be significantly less.
PREPETITION OPERATIONS AND LIQUIDITY
In connection with the 1998 Merger, PMI incurred a significant amount
of indebtedness. As of March 31, 1998, PMI had approximately $557.2 million of
consolidated indebtedness, and its stockholders' equity was approximately $109.4
million. Of the total $669.6 million required to consummate the 1998 Merger and
related transactions, $559.9 million (83.6%) was supplied by indebtedness and
$109.7 million (16.4%) was supplied by equity contributions. Since the 1998
Merger, a significant portion of PMI's cash flow from operations has been
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to PMI for its operations. PMI's substantial degree
of leverage has limited its flexibility to adjust to the depressed conditions in
the agricultural industry and made it particularly vulnerable to the downturn in
the swine market.
The Debtors' principal prepetition financing facilities consisted of
the Old Senior Subordinated Notes and Term Loans and the Revolving Credit Loans
under the Prepetition Credit Facility. Loans under the Prepetition Credit
Facility bear interest at floating rates which are, at PMI's option, based
either upon bank prime or Eurodollar rates. Rates on outstanding borrowings
average 8.72% at August 31, 1999. In 1998 PMI entered into an option contract to
mitigate interest rate fluctuations on a notional amount of $75.0 million of
debt under the Prepetition Credit Agreement. The option contract provides that
PMI will pay interest on the notational amount if the base rate in the
Prepetition Credit Agreement falls below 5.2% and will receive interest if the
base rate in the Prepetition Credit Agreement is above 7.0%. PMI has also
entered into two other interest rate hedge swap agreements, whereby it has
"fixed" the interest rates on substantially all of its Prepetition Credit
Facility debts excluding the Revolving Credit Facility.
The Prepetition Credit Facility and the indenture related to the Old
Senior Subordinated Notes (the "Prepetition Indenture") contain restrictive
covenants that, among other things and under certain conditions, limit the
ability of PMI to incur additional indebtedness, issue preferred stock, acquire
(including a limitation on capital expenditures) or dispose of assets or
operations or pay dividends. The Prepetition Credit Facility also requires PMI
to satisfy certain financial covenants and tests. PM Holdings and certain of
PMI's wholly owned subsidiaries guarantee PMI's obligations under the
Prepetition Credit Facility. Borrowings under the Prepetition Credit Facility
are also secured by a first priority lien on the capital stock of PMI (pledged
by PM Holdings) and its subsidiaries and substantially all assets of PMI and its
subsidiaries. The Prepetition Credit Facility and Prepetition Indenture also
contain cross default provisions.
On February 4, 1999, PMI amended the Prepetition Credit Agreement
effective December 31, 1998. The amendment increased the interest rates on the
Revolving Credit Facility and Tranche A Term Loan by 0.75% for bank prime rate
and Eurodollar rate loans and increases the interest rates on the Tranche B Term
Loan by 1.00% for bank prime rate and Eurodollar rate loans. The amendment also
changed the computation of certain financial covenants for a temporary period
from December 31, 1998 to March 31, 2001 to account for changes in PMI's
financial condition as of December 31, 1998 and added a covenant limiting the
annual losses related to PMI's swine exposure.
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Internally generated funds and borrowings under the Revolving Credit
Facility were the principal source of the Debtors' prepetition working capital
financing. The Debtors' stated borrowing limit under the Revolving Credit
Facility is $100 million. At August 31, 1999, PMI had approximately $41.4
million in cash and cash equivalents on hand and no availability for borrowing
under the Revolving Credit Facility.
As a result of its financial condition during 1999 and its substantial
degree of leverage, PMI's ability to finance its working capital requirements
and implement its business plan have been adversely affected by its cash
requirements for debt service. On September 15, 1999, PMI failed to make a
scheduled interest payment of $15.75 million due to holders of the Old Senior
Subordinated Notes. On October 21, 1999, the Indenture Trustee for the Old
Senior Subordinated Notes accelerated such Notes as a result of the failure to
make such interest payment. On September 30, 1999, PMI failed to pay $2,075,000
in principal payments due on the Term Loans under the Prepetition Credit
Facility (which was subsequently paid on October 27, 1999). PMI is in default
under both the Prepetition Indenture and the Prepetition Credit Facility.
Faced with these events and an inability to service future interest
payments on the Old Senior Subordinated Notes, the Debtors commenced the
Reorganization Cases under chapter 11 of the Bankruptcy Code on October 28,
1999.
OPERATIONS DURING THE REORGANIZATION CASES
COMMENCEMENT OF CASES AND RELATED CASE ADMINISTRATION ACTIVITIES
COMMENCEMENT OF REORGANIZATION CASES AND FIRST DAY RELIEF
In connection with the commencement of the Reorganization Cases, the
Debtors devoted significant attention to stabilizing their businesses. One of
the most critical components of these business stabilization efforts was to
ensure that the Debtors maintained sufficient liquidity to operate their
businesses during the postpetition period. Accordingly, immediately following
the Petition Date, the Debtors sought interim and final approval of the DIP
Credit Agreement on the Petition Date. Through these efforts, the Debtors
successfully obtained $20 million in interim credit availability, pending a
final hearing on the DIP Credit Agreement scheduled for November 15, 1999, 1999.
See "Operations During The Reorganization Cases -- Postpetition Operations and
Liquidity -- Debtor in Possession Financing."
In addition to addressing these liquidity concerns, on October 29,
1999, the Debtors obtained authority to take a broad range of actions, including
the payment of certain prepetition Claims, to promote a "business as usual"
atmosphere with customers, dealers, employees and others. For example, the
Debtors obtained authority to honor certain prepetition obligations owed to
customers and dealers to ensure that the Debtors could continue to meet the
ongoing needs of their customers and maintain other critical business practices
without interruption. Among other things, this relief authorized the Debtors, in
their discretion and in accordance with their stated policies, to (a) honor
customer prepayments for goods and services, (b) maintain dealer support
programs, (c) pay certain Claims and honor all obligations relating to the
Debtors' cattle management and swine management services businesses; (d) make
certain pass-through payments to customers received on the customers' behalf
under certain swine marketing arrangements; and (e) honor or pay customer and
dealer Claims for prepetition refunds, rebates, adjustments (including
adjustments to billing and co-op advertising credits), product returns or
exchanges, promotional discounts and other credits.
Prior to the Petition Date, all of the Debtors' employees received
their compensation through Koch Industries' payroll system and participated in
Koch Industries' benefit programs. In connection with this prepetition business
practice, the Debtors have an obligation to reimburse Koch Industries for (a)
the payments and contributions made by Koch Industries to or on behalf of the
Debtors' employees and (b) for certain related administrative costs. The Debtors
currently are working to establish their own employee benefit programs and to
transition the payroll function for their employees from Koch Industries to the
Debtors. See "Operations During The Reorganization Cases -- Commencement of
Cases and Related Case Administration Activities -- Transition Services
Agreement" This transition, however, may take several months. Accordingly, to
ensure the uninterrupted payment of all employee compensation and benefits while
new programs and systems are being developed, the Debtors obtained authority, in
their discretion and in accordance with their stated policies, to (a) continue
their participation in Koch Industries' payroll system and employee benefit
programs, (b) reimburse Koch Industries for all payments and contributions made
by Koch Industries to or for the benefit of the Debtors' employees with respect
to the prepetition period, (c) reimburse Koch Industries for related prepetition
administrative costs, (d) reimburse prepetition
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employee business expenses, which are paid directly by the Debtors, and (e) pay
the prepetition claims of certain independent contractors, which provide
employee services and are paid directly by the Debtors. The Debtors also
obtained similar relief permitting them to, among other things, (a) continue
their participation in Koch Industries' workers' compensation insurance programs
and (b) reimburse Koch Industries for certain prepetition workers' compensation
payments.
On October 29, 1999, the Debtors obtained authority to pay, in their
discretion, the prepetition Claims of certain critical vendors and service
providers, subject to a $2.5 million cap established under the DIP Credit
Agreement. Given the critical nature of the goods and services provided by these
vendors and service providers and the lack of adequate replacement goods and
services of the same quality, reliability, cost or availability from other
sources, the Debtors determined that the payment of these Claims is essential to
maintain the operations of the Debtors' businesses and to preserve the value of
these businesses for the benefit of all stakeholders.
Other typical "first day" relief included: (a) authority to maintain
the Debtors' cash management systems and the use of prepetition bank accounts,
checks and other business forms; and (b) authority to pay outstanding
prepetition trust fund taxes.
All of the foregoing relief was essential to minimize disruptions to
the Debtors' businesses as a result of the commencement of the Reorganization
Cases and to permit the Debtors to make a smooth transition to operations in
chapter 11. In addition, motions remain pending to (a) authorize the Debtors to
continue certain insurance premium financing arrangements and (b) pay certain
prepetition feed tonnage taxes and product registration and facility fees. There
can be assurance that these additional motions will be granted.
REJECTION OF CERTAIN BURDENSOME EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
On October 29, 1999, the Debtors filed a motion, pursuant to section
365 of the Bankruptcy Code (the "Rejection Motion"), to reject three burdensome
purchase contracts relating to the Debtors' swine operations. Among other
things, these contracts obligate the Debtors to purchase approximately 3.6
million feeder pigs at above expected market prices over the next eight years.
See "Certain Events Preceding The Debtors' Chapter 11 Filing -- Prepetition
Events -- Swine Operations and Market Risk." Currently, the Debtors estimate
that the projected losses from these three contracts alone could aggregate
approximately $14.7 million if the contracts were performed through expiration.
By immediately rejecting these contracts, the Debtors hope to significantly
mitigate these potential losses, which will be treated as prepetition damage
Claims to the extent allowed. Currently, the Rejection Motion remains pending
and there can be no assurance that the relief requested therein will be granted.
The Debtors are continuing to review their executory contracts and
unexpired leases. In the coming weeks, the Debtors anticipate that they may file
additional motions to reject certain burdensome executory contracts and
unexpired leases, including additional contracts relating to the Debtors' swine
business and certain nonresidential real property leases for business locations
no longer being used in the Debtors' operations.
ASSUMPTION OF DOANE PET CARE COMPANY AGREEMENT
Doane Pet Care Company ("Doane") is a critical manufacturer and
supplier of pet food and farm feed products to Debtor PMI Nutrition, Inc. ("PMI
Nutrition"). Among other things, Doane manufactures specialty dog and cat food
products that PMI Nutrition sells under its established brand names and supplies
other dog and cat food products. Based on the Debtors' experience in the
industry, no other private label manufacturer produces pet food of a comparable
quality and reliability to meet PMI Nutrition's high standards. In addition,
Doane's plants are located in areas that minimize distribution costs associated
with the PMI Nutrition products. Moreover, for PMI Nutrition to maintain
existing brand loyalty and continue to meet the expectations of its customers,
it is critical that the quality of PMI Nutrition's products is not compromised.
Accordingly, PMI Nutrition's ongoing relationship with Doane is essential to
maintain the value of its business. For the six months ended June 30, 1999, PMI
estimates that it earned over $3 million of earnings before interest, taxes,
depreciation and amortization ("EBITDA") in its PMI Nutrition business line.
Prior to the Petition Date through mid-September 1999, Doane supplied
products to PMI Nutrition on an order-by-order basis. On September 15, 1999,
Doane and PMI Nutrition entered into a long-term manufacturing agreement (the
"Doane Agreement") by which Doane has agreed to supply PMI Nutrition with pet
food products for a period of one year, subject to renewal. Because the Debtors
have been unable to identify any acceptable
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replacement manufacturer and supplier of these goods, the Debtors believe that
maintaining the availability of Doane's products under the terms of the Doane
Agreement is critical. Accordingly, on October 29, 1999, the Debtors filed a
motion seeking to assume the Doane Agreement, pursuant to section 365 of the
Bankruptcy Code. Currently, this motion remains pending and there can be no
assurance the relief requested therein will be granted.
KEY EMPLOYEE RETENTION PROGRAM
To further stabilize employee relations, the Debtors have developed a
key employee retention program (the "KERP Program"). The KERP Program is
designed to ensure that the employees most critical to the Debtors'
reorganization efforts are provided with sufficient economic incentives and
protections to stay with the Debtors and fulfill their responsibilities through
the successful conclusion of these cases. See "Reorganized PMI -- Employee
Benefit Matters -- Existing Benefit Plans and Agreements."
The Debtors anticipate that they will File a motion to approve and
continue the KERP Program during the weeks immediately following the Petition
Date.
TRANSITION SERVICES AGREEMENT
The Debtors currently rely on Koch Industries or its affiliates for
numerous administrative services, including all payroll processing and
administration of most benefit programs. See "Operations During The
Reorganization Cases -- Commencement of Cases and Related Case Administration
Activities -- Commencement of Reorganization Cases and First Day Relief."
Pursuant to the Plan, the Debtors' businesses will be separated from the other
businesses owned by Koch Industries. Accordingly, in connection with the
implementation of the Plan, the Debtors must establish their own systems and
programs to provide services for which the Debtors currently rely on Koch
Industries. The establishment of independent systems and programs cannot be
completed immediately. The Debtors currently believe that many of the necessary
systems and programs will not be available on a standalone basis until March
2000, leaving a transition period during which the Debtors will continue to rely
on Koch Industries for certain support services.
To ensure that critical support services will be available to the
Debtors during this transitional period, the Debtors negotiated and entered into
a Transition Services Agreement with Koch Industries and Koch Agriculture (the
"Transition Services Agreement") prior to the Petition Date. Pursuant to the
Transition Services Agreement, Koch Industries and Koch Agriculture will
continue to provide, on terms substantially similar to the terms existing prior
to the execution of the Transition Services Agreement, (a) payroll processing
and administration of employee benefit programs, (b) access to certain
information technology systems, (c) availability of certain insurance programs
and (d) certain additional administrative support services. In addition, as
described above, the Debtors obtain commodities pursuant to a commodity
purchasing agreement with Koch Agriculture. See "Certain Events Preceding the
Debtors' Chapter 11 Filings -- Prepetition Events -- Transactions with Koch
Industries." As part of the Transition Services Agreement, for a period of 120
days following the Petition Date, Koch Agriculture has agreed, pending
assumption or rejection of the purchasing agreement, to continue to sell
commodities to the Debtors, but without the discount that Koch Industries
asserts expired on November 1, 1999. PMI believes that the prices being charged
for feed ingredients under the Transition Service Agreement represent the
reasonable fair value at which PMI could purchase feed ingredients on the open
market. Pursuant to the Transition Services Agreement, the parties agreed to
continue in good faith with the orderly transition of the commodity purchasing
function to PMI. In addition, in connection with the Transition Services
Agreement, prior to the Petition Date, PMI paid Koch Industries approximately
$1.9 million, after deducting approximately $600,000 that Koch Industries owed
to PMI, in full satisfaction and settlement for Koch Industries' provision of
administrative and support services during September and October 1999, as well
as for certain employee relocation services provided by Koch Industries earlier
in 1999.
CLAIMS PROCESS AND BAR DATE
The Debtors have obtained an extension of time through and including
December 27, 1999 to File their Schedules, identifying the assets and
liabilities of their Estates. The Debtors intend to File the Schedules as
quickly as possible within this time frame. In addition, prior to or
concurrently with the filing of the Schedules, the Debtors intend to File a
motion seeking the establishment of a Bar Date for the filing of proofs of
claim.
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POSTPETITION OPERATIONS AND LIQUIDITY
DEBTOR IN POSSESSION FINANCING
In connection with their preparations for the Filing of the
Reorganization Cases, the Debtors determined that they would need to obtain
debtor in possession financing to ensure sufficient liquidity to meet their
ongoing operating needs. On October 29, 1999, the Debtors obtained preliminary
Bankruptcy Court approval for borrowings up to $20 million under the DIP Credit
Agreement. The Debtors will seek final Bankruptcy Court approval (the "Final
Order") for borrowings of up to $50 million under the DIP Credit Agreement of
which, until June 1, 2000, $10 million will be reserved and used for cure
obligations and adequate assurance in respect of Executory Contracts that may be
assumed by the Debtors. Up to $20 million of the revolving line of credit may be
utilized in the form of letters of credit as provided under the DIP Credit
Agreement. Pursuant to the DIP Credit Agreement and the Bankruptcy Court orders
approving the DIP Credit Agreement, cash borrowings and letters of credit issued
under the agreement have superpriority Claims over most other Administrative
Expenses. PMI is the borrower under the DIP Credit Agreement and each of the PMI
Subsidiary Debtors has guaranteed PMI's obligations thereunder.
Cash borrowings under the DIP Credit Agreement bear interest at the
higher of (a) the alternative base rate plus 2% per annum or (b) at the option
of PMI, the Eurodollar Base Rate plus 3% per annum. The DIP Credit Agreement
also imposes a facility fee of $1,000,000, an advisory and structuring fee of
$250,000, an annual agency fee of $200,000, an unused commitment fee of .5% per
annum and a letter of credit fee on outstanding letters of credit of 3% per
annum. The DIP Credit Agreement contains various financial covenants related, in
part, to capital expenditures, attainment of a certain cash flow from earnings
before EBITDA, reorganization items and cash swine market risk. In addition, the
DIP Credit Agreement contains certain other restrictive covenants including
limitations on the incurrence of additional liens and indebtedness, the amount
of prepetition claims payments and a prohibition regarding cash dividends.
Subject to certain thresholds, net proceeds resulting from the sale of assets
outside of the ordinary course and certain other nonrecurring transactions must
be used to prepay borrowings and to reduce the commitment under the DIP Credit
Agreement, provided that the commitment will not be reduced below $30 million.
As security for the Debtors' obligations under the DIP Credit Agreement, PMI and
PMI Subsidiary Debtors granted a first priority security interest, with certain
exceptions, in all their pre-and postpetition property. The DIP Credit Agreement
will expire on the earlier of (a) November 1, 2000, (b) 30 days after the
Petition Date if the Final Order has not been entered, (c) the substantial
consummation of a confirmed plan of reorganization or (d) the termination of the
commitment as a result of an event of default.
In connection with the DIP Credit Agreement, as adequate protection for
the holders of Secured Claims under the Prepetition Credit Facility, the Debtors
agreed, among other things: (a) after the prepayments under the DIP Credit
Agreement described above, to apply certain additional net proceeds to payment
of Bank Loan Claims in accordance with the Prepetition Credit Facility; (b) to
pay and to continue to pay all accrued and unpaid interest on the Bank Loan
Claims at the non-default rate specified for the Old Tranche B Notes; and (c) to
grant a replacement lien, junior only to the lien under the DIP Credit
Agreement, to the same collateral that secures the DIP Credit Agreement. In
addition, immediately prior to the Petition Date, the Debtors paid approximately
$2.8 million on the Prepetition Credit Facility (approximately $2.1 million for
a principal payment due September 30, 1999 and approximately $700,000 for
accrued interest).
PREPETITION RESTRUCTURING NEGOTIATIONS
During July 1999, the Debtors determined that, based on current
projections, they might lack sufficient cash flow to meet certain debt covenants
in the Prepetition Credit Agreement in subsequent quarters. In hopes of reaching
a quick solution to this problem, the Debtors initiated discussions with Koch
Industries regarding the funding of the Debtors' businesses. These discussions,
however, did not yield any resolution to the Debtors' anticipated financial
problems, and Koch Industries retained legal and financial advisors with
financial restructuring expertise. As a result, the Debtors retained
professional advisors to assist them in assessing their potential alternatives
to complete an in- or out-of-court restructuring or otherwise obtain additional
working capital.
The Debtors' professionals initiated a comprehensive review of the
Debtors' businesses, assets and capital needs. Soon thereafter, the Debtors
initiated negotiations with Koch Industries regarding a possible infusion of
additional capital into the Debtors' businesses, with both sides represented by
qualified professionals. As part of these discussions, the Debtors provided Koch
Industries with detailed analyses of potential Recovery Actions that the Debtors
believe that they or their creditors might assert against Koch Industries. See
"Certain Recovery Actions."
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The Debtors proposed that an additional infusion of capital from Koch
Industries was both necessary under current business conditions and appropriate
in light of the potential Recovery Actions. In late August, after extensive
discussions of these issues, Koch Industries declined the Debtors' request for
additional working capital.
Having failed to obtain additional capital from Koch Industries, the
Debtors quickly began the process of initiating restructuring negotiations with
all of their key stakeholders: (a) Koch Industries, the Debtors' ultimate parent
company; (b) the holders of the Old Senior Subordinated Notes (the
"Noteholders"), the Debtors' largest unsecured creditors, representing more than
an estimated 80% of all unsecured debt; and (c) the Debtors' bank group under
the Prepetition Credit Facility (the "Bank Group"), the Debtors' largest secured
creditors. With the Debtors' encouragement, an informal committee of Noteholders
(the "Noteholders Committee") was formed and hired professionals before the end
of August 1999. The Debtors immediately initiated meetings with the Noteholders
Committee and the Bank Group to discuss the Debtors' need to complete an
expeditious restructuring. The Debtors made it clear to all parties that, as a
result of the need to preserve certain potential preference claims against Koch
Industries, the Debtors would be required to commence bankruptcy cases, if
necessary, no later than October 29, 1999. See "Certain Recovery Actions." The
Debtors hoped to complete successful negotiations to permit the filing of a
prepackaged or prenegotiated plan of reorganization by that date.
To encourage a full and open discussion of the issues among all
parties, the Debtors provided substantial information to all constituencies. In
particular, the Debtors made presentations to the Noteholders Committee and the
Bank Group regarding the potential Recovery Actions and the Debtors' business
operations. Extensive information also was provided to all parties regarding the
Debtors' business plan, financial projections and restructuring strategies. The
Debtors then assisted the Noteholders Committee and the Bank Group in performing
significant due diligence with respect to all of these issues.
Subsequent to the Petition Date, the Debtors, the Noteholders Committee
and Koch Industries continued to discuss possible settlement of key
restructuring issues impacting unsecured creditors, including the appropriate
resolution of the Recovery Actions. As a result of these discussions, Koch
Industries and Koch Agriculture and, as of November 9, 1999, holders of
approximately 55% of the principal amount of Old Senior Subordinated Notes,
entered into an agreement to resolve these issues, subject to implementation of
a plan of reorganization incorporating the terms of that agreement. Among other
things, the agreement provides for: (a) an infusion of $60,000,000 by the Koch
Entities into the Reorganized Debtors; (b) the treatment of Koch Agriculture's
Claims under the commodity purchasing program as general unsecured claims and a
waiver of Koch Agriculture's right to seek treatment of all or any portion of
such Claims as administrative priority reclamation claims under section 546(c)
of the Bankruptcy Code; (c) the extinguishment of Koch Agriculture's equity
interests in PM Holdings without any consideration; (d) the continuation of the
CAP Plan; and (e) comprehensive releases of other claims between the Koch
Entities and the Debtors and their creditors, including releases of the Recovery
Actions. The Debtors are not parties to the settlement, but will review and
evaluate the terms of the settlement. If the Debtors determine that the
settlement is appropriate, the Debtors will revise the Plan and this Disclosure
Statement in the near future to reflect (a) the terms of the settlement
agreement and (b) the impact of the settlement agreement on the estimated
reorganization value of the Debtors and the Debtors' projected financial
information. Notwithstanding the foregoing, no agreements have been reached
with respect to treatment of Claims under the Plan.
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CERTAIN RECOVERY ACTIONS
INTRODUCTION
In connection with the 1998 Merger and the subsequent operations of PMI
and the PMI Subsidiary Debtors, a number of transactions occurred that may give
rise to claims ("Recovery Actions") against the pre-1998 Merger stockholders of
PM Holdings, PM Holdings, Koch Industries and certain of its affiliates, as well
as certain other entities and persons. Generally these claims relate to: (a)
possible preference, fraudulent conveyance, and other avoidance actions under
sections 544, 547, 548, 549 and 550 of the Bankruptcy Code resulting from
payments made by the Debtors; (b) potentially illegal dividends made by PMI in
connection with the 1998 Merger; (c) potential piercing the corporation veil or
alter ego claims against Koch Industries and its affiliates, and (d) certain
other potential causes of action.
PREFERENCE CLAIMS
Under sections 547 and 550 of the Bankruptcy Code, a debtor may seek to
avoid and recover certain prepetition payments made by the debtor to or for the
benefit of a creditor, in respect of an antecedent debt if such transfer was
made when the debtor was insolvent. Transfers made to a creditor that was an
"insider" of the debtor are subject to these provisions if the payment was made
within one year of the debtor's filing of a petition under chapter 11. Under
section 547, certain defenses, in addition to the solvency of the debtor at the
time of the transfer, are available to a creditor from which a preference
recovery is sought. Among other defenses, a debtor may not recover a payment to
the extent such creditor subsequently gave new value to the debtor for which the
creditor was not paid pursuant to a payment that is not otherwise avoidable (the
"New Value Defense"). A debtor may not recover a payment to the extent such
payment was part of a substantially contemporaneous exchange between the debtor
and the creditor (the "Substantially Contemporaneous Exchange Defense").
Further, a debtor may not recover a payment if such payment was made in the
ordinary course of business of both the debtor and the creditor (the "Ordinary
Course Defense"). The debtor has the initial burden of proof in demonstrating
the existence of all the elements of a preference including its insolvency at
the time of the payment. The creditor has the initial burden of proof as to the
aforementioned Defenses.
As a result of its indirect stock ownership of the Debtors, Koch
Industries is an "insider" of the Debtors for purposes of the preference
provisions of the Bankruptcy Code. During the one year period preceding the
Petition Date, PMI made a number of payments to Koch Industries that, assuming
none of the Defenses described above would be applicable and, assuming the
insolvency of PMI at the time of the payments, may be recovered by PMI.
Commencing in May 1998, Koch Industries began to pay PMI payroll and related
costs directly. In late October and November 1998, PMI paid Koch Industries
approximately $53 million to reimburse Koch Industries for such advances made by
Koch Industries from May through October 1998. In addition, in 1998 and 1999,
PMI reimbursed Koch Industries for various administrative and other services
provided by Koch Industries to PMI. Based on a review of these transactions as
well as other payments and certain other transactions during the one-year
preference period and after assessment of the likely Defenses described above
that could be raised by Koch Industries, PMI believes that approximately $51
million in payments could possibly constitute preferences recoverable under
sections 547 and 550 of the Bankruptcy Code, assuming PMI was insolvent at the
time of such payments and that certain Defenses are not applicable. Koch
Industries has indicated that it does not believe that PMI was insolvent at the
relevant times and that certain Defenses may be applicable. At this time, PMI
has not formulated a view as to its solvency at those times. Accordingly, the
outcome of any preference claim, at this juncture, is uncertain.
It should be noted that if all or part of those payments were found to
be avoidable as preferences, Koch Industries would be entitled to assert a Claim
against PMI for the amount of such preference. Absent other defenses such as
equitable subordination of such Claim, such Claim would constitute a General
Unsecured Claim and would share in distributions to other holders of Claims in
Class 5. See "Overview of the Plan -- Summary of Classes and Treatment of Claims
and Interests."
"VEIL PIERCING" CLAIMS
In general, a corporation is viewed as a legal entity separate and
distinct from its shareholders, directors, officers and affiliated corporations.
Limited liability is the rule. Under exceptional circumstances, however, courts
will apply the common law doctrine of "piercing the corporate veil" to reach the
assets of the parent and to hold the parent responsible for debts and
obligations of a subsidiary. "Veil piercing" actions are typically brought by
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creditors but, in bankruptcy situations, may also be brought by the debtor. If a
"veil piercing" claim was to succeed, Koch Industries or Koch Agriculture could
be liable to pay all Claims.
The standard for "piercing the corporate veil" is subject to varying
expressions and emphases on particular elements in the case law. The standard
is, however, generally stated as having two aspects: (a) parent domination of
the subsidiary's finances, operations, policies and practices such that the
subsidiary had no separate existence and was merely a conduit for the parent;
and (b) parent abuse of the privilege of incorporation by using the subsidiary
to perpetrate a fraud, inequity or injustice or otherwise to circumvent the law.
Courts review a wide variety of factors in assessing control and manifestations
of control of the parent over the subsidiary. Any "veil piercing" analysis is
necessarily fact specific.
The Debtors have conducted a very preliminary analysis of the extent to
which Koch Industries or Koch Agriculture might be responsible for certain debts
and obligations of the Debtors under a "veil piercing" theory. The Debtors have
not tried to reach firm conclusions concerning what state's law would govern a
"veil piercing" action and have instead applied general "veil piercing"
principles in their work to date rather than the law of any particular state.
The Debtors' analysis has focused largely on the parent domination aspect of the
"veil piercing" standard; the parent abuse aspect of the "veil piercing"
standard remains largely unexplored, as do issues relating to creditor knowledge
of the relevant facts and circumstances. Based on the preliminary analysis, the
Debtors believe that the application of certain relevant factors regarding
parent domination would tend to support a "veil piercing" conclusion for certain
time periods following the 1998 Merger; application of other relevant factors
would tend to support a conclusion that the corporate veil should not be
pierced. Koch Industries denies any liability on account of any "veil piercing"
claims.
Among the factors that may support a "veil piercing" conclusion are the
following: (a) the failure to comply with certain ordinary corporate formalities
for a period of time; (b) the amount of PMI's leverage following the 1998
Merger; (c) the involvement of Koch Industries' and Koch Agriculture's
management in PMI's day-to-day operational decisions; and (d) potential
confusion by certain vendors with respect to the separateness of Koch
Agriculture's Nutrient Services Division and PMI. Among the factors that may
refute a "veil piercing" conclusion are the following: (i) PMI remained a
reporting company under the securities laws following the 1998 Merger and
continued to discharge its disclosure and reporting obligations; (ii) the debt
issued by PMI as part of the 1998 Merger is not recourse debt to or guaranteed
by Koch Industries; (iii) the facts concerning PMI's highly leveraged condition
and the risks posed by that condition as well as the nonrecourse nature of the
debt were disclosed in connection with the issuance of the Old Senior
Subordinated Notes; and (iv) PMI continued to perform many corporate functions
independently following the 1998 Merger, providing a number of indicia of
corporate separateness.
The facts and circumstances learned to date and the governing law could
possibly lead a court to conclude that genuine issues of material fact exist
that could possibly preclude a grant of summary judgment in a "veil piercing"
case. However, the outcome of "veil piercing" litigation against Koch Industries
or Koch Agriculture is uncertain and unpredictable. A court's refusal to grant
summary judgment does not indicate liability; but does indicate that issues of
fact exist that should be determined through a judicial proceeding. While the
Debtors have insufficient knowledge to take a position on the "parent abuse" or
fraud aspects of the potential "veil piercing" cause of action, Koch Industries
strongly believes no parent abuse or fraud existed and that no basis whatsoever
exists for "piercing the corporate veil."
