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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): January 18, 2000
-----------------------------
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
------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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ITEM 5. OTHER EVENTS.
Purina Mills, Inc. ("PMI") and certain of its subsidiaries
(collectively, the "Debtors") have previously filed, on October 28, 1999,
voluntary petitions under chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") (Case No. 99-3938 (SLR)). On January 18, 2000,
the Debtors filed with the Bankruptcy Court a proposed Joint Plan of
Reorganization (the "Plan") and a related proposed Disclosure Statement, each of
which is attached hereto as an exhibit.
The proposed Plan, as described in the proposed Disclosure Statement,
constitutes the agreement among the Debtors; Koch Industries, Inc. ("Koch
Industries") and its subsidiary, Koch Agriculture Company ("Koch Agriculture");
the creditors committee appointed by the Bankruptcy Court in the chapter 11
proceedings; and the holders (collectively, the "Consenting Holders") of
approximately 55% of the principal amount of PMI's 9% Senior Subordinated Notes
Due 2010 (the "Subordinated Notes") regarding the settlement of issues among
Koch Industries and its affiliates, the Debtors and the Debtors' creditors. It
is contemplated that Koch Industries, Koch Agriculture and the Consenting
Holders will enter into an agreement pursuant to which the Consenting Holders
will agree to vote in favor of the proposed Plan, subject to the satisfaction of
certain conditions, including approval by the Bankruptcy Court of the proposed
Disclosure Statement pursuant to section 1125 of the Bankruptcy Code.
Under the proposed Plan (a) Koch Agriculture 's equity
interest in PMI's parent company, PM Holdings Corporation, would be canceled;
(b) Koch Agriculture would provide a one time $60 million capital contribution
to PMI; and (c) holders of the Subordinated Notes, together with the holders of
other allowed general unsecured pre-petition claims, would receive new common
stock in reorganized PMI.
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 Press Release issued January 18, 2000
99.2 Joint Plan of Reorganization, dated January 18, 2000, as
filed in the United States Bankruptcy Court for the
District of Delaware in In re: Purina Mills, Inc., et al.,
Case No. 99-3938 (SLR).
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99.3 Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code for the Joint Plan of Reorganization,
as filed in the United States Bankruptcy Court for
the District of Delaware in In re: Purina Mills,
Inc., et al., Case No. 99-3938 (SLR).
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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.
Del G. Meinz
Date: January 20, 2000 By:_____________________________
Name: Del G. Meinz
Title: Vice President, Treasurer
and Controller
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EXHIBIT INDEX
Exhibit No. Exhibit Description
99.1 Press Release issued January 18, 2000
99.2 Joint Plan of Reorganization, dated January 18, 2000,
as filed in the United States Bankruptcy Court for the
District of Delaware in In re: Purina Mills, Inc., et
al., Case No. 99-3938 (SLR).
99.3 Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code for the Joint Plan of Reorganization,
as filed in the United States Bankruptcy Court for the
District of Delaware in In re: Purina Mills, Inc., et
al., Case No. 99-3938 (SLR).
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Exhibit 99.1
Copyright 2000 PR Newswire Association, Inc.
PR Newswire
January 18, 2000, Tuesday
SECTION: FINANCIAL NEWS
DISTRIBUTION: TO BUSINESS EDITOR
LENGTH: 459 words
DEADLINE: Purina Mills, Inc. Files Plan of Reorganization and Disclosure
Statement With Bankruptcy Court
BODY:
Less than three months after commencing its Chapter 11 cases,
Purina Mills, Inc. announced that it has filed its Plan of Reorganization and
Disclosure Statement with the United States Bankruptcy Court for the District of
Delaware. A hearing on the adequacy of the Disclosure Statement is expected to
occur in February. After approval of the Disclosure Statement, Purina Mills will
commence the solicitation of votes for approval of its Plan of Reorganization.
"The company has worked very hard over the past few months to complete
this process in a timely manner. We have successfully transitioned purchasing
activities formerly handled by Koch Industries back to our headquarters in
St. Louis. We continue to work toward making Purina Mills a successful
stand-alone company at the end of this process," said Brad Kerbs, Purina Mills'
President and Chief Operating Officer.
Under the terms of the Plan of Organization, the equity interest in
Purina Mills' parent company, PM Holdings Corporation, held by Koch Agriculture
Company will be canceled. Koch Agriculture also will provide a one time $60
million capital contribution to Purina. Holders of the Company's Senior
Subordinated Notes,together with the holders of other allowed general unsecured
pre-petition claims, will receive new common stock in reorganized Purina. The
plan comtemplates that the new common stock will be listed on or quoted
through a national securities exchange.
"We are confident that, upon confirmation of the plan, we will emerge
from Chapter 11 as a stand-alone, stronger operation with a bright, new future,"
said Brad Kerbs.
Purina Mills is America's largest producer and marketer of animal
nutrition products. Based in St. Louis, Missouri, the company has 49 plants and
2500 employees nationwide. Purina Mills is not affiliated with Ralston Purina
Company, which is the registered owner of the trademarks "Purina," the
checkerboard logo and Purina Dog Chow brand and Purina Cat Chow brand pet
foods.
Certain statements contained in this press release, including but not
limited to information regarding the future economic performance and financial
condition of the Company, the plans and objectives of the Company's management
and the Company's assumptions regarding such performance and plans, are
forward-looking in nature. Additional information concerning important factors
that could cause actual results to differ from the forward-looking information
contained in this release is included in the Company's publicly filed
quarterly and annual reports.