ILLEGAL DIVIDEND ACTIONS
Generally, a dividend is illegal and subject to avoidance if it is paid
in violation of state corporation laws governing the distribution of dividends
or in violation of the corporation's articles of incorporation. Under Delaware
law, a corporation may only pay dividends from one of two sources: (a) surplus
and (b) in the absence of surplus, net profits for the fiscal year in which the
dividend is declared and/or the preceding year. "Surplus" is the amount by
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which the corporation's "net assets" exceeds its capital. Net assets are
determined by deducting a corporation's total liabilities from its total assets.
The Delaware General Corporation Law makes directors jointly and
severally liable for their willful or negligent conduct in connection with the
payment of an unlawful dividend. The directors are liable to the corporation
and, in the event of insolvency, to its creditors for the full amount of the
dividend for a period of six years from the time that the dividend was paid.
There are a number of defenses to such a claim, including the director's absence
from the meeting or dissension with the decision if such dissension is entered
in the corporate minutes at the time of the vote or, in the case of absence,
immediately upon receipt of notice of the illegal dividend. Directors may also
rely on a statutory form of the business judgment rule as a defense to an
illegal dividend claim. Although there is no Delaware statute specifically
imposing liability for the illegal dividend on shareholders who received the
unlawful dividend, the Delaware General Corporation Law suggests that a
stockholder will be liable for the amount of the unlawful dividend if he or she
had notice that its distribution was unlawful.
In connection with the 1998 Merger, PMI paid two dividends to PM
Holdings. The first, in the amount of $135.7 million, was paid on March 12,
1998, immediately before the 1998 Merger was consummated. The second, in the
amount of $101.4 million, was paid on March 13, 1998, the day after the 1998
Merger was consummated. Neither dividend was authorized by PMI's board of
directors at the time it was paid. On August 21, 1998, a prior PMI board of
directors, which was appointed by PM Holdings after the 1998 Merger, executed
Consents in Writing by Directors retroactively declaring and authorizing payment
of the two dividends paid in connection with the 1998 Merger.
PMI or creditors of PMI (with Bankruptcy Court permission) could seek
to recover the amount of such dividends from either the former directors of PMI
or PM Holdings or, perhaps, the recipient shareholders of PM Holdings, including
individuals associated with The Sterling Group, Inc.
The Debtors have performed a preliminary analysis of potential illegal
dividend actions that may arise as a result of the dividends described above.
Because the analysis is preliminary, and the outcome of any potential litigation
is uncertain, the Debtors express no opinion as to the likelihood of success on
the merits of any such action.
FRAUDULENT CONVEYANCE ACTIONS
Generally, a conveyance or transfer is fraudulent if (a) it was made
with the actual intent to hinder, delay or defraud a creditor (an intentional
fraudulent conveyance) or (b)(i) reasonably equivalent value was not received by
the transferee in exchange for the transfer and (ii) the debtor was insolvent at
the time of the transfer, was rendered insolvent as a result of the transfer or
was left with insufficient capitalization as a result of the transfer (a
constructive fraudulent conveyance). Two primary sources of fraudulent
conveyance law exist in a chapter 11 case.
The first is section 548 of the Bankruptcy Code, under which a debtor
in possession or bankruptcy trustee may avoid fraudulent transfers that were
made or incurred on or within one year before the date that a bankruptcy case is
filed. Because the transactions and transfers comprising the 1998 Merger
occurred more than one year prior to the Petition Date, the one-year statute of
limitations in section 548 of the Bankruptcy Code would bar a fraudulent
conveyance action in respect of the 1998 Merger brought under this section.
The second source is section 544 of the Bankruptcy Code -- the
so-called "strong-arm provision" -- under which the debtor in possession (or
creditors with bankruptcy court permission) may look to state law to avoid
transfers as fraudulent. State fraudulent conveyance laws generally have
statutes of limitations longer than one year. Indeed, the statutes of limitation
for fraudulent conveyance actions under the states of Delaware and Missouri (the
two relevant states in respect of the 1998 Merger transfers) have statutes of
limitations of four years, which have not yet expired.
Both Delaware and Missouri have adopted substantially consistent
versions of the Uniform Fraudulent Transfer Act ("UFTA"). Sections 4 and 5 of
the UFTA are likely the operative sections under which a fraudulent transfer
claim in respect of the 1998 Merger may be made.
Section 4 of the UFTA in both Delaware and Missouri addresses both
intentional and constructive fraudulent conveyance actions and applies both to
creditors in existence at the time of the fraudulent transfer ("Present
Creditors") and future (post-transfer) creditors. Section 4 encompasses
transfers (a) made with the actual
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intent to hinder, delay or defraud any creditor of the transferee or (b) made
without the transferee's receiving reasonably equivalent value in exchange for
the transfer when the transferee (i) was engaged or was about to engage in a
business or a transaction for which its remaining assets were unreasonably small
in relation to the business or transaction or (ii) intended to incur, or
believed or reasonably should have believed that it would incur, debts beyond
its ability to pay as they came due.
In contrast, Section 5 of the UFTA may only be used by Present
Creditors and encompasses transfers in which (a) the transferee (i) did not
receive a reasonably equivalent value in exchange for the transfer or obligation
and (ii) was insolvent at the time or became insolvent as a result of the
transfer or obligation or (b) if a transfer was made to an insider for an
antecedent debt, the transferee was insolvent at that time, and the insider had
reasonable cause to believe that the transferee was insolvent. Under both
Section-4 and 5 of the UFTA, a transferee that is not generally paying its debts
as they come due is presumed to be insolvent, and the burden is upon the
transferee to prove that it was not insolvent.
Persons or entities that would likely have standing to bring a
fraudulent conveyance action in respect of the 1998 Merger transfers include:
(a) in an action under Section 4 of the UFTA, the unsecured creditors in
existence at the time of the 1998 Merger and unsecured creditors that became
creditors after the consummation of the 1998 Merger; and (b) in an action under
Section 5 of the UFTA, unsecured creditors in existence at the time of the 1998
Merger. Potential defendants include the immediate and mediate recipients of a
"transfer" of property as part of the 1998 Merger. These parties include, among
others, the former shareholders of PM Holdings (including individuals
associated with The Sterling Group, Inc.), PM Holdings, the former creditors
(and their professionals) of PM Holdings and PMI that were paid in full as a
result of the 1998 Merger transactions and the lenders under the Prepetition
Credit Facilities that received liens as part of the 1998 Merger transactions.
The Debtors have performed a preliminary analysis of potential
fraudulent conveyance actions that may arise as a result of the 1998 Merger
transfers. Because the analysis is preliminary, and the outcome of any potential
litigation is uncertain, the Debtors express no opinion as to the likelihood of
success on the merits of any such action.
BREACH OF FIDUCIARY DUTY ACTIONS
The common law of Delaware provides a cause of action against officers
and directors of a corporation who breach their fiduciary duties to the
corporation. The two primary fiduciary duties of officers and directors of
corporations are the duty of care and the duty of loyalty.
The duty of care requires that officers and directors act in an
informed and considered manner, meaning that, prior to making a business
decision, the directors must have informed themselves of all material
information reasonably available to them and, having been so informed, they must
then act with requisite care in the discharge of their duties. In turn,
"requisite care" has been defined as the care an ordinarily prudent person in a
like position would use under similar circumstances.
The duty of loyalty requires that officers and directors (a) act in
good faith and in the honest belief that the action taken is in the best
interests of the corporation and (b) be both disinterested and independent.
In a solvent corporation, these duties are generally owed exclusively
to shareholders. In an insolvent, or near insolvent corporation, most courts
have held that these fiduciary duties are owed to the corporation's creditors,
either in addition to or in lieu of its shareholders. In determining whether a
corporation is solvent or insolvent, courts generally look to two tests, the
"balance sheet test" and the "equity" or "cash-flow" test. The balance sheet
test inquires whether, both before and after the consummation of the challenged
transaction, the fair market value of the corporation's liabilities exceeds the
fair market value of its assets. In contrast, the "equity" or "cash-flow" test
inquires whether, both before and after the consummation of the challenged
transaction, the corporation was capable of paying its debts as they came due.
Generally, the business judgment rule provides a defense for breach of
fiduciary duty actions; however, courts are divided as to whether this
protection applies to insolvent or near-insolvent corporations. Accordingly, it
is possible -- and, perhaps, likely -- that the decisions surrounding the 1998
Merger transactions will receive heightened scrutiny from a court, thus
requiring the officers and directors to prove the "entire fairness" of such
transactions.
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Under Delaware law, claims for breach of fiduciary duty must be brought
within three years from the occurrence that gave rise to the cause of action.
If the transactions relating to the 1998 Merger were challenged by PMI,
or any creditors of PMI, that challenge might include an action against the
directors and officers of the Debtors that served in such capacities at the
relevant time. Transactions that might be subject of a fiduciary duty analysis
include the payment of dividends by PMI in March 1998, the refinancing of low
interest industrial development bond debt with the proceeds of Old Senior
Subordinated Notes and Prepetition Credit Facility, and any fraudulent
conveyances that may have occurred with the 1998 Merger.
OTHER POTENTIAL CLAIMS
In addition to the foregoing, PMI believes that it or its creditors may
have additional claims against one or more of the Koch Entities based on such
entities' transactions with PMI. These potential claims include claims in
respect of Koch Agriculture's agreement in connection with the 1998 Merger to
maintain the CAP Plan, provide certain retiree benefits, fund retiree medical
costs, maintain directors' and officers' liability insurance, as well as unjust
enrichment claims under the commodity purchasing program and certain other
matters. The Debtors have not completed an analysis of the merits of such
potential causes of action and, therefore, express no opinion thereon.
REORGANIZED PMI
RESTRUCTURING TRANSACTIONS
Pursuant to the Plan, the Debtors may at their option cause one or more
of the Debtors to merge or consolidate with other Debtors or to take certain
other actions to simplify the Debtors' corporate structure. The only shares of
capital stock of Reorganized PMI to be outstanding immediately following the
Effective Date will be the New Common Stock. Thereafter, Reorganized PMI may
issue additional shares of capital stock in accordance with its Amended
Articles, Amended Regulations and applicable law.
BUSINESS AND PROPERTIES OF REORGANIZED PMI
BUSINESS
As the successor to PMI, Reorganized PMI will continue to operate the
existing business of the Debtors following the Effective Date. Reorganized PMI
will continue to develop, manufacture and market a comprehensive line of animal
nutrition products for dairy cattle, beef cattle, hogs, horses and poultry, as
well as specialty feed for rabbits, zoo animals, laboratory animals, birds, fish
and pets. As of the Effective Date, Reorganized PMI expects to operate a
production network of 49 or fewer feed mills located across 25 States and a
nationwide distribution system consisting of over 4,500 dealers and
approximately 4,500 direct consumers.
Seasonality. The Debtors' business is seasonal, with a higher
percentage of the feed volume sold and earnings being generated during the first
and fourth quarters of the year. This seasonality is driven largely by weather
conditions affecting the Debtors' cattle product lines. Other product lines are
affected marginally by seasonal conditions, but these conditions do not
materially affect the Debtors' quarter-by-quarter results of operations. See
"Risk Factors--Seasonality."
Competition. The feed industry, which has substantial excess capacity
in certain areas of the country, is highly competitive. Both the feed production
and animal production industries are consolidating, and this trend is expected
to continue. Generally, the industry is highly fragmented, with the bulk of the
industry consisting of regional competitors (including cooperatives) with
several manufacturing facilities and a large number of small, local
manufacturers. Although the strength of the Debtors' competitors varies by
geographic area and product line, the Debtors believe that no competitor
produces and markets the breadth of products that the Debtors provide. See "Risk
Factors -- Competitive Industry Conditions."
Capital Expenditures. The Debtors expect that capital expenditures
during fiscal year 1999 will be over $20.0 million, which includes $6.0 million
related to a new accounting and information reporting system, with the remaining
amount primarily incurred for the maintenance of existing facilities. The
Debtors actual capital expenditures for the eight months ended August 31, 1999
were $13.5 million.
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Employees. The Debtors had approximately 2,600 full-time employees as
of August 31, 1999, approximately 12% of whom were union members. Historically,
the Debtors have had a satisfactory relationship with their employees, including
their unionized workers.
PROPERTIES
The Debtors own their corporate headquarters in St. Louis and a 1,188
acre research center in Gray Summit, Missouri.
As of the Effective Date, the Debtors expect to operate 49 or fewer
feed manufacturing plants located in 25 States, one of which is leased. In
addition to on-site storage at each of their manufacturing plants, the Debtors
also store products in owned or leased warehouses.
ADDITIONAL INFORMATION
For additional information concerning the business and property of the
Debtors and their historical financial information, see Exhibit III which
consists of PMI's Form 10-K for the reporting period ending December 31, 1998
and PMI's Forms 10-Q for the periods ending March 31, 1999 and June 30, 1999.
BUSINESS PLAN AND STRATEGY FOR REORGANIZED PMI
Prior to the Petition Date, the Debtors conducted a comprehensive
strategic business review, including the development of a business plan which
addressed both short-term and longer-term issues required to stabilize and
turn-around the business (the "Business Plan"). The Business Plan, developed
over a number of months in consultation with the Debtors' external advisors,
establishes a corporate vision and mission and a team-oriented strategy for
Reorganized PMI. The Business Plan also identifies (a) the business models
necessary to execute the Business Plan; (b) key financial priorities; (c) key
business line priorities; and (d) strategic cost reduction initiatives.
In developing the Business Plan, the Debtors also identified five
priority initiatives designed to stabilize the Debtors' businesses and provide a
foundation for the Business Plan:
- mitigate swine ownership position and implement strategic
alliances/joint ventures in livestock production systems
(initial focus on swine). On the Petition Date, the Debtors
filed a motion under section 365 of the Bankruptcy Code
seeking to reject certain burdensome swine related contracts.
See "Operations During the Reorganization Cases -- Rejection
of Certain Burdensome Executory Contracts and Unexpected
Losses";
- increase plant utilization and reduce manufacturing costs
through plant rationalization and focus;
- increase productivity by isolating business stream economics
and reducing administrative costs through effective use of
PMI's recently installed SAP enterprise resource planning
software system and appropriate cost reductions;
- build an industry-leading purchasing and logistics (supply
chain) capability; and
- build PMI's brands through dealer initiatives, direct sales
and full execution of the America's Country Store ("ACS") and
Premier dealer programs.
The strategies embodied in the Business Plan reflect the Debtors'
recognition that their historic customer base (as well as the customer base of
their competitors) is diverging, with the livestock production industry being
driven primarily by economic costs and benefits and the lifestyle animal
customer base being driven primarily by brand, quality and other subjective
value factors. The Debtors believe both market segments are important to the
future success of Reorganized PMI and that the Debtors bring important
competitive advantages to serving these market segments, such as product
research and formulation expertise, brand management skills and manufacturing
expertise. As a result, Reorganized PMI will continue to have two business
groups, each consisting of a number of business lines: the Dealer Business Group
and the Livestock Production Systems Business Group. Supporting these two
business groups will continue to be business service units providing streamlined
manufacturing and administrative services, while capturing economies of scale
and utilizing out-sourced resources as appropriate.
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The Business Plan also anticipates (a) creating local field teams to
focus on maximizing customer satisfaction; (b) building the dealer business by
(i) leveraging the Debtors' brands and technology and (ii) improving the
Debtors' distribution and merchandising services; and (c) moving critical
management decisions closer to local markets to improve sales, profitability and
asset utilization.
DEALER BUSINESS GROUP STRATEGY
The Dealer Business Group includes the following businesses: Horse;
Beef-Grass; Companion Animal/Farmer Feeder, including Zoo, Show Chows, Dog and
Cat; Mineral; Lab; Lifestyle Dairy; Sales and Dealer Development (including
base, Gold and Premier); ACS; and Dealer Logistics. The strategy for the Dealer
Business Group is centered on the Debtors' historically strong dealer network
and on leveraging the Debtors' valuable brands to become the premier supplier of
feed and related products to lifestyle animal owners.
Strengthen Dealer Relationships. Reorganized PMI intends to grow its
market share of dealer feed sales by strengthening dealer relationships through
expanding existing incentive programs rewarding top performing dealers and by
assisting dealers in developing new or additional marketing and retailing
expertise.
Build PMI's Brands. In recent years, PMI has successfully built its
brands, particularly with lifestyle animal owners. Reorganized PMI intends to
continue to build its brands by: (a) event dominance: developing a local market
based "event marketing" strategy (across specie lines); expanding participation
in industry shows; and creating and executing large venue marketing events; (b)
industry involvement: developing additional marketing programs using sports
figures and other celebrities; increasing involvement with equine and small
animal veterinarians; and expanding the America's Horse Country program by
adding sponsors; and (c) marketing mix management: executing local pricing
strategies (local market rate pricing and price point segregation); implementing
selective dealer distribution for lifestyle animal owners; and employing whole
market planning to increase profitability.
Expand ACS Initiative. Reorganized PMI will continue to pursue its ACS
initiative designed to significantly enhance its existing dealer network and to
recruit new investors in "ruralpolitan" speciality retail markets. The
initiative features a "turn-key" package that provides investors with a
standardized model that Reorganized PMI believes offers lifestyle animal owners
a unique shopping experience. Reorganized PMI presently plans that more than 200
ACS facilities will be constructed over the next four years, strengthening its
position in the profitable "ruralpolitan" market. PMI anticipates that all ACS
facilities, with the exception of a few company-owned model stores, will be
privately owned and will require minimal capital investment by Reorganized PMI,
other than normal trade credit terms on feed products.
Upgrade Distribution, Logistics and Transaction Processing Systems.
Reorganized PMI intends to improve productivity, increase sales, reduce
transaction costs and reduce inventory carrying costs by upgrading its
distribution, logistics and transaction processing systems (supply chain
management) through, among other improvements, implementing selected information
system and other projects.
LIVESTOCK PRODUCTION SYSTEMS GROUP STRATEGY
The Livestock Production Systems Group includes the following
businesses: Swine, Beef-Feedlot, Poultry, Dairy Systems and Producer Dealer
Development. Reorganized PMI will continue to adapt its Livestock Production
Systems Group to the trends of consolidation of production and vertical
integration that continue to reshape the competitive landscape of the livestock
production industry.
Feed Supply and Management Services. PMI has successfully built its
sales of feed products and husbandry management services to meet the needs of
livestock producers. The Livestock Production Systems Group will continue to
build upon PMI's nutrition and husbandry technologies to enhance its position in
the livestock markets, including cattle, dairy, swine and poultry.
Joint Ventures and Strategic Alliances. Reorganized PMI will
aggressively pursue strategic alliances in the Livestock Production System
business, with an initial focus on the swine business. Reorganized PMI intends
to leverage its significant market share, nutritional and husbandry management
expertise and strong brand name and reputation to participate with selected
partners in the swine, feedlot cattle, dairy system and poultry markets.
Mitigate Swine Business Risks. Reorganized PMI intends to manage its
swine business to preserve and enhance value, explore potential strategic
transactions related to the business and efficiently operate the swine business.
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MANUFACTURING STRATEGY
Reorganized PMI intends to manufacture and deliver products and plant
services at optimal cost while meeting the needs of the marketplace and
exceeding its customers' expectations. Reorganized PMI will look to implement
this strategy through (a) creating dedicated plants that match cost structure
and scale to market opportunities, especially in livestock production systems;
(b) consolidating regional capacity through strategic alliances; (c) increasing
productivity through economies of scale and plant and product rationalization;
(d) creating local manufacturing capabilities that improve profitability by
meeting local market needs; (e) optimizing private label manufacturing
opportunities; and (f) pursuing selected toll manufacturing opportunities.
ADMINISTRATIVE STRATEGY
Reorganized PMI plans to continue the process of rationalizing its
administrative and corporate operations. Reporting and accountability
relationships, based on a plant or geographic focus, are being shifted to a
market-focused structure based on line of business, although local market
interfaces are being maintained in order to be responsive to local customer
needs. Through the implementation of SAP enterprise resource planning software,
PMI has recently eliminated its multiple geographic profit centers, each of
which had its own general and administrative infrastructure, and centralized
many accounting and credit functions in St. Louis. Reorganized PMI intends to
implement additional reductions in corporate administration, and to further
reduce marketing and manufacturing overhead through (a) SAP implementation; (b)
manufacturing improvements; (c) the transition to a market-focused sales force;
and (d) improvements in its distribution, logistics and transaction processing
systems.
HUMAN RESOURCE STRATEGY
The Debtors have developed certain retention and incentive programs in
order to retain and incentivize their employees. See "Operations During the
Reorganization Cases -- Commencement of Cases and Related Case Administration
Activities -- Key Employee Retention Program." Reorganized PMI intends to
implement a compensation and incentive program in order to attract, retain and
provide appropriate incentives for its employees focused on execution of the
Business Plan. See "Reorganized PMI -- Employee Benefit Matters -- New Benefit
Programs and Agreements; Continuation of Existing Plans." PMI has historically
been known for its industry-leading workforce. Reorganized PMI will strive to
continue this tradition by seeking out employees with exceptional knowledge,
skills, education and experience required for their positions and by
compensating them with a focus on rewarding productivity, returns on capital and
profitability.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth various selected financial information
for the Debtors as of and for the fiscal years ended December 31, 1996, December
31, 1997 and December 31, 1998, and the six month periods ended June 30, 1998
and June 30, 1999. Such selected consolidated financial information should be
read in conjunction with the audited and unaudited historical consolidated
financial statements of the Debtors, including the notes thereto, included in
Exhibit III of this Disclosure Statement.
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<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
PRE-MERGER POST-MERGER POST-MERGER
JANUARY 1 TO MARCH 13 TO POST-MERGER PRE-MERGER PRE-MERGER MARCH 13 TO
MARCH 12, 1998 JUNE 30, 1998 JUNE 30, 1999 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998
(AUDITED) (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
(DOLLARS IN THOUSANDS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C>
REVENUES
NET SALES.......................... $214,272 $288,071 $437,442 $1,212,197 $1,128,390 $784,408
Costs and Expenses:
Cost of products sold..............
Marketing, distribution and
advertising...................... 171,233 228,281 352,879 1,009,714 912,984 640,359
General and administrative......... 17,543 26,571 46,223 84,751 87,333 73,064
Amortization of intangibles........ 27,573 18,335 33,504 57,532 55,697 59,880
Research and development........... 3,838 6,115 7,586 19,487 20,572 14,491
Provision for plant closings and
asset impairments................ 1,376 1,928 3,003 6,982 7,166 5,429
Provision for loss on guarantees... -- -- 19,665 14,042 4,402 --
Other income (expense) net......... -- -- -- -- -- 14,175
109 (58) (530) (10,575) (4,523) 4,470
-------- --------- --------- ----------- ----------- --------
221,672 281,172 462,330 1,181,933 1,083,631 811,868
OPERATING INCOME................... (7,400) 6,899 (24,888) 30,264 44,759 (27,460)
Interest expense................... 6,144 15,458 26,169 35,703 32,632 39,467
-------- -------- --------- ----------- ----------- --------
Income (loss) before income
taxes............................ (13,544) (8,559) (51,057) (5,439) 12,127 (66,927)
Provision (benefit) for
income taxes..................... (5,050) (2,559) (16,054) (646) 5,193 (23,776)
-------- --------- --------- ---------- ---------- --------
NET INCOME (LOSS).................. $(8,494) $ (6,000) $ (35,003) $ (4,793) $ 6,934 $(43,151)
======== ========= ========== ========== ========== =========
BALANCE SHEET DATA
CURRENT ASSETS:
Cash and cash equivalents.......... ` $12,215 $ 11,634 $ 25,462 $ 27,620 $ 41,446
Accounts receivable-trade, net..... 38,791 25,215 55,816 51,208 44,105
Inventories........................ 63,304 59,355 61,364 66,800 61,862
Prepaid expenses, deferred and
other assets..................... 11,203 1,722 12,859 14,692 3,785
Deferred income taxes.............. 8,746 17,209 8,563 8,746 16,428
-------- --------- --------- ---------- --------
TOTAL CURRENT ASSETS............... 134,259 115,135 164,064 169,066 167,626
Property, plant and equipment,
net ............................. 264,870 241,721 250,600 243,718 262,791
Intangible assets, net............. 339,805 323,359 138,139 122,403 333,633
Deferred income taxes.............. -- 25,772 7,340 7,881 10,499
Notes receivable................... 11,748 6,993 10,957 10,775 4,258
Deferred financing costs, net...... 11,704 10,721 12,693 9,813 11,456
Other assets....................... 24,811 27,760 22,292 19,942 25,445
TOTAL ASSETS....................... $787,197 $751,461 $606,075 $583,598 $815,708
======== ======== ======== ======== ========
</TABLE>
28
<PAGE> 36
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
POST-MERGER POST-MERGER PRE-MERGER PRE-MERGER POST-MERGER
JUNE 30, 1998 JUNE 30, 1999 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Accounts payable - other .............................. $ 33,287 $ 25,824 $ 70,913 $ 76,078 $ 50,559
Accounts payable - affiliate .......................... 23,968 26,293 -- -- 42,321
Customer advance payments ............................. 4,403 3,602 17,474 16,503 16,870
Accrued expenses ...................................... 19,582 23,376 23,400 21,756 24,881
Interest payable ...................................... 10,345 9,962 8,038 6,771 9,861
Current portion of long-term debt ..................... 6,050 9,050 23,136 19,170 7,550
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES ............................. 97,635 98,107 142,961 140,278 152,042
Retirement obligations ................................ 25,933 26,442 26,457 28,768 26,061
Accrued post retirement benefit costs ................. 4,866 504 36,643 37,470 458
Long-term debt ........................................ 548,025 588,588 295,956 263,119 558,547
Deferred income taxes ................................. 6,550 -- -- -- --
Other liabilities ..................................... 898 6,684 641 831 12,461
Common stock held by ESOP ............................. -- -- 36,895 62,736 --
Less unearned ESOP compensation .................. -- -- (2,141) -- --
Stockholder's equity:
Common stock, $0.01 par value;
1,000 shares authorized, issued and
outstanding ...................................... -- -- -- -- --
Additional paid-in capital ....................... -- -- 79,439 79,687 --
Retained deficit ................................. 109,290 109,290 (9,535) (27,192) 102,290
Accumulated other comprehensive income ........... (6,000) (78,154) (1,241) (2,099) (43,151)
--------- --------- --------- --------- ---------
Total Stockholder's Equity .................. 103,290 31,136 68,663 50,396 66,139
--------- --------- --------- --------- ---------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY .............. $ 787,197 $ 751,461 $ 606,075 $ 583,598 $ 815,708
========= ========= ========= ========= =========
</TABLE>
- -------------------------------------
This selected consolidated financial information should be read in conjunction
with the audited and unaudited historical consolidated financial statements of
the Debtors, including the notes thereto, included in Exhibit III of this
Disclosure Statement.
29
<PAGE> 37
PROJECTED FINANCIAL INFORMATION
INTRODUCTION
As a condition to confirmation of a plan of reorganization, the
Bankruptcy Code requires, among other things, that the bankruptcy court
determine that confirmation is not likely to be followed by the liquidation or
the need for further financial reorganization of the debtor. See "Voting And
Confirmation Of The Plan -- Confirmation" and "-- Feasibility." In connection
with the development of the Plan, and for purposes of determining whether the
Plan satisfies this feasibility standards, the Debtors' management analyzed the
ability of the Reorganized Debtors to meet their obligations under the Plan with
sufficient liquidity and capital resources to conduct their businesses. In this
regard, the Debtors' management developed the Debtors' Business Plan and
prepared certain projections of the Debtors' operating profit, free cash flow
and certain other items for the fiscal years 1999 through 2003 (the "Projection
Period"). Such projections, as adjusted to reflect certain subsequent events,
the terms of the Plan and various additional assumptions, including those set
forth below (as adjusted, the "Projections"), are summarized below.
THESE PROJECTIONS DO NOT REFLECT THE IMPACT OF ANY PROPOSED SETTLEMENT
WITH KOCH INDUSTRIES. See "Operations During the Reorganization Cases --
Prepetition Restructuring Negotiations."
The Debtors' management intends to periodically review and revise the
assumptions underlying the Business Plan. There can be no assurance that the
refinements, if any, of the Business Plan resulting from management's review
will not result in a material modification of the Projections.
The Projections should be read in conjunction with the assumptions,
qualifications and explanations set forth herein and the historical consolidated
financial information (including the notes and schedules thereto) included in
Exhibit III of this Disclosure Statement.
THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH THEIR BUSINESS PLANS
AND STRATEGIES OR MAKE EXTERNAL PROJECTIONS OR FORECASTS OF THEIR ANTICIPATED
FINANCIAL POSITIONS OR RESULTS OF OPERATIONS. ACCORDINGLY, THE DEBTORS
(INCLUDING THE REORGANIZED DEBTORS) DO NOT ANTICIPATE THAT THEY WILL, AND
DISCLAIM ANY OBLIGATION TO, FURNISH UPDATED BUSINESS PLANS OR PROJECTIONS TO
HOLDERS OF CLAIMS OR INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO SHAREHOLDERS
AFTER THE EFFECTIVE DATE OR TO INCLUDE SUCH INFORMATION IN DOCUMENTS REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHERWISE MAKE SUCH
INFORMATION PUBLIC.
PRINCIPAL ASSUMPTIONS
The Projections are based on, and assume the successful implementation
of, the Debtors' Business Plan. Both the Business Plan and the Projections
reflect numerous assumptions, including various assumptions regarding the
anticipated future performance of the Debtors and Reorganized PMI, industry
performance, general business and economic conditions and other matters, most of
which are beyond the control of the Debtors. Therefore, although the Projections
are necessarily presented with numerical specificity, the actual results
achieved during the Projection Period will vary from the projected results.
These variations may be material. Accordingly, no representation can be or is
being made with respect to the accuracy of the Projections or the ability of the
Debtors or Reorganized PMI to achieve the projected results of operations. See
"Risk Factors" for a discussion of certain factors that may affect the future
financial performance of the Debtors and Reorganized PMI and of various risks
associated with the Plan.
Although the Debtors believe that the assumptions underlying the
Projections, when considered on an overall basis, are reasonable in light of
current circumstances, no assurance can be or is given that the Projections will
be realized. In deciding whether to vote to accept or reject the Plan, holders
of Claims must make their own determinations as to the reasonableness of such
assumptions and the reliability of the Projections. See "Risk Factors."
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below.
(a) General Economic Conditions: The Projections were prepared
on assumptions that current economic conditions last throughout the
Projection Period and that the general economic climate in
30
<PAGE> 38
the United States remains relatively stable. The Projections also
assume that favorable demographic trends will continue benefitting the
Dealer Business and that low animal and egg prices will continue for
the Livestock Production Systems Business.
(b) Tons Sold: Tons sold are projected to decline from 4.2
million in 1999 to 3.6 million by 2003, assuming no formal strategic
relationships are consummated in the Livestock Production Systems
Business (principally swine) to maintain or grow current volume levels.
Tons sold are projected to be 3.7 million in 2000, 3.5 million in 2001
and 3.5 million in 2002. The projections assume that historical growth
continues in the high margin Dealer Business product lines, while the
Livestock Production Systems Business product lines experience
generally stable levels in Dairy and Beef--Feed lot and losses of feed
volume in swine and poultry. The Debtors believe that potential joint
ventures and alliances are possible in the Livestock Production
Systems Business, and, if consummated, would provide the potential to
maintain or grow unit volumes.
(c) IOIC: The Projections assume that Income Over Ingredient
Cost ("IOIC") per ton increases from approximately $64 in 1999 to $66
in 2000, $67 in 2001, $68 in 2002 and $69 in 2003 due to a shift in
product mix from lower margin Livestock Production Systems Business
species lines to higher margin Dealer Business product lines. Feed
income declines from approximately $271 million in 1999 to $244 million
in 2000, $235 million in 2001, $241 million in 2002 and $249 million in
2003 because the decline in tons sold is greater than the increase in
IOIC per ton.
(d) Manufacturing Costs: The Projections assume that total
manufacturing costs decline from approximately $114 million in 1999 to
$101 million in 2000, $97 million in 2001 and 2002 and $98 million in
2003 principally due to the elimination of fixed costs associated with
certain plant closures and lower overall volume levels. Manufacturing
cost per ton increases during the projection period due to a shift in
product mix toward higher cost feed products (i.e., "bag" tons in the
Dealer Business product lines which also carry higher IOIC per ton).
The Projections do not assume any cost savings from product
rationalization or other manufacturing initiatives currently being
assessed by PMI.
(e) Marketing, Distribution and Advertising Costs: The
Projections assume that Marketing, Distribution and Advertising costs
decline from $91 million in 1999 to $85 million in 2000 and 2001, $86
million in 2002 and $87 million in 2003. Distribution costs are assumed
to decline principally due to fewer tons sold and as a result of the
projected decline in swine volume. Marketing costs are assumed to
increase because cost savings from anticipated personnel reductions are
offset by increases in ACS and other marketing and logistic
expenditures. Outbound delivery program costs related to three combine
centers and ten route truck systems result in additional costs of $2.5
million in 2000 increasing to $9.9 million in 2003. Field selling costs
are assumed to decline due to headcount reductions related to
productivity gains and volume loss.
(f) G&A Expense: The Projections assume that general and
administrative expense declines from approximately $58 million in 1999
to $55 million in 2000, $50 million in 2001 and $48 million in each of
2002 and 2003 principally due to personnel reductions and slightly
lower bad debt expense.
(g) Other Income: Other income increases principally due to
ingredient purchasing income, dealer programs, ACS royalties and
outbound delivery program (i.e., logistics) initiatives.
(h) Other Items: The Projections assume ingredient purchasing
is re-integrated into Reorganized PMI from Koch Agriculture. The one
time cost and associated working capital requirement in the first
quarter of 2000 is estimated at $16 million, plus a $12.5 million
letter of credit. Cash losses from swine market risk are assumed to be
substantially reduced in connection with rejecting certain material
contracts. A reasonable estimate of the recovery expected from vitamin
price fixing litigation is reflected in fiscal 2000, offset in part by
bankruptcy professional fees and severance and retention agreement
costs.
(i) Income Taxes: Projected income taxes were calculated based
on expected levels of pre-tax income, giving effect to differences
between book depreciation and tax depreciation. A blended state and
federal tax rate of 37.75% is assumed.
(j) Capital Expenditures: Capital expenditures principally
pertain to maintenance of feed mills, information technology and a
plant expansion of the St. Joseph, Missouri mill.
31
<PAGE> 39
(k) Working Capital: Receivables, inventory, payables and
other working capital accounts are projected according to historical
levels and seasonal changes, with the exception of trade terms on
ingredient purchases which are assumed to reflect market levels but not
additional credit terms received in fiscal 1998 and 1999 from Koch
Agriculture.
(l) Post-Reorganization Debt: Post-Reorganization debt
pertains to the New Prepetition Credit Facility Notes and the Exit
Financing Facility and gives effect to the assumed interest rates,
scheduled amortization and projected early amortization relating
thereto.
(m) Fresh-Start Reporting: The American Institute of Certified
Public Accountants has issued a Statement of Position on Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (the
"Reorganization SOP"). The Projections have been prepared generally in
accordance with the "fresh-start" reporting principles set forth in the
Reorganization SOP, giving effect thereto as of January 31, 2000. The
principal effects of the application of these fresh-start reporting
principles are summarized below:
Under the Reorganization SOP, Reorganized PMI will be
required to record as an intangible asset the excess, if any
of its total reorganization value over the fair value of its
identifiable net assets ("Reorganization Goodwill") as of the
Effective Date to be amortized over a period which, in
accordance with the Reorganization SOP, generally is to be
substantially less than 40 years. For purposes of the
Projections, it has been assumed that the leveraged net equity
balance as of the Effective Date is $125 million. The
Projections also assume that, after giving effect to certain
eliminations in connection with the reorganization, the fair
value of Reorganized PMI fixed assets and other non-current
assets are equal to the projected net book value of such
assets as of the Effective Date. Based on these assumptions,
the assumed reorganization value of Reorganized PMI as of the
Effective Date would exceed the assumed fair value of
Reorganized PMI's tangible assets by approximately $108
million. For purposes of the Projections, such amount of
Reorganization Goodwill is reflected as an intangible asset to
be amortized on a straight-line basis over an assumed 15 year
period.
The foregoing assumptions and resultant computations
were made solely for purposes of preparing the Projections.
Reorganized PMI 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 PMI's
reorganization value. In all events, such valuation, as well
as the determination of the fair value of Reorganized PMI's
assets and 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.
PROJECTIONS
The projected consolidated financial statements of the Reorganized
Debtors set forth below have been prepared on the assumption that the Effective
Date is January 31, 2000. Although the Debtors presently intend to seek to cause
the Effective Date to occur on or about such date, there can be no assurance as
to when the Effective Date actually will occur.
The Reorganized PMI and Subsidiaries Projected Consolidated Balance
Sheet as of January 31, 2000 (the "Effective Date Balance Sheet") set forth
below presents: (a) the projected consolidated financial position of the
Reorganized Debtors prior to Confirmation and the consummation of the
transactions contemplated by the Plan; (b) the projected adjustments to such
projected consolidated financial position required to reflect Confirmation and
the consummation of the transactions contemplated by the Plan (collectively, the
"Balance Sheet Adjustments"); and (c) the projected consolidated financial
position of the Reorganized Debtors, after giving effect to the Balance Sheet
Adjustments, as of January 31, 2000. The Balance Sheet Adjustments set forth in
the columns captioned "Debt Discharge and Fresh Start Adjustments" reflect the
assumed effects of Confirmation and the consummation of the transactions
contemplated by the Plan, including the settlement of various liabilities and
related securities issuances,
32
<PAGE> 40
cash payments and borrowings. The various Balance Sheet Adjustments are
described in greater detail in the Notes to the Effective Date Balance Sheet.
The Reorganized PMI and Subsidiaries Projected Consolidated Balance
Sheets as of the end of fiscal years 2000 through 2003 set forth below present
the projected consolidated financial position of the Reorganized Debtors, after
giving effect to Confirmation and the consummation of the transactions
contemplated by the Plan, as of the Effective Date and the end of each fiscal
year in the Projection Period.
The Reorganized PMI and Subsidiaries Projected Consolidated Statements
of Operations and Projected Consolidated Statements of Cash Flows set forth
below present the projected consolidated results of operations for the year
ending January 31, 2000 and for each fiscal year included in the Projection
Period.
33
<PAGE> 41
REORGANIZED PMI AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEET
January 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Adjustments to Record
Confirmation of Plan
---------------------
Projected Fresh Start
Preconfirmation Debt and Other Reorganized
Balance Sheet Discharge Adjustments Balance Sheet Notes
--------------- --------- ------------ ------------- -----
<S> <C> <C> <C> <C>
ASSETS
Cash $ 25,413 -- ($ 16,000) $ 9,413 (1)
Accounts Receivable 35,258 -- -- 35,258
Inventories - Animals 14,504 -- -- 14,504
Inventories - Other 46,847 -- -- 46,847
Total Inventories 61,351 -- -- 61,351
Deferred Tax Asset 45,544 -- (45,544) -- (2)
Other Current Assets 2,722 -- 11,000 13,772 (1)
--------- ---------- ----------- ---------
TOTAL CURRENT ASSETS 170,288 -- (50,544) 119,744
Net PP&E 235,332 -- -- 235,332
Reorganization Goodwill -- -- 107,749 107,749 (3)
Intangible Assets (Net) 316,463 -- (316,463) -- (3)
Other Assets 44,914 -- (10,500) 34,414 (3)
--------- ---------- ----------- ---------
TOTAL ASSETS $ 766,997 -- $269,758) $ 497,239
========= ========== =========== =========
CURRENT LIABILITIES
Accounts Payable (Pre-Petition) 35,000 (35,000) -- -- (4)
Accounts Payable (Post-Petition) 10,000 -- -- 10,000
Customer Advance Payments 8,919 -- -- 8,919
Interest Payable On Sr. Sub. Debt 17,062 (17,062) -- -- (5)
Other Current Liabilities 20,502 -- -- 20,502
--------- ---------- ---------- ---------
TOTAL CURRENT LIABILITIES 91,483 (52,062) -- 39,421
Other Liabilities 30,053 -- -- 30,053
LONG TERM DEBT
Revolver 112,214 -- -- 112,214 (6)
Senior Debt 190,550 -- -- 190,550
Sr. Subordinated Debt 350,000 (350,000) -- -- (5)
--------- ---------- ---------- ---------
Total Long Term Debt 652,764 (350,000) -- 302,764
TOTAL LIABILITIES $ 774,301 ($402,062) -- $ 372,239
Additional Paid in Capital 109,290 -- 15,710 125,000
Retained Earnings (Deficit) (116,594) -- 116,594 -- (3)
--------- ---------- ---------- ---------
Total Shareholders Equity (7,304) -- 132,304 125,000 (3)
TOTAL LIABILITIES AND EQUITY $ 766,997 ($402,062) $ 132,304 $ 497,239
========= ========== =========== =========
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized PMI --
Projected Financial Information," and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement. Refer to the
Notes to Reorganized PMI and Subsidiaries Projected Consolidated Balance Sheet
set forth below for additional information with respect to certain numbers set
forth above. In addition, the Projections do not reflect the impact of any
proposed settlement with Koch Industries. See "Operations During the
Reorganization Cases -- Prepetition Restructuring Negotiations."
- ------------------------------
34
<PAGE> 42
NOTES TO REORGANIZED PMI AND SUBSIDIARIES PROJECTED CONSOLIDATED BALANCE SHEET:
(1) Estimated bankruptcy fees of $5.0 million are assumed to be payable at
consummation, and an $11 million working capital investment is required
in connection with incorporating the purchasing-related functions
currently performed by Koch Nutrient Services.
(2) The Deferred Tax Asset is assumed to be eliminated upon a change of
control transaction.
(3) Estimated "fresh start" accounting adjustments reflect a leveraged
equity value of $125 million. All of the book intangible asset value is
reflected in Reorganization Goodwill, and deferred financing costs in
Other Assets are eliminated.
(4) Estimated prepetition trade payables of approximately $35 million are
assumed to be equitized.
(5) The principal and accrued interest on the Old Senior Subordinated Notes
are equitized in connection with the Plan.
(6) Revolver reflects the Exit Financing Facility.
35
<PAGE> 43
<TABLE>
<CAPTION>
REORGANIZED PMI AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
December 31, December 31, December 31, December 31,
2000 2001 2002 2003
<S> <C> <C> <C> <C>
ASSETS
Cash $ 10,000 $ 10,000 $ 10,000 $ 10,000
Accounts Receivable 32,074 30,821 30,626 30,771
Inventories - Animals -- -- -- --
Inventories - Other 42,114 40,965 41,324 42,195
Deferred Tax Asset 8,547 8,253 4,240 6,842
Other Current Assets 13,757 13,757 13,757 13,757
--------- --------- --------- ---------
TOTAL CURRENT ASSETS 106,492 103,795 99,947 103,565
Net PP&E 188,888 176,818 164,619 152,176
Reorganization Goodwill 101,165 93,981 86,798 79,615
Intangible Assets (Net) -- -- -- --
Other Assets 34,414 34,414 34,414 34,414
--------- --------- --------- ---------
TOTAL ASSETS $ 430,958 $ 409,008 $ 385,777 $ 369,769
========= ========= ========= =========
CURRENT LIABILITIES
Accounts Payable 53,556 51,206 51,655 52,743
Customer Advance Payments 10,000 10,000 10,000 10,000
Interest Payable On Sr. Sub. -- -- -- --
Other Current Liabilities 19,500 19,500 19,500 19,500
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 83,056 80,706 81,155 82,243
Other Liabilities 30,053 30,053 30,053 30,053
LONG TERM DEBT
Revolver 46,706 48,154 42,498 39,271
Senior Debt 180,550 167,000 149,094 126,065
Sr. Subordinated Debt -- -- -- --
--------- --------- --------- ---------
Total Long Term Debt 227,256 215,154 191,592 165,335
TOTAL LIABILITIES $ 340,365 $ 325,912 $ 302,800 $ 277,632
Additional Paid in Capital 125,000 125,000 125,000 125,000
Retained Earnings (deficit) (34,406) (41,904) (42,023) (32,862)
--------- --------- --------- ---------
Total Shareholders Equity 90,594 83,096 82,977 92,138
TOTAL LIABILITIES AND EQUITY $ 430,958 $ 409,008 $ 385,777 $ 369,769
========= ========= ========= =========
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized PMI --
Projected Financial Information," and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement. In addition,
the Projections do not reflect the impact of any proposed settlement with Koch
Industries. See "Operations During the Reorganization Cases -- Prepetition
Restructuring Negotiations."
36
<PAGE> 44
<TABLE>
<CAPTION>
REORGANIZED PMI AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED
------------------------------------------------------------------------
Reorganized
Pre-Effective
STATEMENT OF OPERATIONS DATA Date December 31, December 31, December 31, December 31,
December 31, 2000 2001 2002 2003
1999
<S> <C> <C> <C> <C> <C>
Tons Sold 4,208.6 3,693.6 3,496.1 3,520.8 3,594.6
IOIC/ton $64.33 $65.98 $67.27 $68.33 $69.27
Feed IOIC $270,724 $243,691 $235,186 $240,572 $249,010
Non Feed Income 20,157 17,645 16,887 16,828 16,874
--------- --------- -------- --------- --------
Total IOIC 290,881 261,336 252,074 257,400 265,884
Manufacturing Costs 113,565 100,830 96,647 96,890 97,685
--------- --------- -------- --------- --------
Gross Margin 177,316 160,506 155,427 160,509 168,199
Operating Costs
Marketing, Distribution and
Advertising 91,197 84,549 84,716 86,327 86,628
General and Administrative 58,272 54,738 50,042 48,154 48,058
Total Research and Development 6,208 6,029 5,530 5,530 5,530
Other (Income) Expense (6,276) (6,758) (10,503) (14,192) (18,395)
Amortization Expense 15,152 -- -- -- --
--------- --------- -------- --------- --------
Total Operating Costs 164,553 138,559 129,786 125,819 121,821
Operating Income Before Swine Market
Losses & Restructuring Costs 12,763 21,947 25,641 34,690 46,378
Swine Market Losses 15,079 4,543 1,143 3,876 2,694
Restructuring/One Time Costs 38,021 9,452 4,213 232 232
Interest Expense 45,505 23,090 20,306 18,733 16,716
Reorganization Goodwill Amortization -- 6,585 7,183 7,183 7,183
Income Tax Expense (Benefit) (18,617) (8,547) 294 4,785 10,392
--------- --------- --------- --------- --------
Net Income ($67,225) ($13,175) ($7,498) ($119) $9,160
========= ========= ========= ========= ========
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized PMI --
Projected Financial Information," and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement. In addition,
the Projections do not reflect the impact of any proposed settlement with Koch
Industries. See "Operations During the Reorganization Cases -- Prepetition
Restructuring Negotiations."
37
<PAGE> 45
<TABLE>
<CAPTION>
REORGANIZED PMI AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FISCAL YEAR ENDED
------------------------------------------------------------
Reorganized
Pre-Effective
Date December December December December
December 31, 31, 2000 31, 2001 31,2002 31, 2003
1999
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ($ 67,225) ($ 13,175) ($ 7,498) ($ 119) $ 9,160
Adjustments to Net Income
Depreciation, Amortization & Write-Offs 40,030 31,868 31,254 32,589 30,828
Loss (Gain) on Sale of Investments 19,162 35,917 -- -- --
Changes in Accounts Receivable 7,491 4,540 1,253 195 (146)
Inventories (1,612) 21,359 1,150 (359) (871)
Change in Deferred Tax Assets (17,053) 36,997 294 4,013 (2,602)
Changes in Other Current Assets 1,063 (11,035) -- -- --
Changes in Other Assets & Intangibles 3,141 326,963 -- -- --
Change in Accounts Payable (42,880) 3,556 (2,350) 449 1,088
Change in Advance Customer Payments (6,870) -- -- -- --
Change in Sr. Sub Notes (Interest &
Eliminations) 9,826 (369,687) -- -- --
Change in Other Current Liabilities (3,881) (1,500) -- -- --
Change in Deferred Tax Liability -- -- -- -- --
Change in Other Liabilities (8,927) -- -- -- --
Other/Reorganization Goodwill Amortization (2,355) 6,585 7,183 7,183 7,183
---------- --------- --------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ($ 70,089) $ 72,387 $ 31,287 $ 43,951 $ 44,642
INVESTING ACTIVITIES
Purchase of Property, Plant & Equipment (20,787) (28,565) (19,185) (20,390) (18,385)
Proceeds from Sale of Property,
Plant & Equipment 1,336 7,500 -- -- --
---------- --------- --------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ($ 19,451) ($ 21,065) ($ 19,185) ($ 20,390) ($ 18,385)
FINANCING ACTIVITIES
Proceeds (repayment) from Revolver 67,441 (40,736) 1,448 (5,655) (3,228)
Proceeds (repayment) of Sr. Term Loan - Tranche A (5,250) (9,500) (13,250) (16,804) (20,451)
Proceeds (repayment) of Sr. Term Loan - Tranche B (225) (500) (300) (1,102) (2,579)
Proceeds (repayment) of Subordinate Debt -- -- -- -- --
Other (72) -- -- -- --
---------- --------- --------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 61,894 ($ 50,736) ($ 12,102) ($ 23,561) ($ 26,257)
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized PMI --
Projected Financial Information," and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement. In addition,
the Projections do not reflect the impact of any proposed settlement with Koch
Industries. See "Operations During the Reorganization Cases -- Prepetition
Restructuring Negotiations."
38
<PAGE> 46
MANAGEMENT
CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF PMI
The following table sets forth certain information concerning the directors and
executive officers of PMI as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. Dumler 39 Director*
Timothy A. Durkin 48 Director*
Richard E. Knudson 49 Director*
Brad J. Kerbs 52 President and Chief Operating Officer
David R. Hoogmoed 42 Senior Vice President, Livestock Production Systems
Thomas H. Shepherd 53 Vice President, Operations
Darrell D. Swank 36 Chief Financial Officer
Del G. Meinz 51 Vice President, Treasurer and Controller
David G. Kabbes 37 Vice President, Secretary and General Counsel
Jeffrey K. Gough 36 Vice President, Human Resources
James R. Emanuelson 41 Vice President and Chief Information Officer
Bradley D. Schu 41 Vice President, National Dealer Sales
Rick L. Bowen 47 Vice President, Dairy Operations
Glenn Shields 47 Vice President, Companion Animal
Mark S. Chenoweth 41 Vice President, America's Country Store
Kelly D. Wiesbrock 33 Vice President, Dealer Logistics and Corporate Development
Max A. Fisher 47 Vice President, Public Relations
Beverly D. Riola 47 Assistant Treasurer
Donald M. Fendler 26 Assistant Controller
Walter W. Timm 43 Assistant Secretary
</TABLE>
- ------------------
*Messrs. Dumler, Durkin and Knudson jointly serve as the Office of the Chief
Executive Officer.
Mr. Dumler has been a Board Member of Purina since March 1999. Prior thereto, he
was Executive Vice President, Corporate Finance for Koch Industries. He joined
Koch Industries in 1989 and has served in management positions including Vice
President, Chemicals Group and CFO Gas Liquids Group.
Mr. Durkin is Director, Corporate Services & Projects for Koch Industries and
has been a Board Member of Purina since March 1999. He joined Koch Industries in
1982 serving in various operating and marketing capacities, including several
operating Vice President roles and President of the former Minerals Division.
Mr. Knudson has been a Board Member of Purina since March 1999. He is also the
sole director and President of PM Holdings Corporation. Previously he was Group
Controller for Koch Industries Agriculture Group. He joined Koch Industries in
1980 and has held various financial management positions including Assistant
Controller for Koch Industries as well as Group controller for Koch Refining,
Koch Energy and Koch Chemical.
Mr. Kerbs has been President and Chief Operating Officer since August 1999.
Previously he was Executive Vice President beginning in August 1998. He joined
PMI in 1969 and has served in various operational, administrative, marketing and
management positions.
Mr. Hoogmoed has been Senior Vice President - Livestock Production Systems since
August 1999. He joined PMI in 1979 and has served in various positions including
District Manager, Division Sales Manager, Regional Director of Sales and
Marketing, Area General Manager, Central Region Vice President and most recently
Vice President, Swine Operations.
Mr. Shepherd has been Vice President, Operations since August 1999. He joined
PMI in 1969 and has held various positions, including Director of Operations,
Regional Director of Manufacturing and Regional Director of Operations.
39
<PAGE> 47
Mr. Swank has been Chief Financial Officer of PMI since April 1998. Prior to his
appointment, he was Chief Financial Officer of Koch Agriculture, a position he
held since January 1997. Before joining Koch Agriculture, he was a management
consultant with Deloitte Consulting, L.L.P..
Mr. Meinz has been Vice President, Treasurer and Controller of PMI since August
1998. He joined PMI in February 1988 as Director of Taxes and was promoted to
Controller in September 1993.
Mr. Kabbes joined PMI as lead counsel in March 1999. Prior to joining PMI he was
an attorney for Koch Industries. Prior to joining Koch Industries in July 1997
he was a partner in the Chicago, Illinois law firm of Schiff Hardin & Waite.
Mr. Gough has been Vice President, Human Resources since June 1998. Prior to his
appointment, he held various positions at Koch Industries, including
Acquisitions Integration Manager, Manager of Human Resources - Koch Refining
Company and Manager of Refined Products Accounting. Mr. Gough joined Koch
Industries in 1985.
Mr. Emanuelson joined PMI in July 1998 and has been Chief Information Officer
since August 1999. Prior to joining PMI, he was with Compaq Computer Corporation
for seven years where he held various positions including Director of Corporate
Manufacturing Systems.
Mr. Schu has been a Vice President of PMI since August 1998. He joined PMI in
1980 and has served in various positions, including field sales, sales
management and Director, Retail Specialty Business Group.
Mr. Bowen has been a Vice President of PMI since October 1995. He joined PMI in
1984 and has served in various positions including Manager Financial Services,
District Manager, Division Sales Manager, Region Director of Pricing and Area
General Manager.
Mr. Shields has been Vice President, Companion Animal since September 1999. He
joined PMI in July 1974 and has served in various positions in manufacturing,
sales management, general management, distribution and marketing of dairy, swine
and poultry business, including most recently Vice President, Swine & Poultry
Nutrition.
Mr. Chenoweth has been Vice President of America's Country Store since August
1998. He joined PMI in 1987 and has served in various positions, including
Marketing Research, Marketing Sales & Analysis, Branded Meats Marketing Manager,
Retail Specialty Marketing Manager and Director, Retail Business Development of
America's Country Store.
Mr. Wiesbrock has been Vice President, Dealer Logistics and Corporate
Development since September 1999. He joined PMI in 1998. Before joining PMI, he
worked four years as a management consultant with Deloitte Consulting and before
that was in engineer project management with Frito-Lay, Inc.
Mr. Fisher has been Vice President, Public Relations since June 1999. He has
been with PMI since 1978.
Ms. Riola has been Assistant Treasurer since January 1999. She joined PMI in
1991. Prior to joining PMI, she was employed at Deloitte and Touche.
Mr. Fendler has been Assistant Controller since May 1999. He joined PMI in 1997.
Before joining PMI, he was employed at Deloitte and Touche.
Mr. Timm has been Assistant Secretary since June 1999, when he joined PMI. He
previously had been Assistant General Counsel and Assistant Secretary at
Angelica Corporation.
There are no family relationships between any of the above named executive
officers and directors
40
<PAGE> 48
EXECUTIVE COMPENSATION
The following table sets forth the current annual compensation paid or
payable by the Debtors to the Directors constituting the office of the Chief
Executive Officer and the four additional most highly compensated executive
officers of PMI as of August 31, 1999.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION FROM PMI
------------------------------
TARGET ANNUAL
INCENTIVE
SALARY BONUS(3)
NAME AND PRINCIPAL POSITION ($) ($)
----------------------------------------------------- --------- -------------
<S> <C> <C>
James M. Dumler, Director(1)(2) $100,000 100,000
Timothy A. Durkin, Director(1)(2) $100,000 100,000
Dick E. Knudson, Director(1)(2) $100,000 100,000
Brad J. Kerbs, President and Chief Operating Officer 180,000 80,000
Darrell D. Swank, Chief Financial Officer 180,000 120,000
James R. Emanuelson, Vice President and Chief Information Officer 175,000 75,000
David G. Kabbes, Vice President, Secretary and General Counsel 160,000 50,000
</TABLE>
-----------------
(1) Messrs. Dumler, Durkin and Knudson jointly serve in the
Office of the Chief Executive Officer
(2) Messrs. Dumler, Durkin and Knudson also receive salaries
(including temporary cost-of-living adjustments) of $178,250,
$150,000 and $162,000, respectively, from Koch Industries.
(3) Target bonus; 50% has been earned to date by each
individual listed.
REORGANIZED PMI BOARD OF DIRECTORS
Under the Delaware General Corporation Law (the "DGCL"), the business
and affairs of Reorganized PMI will be managed under the direction of the Board
of Directors of Reorganized PMI (the "Board of Directors").
As of the Effective Date, the initial Board of Directors will consist
of five members. The identity of the directors, who will be nominated and
elected in consultation with the Creditors' Committee, along with the initial
term of each such director, will be disclosed as soon as the information is
available, but in any event no later than ten days prior to the Confirmation
Hearing.
The Amended Certificate and the Amended Bylaws will provide that the
size of the Board of Directors will be established from time to time only (a) by
an affirmative vote of a majority of the total number of directors that the
Corporation would have if there were no vacancies on the Board of Directors or
(b) by the affirmative vote of the holders of at least 70% of the voting stock,
voting together as a single class, except as may be provided in any designation
containing the express terms of preferred stock to be issued pursuant to
resolution of the Board of Directors (a "Preferred Stock Designation");
provided, however, that the number of directors shall not be less than five nor
more than nine except as may be provided in any Preferred Stock Designation.
When so fixed, such number shall continue to be the authorized number of
directors until changed by the shareholders or directors.
The Amended Certificate and the Amended Bylaws also will provide that
the directors of Reorganized PMI, other than those who may be expressly elected
by virtue of the terms of any Preferred Stock Designation, will be classified
with respect to the time for which they severally hold office into three
classes, as nearly equal in size as possible, with the directors in each class
serving for three-year terms and until their successors are elected, except that
the initial terms of the initial directors of Reorganized PMI will expire at the
2002, 2003 or 2004 annual meeting
41
<PAGE> 49
of the shareholders of Reorganized PMI depending upon the particular class in
which each such director is placed, except as may be otherwise provided in any
Preferred Stock Designation. At each annual meeting of shareholders of the
Corporation, the successors of the class of directors whose terms expire at that
meeting shall be elected by plurality vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of shareholders held in
the third year following the year of their election. Except as provided
otherwise in any Preferred Stock Designation, directors may be elected by the
shareholders (a) at an annual meeting of shareholders or (b) if no annual
meeting is held or if an annual meeting is held but directors are not elected,
at a special meeting of shareholders called for that purpose. Neither the
holding of a special meeting of shareholders nor the election of directors at a
special meeting of shareholders will, by itself, shorten the term of any
incumbent director. Except as may be provided in any Preferred Stock
Designation, any vacancy that occurs on the Board of Directors, including any
vacancy that results from an increase in the number of directors and any vacancy
that results from death, resignation, disqualification, removal or other cause,
may be filled only (a) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director or (b) by the affirmative vote of the
shareholders after a vote to increase the number of directors at a meeting
called for that purpose. Any director elected to fill a vacancy created by the
death, resignation, disqualification or removal of an incumbent director will
hold office for the remainder of the term of the class of directors in which the
vacancy was created.
Pursuant to the Amended Bylaws, no annual meeting of shareholders will
be held in 1999, 2000 or 2001. The first annual meeting of the shareholders of
Reorganized PMI following the Effective Date will be held in 2002, following the
completion of Reorganized PMI's first fiscal year, at such time and on such
business day as the Board of Directors determines. Pursuant to the Amended
Bylaws, the Board of Directors could postpone the date of this first annual
meeting for up to 30 days. Any amendment to such postponement provision requires
approval by shareholders holding at least 70% of the voting power of Reorganized
PMI.
BOARD COMMITTEES
The Amended Bylaws provide that the Board of Directors may establish an
executive committee or any other committees as it may from time to time
determine are necessary. The Debtors contemplate that the Board of Directors may
establish an Executive Committee and will establish an Audit Committee and a
Compensation Committee as of or promptly after the Effective Date. The
composition of such Committees has not been determined, but the Debtors expect
that the members of each of the Audit Committee and the Compensation Committee
will be non-employee directors. Under the Amended Bylaws, a committee will
possess and may exercise all of the power and authority granted to it by the
Board of Directors consistent with the DGCL, provided that such committees may
not fill vacancies among the directors or any committee thereof.
If the Board of Directors establishes an Executive Committee, such
committee will possess and may exercise, subject to the control and direction of
the Board of Directors, all the powers of the Board of Directors in the
management and control of the business of Reorganized PMI, regardless of whether
such powers are specifically conferred by the Amended Bylaws.
The Audit Committee is expected to review: (a) the professional
services to be provided by Reorganized PMI's independent auditors and the
independence of such firm from management of Reorganized PMI; (b) the scope of
the audit by Reorganized PMI's independent auditors; (c) the annual financial
statements of Reorganized PMI; (d) Reorganized PMI's systems of internal
accounting controls; and (e) such other matters with respect to the accounting,
auditing and financial reporting practices and procedures of Reorganized PMI as
it may find appropriate or as may be brought to its attention.
The Compensation Committee is expected to: (a) review executive
salaries, (b) administer the bonus, incentive compensation and equity incentive
plans of Reorganized PMI and (c) approve the salaries and other benefits of the
executive officers of Reorganized PMI. See "Reorganized PMI -- Employee Benefit
Matters -- Existing Benefit Programs and Agreements," " -- New Benefit Programs
and Arrangements." In addition, the Compensation Committee is expected to advise
and consult with Reorganized PMI's management regarding pension and other
benefit plans and compensation policies and practices of Reorganized PMI.
42
<PAGE> 50
DIRECTOR NOMINATION PROCEDURES
The Amended Bylaws provide that nominations for election of directors,
except as may be otherwise provided in any Preferred Stock Designation, shall be
made at an annual meeting of shareholders by or at the direction of the Board of
Directors, or any committee thereof, or by any shareholder entitled to vote in
the election of directors at such meeting. The Amended Bylaws require that a
shareholder's notice of intent to nominate candidates for election as directors
must be delivered to or mailed and received at the principal executive offices
of Reorganized PMI not less than 60 days, nor more than 90 days, prior to the
annual meeting of shareholders; provided, however, that in the event that public
announcement of the date of the annual meeting is not made at least 105 calendar
days prior to the date of the annual meeting, notice by the shareholder to be
timely must be received not later than the close of business on the tenth
calendar day following the day on which such announcement of the date of the
meeting was so communicated. The Amended Bylaws further require that the notice
by the shareholder set forth certain information concerning such shareholder and
the shareholder's nominees, including their names and addresses, proof that such
shareholder is entitled to vote at such annual meeting, the class and number of
shares of Reorganized PMI owned or beneficially owned by such shareholder and
the shareholder's nominees, any agreements between the relevant parties pursuant
to which the nomination is to be made, such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the nominees of such shareholder, and the consent of each nominee to serve as
a director of Reorganized PMI, if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
these requirements.
DIRECTOR COMPENSATION
Commencing on the Effective Date, each non-employee director of
Reorganized PMI shall be paid an annual base retainer fee of $______.
Non-employee Directors will also be paid $___ for each meeting of the Board of
Directors attended and $__ for any committee meeting of the Board of Directors
attended.
All directors shall also be entitled to participate in the Equity
Incentive Plan. See - Reorganized PMI - Employee Benefit Matters-- New Benefit
Programs and Agreements.
EMPLOYEE BENEFIT MATTERS
EXISTING BENEFIT PLANS AND AGREEMENTS
On the Petition Date, the employees of the Debtors are participating in
various retirement and welfare plans, which are sponsored and administered by
Koch Industries. As soon as practicable after the Petition Date (with a target
completion date of January 1, 2000), the Debtors expect to cease participating
in all of the Koch Industries benefit plans and expect to adopt new stand-alone
plans, which will be sponsored and administered by Reorganized PMI. The
following discussion summarizes the principal terms of the current benefits
plans and programs and the expected changes which will occur on January 1, 2000.
With certain limited exceptions, Reorganized PMI expects to provide
substantially similar benefit plans to those in existence on the Petition Date.
See "Reorganized PMI -- Employee Benefit Matters -- New Benefit Programs and
Agreements; Continuation of Existing Plans" for a description of (a) new benefit
plans that will be adopted and (b) existing benefit plans that will be
terminated, in each case as of or following the Effective Date.
Savings Plans. The Debtors' employees currently are eligible to make
before-tax and after-tax contributions to a 401(k) plan sponsored by Koch
Industries. The Debtors' employees receive matching contributions (up to 3% of
pay) on these contributions. Debtors reimburse Koch Industries for the matching
contributions. Employees who were employed by PMI prior to the 1998 Merger also
maintain vested account balances under another qualified defined contribution
plan, which is sponsored by Koch Industries. No additional contributions are
being made to this plan. However, the account balances continue to be credited
with earnings and losses based on selected plan investments.
Debtors expect to cease participating in these plans on December 31,
1999 and to establish a new 401(k) and profit sharing plan under which its
employees will be eligible to make before-tax and after-tax contributions.
Debtors will make matching contributions to the new plan. In addition, the
Debtors, in their discretion, may make profit sharing contributions to the new
plan in order to make up for the loss of the Koch Industries pension benefits.
The new plan will accept transfers of assets and liabilities from the Koch
Industries savings plans.
43
<PAGE> 51
Pension Plans. The Debtor's non-union employees currently participate
in a qualified defined benefit pension plan sponsored by Koch Industries. The
plan provides benefits based on a formula that takes into account service and
final average pay. Debtors reimburse Koch Industries for the cost of these
benefits. Debtors expect to cease participating in this plan on December 31,
1999.
Certain executives whose benefits under the qualified pension plan are
limited due to Internal Revenue Code limitations also participate in
non-qualified supplemental retirement plan sponsored by Koch Industries. These
benefits are paid from the general assets of Koch Industries. Debtors reimburse
Koch Industries for these payments. Debtors expect to cease participating in
this plan on December 31, 1999.
Certain union employees of Debtors participate in a defined benefit
pension plan that is sponsored by PMI. Benefits under this plan are based on a
formula that takes into account service and final average pay. PMI will continue
this plan effective January 1, 2000.
Finally, other union employees of Debtors participate in a
multi-employer pension plan. Koch Industries makes contributions to this plan on
behalf of the covered employees. PMI reimburses Koch Industries for these
contributions. PMI will begin making these contributions directly to the
multi-employer pension plan on January 1, 2000.
Frozen Non-Qualified Retirement Plans. Certain executives of PMI are
entitled to receive benefits under a frozen, non-qualified supplemental defined
benefit pension plan and a frozen, non-qualified supplemental deferred
compensation plan, each of which is sponsored by PMI. Koch Industries makes
these benefit payments from its general assets and is reimbursed by PMI. The
projected benefit obligation under the supplemental defined benefit plan as of
December 31, 1998 was $3.2 million. The amount owed to current and former
employees under the supplemental deferred compensation plan as of August 31,
1998 was $0.3 million. Debtors are considering their options with respect to the
continuation, amendment or termination of these plans.
CAP Plan. Prior to 1994, certain executives of the Debtors made
deferrals under the CAP Plan. Executives who made such deferrals are entitled to
receive retirement and death benefits under the CAP Plan. Benefits under the CAP
Plan are currently paid by Koch Industries. PMI reimburses Koch Industries for
the cost of these benefits. As of December 31, 1998, the projected benefit
obligation under the CAP Plan was $22.3 million. As of September 1999, the
present value of all future benefit obligations under the CAP Plan was
calculated as ranging from $19.7 million to $23.2 million (depending on the
interest rate and retirement age used in the calculations). As of September
1999, the annual benefit payments under the CAP Plan amounted to $1.0 million.
To assist PMI in meeting its obligations under the CAP Plan, PMI
purchased corporate-owned life insurance (COLI) on the lives of CAP Plan
participants. PMI pays the annual premiums on these policies in the amount of
$1.2 million. The COLI policies are held in an irrevocable grantor trust. Under
the terms of the trust, the trust assets are required to be held by the trustee
for the benefit of PMI's creditors in the event of PMI's insolvency. The gross
cash surrender value of the COLI policies as of September 1999 was approximately
$14 million.
In connection with the 1998 Merger, PMI believes that Koch Agriculture
agreed to maintain such Plan following the Merger and to pay the premiums on the
COLI policies. Debtors are considering their options with respect to the
continuation, amendment or termination of the CAP Plan, as well as analyzing the
merits of a claim against Koch Agriculture for the CAP Plan benefits. See
"Certain Recovery Actions -- Other Potential Claims."
Health and Welfare Benefits. The Debtors' employees currently
participate in health and welfare plans sponsored by Koch Industries. The
Debtors reimburse Koch Industries for the cost of these benefits. The Debtors
expect to cease participating in these plans on December 31, 1999 and to
establish similar stand-alone plans effective January 1, 2000.
In addition, PMI sponsors a "voluntary welfare benefits administration"
("VEBA") trust which is used to pay the claims under a self-insured medical plan
which was terminated effective May 31, 1998. As of September 1999, the VEBA
trust contained assets of approximately $760,000. PMI is exploring all options
with respect to the VEBA trust and reserves the right to continue, amend or
terminate the trust.
Key Employee Retention Program. PMI adopted the KERP in September 1999.
The KERP was designed to attract, retain and provide incentives to directors and
key employees during PMI's financial and business
44
<PAGE> 52
restructuring. The KERP will continue to be critical to the ability of
Reorganized PMI to attract and retain key employees following the Effective
Date. The Debtors intend to File a motion with the Bankruptcy Court seeking an
order authorizing the continuation of the KERP. The KERP includes four principle
components:
(a) RETENTION/STAY BONUSES: The KERP authorizes the payment of
retention bonuses to 202 key employees. The amount of the
bonus is based on a percentage of base salary. Depending on
the classification of an employee, a specified percentage of
the retention bonus is earned on one, two or three specified
dates between the period from December 31, 1999 and December
31, 2000. Employees must be employed on these "earn-in" dates
(or be terminated without cause prior to such dates) in order
to receive payment of a retention bonus. Retention bonuses are
projected not to exceed $5.7 million in the aggregate.
(b) ANNUAL INCENTIVE PAYMENTS: KERP revised the financial
forecasts and targets PMI's annual incentive program for 1999.
256 employees are eligible for annual incentive payments in
1999. As revised, employees are eligible for target incentive
payments (based on a percentage of base salary) depending on
the attainment of specified revised company and individual
goals. These goals were modified to reflect the impact of
PMI's reorganization. Specifically, employees are eligible to
earn the individual component of the AIP whether or not PMI's
goals are met and PMI's target adjusted EBITDA was also
lowered for 1999. Debtors estimate that they likely will pay a
total of $3.6 million in annual incentive payments in 1999.
(c) EMERGENCE BONUS: Under KERP, certain key employees (47 in
total) are eligible to receive bonuses upon PMI's successful
reorganization. The bonus for each individual is based on a
percentage of base salary (150% of combined Debtor and Koch
Industries base salary for members of the Office of the CEO
and between 25% and 75% for other key employees). Debtors
estimate that they likely will pay a total of $2.5 million in
emergence bonuses.
(d) SPECIAL PROJECT BONUS: KERP retained PMI's Special Project
Bonus Program. Under this program, individuals are provided
bonuses for the timely, efficient and effective completion of
special projects. The Debtors estimate that they will pay a
total of $556,000 under the Special Project Bonus Program in
1999.
Severance Pay Plan. PMI adopted a formal Severance Pay Plan which
became effective November 1, 1999. The formal plan implemented PMI's current
unwritten severance pay policy. The Severance Pay Plan was designed to attract,
retain and provide incentives to employees during PMI's financial and business
restructuring. The Severance Pay Plan will continue to be critical to the
ability of Reorganized PMI to attract and retain employees following the
Effective Date. The Severance Pay Plan covers all employees of PMI and
Reorganized PMI. Under the plan, Reorganized PMI has the discretion to pay
severance benefits to employees who are involuntarily terminated without cause.
In general, severance pay will be paid in the amount of one weeks' pay for each
year of service, plus an additional $1,000. PMI and Reorganized PMI retain the
right to increase or decrease the amount of these payments. Debtors estimate
that they likely will pay a total of $2.6 million in severance pay for the
period from July 1 through December 31, 1999. The Directors intend to File a
motion with the Bankruptcy Court seeking an order authorizing the continuation
of the Severance Pay Plan.
Employment Agreements. PMI has entered into employment agreements with
22 executives. The executives will serve Reorganized PMI under their respective
agreements for an initial period of two years from September, 1999, with an
automatic yearly extension thereafter, unless the employer or the executive has
given written notice of termination not less than 90 days prior to the yearly
renewal date. The employment agreements set forth (a) the executive's
compensation and benefits, (b) the executive's obligations not to compete for
the term of the agreement plus one year (if the termination is not in connection
with a "triggering event") or two years (if the termination is in connection
with a triggering event) unless the executive terminated his employment for good
reason or the employer terminates the executive for cause and (c) the
executive's right to receive severance payments if the agreement is terminated.
For purposes of the agreement, a triggering event is a change in control or the
insolvency of PMI. The Debtors' chapter 11 Filings constitute a triggering event
under the agreement. If an executive is terminated by the employer without good
cause and not in connection with a triggering event, the executive will receive
a severance payment in the amount of his annual base salary. If an executive is
terminated by the employer without good cause or terminates employment for good
reason and, in either case, in connection with a triggering event, the executive
will receive a severance payment in the amount of one times or two times his
annual 45
<PAGE> 53
base salary (depending on the position of the executive) plus the amount of the
executive's annual incentive bonus for the year. However, severance payments
under the agreements will not exceed the limits contained in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
Finally, if an executive's employment is terminated in connection with a
triggering event and the executive becomes entitled to severance pay under the
agreement, the employer will either continue the executive's medical and dental
benefits or pay the executive for equivalent medical and dental coverage until
the earlier of (i) one year from the date of termination or (ii) the date such
coverage is replaced by new coverage obtained by the executive or his spouse.
The Debtors intend to file a motion with the Bankruptcy Court seeking an order
approving the assumption of these agreements.
The employment agreement with the Chief Financial Officer of PMI (which
was entered into on July 1, 1999) contains terms which are substantially similar
to those described above, except as follows: (a) the original term of the
agreement is for three years, (b) the executive agreed that he will not
voluntarily terminate his employment during the original term of the agreement
without good cause (or for certain other specified reasons), (c) the agreement
provides for specified bonus payments (which will be paid if the executive
remains employed, if he terminates employment for good cause or if he is
terminated without cause); (d) the executive may terminate his employment and
receive severance pay if there is a change in the make-up of PMI's current Board
of Directors initiated by Koch Industries; (e) in certain circumstances, the
amount of severance pay can be as much as three times annual base pay plus three
times the amount of the executive's annual bonus (but is still subject to the
Internal Revenue Code Section 280G limit); and (f) the non-compete provision
only applies for one year. The Debtors intend to file a motion with the
Bankruptcy Court seeking an order approving the assumption of this agreement.
In October 1999, PMI entered into employment agreements with Messrs.
Dumler, Durkin and Knudson in their capacity as members of the Office of the
Chief Executive Officer. The employment agreements provide that these executives
will receive an annual salary of $250,000 and will be eligible for the Annual
Incentive Payment and Emergence Bonus under the KERP. The agreements also set
forth the executive's right to receive severance pay in the amount of $350,000
if the executive's employment is terminated without cause and he is not offered
a comparable position with Koch Industries, or if he returns to employment with
Koch Industries and his employment is terminated within two years thereafter.
The Debtors intend to File a motion with the Bankruptcy Court seeking
an order authorizing the assumption of all of the employment agreements.
Shadow Stock Plan. Certain key employees of Debtors participate in a
shadow stock plan sponsored by Koch Industries. Employees are granted units of
shadow stock that vest over a five year period. The employees receive the value
of the vested units (based on the difference in the value of per share earnings
from the date of grant to the date of surrender) upon termination of employment
or a voluntary surrender of the vested units. PMI will terminate its
participation in the Koch Industries Shadow Stock Plan on December 31, 1999.
Koch Industries will pay the employees of PMI the value of their vested units in
accordance with the terms of the plan. As of September 1999, the estimated value
of these vested units was approximately $140,000.
NEW BENEFIT PROGRAMS; CONTINUATION OR TERMINATION OF EXISTING PLANS AND
AGREEMENTS
General. One of the key elements of Reorganized PMI' s Business Plan is
a compensation and benefit program designed to attract, retain and provide
incentives to directors, officers and key employees for Reorganized PMI and to
provide such persons appropriate incentives and rewards for superior
performance. Except as described below, Reorganized PMI expects to continue all
of the employee benefit plans described above.
CAP Plan and Frozen Non-Qualified Retirement Plans. Debtors are
considering their options with respect to these plans after the Effective Date.
In addition, the following new benefit plan will be implemented on the
Effective Date:
Equity Incentive Plan. As of the Effective Date, Reorganized PMI will
implement an Equity Incentive Plan to attract, retain and motivate key employees
following the Effective Date. The Equity Incentive Plan will in many respects
replace certain elements of the KERP as Reorganized PMI's long-term incentive
and retention arrangement. (Other elements of the KERP, such as the Annual
Incentive Program and the Special Project Bonus are likely to continue after the
Effective Date.) Reorganized PMI's Board of Directors (or a committee thereof)
will determine the awards to be granted under the Equity Incentive Plan. The
Equity Incentive Plan will provide for grants of stock
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options, restricted stock, deferred shares and other typical equity incentive
awards to the employees and members of the Board of Directors of Reorganized
PMI. A total of ______ shares of New Common Stock will be available for issuance
in satisfaction of awards under the Equity Incentive Plan of which awards in
respect of _____ shares will be made as of the Effective Date. Exhibit IV.C.3.a
to the Plan sets forth initial option awards to be made as of the Effective
Date.
CERTAIN CORPORATE GOVERNANCE MATTERS
In addition to the provisions relating to the Board of Directors
described above (see "Reorganized PMI -- Management -- Reorganized PMI Board of
Directors"), the Amended Certificate and Amended Bylaws will provide, in
general, that: (a) stockholder action can be taken at an annual or special
meeting of stockholders; (b) except as directed below, special meetings of
stockholders may be called for any proper purpose or purposes, including the
election of directors, by (i) the Chairman of the Board, (ii) the President,
(iii) a majority of the Board of Directors, (iv) any person or persons holding
at least 50% of all shares outstanding and entitled to vote at such meeting or
(v) holders of shares that are entitled to call a special meeting of the
stockholders by virtue of any Preferred Stock Designation for the purposes
provided in the terms of such Preferred Stock Designation; (c) written notice of
every meeting of the stockholders stating the time, place and purposes for which
the meeting is called must be given by or at the direction of the President, a
Vice President, the Secretary or an Assistant Secretary to each stockholder of
record; and (d) the Board of Directors may postpone, for up to thirty days, any
previously scheduled annual or special meeting of stockholders. The Amended
Bylaws will also require that stockholders desiring to bring any business before
any annual meeting of stockholders deliver written notice thereof to the
Secretary of Reorganized PMI not less than 60, nor more than 90 calendar days,
prior to the meeting of stockholders; provided, however, that if the date of the
annual meeting is not publicly announced by Reorganized PMI more than 105
calendar days prior to the meeting, notice by the stockholder to be timely must
be delivered to the Secretary of Reorganized PMI not later than the close of
business on the tenth day following the day on which such announcement of the
date of the annual meeting was so communicated. The Amended Bylaws will further
require that the notice by the stockholder set forth a description in reasonable
detail of the business to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting and certain information
concerning the stockholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made, including their names and addresses,
the class and number of shares of Reorganized PMI that are owned beneficially
and of record by each of them, and any material interest of either of them in
the business proposed to be brought before the annual meeting. Upon the written
request of the holders of not less than 50% of Reorganized PMI's voting stock to
the Chairman, the President or the Secretary, such officer will be required to
call an annual meeting of stockholders for the purposes specified in such
written request and fix a record date for the determination of stockholders
entitled to notice of and vote at such annual meeting (which record date may not
be later than 60 days after the date of receipt of notice of such meeting).
Under applicable provisions of Delaware law, stockholder approval is
required to adopt amendments to a company's certificate of incorporation, except
that a company's board of directors may adopt certain amendments relating to
unissued or treasury shares, changes in the number of authorized shares
necessitated by a conversion, option program, redemption or provisions that
were, at one time, necessary for a merger or consolidation. The Amended
Certificate and Amended Bylaws provide that the provisions relating to the time
and place of stockholder meetings, who may call a special meeting of
stockholders, the order of business at stockholder meetings, the number,
nomination, classification, election and term of directors on the Board of
Directors, allowing directors to fill vacancies on the Board of Directors, the
removal of directors by stockholders, the elimination of cumulative voting in
the election of directors, allowing the corporation to reacquire capital stock
of the corporation and forbidding preemptive rights with respect to unissued
shares and treasury stock may not be amended, altered, superseded or repealed in
any respect without the affirmative vote of the holders of at least 70% of the
voting stock of Reorganized PMI, voting together as a single class; provided,
however, that these provisions shall not alter the voting entitlement of shares
that, by virtue of any Preferred Stock Designation, are expressly entitled to
vote on any amendment to the Amended Certificate or Amended Bylaws.
In addition to the matters discussed above, the DGCL contains certain
provisions that may have the effect of delaying, deterring or preventing a
change in control of Reorganized PMI. All information set forth below regarding
the DGCL is necessarily general in nature and reference should be made to the
DGCL for more specific, detailed information.
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Section 203 of the DGCL (the "Business Combination Statute") requires
certain transactions to be reviewed by the corporation's board of directors and
will apply to Reorganized PMI. Under the Business Combination Statute, any
person who acquires 15% or more of a corporation's voting stock (thereby
becoming an "Interested Stockholder") is prohibited from engaging in a wide
range of transactions ("Business Combinations") with the corporation for a
period of three years following the date the person became an Interested
Stockholder, unless:
a. prior to the date the person became an Interested Stockholder,
the board of directors approved either the business
combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder;
b. upon consummation of the transaction that resulted in the
person becoming an Interested Stockholder, that person owned
at least 85% of the corporation's voting stock, excluding
certain shares owned by corporate insiders and shares issued
after the transaction commenced; or
c. the Business Combination is approved by the corporation's
board of directors and authorized by the affirmative vote of
holders of 66 2/3% of the outstanding voting stock that is not
owned by the Interested Stockholder.
The foregoing provisions of the Amended Certificate; the provisions of
the Amended Bylaws relating to advance notice of shareholder nominations; and
the provisions of the New Rights Agreement described under "Securities To Be
Issued Pursuant To The Plan -- Rights Agreement," together with applicable
Delaware state law, may discourage or make more difficult the acquisition of
control of Reorganized PMI by means of a tender offer, open market purchase,
proxy fight or otherwise. These provisions are intended to discourage, or may
have the effect of discouraging, certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control
of Reorganized PMI first to negotiate with Reorganized PMI. The management of
the Debtors believes that the foregoing measures, many of which are
substantially similar to the takeover-related measures in effect for many other
publicly-held companies, provide benefits, by enhancing Reorganized PMI's
potential ability to negotiate with the proponent of an unsolicited proposal to
acquire or restructure Reorganized PMI, which outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms. In addition, management
of the Debtors believes that such takeover-related measures aid in protecting
shareholders from takeover bids that the directors of such companies have
determined to be inadequate. While there necessarily can be no assurance in this
regard, the management of the Debtors also believes that the foregoing measures
are not likely to have a material impact on market prices for New PMI Common
Stock in circumstances other than those described above in light of, among other
factors, the existence of generally comparable measures in effect for other
publicly-held companies and management's belief that market prices will be
influenced most significantly by Reorganized PMI's actual results of operations,
general market and economic conditions and other traditional determinants of
stock market prices rather than takeover-related measures and other corporate
governance provisions.
INDEMNITY ARRANGEMENTS
EXISTING INDEMNIFICATION OBLIGATIONS
Delaware law permits a corporation to indemnify current and former
directors, officers, employees and agents of the corporation and other persons
serving at the request of the corporation against expenses, judgments, fines and
amounts paid in settlement in connection with a legal proceeding. In order to be
indemnified, the person must have acted in good faith and in a manner the person
reasonably believed to be in, or not opposed to, the best interest of the
corporation. With respect to any criminal action or proceeding, the person must
not have had reasonable cause to believe the conduct was unlawful. Each
indemnification must be authorized by a majority of disinterested directors or
by the stockholders. Unless a court determines that a person is fairly and
reasonably entitled to indemnification, however, a person may not be indemnified
with respect to any claim resulting in the person being adjudged liable to the
corporation.
Delaware law requires a present or former director or officer of a
corporation to be indemnified against certain expenses if the person has been
successful, on the merits or otherwise, in defense of any proceeding or in
defense of any issue therein. In addition, Delaware law permits the advancement
of expenses relating to the defense of any proceeding to directors, officers,
other employees and agents, contingent upon the person's commitment to repay
advances for expenses against which the person is not ultimately entitled to be
indemnified.
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Delaware law provides that the indemnification provisions contained in
Delaware law are not exclusive of any other right that a person seeking
indemnification may have or later acquire under any provision of the
corporation's bylaws, by any agreement, by any vote of stockholders or
disinterested directors or otherwise. In addition, Delaware law provides that a
corporation may maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the corporation against any expense,
liability or loss. This insurance may provide benefits regardless of whether the
corporation has the power to indemnify under Delaware law.
PMI's existing bylaws provide for indemnification of its officers,
directors, employees and agents to the fullest extent permitted by Delaware law.
In October 1999, PMI entered into indemnification agreements with each
of its directors and certain executive officers. The indemnification agreements
provide for, among other things, (a) the indemnification of the indemnities by
PMI for conduct in the capacities described above, (b) the advancement of
attorneys' fees and other expenses and (c) the establishment, upon approval by
the Board of Directors at its option, of trusts or other funding mechanisms to
fund PMI's indemnification obligations thereunder.
TREATMENT OF EXISTING INDEMNIFICATION OBLIGATIONS UNDER THE PLAN
The obligations of each Debtor or Reorganized Debtor to indemnify any
person serving as one of its directors, officers or employees as of or following
the Petition Date, by reason of such person's prior or future service in such a
capacity, or as a director, officer, or employee of another corporation,
partnership or other legal entity (other than the Koch Entities) to the extent
provided in the applicable certificate of incorporation, bylaws, or similar
constituent documents or by statutory law or written agreement of or with such
Debtor, will be deemed and treated as executory contracts that are assumed by
the applicable Debtor or Reorganized Debtor pursuant to the Plan and section 365
of the Bankruptcy Code as of the Effective Date. Accordingly, such
indemnification obligations will survive and be unaffected by entry of the
Confirmation Order, irrespective of whether such indemnification is owed for an
act or event occurring before or after the Petition Date. The obligations of
each Debtor or Reorganized Debtor to indemnify any person who, as of the
Petition Date, was no longer serving as a director or officer of such Debtor,
which indemnity obligation arose by reason of such person's prior service in any
such capacity, or as a director, officer or employee of another corporation,
partnership or other legal entity, whether provided in the applicable articles
of incorporation, code of regulations or similar constituent documents or by
statutory law, written agreement, policies or procedures of, or with such
Debtor, will terminate and be discharged pursuant to section 502(e) of the
Bankruptcy Code or otherwise, as of the Effective Date; provided, however, that,
to the extent that such indemnification obligations no longer give rise to
contingent Claims that can be disallowed pursuant to section 502(e) of the
Bankruptcy Code, such indemnification obligations will be deemed and treated as
executory contracts that are rejected by the applicable Debtor pursuant to the
Plan and section 365 of the Bankruptcy Code, as of the Effective Date, and any
Claims arising from such indemnification obligations (including any rejection
damage claims) will be subject to the bar date provisions of the Plan. The
obligations of each Debtor or Reorganized Debtor to indemnify any person serving
as one of its directors, officers or employees as of or following the Petition
Date, by reason of such person's prior or future service as a director, officer
or employee of any of the Koch Entities will be treated as provided in the
preceding sentence.
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NEW INDEMNIFICATION ARRANGEMENTS
The Amended By-laws provide for the indemnification of any present or
former director, officer, other employee or agent of Reorganized PMI against
certain expenses related to any proceeding or defense of any issue therein to
the fullest extent permitted or required by Delaware law. In addition, the
Amended By-laws provide for the advancement of expenses relating to the defense
of any proceeding to directors, officers, other employees and agents, contingent
upon the person's commitment to repay all advances against which the person is
not ultimately entitled to be indemnified.
If a claim for indemnification is not paid in full by Reorganized PMI
within 60 calendar days after a written claim has been received by Reorganized
PMI, except in the case of a claim for an advancement of expenses, in which case
the applicable period shall be 20 days, the director, officer, other employee or
agent seeking indemnification may, at any time thereafter, bring suit against
Reorganized PMI to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit by Reorganized PMI to recover an
advancement of expenses, the director, officer, other employee or agent shall be
entitled to be paid also the expense of prosecuting or defending such suit.
The Amended By-laws provide that Reorganized PMI may maintain
insurance, at its expense, to protect itself and any director, officer, other
employee or agent of Reorganized PMI or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not Reorganized PMI would have the power to indemnify such person
against such expense, liability or loss under Delaware law.
Reorganized PMI will enter into indemnification agreements, effective
as of the Effective Date, with each of its directors and officers and each of
the directors and officers of the Reorganized PMI Subsidiary Debtors who are not
parties to the existing indemnification agreements entered into in October 1999
and described above. The indemnification agreements will provide for, among
other things, (a) the indemnification of the indemnities by Reorganized PMI for
conduct in the capacities described above, (b) the advancement of attorneys'
fees and other expenses and (c) the establishment, upon approval by the Board of
Directors at its option, of trusts or other funding mechanisms to fund
Reorganized PMI's indemnification obligations thereunder.
SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
REORGANIZATION VALUE
The Debtors have been advised by Houlihan Lokey Howard & Zukin
("Houlihan Lokey") with respect to the reorganization equity value of the
Reorganized Debtors. The reorganization equity value, which includes the
Debtors' operating businesses, the expected present value of certain
non-operating assets and the estimated debt balances at and beyond the Effective
Date, was estimated by Houlihan Lokey to be approximately $125 million as of an
assumed Effective Date of January 31, 2000. The foregoing reorganization equity
value (ascribed as of the date of this Disclosure Statement) reflects, among
other factors discussed below, current financial market conditions and the
inherent uncertainty today as to the achievement of the Projections. The
estimated reorganization equity value set forth herein does not reflect the
potential impact of any proposed settlement with Koch Industries. See
"Operations During the Reorganization Cases -- Prepetition Restructuring
Negotiations" and "Certain Recovery Actions." Any proceeds received in
connection with any such litigation or settlement would be expected to increase
reorganization equity value to the extent of such amount received. In addition,
the reorganization equity value reflects the assumption by Reorganized PMI of
all obligations under the CAP Plan.
Based on the assumed reorganization equity value set forth above, the
value of the 10,000,000 shares of New Common Stock to be issued to the holders
of Allowed PMI Unsecured Claims in Class 5 under the Plan is estimated to be
approximately $12.50 per share. The foregoing valuations also reflect a number
of assumptions, including a successful reorganization of the Debtors' businesses
and finances in a timely manner, the forecasts reflected in the Projections, the
utilization of projected operating losses to offset certain one-time gains, the
amount of available cash, market conditions and the Plan becoming effective in
accordance with its terms on a basis consistent with the estimates and other
assumptions discussed herein.
In preparing the estimated reorganization equity value, Houlihan Lokey:
(a) reviewed certain historical financial information of the Debtors for recent
years and interim periods; (b) reviewed certain internal financial and
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operating data of the Debtors and assisted in developing financial projections
relating to its businesses and prospects; (c) met with certain members of senior
management of the Debtors to discuss the Debtors' operations and future
prospects; (d) reviewed publicly available financial data and considered the
market values of public companies that Houlihan Lokey deemed generally
comparable to the operating businesses of the Debtors; (e) reviewed the
financial terms, to the extent publicly available, of certain acquisitions of
companies that Houlihan Lokey believes were comparable to the operating
businesses of the Debtors; (f) considered certain economic and industry
information relevant to the Debtors' operating business; (g) visited certain of
the Debtors' facilities and dealers; and (h) reviewed certain analyses prepared
by other firms retained by the Debtors and conducted such other analyses as
Houlihan Lokey deemed appropriate. Although Houlihan Lokey conducted a review
and analysis of the Debtors' businesses, operating assets and liabilities and
business plans, Houlihan Lokey assumed and relied on the accuracy and
completeness of all: (a) financial and other information furnished to it by the
Debtors and by other firms retained by the Debtors and (b) publicly available
information. In addition, Houlihan Lokey did not independently verify the
assumptions underlying the Projections in connection with such valuation. No
independent evaluations or appraisals of the Debtors' assets were sought or were
obtained in connection therewith.
Estimates of reorganization equity value do not purport to be
appraisals, nor do they necessarily reflect the values that might be realized if
assets were to be sold. The estimates of reorganization equity value prepared by
Houlihan Lokey assumes that the Reorganized Debtors continue as the owner and
operator of their businesses and assets. Such estimates were developed solely
for purposes of formulation and negotiation of a plan of reorganization and
analysis of implied relative recoveries to creditors thereunder. Such estimates
reflect computations of the estimated reorganization equity value of the
Reorganized Debtors through the application of various valuation techniques and
do not purport to reflect or constitute appraisals, liquidation values or
estimates of the actual market value that may be realized through the sale of
any securities to be issued pursuant to the Plan, which may be significantly
different from the amounts set forth herein. The value of an operating business
is subject to uncertainties and contingencies that are difficult to predict and
will fluctuate with changes in factors affecting the financial conditions and
prospects of such a business. As a result, the estimate of reorganization equity
value set forth herein is not necessarily indicative of actual outcomes, which
may be significantly more or less favorable than those set forth herein. Because
such estimates are inherently subject to uncertainties, neither the Debtors,
Houlihan Lokey, nor any other person assumes responsibility for their accuracy.
Depending on the results of the Debtors' operations or changes in the financial
markets, Houlihan Lokey's valuation advice as of the Effective Date may differ
from that disclosed herein.
In addition, the valuation of newly-issued securities is subject to
additional uncertainties and contingencies, all of which are difficult to
predict. Actual market prices of such securities at issuance will depend upon,
among other things, prevailing interest rates, conditions in the financial
markets, the anticipated initial securities holding of prepetition creditors,
some of which may prefer to liquidate their investment rather than hold it on a
long-term basis and other factors that generally influence the prices of
securities. Actual market prices of such securities may also be affected by the
Debtors' history in chapter 11 or by other factors not possible to predict.
Accordingly, the reorganization equity value estimated by Houlihan Lokey does
not necessarily reflect, and should not be construed as reflecting, values that
will be attained in the public or private markets. The equity value ascribed in
the analysis does not purport to be an estimate of the post-reorganization
market trading value. Such trading value may be materially different from the
reorganization equity value ranges associated with Houlihan Lokey valuation
analysis. Indeed, there can be no assurance that a trading market will develop
for the New Common Stock.
Furthermore, in the event that the actual distributions to Claim
holders in Class 5 differ from those assumed by the Debtors in their recovery
analysis, the actual recoveries realized by holders of Claims in that Class
could be significantly higher or lower than estimated by the Debtors.
NEW COMMON STOCK
As of the Effective Date, Reorganized PMI shall be authorized to issue
50,000,000 million shares, par value $.01, of New Common Stock, 10,000,000
shares of which will be distributed to holders of Allowed General Unsecured
Claims in Class 5, and ___ shares of which are subject to initial option awards
granted pursuant to the Equity Incentive Plan on the Effective Date.
The holders of New Common Stock will be entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. See
"Distributions Under The Plan -- Disputed Claims; Reserve and Estimations" and
Section VI.E.2.a.ii of the Plan for provisions regarding voting of New Common
Stock held in the
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Unsecured Claims Reserve. Holders of New Common Stock will be entitled to
receive ratably such dividends as may be declared by Reorganized PMI's Board of
Directors out of funds legally available for payment of dividends. However,
Reorganized PMI does not presently anticipate that dividends will be paid on New
Common Stock in the foreseeable future. See "Risk Factors - Dividend Policies;
Restrictions on Payment of Dividends." In the event of a liquidation,
dissolution or winding up of Reorganized PMI, holders of New Common Stock will
be entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any preferred stock of Reorganized
PMI. Holders of New Common Stock will have no preemptive, subscription,
redemption or conversions rights.
All of the outstanding shares of New Common Stock to be issued pursuant
to the Plan will, upon such issuance, be fully paid and nonassessable. Subject
to the terms and conditions set forth in Reorganized PMI's Rights Agreement,
each share of New Common Stock issued pursuant To The Plan will be accompanied
by a New Share Purchase Right. See "Securities to be Issued Pursuant To The Plan
- -- Rights Agreement" below. It is a condition to the Effective Date that the New
Common Stock be authorized for listing on a National Securities Exchange. See
"Overview Of The Plan -- Conditions to Confirmation and Effective Date Of The
Plan -- Conditions to Effective Date."
NEW PREFERRED STOCK
GENERAL
As of the Effective Date of the Plan, Reorganized PMI shall be
authorized to issue ___ million shares of New Preferred Stock, par value $0.01.
The Board of Directors shall have the authority to issue preferred stock from
time to time in one or more classes or series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, terms or redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by Reorganized
PMI's shareholders. The New Preferred Stock may be issued in distinctly
designated series, may be convertible into New Common Stock and may rank prior
to the New Common Stock as to dividend rights, liquidation preferences or both.
The express terms of shares of a different series of any particular class of
preferred stock shall be identical except for such variations as may be
permitted by law. Without limiting the foregoing, Reorganized PMI is authorized
to issue three initial classes of New Preferred Stock that will be designated
New Class A Preferred Stock, New Class B Preferred Stock and New Class C
Preferred Stock with voting rights as set forth below.
NEW CLASS A PREFERRED STOCK
Each holder of New Class A Preferred Stock shall be entitled to 100
votes per share and, except as otherwise required by law, shall vote together
with the New PMI Common Stock as a single class on all matters properly
submitted to a vote at a meeting of the shareholders.
NEW CLASS B PREFERRED STOCK
Each holder of New Class B Preferred Stock shall be entitled to one
vote per share and, except as otherwise required by law, shall vote together
with the New PMI Common Stock as a single class on all matters properly
submitted to a vote at a meeting of shareholders.
NEW CLASS C PREFERRED STOCK
Holders of New Class C Preferred Stock shall have no voting rights.
FUTURE ISSUANCES OF STOCK
In addition to the New Common Stock to be issued pursuant to the Plan,
Reorganized PMI will be authorized to issue additional shares of capital stock
from time to time following the Effective Date to the extent permitted under the
Amended Certificate, the Amended Bylaws, the Plan and applicable law.
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RIGHTS AGREEMENT
As of the Effective Date, Reorganized PMI will enter into a Rights
Agreement (the "Rights Agreement") with a "Rights Agent," which agreement will
be approved by the Bankruptcy Court pursuant to the Confirmation Order. See
"Reorganized PMI -- Certain Corporate Governance Matters." Under the Rights
Agreement, the Board of Directors will declare a dividend on the New Common
Stock of one right (a "Right") to purchase one one-hundredth of a share of
Series A Preferred Stock (the "Preferred Shares") of Reorganized PMI at a price
per one one-hundredth of a Preferred Share, subject to adjustment (the "Purchase
Price"), which will be approved by the Bankruptcy Court pursuant to the
Confirmation Order. Under the Rights Agreement, the Rights will be evidenced by
the New Common Stock share certificates until the earlier (the "Distribution
Date") of: (a) the close of business on the first date (the "Share Acquisition
Date") of public announcement that a person (other than a person that has
maintained beneficial ownership of at least 20% of the outstanding shares of New
Common Stock since the Effective Date, Reorganized PMI, a subsidiary or employee
benefit or stock ownership plan of Reorganized PMI or any of its affiliates or
associates), together with its affiliates and associates, has acquired
beneficial ownership of 20% or more of the outstanding shares of New Common
Stock (any such person or group being hereinafter called an "Acquiring Person")
or (b) the close of business on the tenth business day (or such later date as
may be specified by the Board of Directors) following the commencement of a
tender offer or exchange offer by any person (other than Reorganized PMI, a
subsidiary, or employee benefit or stock ownership plan of Reorganized PMI, or
any of its affiliates or associates), the consummation of which would result in
beneficial ownership by such person of 20% or more of the outstanding shares of
New Common Stock.
Rights will be exercisable to purchase Preferred Shares only after the
Distribution Date occurs and prior to the occurrence of a Flip-in Event, as
described below. A Distribution Date resulting from the commencement of a tender
offer or exchange offer described in clause (b) above could precede the
occurrence of a Flip-in Event and thus result in the Rights being exercisable to
purchase Preferred Shares. A Distribution Date resulting from any occurrence
described in clause (a) above would necessarily follow the occurrence of a
Flip-in Event and thus result in the Rights being exercisable to purchase New
Common Stock or other securities as described below.
Under the Rights Agreement, in the event (a "Flip-in Event") that (a)
any person or group, together with its affiliates and associates, becomes an
Acquiring Person, (b) any Acquiring Person or any affiliate or associate thereof
merges into or combines with Reorganized PMI and Reorganized PMI is the
surviving corporation, (c) any Acquiring Person or any affiliate or associate
thereof effects certain other transactions with Reorganized PMI or (d) during
such time as there is an Acquiring Person, Reorganized PMI effects certain
transactions, in each case as described in the Rights Agreement, then, in each
such case, proper provision will be made so that from and after the later of the
Distribution Date and the date of the occurrence of such Flip-in Event each
holder of a Right, other than Rights that are or were owned beneficially by an
Acquiring Person (which, from and after the date of a Flip-in Event, will be
void), will have the right to receive, upon exercise thereof at the then-current
exercise price of the Right, that number of shares of New Common Stock (or,
under certain circumstances, an economically equivalent security or securities
of the Reorganized PMI) that at the time of such Flip-in Event have a market
value of two times the exercise price of the Right.
In the event (a "Flip-over Event") that, at any time after a person has
become an Acquiring Person, (a) Reorganized PMI merges with or into any person
and Reorganized PMI is not the surviving corporation, (b) any person merges with
or into Reorganized PMI and Reorganized PMI is the surviving corporation, but
all or part of the New Common Stock is changed or exchanged for stock or other
securities of any other person or cash or any other property or (c) 50% or more
of Reorganized PMI's assets or earning power, including securities creating
obligations of Reorganized PMI, are sold, in each case as described in the
Rights Agreement, then, and in each such case, proper provision will be made so
that each holder of a Right, other than Rights which have become void, will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common stock
(or, under certain circumstances, an economically equivalent security or
securities) of such other person that at the time of such Flip-over Event have a
market value of two times the exercise price of the Right.
From and after the later of the Share Acquisition Date and the
Distribution Date, Rights (other than any Rights that have become void) will be
exercisable to purchase shares of New Common Stock as described above, upon
payment of the aggregate exercise price in cash. In addition, at any time after
the later of the Share Acquisition Date and the Distribution Date and prior to
the acquisition by any person or group of affiliated or associated persons of
50% or more of the outstanding shares of New Common Stock, Reorganized PMI may
exchange the Rights (other
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than any rights that have become void), in whole or in part, at an exchange
ratio of one share of New Common Stock per Right (subject to adjustment).
For all purposes of the Rights Agreement, any person that, as of the
Effective Date, has beneficial ownership of 20% or more of the then-outstanding
shares of New Common Stock, or that becomes the beneficial owner of 20% or more
of the then-outstanding shares of New PMI Common Stock solely as a result of a
reduction in the number of shares of New Common Stock outstanding, will not be
deemed to have become an Acquiring Person unless and until such time as (a) such
person, or any affiliate or associate of such person, thereafter becomes the
beneficial owner of additional shares of New Common Stock representing 1% or
more of the then-outstanding New PMI Common Stock or (b) any other person that
is the beneficial owner of shares of New Common Stock representing 1% or more of
the then-outstanding New PMI Common Stock thereafter becomes an affiliate or
associate of such person.
Reorganized PMI may, at its option, redeem the Rights in whole, but not
in part, at a price of $.01 per Right, subject to adjustment (the "Redemption
Price"), at any time prior to the close of business on the date of the first
occurrence of a Flip-in Event or Flip-over Event. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
The Rights Agreement may be amended by Reorganized PMI without the
approval of any holders of Right certificates, including amendments that
increase or decrease the Purchase Price, that add other events requiring
adjustment to the Purchase Price payable and the number of the Preferred Shares
or other securities issuable upon the exercise of the Rights or that modify
procedures relating to the redemption of the Rights, except that no amendment
may be made that decreases the stated Redemption Price to an amount less than
$.01 per Right. The Rights Agreement will expire on (a) the first anniversary of
the Effective Date or (b) such later date as the Board of Directors, by
resolution adopted prior to the first anniversary of the Effective Date, may
establish, but not later than the tenth anniversary of the Effective Date. In
accordance with the foregoing, the Board of Directors (i) will have the right to
reconsider any of the terms of the Rights Agreement at any time and (ii) may
take such action with respect to the Rights Agreement as the Board of Directors
deems appropriate.
NEW PREPETITION CREDIT FACILITY NOTES
Under the Plan, on the Effective Date, holders of Allowed Bank Loan
Claims will receive New Tranche A Notes, New Tranche B Notes, New Revolving
Notes or New Swap Claim Notes in satisfaction of their respective Claims under
the Prepetition Credit Facility. These Notes will be on substantially the same
economic terms as provided under the Prepetition Credit Facility, with certain
modifications to the current financial covenants. As more fully described on
Exhibit III.C.2 to the Plan, such Notes will be secured, together with the
borrowings under the Exit Financing Facility, by a lien on substantially all of
the assets of the Debtors and certain other subsidiaries of Reorganized PMI. The
principal amount of such Notes will equal the Allowed Claims of such holders
including any accrued and unpaid interest thereon as of the Effective Date. The
interest rates, amortization schedule and other terms of such Notes will be as
set forth on Exhibit III.C.2.
RISK FACTORS
The New Common Stock to be issued pursuant to the Plan is subject to a
number of material risks, including those enumerated below. The risk factors
enumerated below assume Confirmation and the consummation of the Plan and the
transactions contemplated by the Plan and do not include matters that could
prevent Confirmation. See "Overview Of The Plan -- Summary of Classes and
Treatment of Claims and Interests," "-- Conditions to Confirmation and Effective
Date of the Plan," and "Voting And Confirmation Of The Plan" for discussions of
such matters. Prior to voting on the Plan, each holder of Claims should
carefully consider the risk factors enumerated or referred to below as well as
all of the information contained in this Disclosure Statement, including the
exhibits hereto.
PROJECTIONS
The fundamental premise of the Plan is the successful implementation of
the Debtors' Business Plan, as reflected in the financial projections included
in this Disclosure Statement. Such projections are inherently uncertain and are
dependent upon the successful implementation of the Debtors' Business Plan and
the reliability of the other
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assumptions contained therein. These projections reflect numerous assumptions,
including Confirmation and consummation of the Plan in accordance with its
terms, the anticipated future performance of the Reorganized Debtors, industry
performance, general business and economic conditions and other matters, most of
which are beyond the control of the Reorganized Debtors and some of which may
not materialize. In addition, unanticipated events and circumstances occurring
subsequent to the preparation of the Projections may affect the actual financial
results of the Reorganized Debtors. Therefore, the actual results achieved
throughout the periods covered by the Projections will vary from the projected
results. These variations may be material and adverse. See "Reorganized PMI --
Projected Financial Information."
COMPETITIVE INDUSTRY CONDITIONS
The commercial feed industry is highly competitive, and there has been
substantial excess capacity in the industry for over 10 years. The excess
capacity in the industry has led to pressure on margins, particularly when the
end-product prices of animal producers and processors decline. PMI regularly
reevaluates its manufacturing facilities in light of changes in market
conditions and may incur restructuring charges if it needs to rationalize and
consolidate its manufacturing capacity further in light of changes in industry
demand.
Both the feed production and animal production industries are
consolidating, and this trend is expected to continue. To date, PMI has been
successful at generating business directly from several large producers of
animals. However, as producers of animals increase in size, they historically
have tended to integrate their business by acquiring or constructing their own
feed production facilities to meet some or all of their requirements and,
consequently, have relied less on outside suppliers of feed. As the
consolidation of animal producers continues, the available market for commercial
feeds may shrink if producers integrate their operations, which could lead to
increased competition among feed producers.
Most of PMI's competitors compete principally on the basis of price.
Certain animal producers purchase feed on that basis without regard to the
performance qualities of the products. Although many of PMI's products tend to
be priced higher than alternative feed for the same animal species, PMI believes
that its products are cost-effective to use. In addition, the competition in the
industry may limit PMI's ability to pass ingredient price increases on to its
customers; however, management believes that PMI's knowledge of the nutritional
value of ingredients and its sophisticated least-cost formulation system enable
PMI to provide products that meet its nutritional standards and maintain product
quality while minimizing costs.
The competition in the industry also has led PMI and some of its
competitors to develop various market price risk arrangements to promote sales.
In some areas of the United States, feed companies have increased the use of
contracting for livestock production to generate and control feed volume.
Although PMI does not enter into these arrangements as a primary strategy, it
enters into limited scale joint ventures for animal production and marketing
arrangements with animal producers, which do expose PMI to limited risks
associated with the prices of those end products. In addition, historically PMI
has offered various financing programs to its dealers and direct customers. As
of August 31, 1999, PMI's promissory notes from and guaranties for the benefit
of its customers totaled approximately $5.6 million. There can be no assurance
that Reorganized PMI will not be required to increase its use of these or
similar arrangements in response to competitive pressures or that losses from
these arrangements will not be material.
FLUCTUATIONS IN COMMODITY PRICES
Fluctuations in the prices of the various agricultural commodities used
to produce the Debtors' products and in the prices received by the Debtors'
customers in the livestock production business affect the demand for the
Debtors' products. Historically, when the price of grains is relatively high,
more of the Debtors' customers purchase complete feed products and the Debtors'
feed sales are correspondingly higher. During periods when commodity prices are
relatively low, animal producers purchase the Debtors' products as concentrated
nutritional additives with which the customers mix their own commodity
ingredients. This results in decreased feed sales. Because the cost of feed
typically represents more than half of the cost of livestock production at the
farm level, higher ingredient prices over time could result in a decline in
livestock production and a decline in the demand for the Debtors' products. In
addition, when market prices for livestock and livestock products are low,
livestock producers cut back on production and search for lower-cost feed
alternatives. Severe and sustained increases in the prices of ingredients for
the Debtors' products or decreases in the market prices received by the Debtors'
customers in the livestock
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production industry could have a material adverse effect on the Debtors' ability
to execute its business strategy and implement the Business Plan.
INTEGRATION OF COMMODITY PURCHASING AND OTHER BUSINESS FUNCTIONS
The Debtor's management expects to achieve cost savings, operating
efficiencies, revenue enhancement and other synergies from integrating and
transitioning the commodity purchasing function previously performed for PMI by
Koch Agriculture's Nutrient Services Division into Reorganized PMI. Even if this
transition and integration is accomplished in an efficient manner, the process
will be costly and complex and will require substantial attention from the
Debtors' management. The diversion of the Debtors' management's attention and
any difficulties encountered in the transition and integration process could
have a material adverse effect on the revenues, levels of expenses and operating
results of the Debtors.
Since the 1998 Merger, PMI and its subsidiaries have contracted with
Koch Industries or its affiliates for a variety of corporate support services,
including the administration of employee benefits and payroll services,
technology services and insurance services. Subsequent to the expiration of the
Transition Services Agreement, the Debtors will provide these programs, benefits
and services. There can be no assurance that the transition to the Debtors of
responsibility for administering or providing these programs, benefits and
services subsequent to the expiration of the Transition Services Agreement will
be effected in a timely manner, or will be completed without disruption to the
Debtors' business or will not result in added costs to the Debtors.
BUSINESS STRATEGY RISKS
The Debtors' business strategy as embodied in the Business Plan
includes adapting their business to the trends of consolidation of production
and vertical integration that are reshaping the industries the Debtors serve.
The Debtors intend to implement this strategy in part by developing joint
ventures and strategic alliances. There can be no assurance that Reorganized PMI
will be successful in identifying appropriate joint venture or strategic
alliance partners or in consummating such transactions, or that any newly
acquired partners will be successfully integrated into Reorganized PMI's
business. There can also be no assurance that the Debtors' other business
strategies, such as broadening Reorganized PMI's distribution network through
the ACS initiative and building the Purina brand with lifestyle animal owners,
will result in the expected benefits or any benefits at all. See "Reorganized
PMI -- Business and Properties of Reorganized PMI -- Business Plan and Strategy
for Reorganized PMI."
SUBSTANTIAL LEVERAGE
After giving pro forma effect to the Confirmation of the Plan and an
initial borrowing under the Exit Financing Facility on the Effective Date, the
Debtors' long term debt is expected to be approximately $300 million. While the
Debtors believe that future operating cash flow, together with financing
arrangements, will be sufficient to finance operating requirements under its
Business Plan, the Debtors' leverage and debt service requirements could make it
more vulnerable to economic downturns in the agricultural markets the Debtors
serve or in the economy generally. The Debtors' indebtedness could restrict
their ability to obtain additional financing in the future and, because the
Debtors may be more leveraged than certain of their competitors, could place the
Debtors at a competitive disadvantage. In addition, the Exit Financing Facility,
as well as the New Prepetition Credit Facility Notes, has covenants that impose
operating and financial restrictions on the Debtors. These covenants could
adversely affect the Debtors' ability to finance future operations, potential
acquisitions or capital needs, or to engage in business activities that may be
in their interest, including implementing the Business Plan.
FEDERAL INCOME TAX
According to regulations issued by the Treasury Department, each
subsidiary that was a member of a consolidated group during any part of a
consolidated return year is severally liable for the consolidated federal income
tax liability of the entire group for that year, even if the subsidiary in
question had no taxable income on a stand-alone basis for that year. The
presence of a tax sharing agreement between corporations filing a consolidated
return does not affect any group member's liability to the Internal Revenue
Service (the "IRS") for unpaid federal income taxes owed by the group. As a
result, Reorganized PMI will in all likelihood remain severally liable for any
deficiencies arising out of consolidated federal income tax returns filed by
Koch Industries beginning in 1998 and ending the year that PMI leaves the Koch
Industries consolidated group pursuant to the Plan.
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TREATMENT OF CLAIMS
Since the Disclosure Statement has been prepared prior to any
applicable Bar Date for the Filing of Claims, the actual amount of Claims Filed
may differ significantly from the Debtors' estimates. Further, the amount of any
Disputed Claim that ultimately is allowed by the Bankruptcy Court may be
significantly more or less than the estimated amount of such Claim. The actual
ultimate aggregate amount of Allowed General Unsecured Claims in Class 5 may
differ significantly from the estimates set forth in this Disclosure Statement.
Accordingly, the amount of the Pro Rata distributions of New Common Stock that
ultimately will be received by a particular holder of an Allowed Claim in Class
5 may be adversely or favorably affected by the aggregate amount of Claims
ultimately allowed in such Class. Distributions of New Common Stock to holders
of Allowed Claims in Class 5 will be made on an incremental basis until all
Disputed Claims in such Class have been resolved. See "Distributions Under The
Plan -- Timing and Calculation of Amounts to be Distributed -- Distributions of
New Common Stock" and "-- Disputed Claims; Reserve and Estimations."
SEASONALITY
PMI's results of operations are seasonal, with a higher percentage of
its volume and earnings being generated during the fourth and first quarters of
the year. This seasonality is driven largely by weather conditions affecting
PMI's beef cattle products. If the weather is particularly warm during the
winter, then sales of feed for beef cattle may decrease as compared with normal
seasonal patterns because the cattle may be better able to graze under the
warmer conditions. Other product lines are affected marginally by seasonal
conditions, but these conditions do not materially affect PMI's overall
quarter-by-quarter results of operations.
CONSUMER TRENDS
The demand for PMI's primary products is influenced by the strength of
the animal production and processing industries. Although consumer health
concerns about meat, milk and eggs could adversely affect those industries, PMI
believes that it is well positioned to capitalize on the opportunity to meet
changing consumer demands. Through its research programs, PMI has successfully
developed products and programs that assist in the production of leaner,
healthier food products. There can be no assurance, however, that Reorganized
PMI will not be adversely affected by increasing consumer health concerns or
changes in consumer preferences.
YEAR 2000 COMPLIANCE
Many computer systems and software applications, including most of
those used by PMI, identify dates using only the last two digits of the year.
Without corrective action, programs with time-sensitive software could
potentially recognize a date ending in "00" as the year 1900 rather than the
year 2000, causing many computer applications to fail or create erroneous
results. Year 2000 problems could affect many of PMI's processes, including
production, distribution, research and development, financial and administration
operations.
PMI has reviewed its computer systems and hardware to locate potential
operational problems associated with the year 2000. PMI has implemented a
process to either replace or modify all of PMI's current computer systems and
software applications. New software has been configured and implemented at all
of PMI's feed mills and at PMI's corporate headquarters. PMI is also working
with its key suppliers, customers and financial institutions to obtain
assurances that their systems are year 2000 compliant.
PMI believes that all year 2000 problems in its computer systems have
been or will be resolved in a timely manner and have not caused and will not
cause disruption of its operations or have a material adverse impact on its
financial condition or results of operations. However, failure to correct a
material year 2000 problem could result in an interruption in, or failure of,
certain normal business activities or operations. Such failures could materially
and adversely impact PMI's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the year 2000 problem
resulting in part from the uncertainty of the year 2000 readiness of third-party
suppliers, customers and financial institutions, PMI is unable to determine at
this time whether the consequences of year 2000 failures will have a material
impact on PMI's results of operations, liquidity, or financial condition.
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REGULATORY COMPLIANCE
PMI's operations are subject to regulation by federal and state
agencies that administer laws governing health, safety and the protection of the
environment, including the U.S. Food and Drug Administration and the United
States Department of Agriculture. PMI believes the procedures currently in
effect at its facilities are consistent with industry practice and are in
general compliance with such laws and regulations; however, future violations of
such laws, the enactment of stricter laws or regulations or the implementation
of more aggressive enforcement policies could adversely affect Reorganized PMI's
operations or financial condition.
In particular, PMI is subject to federal, state and local environmental
laws and regulations involving the management and disposal of solid animal waste
material resulting from the production, processing and preparation of foods. PMI
cannot guarantee that it will not incur liability for the investigation and
remediation of spills and other releases of hazardous substances or that it will
not in the future incur significant costs in connection with compliance with
environmental laws and regulations at its facilities.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Amended Certificate and Amended Bylaws, as
well as Delaware statutes, may have the effect of delaying, deferring or
preventing a change in control of Reorganized PMI. Such provisions, including
those providing for the possible issuance of preferred stock, the nomination and
removal of directors, the 70% majority approval requirement for certain
transactions and the division of Reorganized PMI's Board of Directors into three
classes of directors, together with Reorganized PMI's adoption of the Rights
Agreement, may make it more difficult for other persons, without the approval of
Reorganized PMI's Board of Directors, to make a tender offer or acquisitions of
substantial amounts of the New Common Stock or to launch other takeover attempts
that a stockholder might consider to be in such stockholder's best interest.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of New Common Stock. See "Reorganized PMI --
Certain Corporate Governance Matters."
LACK OF ESTABLISHED MARKET FOR NEW COMMON STOCK; CERTAIN INVESTMENT LIMITATIONS;
POSSIBLE VOLATILITY
No established market exists for the New Common Stock. Although it is a
condition to the Effective Date that the New Common Stock be authorized for
listing on a National Securities Exchange (see "Securities To Be Issued Pursuant
To The Plan -- New Common Stock" and "Overview Of The Plan -- Conditions To
Confirmation And Effective Date Of The Plan -- Conditions To Effective Date"),
there can be no assurance, even if such authorizations or acceptances are
obtained, that an active market for such securities will develop, or, if any
such market does develop, that it will continue to exist, or as to the degree of
price volatility in any such market that does develop. Moreover, the New Common
Stock will be issued pursuant to the Plan to holders of prepetition Class 5
Claims, some of whom may prefer to liquidate their investment rather than to
hold it on a long-term basis. Accordingly, it is anticipated that the market for
the New Common Stock will be volatile, at least for an initial period after the
Effective Date. Moreover, while the Plan was developed based upon an assumed
reorganization value of $12.50 per share of the New Common Stock, such valuation
was not an estimate of the prices at which the New Common Stock may trade in the
market, and the Debtors have not attempted to make any such estimate in
connection with the development of the Plan. In addition, the market price of
the New Common Stock may be subject to significant fluctuations in response to
numerous factors, including variations in Reorganized PMI's annual or quarterly
financial results or those of its competitors, changes by financial analysts in
their estimates of the future earnings of Reorganized PMI, conditions in the
economy in general or in the animal nutrition industry in particular or
unfavorable publicity. The stock market has also, from time-to-time, experienced
significant price and volume fluctuations that have often been unrelated to the
operating performance of companies whose securities are publicly traded. See
"Securities To Be Issued Pursuant To The Plan -- Reorganization Value." No
assurance can be given as to the market prices that will prevail following the
Effective Date.
SECURITY INTERESTS
Substantially all cash, receivables, inventory and other assets of
Reorganized PMI and its subsidiaries will be subject to various liens and
security interests. See "Securities To Be Issued Pursuant To The Plan -- New
Prepetition Credit Facility Notes" and "Overview of the Plan -- Exit Financing
Facility." If a holder of a security interest becomes entitled to exercise its
rights as a secured party, it would have the right to foreclose upon and sell or
otherwise transfer the collateral subject to its security interest, and the
collateral would be correspondingly
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unavailable to Reorganized PMI or the subsidiary owning the collateral and to
other creditors of Reorganized PMI or such subsidiary, except to the extent, if
any, that such other creditors have a superior or equal security interest in the
affected collateral or the value of the affected collateral exceeds the amount
of indebtedness in respect of which such foreclosure rights are exercised.
DIVIDEND POLICIES; RESTRICTIONS ON PAYMENT OF DIVIDENDS
Reorganized PMI does not anticipate paying any dividends on the New
Common Stock in the foreseeable future. In addition, covenants in certain debt
instruments to which Reorganized PMI will be a party will restrict the ability
of Reorganized PMI to pay dividends and may prohibit the payment of dividends
and certain other payments. In particular, it is anticipated that the agreement
for the Exit Financing Facility will include a customary covenant prohibiting
Reorganized PMI from paying any dividends or making any other distributions to
shareholders. Certain institutional investors may only invest in dividend-paying
equity securities or may operate under other restrictions that may prohibit or
limit their ability to invest in the New Common Stock.
NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the consummation of the Plan and the transactions
contemplated thereby, Reorganized PMI will operate the existing business of PMI
under a new capital structure. In addition, Reorganized PMI will be subject to
the fresh start accounting rules. See "Reorganized PMI -- Restructuring
Transactions," "-- Business and Properties of Reorganized PMI" and "-- Projected
Financial Information." Accordingly, the financial condition and results of
operations of Reorganized PMI from and after the Effective Date will not be
comparable to the financial condition or results of operations reflected in the
historical financial statements of PMI contained in this Disclosure Statement.
DILUTION
A number of Disputed Claims are expected to be material and the total
amount of all Claims, including Disputed Claims, may be materially in excess of
the total amount of Allowed Claims assumed in the development of the Plan. The
actual ultimate aggregate amount of Allowed Claims in any Class may differ
significantly from the estimates set forth in the table under the caption
"Overview Of The Plan -- Summary of Classes and Treatment of Claims and
Interests." Accordingly, the amount of distribution of New Common Stock that
will ultimately be received by any particular holder of a General Unsecured
Claim in Class 5 may be adversely affected by the aggregate amount of Claims
ultimately allowed in that Class. Consequently, distributions to holders of
General Unsecured Claims in Class 5 will be made on an incremental basis until
all Disputed Claims in such Classes have been resolved. See "Distributions Under
The Plan -- Timing and Calculation of Amounts to be Distributed." In addition,
the amount of any Disputed Claim that ultimately is allowed by the Bankruptcy
Court may be significantly less than the amount of the Disputed Claim asserted
by the holder thereof.
GENERAL INFORMATION CONCERNING THE PLAN
LEGAL EFFECTS OF THE PLAN
Confirmation of the Plan and the occurrence of the Effective Date will
result in the discharge of certain Claims and Interests and the creation of
related injunctions with respect thereto. Moreover, upon Confirmation and the
occurrence of the Effective Date, the Debtors will retain and may enforce
certain claims and causes of actions against other entities, including, but not
limited to, the Recovery Actions. These legal effects of the Plan are set forth
in Article XI of the Plan and described below.
DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS; RELATED INJUNCTION
Except as provided in the Plan or in the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Interests under the Plan
will be in exchange for and in complete satisfaction, discharge and release of
all Claims and termination of all Interests arising on or before the Effective
Date, including any interest accrued on Claims from the Petition Date. Except as
provided in the Plan or in the Confirmation Order, Confirmation will, as of the
Effective Date: (a) discharge the Debtors from all Claims or other debts that
arose on or before the Effective Date and all debts of the kind specified in
section 502(g), 502(h) or 502(i) of the Bankruptcy
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Code, whether or not (i) a proof of Claim based on such debt is filed or deemed
filed pursuant to section 501 of the Bankruptcy Code; (ii) a Claim based on such
debt is allowed pursuant to section 502 of the Bankruptcy Code; or (iii) the
holder of a Claim based on such debt has accepted the Plan; and (b) terminate
all Interests and other rights of equity security holders in the Debtors.
Except as provided in the Plan or Confirmation Order, the Confirmation
Order will be a judicial determination, as of the Effective Date, of a discharge
of all Claims and other debts and liabilities against the Debtors and
termination of all Interests and other rights of equity security holders in the
Debtors, pursuant to sections 524 and 1141 of the Bankruptcy Code, and such
discharge will void any judgment obtained against a Debtor at any time, to the
extent that such judgment relates to a discharged Claim or terminated Interest.
Except as provided in the Plan or Confirmation Order, as of the
Effective 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 terminated pursuant to the terms of the Plan
shall be permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities or terminated
Interests or rights: (a) commencing or continuing in any manner any action or
other proceeding against the Debtors, the Reorganized Debtors or their
respective property, other than to enforce any right pursuant to the Plan to a
distribution; (b) enforcing, attaching, collecting or recovering in any manner
any judgment, award, decree or order against the Debtors, the Reorganized
Debtors or their respective property, other than as permitted pursuant to (a)
above; (c) creating, perfecting or enforcing any lien or encumbrance against the
Debtors, the Reorganized Debtors or their respective property; (d) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to the 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 distributions pursuant to the Plan, each holder of an
Allowed Claim receiving distributions pursuant to the Plan will be deemed to
have specifically consented to the injunctions set forth in the Plan.
The classification and manner of satisfying all Claims and Interests
under the Plan take into consideration all subordination rights, whether arising
under general principles of equitable subordination, section 510(c) of the
Bankruptcy Code or otherwise, that a holder of a Claim or Interest may have
against other Claim or Interest holders with respect to any distribution made
pursuant to the Plan. All subordination rights that a holder of a Claim may have
with respect to any distribution to be made pursuant to the Plan will be
discharged and terminated, and all actions related to the enforcement of such
subordination rights will be permanently enjoined. Accordingly, distributions
pursuant to the Plan to holders of Allowed Claims will not be subject to payment
to a beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by a beneficiary of such
terminated subordination rights. Notwithstanding the foregoing, nothing in the
Plan or Confirmation Order shall affect any subordination right or claim that
any Debtor or Reorganized Debtor or any holder of a Claim or Interest may have
against any Koch Entity or any other entity potentially liable in respect to the
Recovery Actions, including any subordination right or claim arising out of,
relating to or in connection with the Koch Purchase Transaction or any Recovery
Action.
Except as provided above, pursuant to Bankruptcy Rule 9019 and in
consideration for the distributions and other benefits provided under the Plan,
the provisions of the Plan will constitute a good faith compromise and
settlement of all claims or controversies relating to the subordination rights
that a holder of a Claim may have with respect to any Allowed Claim, or any
distribution to be made pursuant to the Plan on account of any Allowed Claim.
The entry of the Confirmation Order will constitute the Bankruptcy Court's
approval, as of the Effective Date, of the compromise or settlement of all such
claims or controversies and the Bankruptcy Court's finding that such compromise
or settlement is in the best interests of the Debtors, the Reorganized Debtors
and their respective property and Claim and Interest holders, and is fair,
equitable and reasonable.
PRESERVATION OF RIGHTS OF ACTION HELD BY THE DEBTORS OR REORGANIZED
DEBTORS
Except as provided in the Plan or in any contract, instrument, release
or other agreement entered into in connection with the Plan in accordance with
section 1123(b) of the Bankruptcy Code, the Reorganized Debtors will retain and
may enforce any claims, demands, rights and causes of action that any Debtor or
Estate may hold against any entity including the Recovery Actions. The
Reorganized Debtors or their successors may pursue such retained claims,
demands, rights or causes of action as appropriate, in accordance with the best
interests of the Reorganized Debtors or the successors holding such claims,
demands, rights or causes of action. Further, the Reorganized
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Debtors retain their rights to File and pursue any adversary proceedings against
any trade creditor, vendor or factor related to debit balances or deposits owed
to any Debtor.
RELEASES AND RELATED INJUNCTION
As of the Effective Date, to the fullest extent permissible under
applicable law, in consideration for the obligations of the Debtors and the
Reorganized Debtors under the Plan and the cash, New Common Stock, New
Prepetition Credit Facility Notes and other contracts, instruments, releases or
agreements or documents to be delivered in connection with the Plan, each entity
(other than a Debtor) that has held, holds or may hold (directly, derivatively
or otherwise) a Claim or Interest will be deemed to forever release, waive and
discharge all claims, demands, debts, rights, causes of action or liabilities
(other than the right to enforce the Debtors' or the Reorganized Debtors'
obligations under the Plan and the 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, that are based in
whole or in part on any act, omission or other occurrence taking place on or
prior to the Effective Date in any way relating to a Debtor, the Reorganization
Cases or the Plan that such entity has, had or may have against any Debtor
(which release will be in addition to the discharge of Claims and termination of
Interests provided herein and under the Confirmation Order and the Bankruptcy
Code) and its respective present and former directors, officers, employees,
agents, attorneys, accountants, investment bankers and other representatives of
any of the foregoing, acting in such capacity. The foregoing, however, shall not
constitute a release by any Debtor of any claims, demands, debts, rights, causes
of action or liabilities, whether held directly, derivatively or otherwise, in
respect to the Recovery Actions all of which shall be preserved as described
above.
As provided in Section XI.B of the Plan, the Confirmation Order will
permanently enjoin the commencement or prosecution by any entity, whether
directly, derivatively or otherwise, of any claim, demand, debt, right, cause of
action or liability released pursuant to the Plan.
CONTINUATION OF CERTAIN EMPLOYEE, RETIREE AND WORKERS' COMPENSATION
BENEFITS
Except as modified or replaced by the agreements, plans and programs
described in "Reorganized PMI -- Employee Benefit Matters -- New Benefit
Programs and Agreements; Continuation or Termination of Existing Plans and
Agreements," from and after the Effective Date the Reorganized Debtors will
continue (or continue as modified or replaced) their existing employee benefit
policies, plans and agreements, as described in "Reorganized PMI -- Employee
Benefit Matters -- Existing Benefit Plans and Agreements."
From and after the Effective Date, the Reorganized Debtors will be
obligated to pay retiree benefits and any similar health and medical benefits in
accordance with the terms of the retiree benefit plans or other agreements
governing the payment of such benefits, subject to any rights to amend, modify
or terminate such benefits under the terms of the applicable retiree benefits
plan, other agreement or applicable nonbankruptcy law.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Except as otherwise provided in the Plan or in any contract,
instrument, release or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will assume, or assume and assign, as indicated, each of the
Executory Contracts and Unexpired Leases listed on Exhibit V.A.1 to the Plan;
provided, however, that the Debtors and Reorganized Debtors reserve the right,
at any time prior to the Effective Date, to amend Exhibit V.A.1 to the Plan to:
(a) delete any Executory Contract or Unexpired Lease listed therein, thus
providing for its rejection pursuant to Section V.C of the Plan or (b) add any
Executory Contract or Unexpired Lease thereto, thus providing for its assumption
or assumption and assignment pursuant to Section V.A.1 of the Plan. The Debtors
or Reorganized Debtors will provide notice of any amendments to Exhibit V.A.1 to
the Plan to the parties to the Executory Contracts or Unexpired Leases affected
thereby and to the parties on the then applicable service list in the
Reorganization Cases (including the Creditors' Committee). Each contract and
lease listed on Exhibit V.A.1 to the Plan will be assumed only to the extent
that any such contract or lease constitutes an Executory Contract or Unexpired
Lease. Listing a contract or lease on Exhibit V.A.1 to the Plan will not
constitute an admission by a Debtor or Reorganized Debtor that such contract or
lease (including any related assumed agreements) is an Executory Contract or
Unexpired Lease or that a Debtor or Reorganized Debtor has any liability
thereunder.
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Each Real Property Executory Contract and Unexpired Lease listed on
Exhibit V.A.1 to the Plan will include any modifications, amendments,
supplements, restatements or other agreements made directly or indirectly by any
agreement, instrument or other document that in any manner affects such contract
or lease, irrespective of whether such agreement, instrument or other document
is listed on Exhibit V.A.1 to the Plan, unless any such modification, amendment,
supplement, restatement or other agreement is rejected pursuant to Section V.C
of the Plan and is listed on Exhibit V.C to the Plan.
In addition, the obligations of each Debtor or Reorganized Debtor under
any Assumed Customer Guarantee listed on Exhibit I.A.5 of the Plan will be
deemed and treated as executory contracts that are assumed by the applicable
Debtor or Reorganized Debtor pursuant to the Plan and section 365 of the
Bankruptcy Code as of the Effective Date. Accordingly, such obligations will
survive and be unaffected by entry of the Confirmation Order.
The Confirmation Order will constitute an order of the Bankruptcy Court
approving the assumptions and assignments described in Section V.A and V.E of
the Plan, pursuant to section 365 of the Bankruptcy Code, as of the Effective
Date. The order of the Bankruptcy Court approving the Disclosure Statement or
another order of the Bankruptcy Court entered on or prior to the Confirmation
Date, will specify the procedures for providing notice to each party whose
Executory Contract or Unexpired Lease is being assumed or assumed and assigned
pursuant to the Plan of: (a) the contract or lease being assumed or assumed and
assigned; (b) the Cure Amount Claim, if any, that the applicable Debtor believes
it would be obligated to pay in connection with such assumption; and (c) the
procedures for such party to object to the assumption, assignment or amount of
the proposed Cure Amount Claim.
To the extent that such Claims constitute monetary defaults, the Cure
Amount Claims associated with each Executory Contract and Unexpired Lease to be
assumed pursuant to the Plan will be satisfied, pursuant to section 365(b)(1) of
the Bankruptcy Code, at the option of the Debtor assuming such contract or lease
or the assignee of such Debtor, if any: (a) by payment of the Cure Amount Claim
in cash on the Effective Date or (b) on such other terms as are agreed to by the
parties to such Executory Contract or Unexpired Lease. If there is a dispute
regarding: (i) the amount of any Cure Amount Claim, (ii) the ability of the
applicable 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 of such contract or lease, the cure payments required by section
365(b)(1) of the Bankruptcy Code will be made following the entry of a Final
Order resolving the dispute and approving the assumption. For assumptions of
Executory Contracts or Unexpired Leases between Debtors, the Reorganized Debtor
assuming such contract may cure any monetary default by treating such amount as
either a direct or indirect contribution to capital or distribution (as
appropriate) or through an intercompany account balance in lieu of payment in
cash.
On the Effective Date, except for an Executory Contract or Unexpired
Lease that was previously assumed, assumed and assigned or rejected by an order
of the Bankruptcy Court or that is assumed pursuant to Section V.A of the Plan
(including any related assumed agreements), each Executory Contract and
Unexpired Lease entered into by a Debtor prior to the Petition Date that has not
previously expired or terminated pursuant to its own terms will be rejected
pursuant to section 365 of the Bankruptcy Code. The Executory Contracts and
Unexpired Leases to be rejected will include the Executory Contracts and
Unexpired Leases listed on Exhibit V.C to the Plan. Each contract and lease
listed on Exhibit V.C to the Plan will be rejected only to the extent that any
such contract or lease constitutes an Executory Contract or Unexpired Lease.
Listing a contract or lease on Exhibit V.C to the Plan will not constitute an
admission by a Debtor or Reorganized Debtor that such contract or lease
(including related agreements) is an Executory Contract or Unexpired Lease or
that a Debtor or Reorganized Debtor has any liability thereunder. Any Executory
Contract and Unexpired Lease not listed on Exhibit V.A.1 to the Plan will be
rejected irrespective of whether such contract is listed on Exhibit V.C to the
Plan. The Confirmation Order will constitute an order of the Bankruptcy Court
approving such rejections, pursuant to section 365 of the Bankruptcy Code, as of
the Effective Date.
Notwithstanding anything in the Bar Date Order to the contrary, if the
rejection of an Executory Contract or Unexpired Lease pursuant to Section V.C of
the Plan gives rise to a Claim (including any Claims arising from those
indemnification obligations described in Section V.E.1 of the Plan) by the other
party or parties to such contract or lease, such Claim will be forever barred
and will not be enforceable against the Debtors, the Reorganized Debtors, their
respective successors or their respective properties unless a proof of Claim is
Filed and served on the Reorganized Debtors, pursuant to the procedures
specified in the Confirmation Order and the notice of the entry of the
Confirmation Order or another order of the Bankruptcy Court, no later than 30
days after the Effective Date.
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Contracts and leases entered into after the Petition Date by any
Debtor, including any Executory Contracts and Unexpired Leases assumed by such
Debtor, will be performed by the Debtor or Reorganized Debtor liable thereunder
in the ordinary course of its business. Accordingly, such contracts and leases
(including any assumed Executory Contracts and Unexpired Leases) will survive
and remain unaffected by entry of the Confirmation Order.
SUBSTANTIVE CONSOLIDATION
The Confirmation of the Plan is conditioned on the approval by the
Bankruptcy Court, pursuant to the Confirmation Order, of a substantive
consolidation of the Debtors for all purposes related to the Plan, including for
purposes of voting, Confirmation and distributions to be made under the Plan.
Pursuant to such Order, (a) all assets and liabilities of the PMI Subsidiary
Debtors will be deemed merged or treated as though they were merged into and
with the assets and liabilities of PMI, (b) all guarantees by one Debtor of the
obligations of any other Debtor shall be deemed eliminated so that any Claim
against any Debtor and any guarantee thereof executed by another Debtor and any
joint or several liability of any of the Debtors shall be deemed to be one
obligation of the consolidated Debtors and (c) each and every Claim Filed or to
be Filed in the Reorganization Case of any of the Debtors shall be deemed Filed
against the consolidated Debtors and shall be deemed to be one Claim against and
a single obligation of the consolidated Debtors. Such substantive consolidation
(other than for purposes related to the Plan) shall not affect (i) the legal or
corporate structures of the Reorganized Debtors, subject to the right of the
Debtors or Reorganized Debtors to affect restructurings as provided under the
Plan, (ii) Old Common Stock of the PMI Subsidiary Debtors and (iii) pre- and
post-Effective Date guaranties that are required to be maintained (A) in
connection with contracts or leases that were entered into during the
Reorganization Cases or Executory Contracts and Unexpired Leases that have been
or will be assumed or (B) pursuant to the Plan.
Substantive consolidation is an equitable remedy in bankruptcy which
results in the pooling of the assets and liabilities of a debtor and one or more
other debtors solely for purposes of the bankruptcy case, including for purposes
of distributions to creditors and voting on and treatment under a plan of
reorganization. There are no definitive rules as to when substantive
consolidation will be ordered. Factors employed by Bankruptcy Courts in
approving a substantive consolidation have included (a) whether the debtors are
interrelated entities operating under a common parent for tax and business
purposes; (b) whether creditors have dealt with the debtors as a single economic
unit; (c) the absence of substantial prejudice to particular creditors arising
from a substantive consolidation; (d) whether corporate formalities have been
followed; (e) whether assets and records have not been kept separate; (f)
whether there are intercompany guarantees of loans and other matters; and (g)
whether a consolidation will benefit all creditors. No single factor is
determinative. The Debtors believe that these factors are present in the current
circumstances and that a substantive consolidation of the Debtors is warranted.
No assurance can be given however that the Bankruptcy Court will approve the
proposed substantive consolidation of the Debtors.
DISTRIBUTIONS UNDER THE PLAN
GENERAL
Except as otherwise provided in Article VI of the Plan, distributions
of cash, New Common Stock and New Prepetition Credit Facility Notes to be made
on the Effective Date to holders of Claims that are allowed as of the Effective
Date will be deemed made on the Effective Date if made on the Effective Date or
as promptly thereafter as practicable, but in any event no later than: (a) 60
days after the Effective Date or (b) such later date when the applicable
conditions of Section V.B of the Plan (regarding cure payments for Executory
Contracts and Unexpired Leases being assumed), Section VI.E.2 of the Plan
(regarding undeliverable distributions) or Section VI.J of the Plan (regarding
surrender of canceled instruments and securities) are satisfied. Distributions
on account of Claims that become Allowed Claims after the Effective Date will be
made pursuant to Sections VI.H and VII.C of the Plan.
METHODS OF DISTRIBUTIONS
The method of distributing the consideration provided for in the Plan
is set forth in Section VI of the Plan and summarized below.
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DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS AND INTERESTS
Reorganized PMI, or any Third Party Disbursing Agents as Reorganized
PMI may employ in its sole discretion, will make all distributions of cash, New
Common Stock, New Prepetition Credit Facility Notes and other instruments or
documents required under the Plan. Each Disbursing Agent will serve without
bond, and any Disbursing Agent may employ or contract with other entities to
assist in or make the distributions required by the Plan.
COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO BALLOTING AND
DISTRIBUTIONS
Each Third Party Disbursing Agent providing services related to
distributions pursuant to the Plan will receive from Reorganized PMI, without
further Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with Reorganized
PMI, and will not be deducted from distributions to be made pursuant to the Plan
to holders of Allowed Claims (including any distributions of Cash Investment
Yield) receiving distributions from a Third Party Disbursing Agent.
DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to holders of Allowed Claims will be made by a Disbursing
Agent at the addresses: (a) set forth on the respective proofs of Claim Filed by
holders of such Claims; (b) set forth in any written certification of address
change delivered to the Disbursing Agents after the date of Filing of any
related proof of Claim; or (c) reflected in the applicable Debtor's Schedules if
no proof of Claim has been Filed and the Disbursing Agent has not received a
written notice of a change of address.
UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
If any Allowed Claim holder's distribution is returned to a Disbursing
Agent as undeliverable, no further distributions will be made to such holder
unless and until the applicable Disbursing Agent is notified by written
certification of such holder's then-current address. Undeliverable distributions
will remain in the possession of the applicable Disbursing Agent pursuant to
Section VI.E.2.a.i of the Plan until such time as a distribution becomes
deliverable. Undeliverable cash (including dividends or other distributions on
undeliverable New Common Stock) will be held in segregated bank accounts in the
name of the applicable Disbursing Agent for the benefit of the potential
claimants of such funds. Any Disbursing Agent holding undeliverable cash will
invest such cash in a manner consistent with the investment and deposit
guidelines of Reorganized PMI. Undeliverable New Common Stock will be held by
the applicable Disbursing Agent for the benefit of the potential claimants of
such securities.
Pending the distribution of any New Common Stock, the Disbursing Agent
will cause all of the New Common Stock held by it in its capacity as Disbursing
Agent to be: (a) represented in person or by proxy at each meeting of the
stockholders of Reorganized PMI; (b) voted in any election of directors of
Reorganized PMI for the nominees recommended by the Board of Directors of
Reorganized PMI; and (c) voted with respect to any other matter as recommended
by the Board of Directors of Reorganized PMI.
On each Quarterly Distribution Date, the applicable Disbursing Agents
will make all distributions that become deliverable to holders of Allowed Claims
during the preceding calendar quarter. In the case of Class 5 Claims each such
distribution will include, to the extent applicable: (a) a Pro Rata share of
dividends or other distributions, if any, that were previously paid to the
Disbursing Agent in respect of any New Common Stock included in such
distribution and (b) a Pro Rata share of the Cash Investment Yield from the
investment of any undeliverable cash (including dividends or other distributions
on undeliverable New Common Stock) from the date that such distribution would
have first been due had it then been deliverable to the date that such
distribution becomes deliverable.
Any holder of an Allowed Claim that does not assert a claim pursuant to
the Plan for an undeliverable distribution to be made by a Disbursing Agent
within two years after the later of (a) the Effective Date and (b) the last date
on which a distribution was deliverable, will have its claim for such
undeliverable distribution discharged and will be forever barred from asserting
any such claim against the Reorganized Debtors or their respective property. In
such cases with respect to Allowed Claims in Class 5, cash and New Common Stock
will be retained in the Unsecured Claims Reserve for redistribution Pro Rata to
holders of Allowed Claims in Class 5, pursuant to
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Section VI.H.2.b of the Plan. For purposes of this redistribution, each Allowed
Claim in such Class for which such distributions are undeliverable will be
deemed disallowed in its entirety. In such cases with respect to Allowed Claims
in a Class other than Class 5, unclaimed cash will become property of
Reorganized PMI, free of any restrictions thereon, and any such cash held by a
Third Party Disbursing Agent will be returned to Reorganized PMI. Nothing
contained in the Plan will require any Debtor, Reorganized Debtor or Disbursing
Agent to attempt to locate any holder of an Allowed Claim.
DISTRIBUTION RECORD DATE
A Disbursing Agent will have no obligation to recognize the transfer
of, or the sale of any participation in, any Allowed Bank Loan Claim that occurs
after the close of business on the Distribution Record Date, and will be
entitled for all purposes herein to recognize and distribute only to those
holders of Allowed Bank Loan Claims who are holders of such Claims, or
participants therein, as of the close of business on the Distribution Record
Date. In addition, as of the close of business on the Distribution Record Date,
the respective transfer registers for the Old Senior Subordinated Notes as
maintained by the Debtors or the Indenture Trustee will be closed. The
applicable Disbursing Agent will have no obligation to recognize the transfer or
sale of any Old Senior Subordinated Note Claim that occurs after the close of
business on the Distribution Record Date, and will be entitled for all purposes
herein to recognize and distribute only to those holders of Note Claims who are
holders of such Claims as of the close of business on the Distribution Record
Date. Except as otherwise provided in a Final Order of the Bankruptcy Court, the
transferees of Claims in Class 5 that are transferred pursuant to Bankruptcy
Rule 3001, on or prior to the Distribution Record Date, will be treated as the
holders of such Claims for all purposes, notwithstanding that any period
provided by Bankruptcy Rule 3001 for objecting to such transfer has not expired
by the Distribution Record Date.
MEANS OF CASH PAYMENTS
Except as otherwise specified in the Plan, cash payments made pursuant
to the Plan will be in U.S. dollars by checks drawn on a domestic bank selected
by the applicable Debtor or Reorganized Debtor, or by wire transfer from a
domestic bank, at the option of the applicable Debtor or Reorganized Debtor;
provided, however, that cash payments to foreign holders of Allowed Claims may
be made, at the option of the applicable Debtor or Reorganized Debtor, in such
funds and by such means as are necessary or customary in a particular foreign
jurisdiction.
TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
Subject to Section VI.A of the Plan, on the Effective Date, each holder
of an Allowed Claim other than a Class 5 Claim will receive the full amount of
the distributions that the Plan provides. On each Quarterly Distribution Date,
distributions also will be made, pursuant to Section VII.C of the Plan, to
holders of Disputed Claims in any such Class that were allowed during the
preceding calendar quarter. Such quarterly distributions also will be in the
full amount that the Plan provides for Allowed Claims in the applicable Class.
The amount of distributions to be made on the Effective Date (subject
to Section VI.A of the Plan) to holders of Allowed General Unsecured Claims in
Class 5 on account of such Claims will be calculated as if each Disputed Claim
in such Class 5 were an Allowed Claim in its Face Amount. On each Quarterly
Distribution Date, distributions also will be made, pursuant to Section VII.C of
the Plan, to holders of Disputed Claims in Class 5 that were allowed during the
preceding calendar quarter. Such quarterly distributions will also be calculated
pursuant to the provisions set forth in Section VI.H.2.a of the Plan.
On each Quarterly Distribution Date, each holder of a previously
Allowed Claim in Class 5 will receive an additional distribution from the
applicable Unsecured Claims Reserve on account of such Claim in an amount equal
to: (a) the amount of New Common Stock that such holder would have been entitled
to receive pursuant to Section VI.H.2.a of the Plan as if such Claim had become
an Allowed Claim on the applicable Quarterly Distribution Date, minus (b) the
aggregate amount of New Common Stock previously distributed on account of such
Claim. Each such quarterly additional distribution also will include, on the
basis of the amount then being distributed: (i) a Pro Rata share of any
dividends or other distributions made on account of the New Common Stock held in
the Unsecured Claims Reserve and (ii) a Pro Rata share of the Cash Investment
Yield from the investment of any cash dividends or other distributions in the
Unsecured Claims Reserve, from the date such cash was deposited into the
Unsecured Claim Reserve to the date that such distribution is made.
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DISTRIBUTIONS OF NEW COMMON STOCK
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Common Stock will be issued. When any distribution on account of
an Allowed Claim would otherwise result in the issuance of a number of shares of
New Common Stock that is not a whole number, the actual distribution will be
rounded to the next higher or lower whole number as follows: (a) fractions equal
to or greater than 1/2 will be rounded to the next higher whole number and (b)
fractions less than 1/2 will be rounded to the next lower whole number. The
total number of shares of New Common Stock to be distributed on account of
Allowed General Unsecured Claims in Class 5 will be adjusted as necessary to
account for the rounding provided for in Section VI.H.3 of the Plan. No
consideration will be provided in lieu of fractional shares or interests that
are rounded down.
Subject to the provisions of the New Rights Agreement, each share of
New Common Stock distributed pursuant to the Plan will be accompanied by one New
Share Purchase Right.
DE MINIMIS DISTRIBUTIONS
No Disbursing Agent will be required to distribute cash to the holder
of an Allowed Claim in an impaired Class if the amount of cash to be distributed
on account of such Claim is less than $25. Any holder of such an Allowed Claim
on account of which the amount of cash to be distributed is less than $25 will
have its claim for such distribution discharged and will be forever barred from
asserting any such claim against the Reorganized Debtors or their respective
property. Any cash not distributed pursuant to Section VI.H.4 of the Plan with
respect to such Claims other than Claims in Class 5 will be the property of
Reorganized PMI, free of any restrictions thereon, and any such cash held by a
Third Party Disbursing Agent will be returned to Reorganized PMI. Any cash not
distributed pursuant to Section VI.H.4 of the Plan with respect to Allowed
General Unsecured Claims in Class 5, including dividends or other distributions
made on account of New Common Stock held in the Unsecured Claims Reserve, will
be retained in the Unsecured Claims Reserve for redistribution Pro Rata to
holders of Allowed Claims in that Class, pursuant to Section VI.H.2.b of the
Plan. For purposes of this redistribution, each Allowed Claim in Class 5 for
which distributions are less than $25 will have its claim for a distribution
discharged and will be forever barred from asserting such claim against the
Unsecured Claims reserve or otherwise.
COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable, each Disbursing
Agent will comply with all tax withholding and reporting requirements imposed on
it by any governmental unit, and all distributions pursuant to the Plan will be
subject to such withholding and reporting requirements. Each Disbursing Agent
will 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, each entity receiving a
distribution of cash or New Common Stock pursuant to the Plan will have sole and
exclusive responsibility for the satisfaction and payment of any tax obligations
imposed on it by any governmental unit on account of such distribution,
including income, withholding and other tax obligations.
SURRENDER OF CANCELED SECURITIES OR OTHER INSTRUMENTS
As a condition precedent to receiving any distribution pursuant to the
Plan on account of an Allowed Claim evidenced by the notes, instruments,
securities or other documentation canceled pursuant to Section IV.H of the Plan,
the holder of such Claim will tender, as specified in Section VI.J of the Plan,
the applicable notes, instruments, securities or other documentation evidencing
such Claim to the applicable Disbursing Agent together with any letter of
transmittal required by such Disbursing Agent. Any distributions pursuant to the
Plan on account of any such Claim will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section VI.E.2 of the Plan.
Except as provided in Section VI.J.2 of the Plan for lost, stolen,
mutilated or destroyed Old Senior Subordinated Notes, each holder of an Allowed
Claim evidenced by Old Senior Subordinated Notes will tender such Notes to the
applicable Disbursing Agent in accordance with a letter of transmittal to be
provided to such holders by the Disbursing Agent as promptly as practicable
following the Effective Date. The letter of transmittal will include, among
other provisions, customary provisions with respect to the authority of the
holder of such Note to act and the authenticity of any signatures required
thereon. All surrendered Old Senior Subordinated Notes will be marked as
canceled and delivered to the appropriate Reorganized Debtor.
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Any holder of a Claim evidenced by an Old Senior Subordinated Note that
has been lost, stolen, mutilated or destroyed will, in lieu of surrendering such
Old Senior Subordinated Note, deliver to the applicable Disbursing Agent: (a)
evidence satisfactory to the Disbursing Agent of the loss, theft, mutilation or
destruction and (b) such security or indemnity as may be required by the
Disbursing Agent to hold the Disbursing Agent and the Reorganized Debtors, as
applicable, harmless from any damages, liabilities or costs incurred in treating
such individual as a holder of an Old Senior Subordinated Note. Upon compliance
with Section VI.J.2 of the Plan by a holder of a Claim evidenced by an Old
Senior Subordinated Note, such holder will, for all purposes under the Plan, be
deemed to have surrendered such Note.
Any holder of an Old Senior Subordinated Note that fails to surrender
or be deemed to have surrendered such Note within two years after the Effective
Date will have its claim for a distribution pursuant to the Plan on account of
such Note discharged and will be forever barred from asserting any such claim
against the Reorganized Debtors or their respective property. In such cases, any
cash or New Common Stock held for distribution on account of such claim will be
disposed of pursuant to the provisions set forth in Section VI.E.2.c of the
Plan.
Holders of Allowed Bank Loan Claims will be required to surrender any
Old Prepetition Credit Facility Notes, or if not evidenced by a note, any other
instrument evidencing their respective Allowed Claims as and when such entities
receive New Prepetition Credit Facility Notes. If any such entity's notes or
their instruments evidencing its Allowed Claims are lost, stolen, mutilated or
destroyed, such entity will be required, in lieu of surrendering each note or
other instrument, to deliver to the applicable Disbursing Agent evidence
satisfactory to the Disbursing Agent of the loss, mutilation or destruction.
SETOFFS
Except with respect to claims of a Debtor or Reorganized Debtor
released pursuant to the Plan or any contract, instrument, release or other
agreement or document created in connection with the Plan, the Reorganized
Debtors or, with instructions from the applicable Reorganized Debtor, a Third
Party Disbursing Agent may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, setoff against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim or
Interest (before any distribution is made on account of such Claim), the claims,
rights and causes of action of any nature that the applicable Debtor or
Reorganized Debtor may hold against the holder of such Allowed Claim; provided,
however, that neither the failure to effect such a setoff nor the allowance of
any Claim hereunder will constitute a waiver or release by the applicable Debtor
or Reorganized Debtor of any such claims, rights and causes of action that the
Debtor or Reorganized Debtor may possess against such holder.
DISPUTED CLAIMS; RESERVE AND ESTIMATIONS
Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim until such Claim
becomes an Allowed Claim. In lieu of distributions under the Plan to holders of
Disputed Claims that would be General Unsecured Claims in Class 5, if allowed,
the Unsecured Claims Reserve will be established on the Effective Date to hold
property for the benefit of these Claim holders, as well as holders of Allowed
Claims in Class 5. Reorganized PMI will fund the Unsecured Claims Reserve with
New Common Stock as described in Section VI.D.1 of the Plan.
FUNDING OF DISPUTED CLAIMS RESERVES
On the Effective Date, 10,000,000 shares of New Common Stock will be
placed in the Unsecured Claims Reserve for the benefit of holders of Allowed
Claims in Class 5.
Each holder of an Allowed Claim (or a Disputed Claim that ultimately
becomes an Allowed Claim) in Class 5 will have recourse only to the
undistributed cash and New Common Stock held in the Unsecured Claims Reserve for
satisfaction of the distributions to which such holders of Allowed Claims are
entitled under the Plan, and not to any Reorganized Debtor, its property or any
assets previously distributed on account of any Allowed Claim. Cash held in the
Unsecured Claims Reserve (including dividends and other distributions on New
Common Stock held in the Unsecured Claims Reserve) will be deposited in a
segregated bank account in the name of the applicable Disbursing Agent, held in
trust for the benefit of the potential claimants of such funds and accounted for
separately, and will not constitute property of the Reorganized Debtors. The
Disbursing Agent will invest the cash held in the Unsecured Claims Reserve in a
manner consistent with Reorganized PMI's investment and deposit guidelines.
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The Disbursing Agent also will place in the Unsecured Claims Reserve the Cash
Investment Yield from such investment of cash. Additionally, New Common Stock
held in the Unsecured Claims Reserve will be held in trust for the benefit of
the potential claimants of such securities by the applicable Disbursing Agent
and accounted for separately, and will not constitute property of the
Reorganized Debtors.
DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY ARE ALLOWED
On each Quarterly Distribution Date, the applicable Disbursing Agent
will make all distributions on account of any Disputed Claim that has become an
Allowed Claim during the preceding calendar quarter. Such distributions will be
made pursuant to the provisions of the Plan governing the applicable Class,
including the incremental distribution provisions set forth in Section VI.H.2 of
the Plan. Holders of Disputed Claims in Class 5 that ultimately are allowed also
will be entitled to receive, on the basis of the amount ultimately allowed, the
net amount of: (a) the Pro Rata share of any dividends or other distributions
received on account of the shares of New Common Stock to be distributed and (b)
a Pro Rata share of the Cash Investment Yield from the investment of any cash in
the Unsecured Claims Reserve from the date that such cash was invested after the
Effective Date, to the date that such distributions are made from the Unsecured
Claims Reserve.
PAYMENT OF POSTEFFECTIVE DATE INTEREST FROM CASH INVESTMENT YIELD
In the event that any cash or dividends on New Common Stock are held in
the Unsecured Claims Reserve, holders of Allowed General Unsecured Claims in
Class 5 may receive post-Effective Date interest at a rate determined by the
Cash Investment Yield. For the federal income tax consequences to the holders of
receipt of Cash Investment Yield, see "Federal Income Tax Consequences Of
Consummation Of The Plan -- Certain Other Tax Considerations for Holders of
Claims -- Receipt of Post-Effective Date Interest."
OBJECTIONS TO CLAIMS OR INTERESTS AND AUTHORITY TO PROSECUTE OBJECTIONS
All objections to Claims must be Filed and served on the holders of
such Claims by the Claims Objection Bar Date, and (a) if Filed prior to the
Effective Date, such objections shall be served on the parties on the then
applicable service list in the Reorganization Cases and (b) if Filed after the
Effective Date, such objections shall be served on the Claims Resolution
Committee. If an objection has not been Filed to a proof of Claim or a scheduled
Claim by the Claims Objection Bar Date, the Claim to which the proof of Claim or
scheduled Claim relates will be treated as an Allowed Claim if such Claim has
not been allowed earlier. An objection is deemed to have been timely Filed as to
all Tort Claims, thus making each such Claim a Disputed Claim as of the Claims
Objection Bar Date. Each such Claim will remain a Disputed Claim until it
becomes an Allowed Claim in accordance with Section I.A.3 of the Plan.
After the Confirmation Date, only the Debtors or Reorganized Debtors
will have the authority to File objections, settle, compromise, withdraw or
litigate to judgment objections to Claims. After the Effective Date, the
Reorganized Debtors may settle or compromise any Disputed Claim without approval
of the Bankruptcy Court; provided, however, that (a) the Reorganized Debtors
shall promptly serve on the Claims Resolution Committee and File with the
Bankruptcy Court a written notice of any settlement or compromise of a Claim
with a Face Amount in excess of $500,000 and (b) the Claims Resolution Committee
shall be authorized to contest the proposed settlement or compromise by Filing a
written objection with the Bankruptcy Court and serving such objection on the
Reorganized Debtors within ten days of the service of the settlement notice. If
no such objection is Filed, the applicable settlement or compromise shall be
final without further action of the Bankruptcy Court.
DISSOLUTION OF THE CREDITORS' COMMITTEES AND CREATION OF THE CLAIMS RESOLUTION
COMMITTEE
On the Effective Date, (a) the Creditors' Committee will dissolve and
the members of the Creditors' Committee will be released and discharged from all
duties and obligations arising from or related to the Reorganization Cases and
(b) the Claims Resolution Committee will be established.
FUNCTION AND COMPOSITION OF THE CLAIMS RESOLUTION COMMITTEE
The sole functions of the Claims Resolution Committee will be to
monitor the Reorganized Debtors' progress in (a) reconciling and resolving
Disputed Claims in Class 5 and (b) making distributions on account of such
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Claims once resolved. The Claims Resolution Committee will consist of up to
three holders of Claims in Class 5 who will be designated by the Creditors'
Committee in writing prior to the Effective Date.
CLAIMS RESOLUTION COMMITTEE PROCEDURES
The Claims Resolution Committee will adopt by-laws that will control
its functions. These by-laws, unless modified by the Claims Resolution
Committee, will provide the following: (a) a majority of the Claims Resolution
Committee will constitute a quorum; (b) one member of the Claims Resolution
Committee will be designated by the majority of its members as its chairperson;
(c) meetings of the Claims Resolution Committee will be called by its
chairperson on such notice and in such manner as its chairperson may deem
advisable; and (d) the Claims Resolution Committee will function by decisions
made by a majority of its members in attendance at any meeting.
EMPLOYMENT OF PROFESSIONALS BY THE CLAIMS RESOLUTION COMMITTEE AND
REIMBURSEMENT OF COMMITTEE MEMBERS
The Claims Resolution Committee will be authorized to retain and employ
one law firm as counsel. The Claims Resolution Committee also will be authorized
to retain and employ one accounting firm; provided, however, that the Claims
Resolution Committee must deliver a written notice to the Reorganized Debtors
before each request for substantial services from its accountants, which notice
will describe the services to be requested, an estimate of the cost for such
services and the reason why such services are necessary and reasonable. The role
of the Claims Resolution Committee's professionals will be strictly limited to
assisting the committee in its functions as set forth in the Plan. The Claims
Resolution Committee will use its best faith efforts to limit the amount of its
professionals' fees and expenses. The Reorganized Debtors will pay the actual,
necessary, reasonable and documented fees and expenses of the professionals
retained by the Claims Resolution Committee, as well as the actual, necessary,
reasonable and documented expenses incurred by each committee member in the
performance of its duties, in accordance with Reorganized PMI's normal business
practices for compensating and reimbursing professionals. Other than as
specified in the preceding sentence, the members of the Claims Resolution
Committee will serve without compensation. If there is any unresolved dispute
between the Reorganized Debtors and the Claims Resolution Committee, its
professionals or a member thereof as to any fees or expenses, such dispute will
be submitted to the Bankruptcy Court for resolution.
DISSOLUTION OF THE CLAIMS RESOLUTION COMMITTEE
Subject to further order of the Bankruptcy Court, the Claims Resolution
Committee will dissolve on the earlier of (a) the 18-month anniversary of the
Effective Date or (b) the final distribution of all New Common Stock in the
Unsecured Claims Reserve. The members of and the professionals retained by the
Claims Resolution Committee will not be entitled to compensation or
reimbursement of expenses for any services rendered after the date of
dissolution of the committee.
VOTING AND CONFIRMATION OF THE PLAN
GENERAL
To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy
Court make a series of findings concerning the Plan and the Debtors, including
that (a) the Plan has classified Claims and Interests in a permissible manner;
(b) the Plan complies with the applicable provisions of the Bankruptcy Code; (c)
the Debtors comply with the applicable provisions of the Bankruptcy Code; (d)
the proponents have proposed the Plan in good faith and not by any means
forbidden by law; (e) the disclosure as required by section 1125 of the
Bankruptcy Code has been made; (f) the Plan has been accepted by the requisite
votes of creditors and equity interest holders (except to the extent that
cramdown is available under section 1129(b) of the Bankruptcy Code (see "Voting
And Confirmation Of The Plan -- Confirmation" and "-- Acceptance or Cramdown");
(g) the Plan is feasible and Confirmation will likely not be followed by the
liquidation or the need for further financial reorganization of the Debtors; (h)
the Plan is in the "best interests" of all holders of Claims or Interests in an
impaired Class by providing to creditors or interest holders on account of such
Claims or Interests property of a value, as of the Effective Date, that is not
less than the amount that such holder would receive or retain in a chapter 7
liquidation, unless each holder of a Claim or Interest in such Class has
accepted the Plan; (i) all fees and expenses payable under 28 U.S.C. Section
1930, as determined by the Bankruptcy Court at the hearing on Confirmation,
have been paid or the Plan provides for the payment of such fees on the
Effective Date; (j) the Plan provides for the continuation after the Effective
Date of all retiree benefits, as
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defined in section 1114 of the Bankruptcy Code, at the level established at any
time prior to Confirmation pursuant to sections 1114(e) (1) (B) or 1114(g) of
the Bankruptcy Code, for the duration of the period that the applicable Debtor
has obligated itself to provide such benefits; and (k) the disclosures required
under section 1129(a)(5) concerning the identity and affiliations of persons who
will serve as officers, directors and voting trustees of the reorganized debtor.
VOTING PROCEDURES AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only classes of claims against or
equity interests in a debtor that are "impaired" under the terms of a plan of
reorganization are entitled to vote to accept or reject a plan. A class is
"impaired" if the legal, equitable or contractual rights attaching to the claims
or interests of that class are modified, other than by curing defaults and
reinstating maturity. Classes of Claims and Interests that are not impaired are
not entitled to vote on the Plan and are conclusively presumed to have accepted
the Plan. In addition, Classes of Claims and Interests that receive no
distributions under the Plan are not entitled to vote on the Plan and are deemed
to have rejected the Plan unless such Class otherwise indicates acceptance. The
classification of Claims and Interests is summarized, together with an
indication of whether each Class of Claims or Interests is impaired or
unimpaired, in "Overview Of The Plan -- Summary of Classes and Treatment of
Claims and Interests."
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule
3018, the Bankruptcy Court may estimate and temporarily allow a Claim for voting
or other purposes. The Debtors may seek an order of the Bankruptcy Court
temporarily allowing, for voting purposes only, certain Disputed Claims.
VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE
ON THE PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS OF A
PARTICULAR DEBTOR, OR AGAINST MORE THAN ONE DEBTOR, YOU MAY RECEIVE MORE THAN
ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT YOU RECEIVE.
In most cases, each ballot enclosed with this Disclosure Statement has
been encoded with the amount of your Claim for voting purposes (if your Claim is
a Disputed Claim this amount may not be the amount ultimately allowed for
purposes of distribution) and the Class to which your Claim has been attributed.
PLEASE FOLLOW THE DIRECTIONS CONTAINED ON THE ENCLOSED BALLOT CAREFULLY.
TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED BY 5:00 P.M.,
EASTERN TIME, ON ________________ ___, 1999, AT THE ADDRESS SET FORTH ON THE
ENCLOSED PREADDRESSED ENVELOPE. IT IS OF THE UTMOST IMPORTANCE TO THE DEBTORS
THAT YOU VOTE PROMPTLY TO ACCEPT THE PLAN.
VOTES CANNOT BE TRANSMITTED ORALLY. ACCORDINGLY, YOU ARE URGED TO
RETURN YOUR SIGNED AND COMPLETED BALLOT PROMPTLY.
IF ANY OF THE CLASSES OF HOLDERS OF IMPAIRED CLAIMS VOTE TO REJECT THE
PLAN, (a) THE DEBTORS MAY SEEK TO SATISFY THE REQUIREMENTS FOR CONFIRMATION OF
THE PLAN UNDER THE CRAMDOWN PROVISIONS OF SECTION 1129(b) OF THE BANKRUPTCY CODE
AND, IF REQUIRED, MAY AMEND THE PLAN TO CONFORM TO THE STANDARDS OF SUCH SECTION
OR (b) THE PLAN MAY BE MODIFIED OR WITHDRAWN WITH RESPECT TO A PARTICULAR
DEBTOR, WITHOUT AFFECTING THE PLAN AS TO OTHER DEBTORS, OR IN ITS ENTIRETY. See
"Voting And Confirmation of the Plan -- Acceptance or Cramdown" and "--
Alternatives to Confirmation and Consummation of the Plan."
IF YOU ARE ENTITLED TO VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED
A DAMAGED BALLOT OR LOST YOUR BALLOT, OR IF YOU HAVE ANY QUESTIONS CONCERNING
THE DISCLOSURE STATEMENT OR THE PLAN, PLEASE CALL __________________________.
CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a hearing on whether the Debtors have fulfilled the Confirmation
requirements of section 1129 of the Bankruptcy Code. The Confirmation Hearing
has been scheduled for ____________, _______ at _____ __.m. before the Honorable
Sue L. Robinson, United
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States District Judge for the District of Delaware at the Judge's usual
courtroom at, [ADDRESS]. The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice, except for an announcement
of the adjourned date made at the Confirmation Hearing. Any objection to
Confirmation must be made in writing and must specify in detail the name and
address of the objector, all grounds for the objection and the amount of the
Claim or Interest held by the objector. Any such objections must be Filed and
served upon the persons designated in the notice of the Confirmation Hearing.
CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if all of the requirements of section 1129 of the Bankruptcy Code are met.
Among the requirements for Confirmation are that the Plan: (a) is accepted by
the requisite holders of Claims and Interests in impaired Classes of such Debtor
or, if not so accepted, is "fair and equitable" and "does not discriminate
unfairly" as to the nonaccepting Class, (b) is in the "best interests" of each
holder of a Claim or Interest in each impaired Class under the Plan for such
Debtor, (c) is feasible and (d) complies with the applicable provisions of the
Bankruptcy Code.
ACCEPTANCE OR CRAMDOWN
A plan is accepted by an impaired class of claims if holders of at
least two-thirds in dollar amount and a majority in number of claims of that
class vote to accept the plan. Only those holders of claims who actually vote
(and are entitled to vote) to accept or to reject a plan count in this
tabulation. In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an impaired class or that the plan otherwise be found by the
Bankruptcy Court to be in the best interests of each holder of a claim or
interest in an impaired class. See "Voting And Confirmation Of The Plan -- Best
Interests Test; Liquidation Analysis." The Bankruptcy Code contains provisions
for confirmation of a plan even if it is not accepted by all impaired classes,
as long as at least one impaired class of claims has accepted it. These
so-called "cramdown" provisions are set forth in section 1129(b) of the
Bankruptcy Code. As indicated above, the Plan may be confirmed under the
cramdown provisions if, in addition to satisfying the other requirements of
section 1129 of the Bankruptcy Code, it (a) is "fair and equitable" and (b)
"does not discriminate unfairly" with respect to each Class of Claims or
Interests that is impaired under, and has not accepted, the Plan. The "fair and
equitable" standard, also known as the "absolute priority rule," requires, among
other things, that unless a dissenting unsecured Class of Claims or a Class of
Interests receives full compensation for its Allowed Claims or Allowed
Interests, no holder of Allowed Claims or Interests in any junior Class may
receive or retain any property on account of such Claims or Interests. With
respect to a dissenting Class of Secured Claims, the "fair and equitable"
standard requires, among other things, that holders either (i) retain their
liens and receive deferred cash payments with a value as of the Effective Date
equal to the value of their interest in property of the applicable Estate or
(ii) receive the indubitable equivalent of their Secured Claims. The "fair and
equitable" standard has also been interpreted to prohibit any Class senior to a
dissenting Class from receiving under a plan more than 100% of its Allowed
Claims or Allowed Interests. The Debtors believe that, if necessary, the Plan
may be crammed down over the dissent of certain Classes of Claims, in view of
the treatment proposed for such Classes. If necessary and appropriate, the
Debtors intend to modify the Plan to permit cramdown of dissenting Classes of
Claims. Such modifications may include reclassification of certain Claims in
Class 5 to reflect the differing interests of certain creditors or groups of
creditors holding Unsecured Claims in such Class, however, no assurance exists
that the "cramdown" requirements of section 1129(b) of the Bankruptcy Code would
be satisfied even if the Plan treatment provisions were amended or withdrawn as
to one or more creditors or Interest holders.
The requirement that the Plan not "discriminate unfairly" means, among
other things, that a dissenting Class must be treated substantially equally with
respect to other Classes of equal rank. The Debtors do not believe that the Plan
unfairly discriminates against any Class that may not accept or otherwise
consent to the Plan.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan, as it applies to any particular Debtor, is not
confirmable pursuant to section 1129 of the Bankruptcy Code will not limit or
affect: (a) the confirmability of the Plan as it applies to any other Debtor or
(b) the Debtors' ability to modify the Plan, as it applies to any particular
Debtor, to satisfy the provisions of section 1129(b) of the Bankruptcy Code.
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BEST INTERESTS TEST; LIQUIDATION ANALYSIS
Notwithstanding acceptance of the Plan by each impaired Class, to
confirm the Plan, the Bankruptcy Court must determine that the Plan is in the
best interests of each holder of a Claim or Interest in any such impaired Class
who has not voted to accept the Plan. Accordingly, if an impaired Class does not
unanimously accept the Plan, the "best interests" test requires that the
Bankruptcy Court find that the Plan provides to each member of such impaired
Class a recovery on account of the member's Claim or Interest that has a value,
as of the Effective Date, at least equal to the value of the distribution that
each such member would receive if the applicable Debtors were liquidated under
chapter 7 of the Bankruptcy Code on such date.
To estimate what members of each impaired Class of Claims or Interests
would receive if the Debtors were liquidated as part of a chapter 7 case, the
Bankruptcy Court must first determine the aggregate dollar amount that would be
available if each of the Reorganization Cases were converted to a chapter 7 case
under the Bankruptcy Code and the respective Debtor's assets were liquidated by
a chapter 7 trustee (the "Liquidation Value"). The Liquidation Value of a Debtor
would consist of the net proceeds from the disposition of the assets of the
Debtor, augmented by any cash held by the Debtor.
The Liquidation Value available to holders of General Unsecured Claims
and Interests would be reduced by, among other things, (a) the Claims of secured
creditors to the extent of the value of their collateral; (b) the costs, fees
and expenses of the liquidation, as well as other administrative expenses of the
Debtor's chapter 7 case; (c) unpaid Administrative Claims of the Reorganization
Cases; and (d) priority claims. The Debtors' costs of liquidation in chapter 7
cases thus would include the compensation of trustees, as well as of counsel and
of other professionals retained by such trustees, asset disposition expenses,
applicable taxes, litigation costs, Claims arising from the operation of the
Debtors during the pendency of the chapter 7 cases and all unpaid Administrative
Claims incurred by the Debtors during the Reorganization Cases that are allowed
in the chapter 7 cases. The liquidation itself would trigger certain priority
Claims, such as Claims for severance pay, and would likely accelerate the
payment of other priority Claims that would otherwise be payable in the ordinary
course of business. These priority Claims would be paid in full out of the net
liquidation proceeds, after payment of Secured Claims, before the balance would
be made available to pay general Unsecured Claims or to make any distribution in
respect of Interests. The Debtors believe that the liquidation would also
generate a significant increase in Unsecured Claims, such as executory contract
and unexpired lease rejection Claims and tax and other governmental Claims.
The information contained in Exhibit IV provides a summary of the
Liquidation Values of the Debtors' interests in property, on a consolidated
basis, assuming a chapter 7 liquidation in which a trustee appointed by the
Bankruptcy Court would liquidate the Debtors' properties and interests in
property. As more fully described in Exhibit IV, the liquidation analysis is
based on a number of estimates and assumptions that are subject to significant
uncertainties, including estimates and assumptions relating to the proceeds of
sales of assets, the timing of such sales, the impact of pending liquidations on
continuing operations and values and certain tax matters. No amounts have been
included in such analysis in respect of any potential recovery by the Debtors in
respect of the Recovery Actions or the Vitamin Settlement or related litigation.
While the Debtors believe that these estimates and assumptions are reasonable
for the purpose of preparing hypothetical chapter 7 liquidation analyses, no
assurance exists that such estimates and assumptions would be valid if the
Debtors were, in fact, to be liquidated. Moreover, as noted above, the Debtors
believe that a chapter 7 liquidation could result in substantial litigation that
could delay the liquidation beyond the periods assumed in Exhibit IV. This delay
could materially reduce the amount determined on a present value basis available
for distribution to creditors, including holders of General Unsecured Claims in
Class 5. Moreover, the Debtors believe that such litigation and attendant delay
could adversely affect the values realizable in the sale of the Debtors' assets
to an extent that cannot be estimated at this time.
Based on the liquidation analyses set forth in Exhibit IV, the Debtors
believe that holders of Claims will receive greater value as of the Effective
Date under the Plan than such holders would receive under a chapter 7
liquidation.
In actual liquidations of the Debtors, distributions to holders of
Claims would be made substantially later than the Effective Date assumed in
connection with the Plan. This delay would materially reduce the amount
determined on a present value basis available for distribution to creditors,
including holders of general Unsecured Claims. The chapter 7 liquidation of the
Debtors is assumed to commence on November 1, 1999 and to be completed within
one year thereafter. The Liquidation Analysis, which is presented on a
consolidated basis for the PMI Debtors reflecting the elimination of certain
intercompany claims, assumes that distributions are made by the
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chapter 7 trustee beginning six months following commencement of the liquidation
and completed within eighteen months of commencement. As a result, the Debtors
believe the value of the liquidation distributions on a present value basis
determined as of the projected Effective Date would be less than the value
distributable under the Plan.
In summary, the Debtors believe that chapter 7 liquidations of the
Debtors would result in substantial diminution in the value to be realized by
holders of Claims, as compared to the proposed distributions under the Plan,
because of, among other factors, (a) the failure to realize the maximum going
concern value of the Debtors' assets, (b) the substantial negative impact of
conversion to a chapter 7 case and subsequent liquidation on the employees and
customers of the Debtors, (c) additional costs and expenses involved in the
appointment of trustees, attorneys, accountants and other professionals to
assist such trustees in chapter 7 cases, (d) additional expenses and Claims,
some of which would be entitled to priority in payment, which would arise by
reason of the liquidation and from the rejection of unexpired real estate leases
and other leases and executory contracts in connection with a cessation of the
Debtors' operations and (e) the substantial time that would elapse before
entities would receive any distribution in respect of their Claims.
Consequently, the Debtors believe that the Plan will provide a substantially
greater ultimate return to holders of Claims than would chapter 7 liquidations.
FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that Confirmation
not be likely to be followed by the liquidation, or the need for further
financial reorganization, of the Debtors or any successor to the Debtors (unless
such liquidation or reorganization is proposed in the Plan). For purposes of
determining whether the Plan meets this requirement, the Debtors have analyzed
their ability to meet their respective obligations under the Plan. As part of
this analysis, the Debtors have prepared the Projections. Based upon the
Projections, the Debtors believe that their reorganization under the Plan will
meet the feasibility requirements of the Bankruptcy Code.
COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the Plan comply
with the applicable provisions of the Bankruptcy Code. The Debtors have
considered each of these issues in the development of the Plan and believe that
the Plan complies with all provisions of the Bankruptcy Code.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors have evaluated numerous alternatives to the Plan, including
alternative structures and terms of the Plan, the liquidation of the Debtors and
delaying the adoption of any plan of reorganization and the pursuit of various
litigation strategies. While the Debtors have concluded that the Plan is the
best alternative and will maximize recoveries by holders of Claims, if the Plan
is not confirmed, the Debtors, individually or collectively, or (subject to the
Debtors' exclusive periods under the Bankruptcy Code to File a plan or plans of
reorganization) any other party in interest in the Reorganization Cases, could
attempt to formulate and propose a different plan or plans of reorganization.
Further, if no plan of reorganization can be confirmed, the Reorganization Cases
may be converted to chapter 7 cases. In a liquidation case under chapter 7, a
trustee or trustees would be elected or appointed to liquidate the assets of
each Debtor. The proceeds of the liquidation would be distributed to the
respective creditors of the Debtors in accordance with the priorities
established by the Bankruptcy Code. For further discussion of the potential
impact on the Debtors of the conversion of the Reorganization Cases to chapter 7
liquidations, see "Voting And Confirmation Of The Plan -- Best Interests Test;
Liquidation Analysis." The Debtors believe that Confirmation and consummation of
the Plan is preferable to the alternatives described above.
FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN
GENERAL
A DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN IS
PROVIDED BELOW. THIS DESCRIPTION IS BASED ON THE INTERNAL REVENUE CODE, THE
TREASURY REGULATIONS ISSUED (IN FINAL OR TEMPORARY FORM) THEREUNDER AND
ADMINISTRATIVE DETERMINATIONS OF THE IRS IN EFFECT AS OF THE DATE OF THIS
DISCLOSURE STATEMENT. CHANGES IN THESE AUTHORITIES, WHICH MAY HAVE RETROACTIVE
EFFECT, OR NEW INTERPRETATIONS OF EXISTING AUTHORITY MAY CAUSE THE FEDERAL
INCOME TAX
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CONSEQUENCES OF THE PLAN TO DIFFER MATERIALLY FROM THE CONSEQUENCES DESCRIBED
BELOW. MOREOVER, NO RULINGS HAVE BEEN REQUESTED FROM THE IRS AND NO LEGAL
OPINIONS HAVE BEEN REQUESTED FROM COUNSEL WITH RESPECT TO ANY TAX CONSEQUENCE OF
THE PLAN. NO TAX OPINION IS GIVEN BY THIS DISCLOSURE STATEMENT.
THIS DESCRIPTION DOES NOT COVER ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO THE DEBTORS OR HOLDERS OF CLAIMS. FOR EXAMPLE, THE
DESCRIPTION DOES NOT ADDRESS ISSUES OF SPECIAL CONCERN TO CERTAIN TYPES OF
TAXPAYERS, SUCH AS DEALERS IN SECURITIES, LIFE INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, TAX EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS, NOR DOES IT
ADDRESS TAX CONSEQUENCES TO HOLDERS OF INTERESTS. THE DESCRIPTION, MOREOVER, IS
LIMITED TO FEDERAL INCOME TAX CONSEQUENCES.
FOR THESE REASONS, THE DESCRIPTION THAT FOLLOWS IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND PROFESSIONAL TAX ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR INTEREST. HOLDERS OF CLAIMS OR
INTERESTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
REDUCTION OF DEBTORS' INDEBTEDNESS
Generally, the discharge of a debt obligation by a debtor for an amount
less than the adjusted issue price (in most cases, the amount the debtor
received on incurring the obligation, with certain adjustments) gives rise to
cancellation of indebtedness ("COD") income, which must be included in the
debtor's income. However, COD income is not recognized by a taxpayer that is a
debtor in a chapter 11 case if the discharge is granted by the court or pursuant
to a plan of reorganization approved by the court. The Plan, if approved, would
enable the Debtors to qualify for this bankruptcy exclusion rule with respect to
any COD income triggered by the Plan.
If debt is discharged in a chapter 11 case, however, certain tax
attributes otherwise available and of value to the debtor are reduced, in most
cases by the principal amount of the indebtedness forgiven. Tax attributes
subject to reduction include: (a) net operating losses ("NOL's") and NOL
carryforwards; (b) most credit carryforwards, including the general business
credit and the minimum tax credit; (c) capital losses and capital loss
carryforwards; (d) the tax basis of the debtor's depreciable and nondepreciable
assets, but not in an amount greater than the excess of the aggregate tax bases
of the property held by the debtor immediately after the discharge over the
aggregate of the debtor's liabilities immediately after the discharge; and (e)
foreign tax credit carryforwards. Attribute reduction is calculated only after
the tax for the year of discharge has been determined.
A debtor may elect to avoid the prescribed order of attribute reduction
and instead reduce the basis of depreciable property first. This election
extends to stock of a subsidiary if the subsidiary consents to reduce the basis
of its depreciable property. If the Debtors make this election, the limitation
prohibiting the reduction of asset basis below the amount of its remaining
undischarged liability does not apply. In the case of affiliated corporations
filing a consolidated return (such as the Debtors), the attribute reduction
rules generally should apply separately to the particular corporation whose debt
is being discharged, not to the entire group without regard to the identity of
the particular debtor. The IRS recently has taken the position, however, that
consolidated Net Operating Losses must be reduced irrespective of the source of
those losses. The current IRS position as to the impact of the attribute
reduction rules on other tax attributes of consolidated group members is
unclear.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
The tax consequences of the Plan to a holder of a Claim will depend, in
part, on whether the Claim constitutes a "tax security" for federal income tax
purposes, what type of consideration was received in exchange for the Claim,
whether the holder is a resident of the United States for tax purposes, whether
the holder reports income on the accrual or cash basis, whether the holder has
taken a bad debt deduction or worthless security deduction with respect to the
Claim and whether the holder receives distributions under the Plan in more than
one taxable year. In
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some cases, the modification of a Claim may represent for tax purposes an
exchange of the Claim for a modified Claim, even though no actual transfer takes
place.
DEFINITION OF TAX SECURITIES
There is no precise definition under the tax law of what constitutes a
"tax security", and all facts and circumstances pertaining to the origin and
character of a claim are relevant in determining its status. Nevertheless,
courts have generally held that corporate debt obligations evidenced by written
instruments with original maturities of ten years or more will be considered tax
securities for this purpose. Based on their original maturities, it is likely
that the Old Senior Subordinated Notes will be considered tax securities for
this purpose. By contrast, it is likely that claims held by other holders of
other General Unsecured Claims will not be considered tax securities for this
purpose.
HOLDERS OF CLAIMS CONSTITUTING TAX SECURITIES
Under the terms of the Plan, Holders of Claims constituting tax
securities will receive New Common Stock in satisfaction of their Claims under
the Plan. Holders of Claims constituting tax securities will not generally
recognize gain on the exchange unless the fair market value of the New Common
Stock received exceeds the principal amount of tax securities canceled. If it
does, the gain recognized will generally equal the fair market value of the
excess.
Holders of Claims constituting tax securities who receive New Common
Stock under the Plan in either partial or full satisfaction of their Claims will
generally not be permitted to recognize any loss on the exchange.
A holder's aggregate tax basis in the New Common Stock received under
the Plan in respect of a Claim constituting a tax security -- aside from any
amounts allocable to interest -- will generally equal the holder's basis in the
Claim. This aggregate basis should be apportioned among the New Common Stock
according to their respective fair market values. The holding period for any New
Common Stock received in the exchange will generally include the holding period
of the Claim surrendered.
HOLDERS OF CLAIMS NOT CONSTITUTING TAX SECURITIES
Holders of Claims not constituting tax securities will likely recognize
gain or loss equal to the amount realized under the Plan in respect of their
Claims less their respective tax bases in those Claims. The amount realized for
this purpose will generally equal the sum of the cash and the fair market value
of any other consideration received under the Plan, including any New Common
Stock.
Any gain or loss recognized in the exchange will be capital or ordinary
depending on the status of the Claim in the holder's hands. The holder's
aggregate tax basis for any consideration received under the Plan will generally
equal the amount realized. The holding period for any consideration received
under the Plan will generally begin on the day following the receipt of that
consideration.
DIVIDEND AND INTEREST INCOME EARNED BY UNSECURED CLAIMS RESERVE
Pursuant to the Plan, shares of New Common Stock issued as of the
Effective Date but not yet subject to distribution to holders of Allowed Claims
will be held by the Unsecured Claims Reserve until distribution is required by
the Plan. It is therefore possible that the Unsecured Claims Reserve will
receive cash dividends or other distributions from the Reorganized Debtor on
account of the shares of New Common Stock it is holding. Any cash thus received
would be reinvested pursuant to the Plan, thereby generating additional income.
Congress has made it clear that amounts earned by an escrow account,
settlement fund or similar fund are subject to current tax, but effective
Treasury Regulations addressing the tax treatment of reserve accounts like the
Unsecured Claims Reserve in a bankruptcy setting have not yet been promulgated.
Therefore, depending on the facts (and the interpretation given to those facts),
reserve accounts like the Unsecured Claims Reserve might be treated for tax
purposes under current law as separately taxable trusts, grantor trusts treated
as owned by either the corporate transferor or the creditor beneficiaries or in
some other fashion.
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<PAGE> 83
On February 1, 1999, the IRS issued a proposed Treasury Regulation that
would cause reserve accounts like the Unsecured Claims Reserve to be treated as
"qualified settlement funds" for federal income tax purposes, which would in
turn have the consequence of causing income earned by those accounts to be
subject to a separate entity-level tax. The proposed Regulation is not currently
in effect, however, and will only become effective once it is promulgated in
final form. In the interim, the proposed Regulation provides that the IRS will
not challenge any reasonable, consistently-applied method for reporting income
earned by a reserve account like the Unsecured Claims Reserve.
Against this background, the Debtor has decided to treat the Unsecured
Claims Reserve as a grantor trust of which the Reorganized Debtor is the
grantor, and therefore will treat income earned by the Unsecured Claims Reserve
as income of the Reorganized Debtor. (In order to assure that this income is
fully subject to tax, the Reorganized Debtor will waive whatever right it might
otherwise have to claim a dividends received deduction with respect to any
dividends paid to the Unsecured Claims Reserve on account of the undistributed
New Common Stock.) Any income thus earned should be offset dollar-for-dollar on
a current basis by an interest deduction to the Reorganized Debtor reflecting
its obligation under the Plan to pay any income earned by the Unsecured Claims
Reserve on New Common Stock (or on the reinvestment of dividends paid on that
New Common Stock) to holders of Allowed Claims.
CERTAIN OTHER TAX CONSIDERATIONS FOR HOLDERS OF CLAIMS
RECEIPT OF PRE-EFFECTIVE DATE INTEREST
Holders of Claims not previously required to include in their taxable
income any accrued but unpaid pre-Effective Date interest on a Claim may be
treated as receiving taxable interest to the extent any consideration they
receive under the Plan is allocable to such interest. Holders previously
required to include in their taxable income any accrued but unpaid interest on a
Claim may be entitled to recognize a deductible loss to the extent that such
interest is not satisfied under the Plan.
RECEIPT OF DIVIDEND AND INTEREST INCOME EARNED BY UNSECURED CLAIMS
RESERVE
As described above (see "Federal Income Tax Consequences of
Consummation of the Plan -- Federal Income Tax Consequences to Holders --
Dividend and Interest Income Earned by Unsecured Claims Reserve"), it is
possible that the Unsecured Claims Reserve will receive cash dividends on shares
of New Common Stock held by it and then generate additional cash by reinvesting
those dividends pending distribution. When that cash is distributed to holders
of Allowed Claims, the Reorganized Debtor will treat the cash as taxable
interest income to the holder, and will File information returns reflecting that
treatment.
REINSTATEMENT OF CLAIMS
Holders should not generally recognize gain, loss or other taxable
income upon the Reinstatement of their Claims under the Plan. Taxable income
may, however, be recognized by those holders if they are considered to receive
interest, damages or other income in connection with the Reinstatement, or if
the Reinstatement is considered for tax purposes to involve a modification of
the Claim.
RECEIPT BY HOLDERS OF BANK LOAN CLAIMS OF NEW PREPETITION CREDIT
FACILITY NOTES
Gain or loss may be recognized by Holders of Bank Loan Claims on the
receipt of New Prepetition Credit Facility Notes to be issued in respect
thereof. The gain or loss is measured by the difference between the issue price
of such new notes and Holders' adjusted basis in the original Claims, provided
the new notes contain terms that significantly modify the terms contained in the
original Claims. Further, Holders of Claims who receive new notes may be subject
to the rules governing original issue discount. Those rules may cause additional
interest income to be recognized for federal income tax purposes on an annual
basis.
BAD DEBT DEDUCTION
A holder who, under the Plan, receives in respect of a Claim an amount
less than the holder's tax basis in that Claim may be entitled in the year of
receipt (or in an earlier year) to a bad debt deduction in some amount under
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section 166(a) of the Internal Revenue Code. The rules governing the timing and
amount of bad debt deductions place considerable emphasis on the facts and
circumstances of the holder, the obligor and the instrument with respect to
which a deduction is claimed; holders of Claims are therefore urged to consult
their tax advisors with respect to their ability to take such a deduction.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the Internal Revenue Code's backup withholding rules, a holder of
a Claim may be subject to backup withholding with respect to distributions or
payments made pursuant to the Plan unless that holder (a) comes within certain
exempt categories (which generally include corporations) and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number
and certifies under penalty of perjury that the taxpayer identification number
is correct and that the holder is not subject to backup withholding because of a
failure to report all dividend and interest income. Backup withholding is not an
additional tax, but merely an advance payment that may be refunded to the extent
it results in an overpayment of tax. Holders of Claims may be required to
establish exemption from backup withholding or to make arrangements with respect
to the payment of backup withholding.
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS
No registration statement will be filed under the Securities Act of
1933 (the "Securities Act") or any state securities laws with respect to the
offer and distribution under the Plan of the New Common Stock. The Debtors
believe that the provisions of section 1145(a)(1) of the Bankruptcy Code exempt
the offer and distribution of such securities under the Plan from federal and
state securities registration requirements.
BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS
Initial Offer and Sale of Securities. Section 1145(a)(1) of the
Bankruptcy Code exempts the offer and sale of securities under a plan of
reorganization from registration under the Securities Act and state securities
laws if three principal requirements are satisfied: (a) the securities must be
offered and sold under a plan of reorganization and must be securities of the
debtor, an affiliate participating in a joint plan with the debtor or a
successor to the debtor under the plan; (b) the recipients of the securities
must hold a prepetition or administrative expense claim against the debtor or an
interest in the debtor; and (c) 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 New Common Stock under the Plan satisfies
the requirements of section 1145(a)(1) of the Bankruptcy Code and are,
therefore, exempt from registration under the Securities Act and state
securities laws.
Subsequent Transfers of Securities. In general, all resales and
subsequent transactions in the New Common Stock distributed under the Plan will
be exempt from registration under the Securities Act pursuant to Section 4(1) of
the Securities Act, unless the holder thereof is deemed to be an "underwriter"
with respect to such securities, an "affiliate" of the issuer of such securities
or a "dealer." Section 1145(b) of the Bankruptcy Code defines four types of
"underwriters":
(a) persons who purchase a claim against, an interest in, or a
claim for administrative expense against the debtor with a
view to distributing any security received in exchange for
such a claim or interest ("accumulators");
(b) persons who offer to sell securities offered under a plan for
the holders of such securities ("distributors");
(c) persons who offer to buy securities from the holders of such
securities, if the offer to buy is (i) with a view to
distributing such securities and (ii) made under a
distribution agreement; and
(d) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the
Securities Act.
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Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate"
of the issuer, which means any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with the
issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who
engages either for all or part of his or her time, directly or indirectly, as
agent, broker or principal, in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person. Whether or
not any particular person would be deemed to be an "underwriter" or an
"affiliate" with respect to any security to be issued pursuant to the Plan or to
be a "dealer" 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" or an "affiliate" with respect to any security to be
issued pursuant to the Plan or to be a "dealer."
In connection with prior bankruptcy cases, the staff of the SEC has
taken the position that resales by accumulators and distributors of securities
distributed under a plan of reorganization are exempt from the registration
under the Securities Act if effected in "ordinary trading transactions." The
staff of the SEC has indicated in this context that a transaction may be
considered an "ordinary trading transaction" if it is made on an exchange or in
the over-the-counter market and does not involve any of the following factors:
(a) (i) concerted action by the recipients of securities issued
under a plan in connection with the sale of such securities or
(ii) concerted action by distributors on behalf of one or more
such recipients in connection with such sales;
(b) the use of informational documents concerning the offering of
the securities prepared or used to assist in the resale of
such securities, other than a bankruptcy court-approved
disclosure statement and supplements thereto, and documents
filed with the SEC pursuant to the Exchange Act; or
(c) the payment of special compensation to brokers and dealers in
connection with the sale of such securities designed as a
special incentive to the resale of such securities (other than
the compensation that would be paid pursuant to arm's-length
negotiations between a seller and a broker or dealer, each
acting unilaterally, not greater than the compensation that
would be paid for a routine similar-sized sale of similar
securities of a similar issuer).
The Debtors have not, however, sought the views of the SEC on this matter and,
therefore, no assurance can be given regarding the proper application of the
"ordinary trading transaction" exemption described above. Any person intending
to rely on such exemption is urged to consult his or her own counsel as to the
applicability thereof to his or her circumstances.
In addition, Rule 144 provides an exemption from registration under the
Securities Act for certain limited public resales of unrestricted securities by
"affiliates" of the issuer of such securities. Rule 144 allows a holder of
unrestricted securities that is an affiliate of the issuer of such securities to
sell, without registration, within any three month period a number of shares of
such unrestricted securities that does not exceed the greater of 1% of the
number of outstanding securities in question or the average weekly trading
volume in the securities in question 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. The Debtors believe that, pursuant to section 1145(c) of
the Bankruptcy Code, the New Common Stock to be issued pursuant to the Plan will
be unrestricted securities for purposes of Rule 144.
GIVEN THE COMPLEX 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 COMMON STOCK TO BE DISTRIBUTED PURSUANT TO THE
PLAN. THE DEBTORS RECOMMEND THAT HOLDERS OF CLAIMS CONSULT THEIR OWN COUNSEL
CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.
Subsequent Transfers Under State Law. State securities laws generally
provide registration exemptions for subsequent transfers by a bona fide owner
for his or her own account and subsequent transfers to institutional or
accredited investors. Such exemptions are generally expected to be available for
subsequent transfers of the New Common Stock.
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<PAGE> 86
CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers effecting
transactions in the New Common Stock prior to the expiration of 40 days after
the first date on which such securities were bona fide offered to the public by
Reorganized PMI or by or through an Underwriter are required to deliver to the
purchaser of such securities a copy of this Disclosure Statement (and
supplements hereto, if any, if ordered by the Bankruptcy Court) at or before the
time of delivery of such securities to such purchaser. In connection with prior
bankruptcy cases, the staff of the SEC has taken so-called "no-action" positions
with respect to noncompliance by stockbrokers with such requirement in
circumstances in which the debtor was, and the reorganized debtor was to
continue to be, subject to, and in compliance with the periodic reporting
requirements of the Exchange Act. The views of the SEC on the matter have not,
however, been sought by the Debtors and, therefore, no assurance can be given
regarding the possible consequences of noncompliance by stockbrokers with the
disclosure statement delivery requirements of section 1145(a)(4). Stockbrokers
are urged to consult their own counsel with respect to such requirements.
ADDITIONAL INFORMATION
Any statements in this Disclosure Statement concerning the provisions
of any document are not necessarily complete, and in each instance reference is
made to such document for the full text thereof. Certain documents described or
referred to in this Disclosure Statement have not been attached as exhibits
because of the impracticability of furnishing copies of these documents to all
recipients of this Disclosure Statement. All of the exhibits and schedules to
the Plan and this Disclosure Statement are available for inspection at the
Document Reviewing Centers located at the office of Jones, Day, Reavis & Pogue,
901 Lakeside Avenue, Cleveland, Ohio 44114, or at any other location designated
by the Debtors.
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<PAGE> 87
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the
Debtors believe that the Confirmation and consummation of the Plan is preferable
to all other alternatives. Consequently, the Debtors urge all holders of Claims
to vote to accept the Plan and to evidence their acceptance by duly completing
and returning their Ballots so that they will be received on or before ____
p.m., Eastern Time on ___________, ____.
Dated: ____________, 1999 Respectfully submitted,
PURINA MILLS, INC.,
for itself and on behalf of the
PMI Subsidiary Debtors
By:
----------------------------------
Name: David G. Kabbes
Title: Vice President, Secretary
and General Counsel
COUNSEL:
- ----------------------------------
THOMAS L. AMBRO (DE377)
DANIEL J. DEFRANCESCHI (DE2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
- - and -
RICHARD M. CIERI (OH0032464)
CHRISTOPHER M. KELLY (NY C1217587)
SEAN M. MCAVOY (OH 0060119)
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
HENRY L. GOMPF (TX 08116400)
JONES, DAY, REAVIS & POGUE
2727 North Harwood
Dallas, Texas 75201
(214) 220-3939
PROPOSED ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
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<PAGE> 88
EXHIBIT I
PMI DEBTOR SUBSIDIARIES
Carolina Agri-Products, Inc.
Coastal Ag-Development, Inc.
Cole Grain Company, Inc.
Dairy Management Services, LLP
PM Nutrition Company Inc.
PMI Agriculture L.L.C.
PMI Nutrition, Inc.
PMI Nutrition International, Inc.
Purina Livestock Management Services, Inc.
<PAGE> 89
EXHIBIT II
JOINT PLAN OF REORGANIZATION OF PURINA MILLS, INC.,
AND ITS DEBTOR SUBSIDIARIES
<PAGE> 90
EXHIBIT III
PMI FORMS 10-K AND 10-Q
<PAGE> 91
EXHIBIT IV
LIQUIDATION ANALYSIS
See Attached.
<PAGE> 92
Purina Mills, Inc.
Hypothetical Liquidation Analysis(1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Low Amount High Amount
---------- -----------
<S> <C> <C>
Estimated Asset Proceeds Available for Distribution:
Cash and Cash Equivalents(2) $ 10,000 $ 10,000
Receivables(3) 16,260 21,264
Inventories(4) 21,942 35,830
Other Current Assets(5) 236 309
Property, Plant and Equipment(6) 41,339 90,290
Other Assets(7) 41,137 44,007
-------- --------
Gross Proceeds $130,914 $201,699
Wind Down Costs (8) 6,500 6,500
-------- --------
Net Proceeds $124,414 $195,199
</TABLE>
<TABLE>
<CAPTION>
Estimated Low High
Claim Distribution Percent Distribution Percent
Amount Amount Recovery Amount Recovery
--------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Estimated Claims and
Distributions:
Secured Claims(9) $ 295,020 $ 124,414 42% $ 195,199 66%
No remaining proceeds are
available for distribution to:
Priority and
Administrative Claims(10) 14,132 0 0% 0 0%
Unsecured Claims(11) 477,876 0 0% 0 0%
</TABLE>
2
<PAGE> 93
1) The liquidation analysis presented reflects a hypothetical liquidation
under chapter 7 of the Bankruptcy Code to determine whether the Plan
satisfies the "best interest" test contained in section 1129(a)(7) of
the Bankruptcy Code. See "Voting and Confirmation of the Plan - Best
Interests Test; Liquidation Analysis." This analysis assumes that the
hypothetical liquidation is effectuated on an orderly basis beginning
on November 1, 1999. For purposes of preparing this liquidation
analysis, certain financial information concerning the assets and
liabilities of the Debtors has been based on the Debtors' consolidated
balance sheet as of August 31, 1999 and does not reflect any change in
such information since that date. The Debtors do not believe such
changes are material to the overall liquidation analysis. For clarity
of presentation, this liquidation analysis is presented on a
consolidated basis for all Debtors. Separate liquidation analyses were
performed for each entity in recognition that liquidation proceeds and
distributions would necessarily differ on an entity-by-entity basis. As
such, the liquidation analysis assumes that the business units
associated with each of the Debtors are liquidated separately. No
proceeds from recoveries of preferences, fraudulent conveyances or
other related causes of action, if and to the extent any may be
realized, have been included. See "Certain Recovery Actions." In
addition, no proceeds from the Vitamin Settlement or related
litigation, if and to the extent any may be realized, have been
included. See "Certain Events Preceding the Debtors' Chapter 11 Filings
-- Prepetition Events." The Debtors are assumed to be liquidated under
the direction of a Bankruptcy Court-appointed trustee with the
assistance of existing management and specific professionals. The
liquidation analysis assumes that the sale of all grain and livestock
inventories begins immediately upon the November 1, 1999 commencement
date and the sales process is completed within ten weeks thereafter.
The operating assets of the businesses are assumed to be fully
liquidated within 12 months with distribution to creditors beginning 6
months after commencement and ending 18 months thereafter.
Administration of the chapter 7 is assumed to be complete in twelve
months. The proceeds from the liquidation have not been discounted to
reflect the assumed delay in distributions. Applying a discount factor
to the proceeds from the liquidation would result in a lower range of
recoveries for certain creditors.
2) "Cash and Cash Equivalents" are estimated at $10 million as of October
31, 1999.
3) "Accounts Receivable" consists primarily of customer receivables from
product sales. It should be noted that a majority of sales are made on
terms whereby customers receive a 3% discount if payment is received
immediately upon shipment of feed products. As a result of this
practice, days sales outstanding has historically averaged 18 days.
Gross accounts receivable have been reduced for management's estimate
of doubtful accounts ($15.3 million), derived on a customer-by-customer
estimation of collectability of outstanding balances, to arrive at a
net receivable balance. Bad debt allowances are comprised primarily of
outstanding hog customer balances. The estimated realization on net
accounts receivable ranges from a low of 65% to a high of 85%. The
estimated realization percentage range is below book value to reflect
the assumed deterioration in collections once customer obligors are
informed that the Debtors are no longer continuing their businesses.
4) "Inventories" are comprised of raw materials, (i.e., grains, livestock)
and finished goods. Raw materials grains consist of corn, other grains,
protein sources and nutritional additives employed during the
production process. The raw materials - grains portion of inventory is
assumed to liquidate in a range of 25% to 50% of net book value. The
realization percentage reflects management's estimate of the difficulty
of selling raw materials. Management experience suggests that, in
general, grain buyers would incur significant costs for removal and
transportation post purchase, thereby depressing the potential
realization values. Raw materials - livestock includes breeding stock,
farrow hogs, finish hogs, nursery hogs, poultry, turkeys and cattle.
The liquidation realization for raw materials - livestock portion of
inventory is assumed to range from 55% to 85% and is based on livestock
market values as determined by specie and by local spot market prices
as of October 1, 1999. The liquidation analysis assumes the Debtors
will sell no livestock inventory at an amount greater than its cost.
Finished goods inventory, comprised of bulk and bag feed and health
products, is forecast to sell at a range of between 60% and 80%. All
percentages have been applied to net inventory amounts. Net inventories
represent gross inventory values less lower-of-cost-or-market and
shrinkage adjustments.
5) "Other Current Assets" include prepaid expenses, miscellaneous
receivables and deferred income taxes. The Debtors expect to realize no
value for such asset categories in a liquidation. Prepaid expenses
include prepaid insurance premiums in respect of the CAP Plan, which
are 100% realizable in a liquidation, and other miscellaneous items,
which will have no value under liquidation. Miscellaneous receivables
are comprised primarily of notes receivable which represent disputed
customer rebates most of which are assumed to be uncollectible and
therefore are assumed to have no value upon liquidation. Other material
amounts included are fees and defaulted notes receivable from Purina Ag
Capital which are reserved at 100% on PMI's books.
3
<PAGE> 94
6) "Plant, Property and Equipment" ("PP&E") projected realization
percentages were derived by entity, by the following PP&E classes:
land, land improvements, buildings, machinery and equipment, automotive
equipment, furniture and fixtures, office machines and equipment,
cafeteria equipment and construction-in-progress. The net book value of
fixed assets is based on a complete asset-by-asset appraisal performed
in 1993 rolled forward to March 1998 based on capital additions and
obsolescence. In March 1998, the assets were revalued on an aggregate
level based on general inflationary trends. In general, real estate
values have been adjusted at a slightly higher rate than inflation for
the past five years. The revalued assets were rolled forward to the
current period based on capital additions and obsolescence. Each PP&E
class realization percentages are based on net PP&E amounts, i.e.,
gross PP&E less accumulated depreciation (totaling $43.4 million) and
divestment reserve adjustments (totaling $23.7 million). Land includes
all Debtor-owned land (at plant, mill and corporate locations). Land
improvements include all property-value-enhancing additions for plants,
mills, and corporate office. Buildings includes all plants, mills and
the corporate office. Machinery and equipment includes production
equipment employed at plants and mills. Automotive equipment consists
of Debtor-owned vehicles, e.g., trucks and tractor-trailers. Furniture
and fixture amounts are composed primarily of office furniture and
personal computers held at the corporate office location. Office
machines and equipment includes plant and mill machinery, mainframe
computers at corporate locations and other office machines employed in
office spaces (plant, mill and corporate locations). Cafeteria
equipment includes all equipment used in the employee cafeteria at the
corporate office. Construction-in-progress includes all asset
enhancement/repair projects as well as in-process asset acquisitions.
Construction-in-progress is converted to fixed assets (by class) upon
completion of each project. All estimated realization percentage ranges
are based on management's assumption that PP&E recoveries would be
adversely affected by the lack of convertibility of the assets (i.e.,
because significant portions of the assets have limited alternative
uses), coupled with current market conditions (i.e., overcapacity and
industry consolidation). Construction-in-progress percentages reflect
the depressed values that would be realized assuming these projects are
sold in an incomplete state. All PP&E realization percentages are
reduced by 4% to reflect costs associated with asset disposition (e.g.,
real estate commissions, removal costs, transaction fees, etc.).
7) "Other assets" includes intangible assets, notes receivable, other
assets, deferred income taxes, and deferred financing costs. Intangible
assets includes goodwill ($248.2 million, net); patents ($13.6 million,
net); trademarks ($1.3 million, net); distribution network ($34.3
million, net); investments in software ($15.1 million, net); hog
breeding rights ($0.2 million, net); specialized product/ingredient
formulas ($8.2 million, net); and Purina-derived hog feeding strategy
($0.15 million, net). All intangible assets are assumed to have no
realizable value on liquidation, except patents and trademarks (100%
realization) and hog feed strategy and specialized product/ingredient
formulas (25% realization). Notes receivable is comprised primarily of
capital loans totaling approximately $14.8 million of which $8.1
million is reserved. Notes receivable are assumed to realize between
20% and 50% of net book value based on management experience. Other
assets are comprised primarily of cash surrender value of life
insurance policies in respect to the CAP Plan (valued at $14 million)
and $7.7 million of co-op and joint ventures investments. The cash
surrender value of life insurance is 100% realizable based on its
current value. In total, twelve joint ventures are included in the
Debtor's asset base and range in percentage participation from 50% to
75%. Realizable values for the joint ventures are estimated to range
from a low of 40% to a high of 75% based on the type of specie produced
by the joint venture. Deferred income taxes and deferred financing
costs are assumed to have zero realizable value on liquidation.
8) "Wind down costs" reflect estimated costs associated with the
administration of the chapter 7 asset liquidation and are based on 50%
of PMI's estimated quarterly general and administrative ("G&A") cost
run rate ($13 million). It is assumed that a complete liquidation of
company assets span a twelve-month period, however the administrative
structure required to effectuate such asset disposition will be
significantly lower than that required for continuing operations and
will diminish as the liquidation period unfolds. Costs (as a percentage
of the 2000 G&A run rate) are projected to wind down to 50% in the
first quarter of 2000, 25% in the second quarter and 12.5% in the third
and fourth quarter.
9) "Secured claims" include claims under the Prepetition Credit Facility,
which is comprised of a Revolving Loan Commitment ($99.6 million,
including Letters of Credit of $12.0 million), Tranche A Loans ($93.0
million) and Tranche B Loans ($99.6 million). Also included in the
secured claims are (a) accrued real estate taxes and other property
taxes of $2.7 million and (b) interest due on an interest rate swap
agreement.
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10) "Priority and Administrative Claims" of $14.1 million represent
priority administrative claims against the Debtors' estates, consisting
of $5.0 million of trustee's fees (based on 3% of average gross asset
recoveries); $1.6 million of professional fees and expenses (based on
1% of average gross asset recoveries) including legal, consulting and
investment banking fees and expenses; $5.8 million of employee claims
($4.5 million accrued vacation and $1.3 million salary and wages); and
$1.7 million of priority tax claims.
11) "General Unsecured Claims" of $478 million primarily reflects $365
million for Old Senior Subordinated Notes ($350 million principal
amount and $14.5 million of accrued interest). Also included in general
unsecured claims are $36.9 million in trade payables ($13.8 million of
which represents obligations for bank account overdrafts), $19.6
million in accounts payable to Koch Agriculture (for ingredient
purchases), $1.6 million in accounts payable to Koch Industries (for
payroll reimbursement and internal market charges) and $25.0 million in
supplemental retirement obligations (including $21.7 million for CAP
Plan and $3.2 million in other accrued program benefits). Other
unsecured claims include: $2.7 million in commitments to PMI customers
under the commodity payment program, $1.4 million in litigation
contingency reserves, $1.9 million in projected divestment costs, $2.2
million in accrued pension and post-retirement benefits, $1.1 million
in customer advance payments and approximately $12 million in estimated
contract lease rejection damages. An estimated $10.1 million in other
unsecured claims is included and composed primarily of $6.4 million in
accrued employee benefits. Additional amounts include $3.8 million in
other miscellaneous accrued expenses, $1.4 million in Purina Ag Capital
unsecured guarantees for working capital loans and $3.3 million in
unsecured non-funded participations and guarantees.
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