SOURCE: Purina Mills, Inc.
CONTACT: Max Fisher, 314-768-4405, for Purina Mills, Inc.
URL: http://www.prnewswire.com
LANGUAGE: ENGLISH
LOAD-DATE: January 19, 2000
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Exhibit 99.2
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
<TABLE>
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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 HOLDINGS CORPORATION) : (CASE NO. 99-3937 (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., ITS PARENT
: CORPORATION 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
ATTORNEYS FOR DEBTORS AND DEBTORS IN
POSSESSION
January 18, 2000
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TABLE OF CONTENTS
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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. "Allocable Portion"...........................................................................1
4. "Allowed Claim"...............................................................................1
5. "Allowed . . . Claim".........................................................................2
6. "Assumed Customer Guarantees".................................................................2
7. "Ballot"......................................................................................2
8. "Bank Loan Claim".............................................................................2
9. "Bankruptcy Code".............................................................................2
10. "Bankruptcy Court"............................................................................2
11. "Bankruptcy Rules"............................................................................2
12. "Bar Date"....................................................................................2
13. "Bar Date Order"..............................................................................2
14. "Business Day"................................................................................2
15. "CAP Plan"....................................................................................2
16. "Cash Investment Yield".......................................................................2
17. "Cash Management Order".......................................................................3
18. "Chase Bank"..................................................................................3
19. "Claim".......................................................................................3
20. "Claims Objection Bar Date"...................................................................3
21. "Claims Resolution Committee".................................................................3
22. "Class".......................................................................................3
23. "Confirmation"................................................................................3
24. "Confirmation Date"...........................................................................3
25. "Confirmation Hearing"........................................................................3
26. "Confirmation Order"..........................................................................3
27. "Consenting Holders"..........................................................................3
28. "Creditors' Committee"........................................................................3
29. "Cure Amount Claim"...........................................................................3
30. "Debtors".....................................................................................3
31. "Derivative Claim"............................................................................3
32. "DIP Credit Agreement"........................................................................3
33. "DIP Lender"..................................................................................3
34. "Disbursing Agent"............................................................................3
35. "Disclosure Statement"........................................................................4
36. "Disputed Claim"..............................................................................4
37. "Disputed Insured Claim" and "Disputed Uninsured Claim".......................................4
38. "Distribution Record Date"....................................................................4
39. "Document Reviewing Centers"..................................................................4
40. "Effective Date"..............................................................................4
41. "Equity Incentive Plan".......................................................................4
42. "Estate"......................................................................................4
43. "Exchange Act"................................................................................4
44. "Executory Contract and Unexpired Lease"......................................................4
45. "Exit Financing Facility".....................................................................4
46. "Exit Financing Facility Agent Bank"..........................................................4
47. "Face Amount".................................................................................5
48. "Fee Claim"...................................................................................5
49. "Fee Order"...................................................................................5
50. "File," "Filed" or "Filing"...................................................................5
51. "Final Order".................................................................................5
52. "Indenture Trustee"...........................................................................5
53. "Insured Claim"...............................................................................5
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54. "Intercompany Claim"..........................................................................5
55. "Interest"....................................................................................5
56. "IRS".........................................................................................5
57. "Koch Agriculture"............................................................................6
58. "Koch Agriculture Commodity Sale Claim".......................................................6
59. "Koch Agriculture Transition Settlement Payment"..............................................6
60. "Koch Entities"...............................................................................6
61. "Koch Indemnity Agreement"....................................................................6
62. "Koch Industries".............................................................................6
63. "Koch Industries Settlement Agreement"........................................................6
64. "Koch Purchase Transaction"...................................................................6
65. "Koch Supplemental Transition Agreement Claims"...............................................6
66. "Koch Tax Sharing Agreement"..................................................................6
67. "Master Procurement Agreement"................................................................6
68. "National Securities Exchange"................................................................6
69. "New Common Stock"............................................................................6
70. "New Prepetition Credit Facility Notes".......................................................6
71. "New Registration Rights Agreement"...........................................................6
72. "New Term Notes"..............................................................................6
73. "New Tranche A Notes".........................................................................7
74. "New Tranche B Notes".........................................................................7
75. "New Tax Sharing Agreement"...................................................................7
76. "Old Common Stock of . . ."...................................................................7
77. "Old Prepetition Credit Facility Notes".......................................................7
78. "Old Revolving Note Claim"....................................................................7
79. "Old Senior Subordinated Note Claim"..........................................................7
80. "Old Senior Subordinated Notes"...............................................................7
81. "Old Tax Sharing Agreements"..................................................................7
82. "Old Tranche A Note Claim"....................................................................7
83. "Old Tranche B Note Claim"....................................................................7
84. "Ordinary Course Professionals Order".........................................................7
85. "Participating Bank Loan Claim Holder"........................................................7
86. "Petition Date"...............................................................................7
87. "Plan"........................................................................................7
88. "Plan of Merger"..............................................................................7
89. "PM Holdings".................................................................................8
90. "PMI Merger"..................................................................................8
91. "PMI Merger Date".............................................................................8
92. "PMI Merger Escrow Agreement".................................................................8
93. "PMI".........................................................................................8
94. "PMI Entities"................................................................................8
95. "PMI Subsidiary Debtors"......................................................................8
96. "Prepetition Credit Facility".................................................................8
97. "Prepetition Indenture".......................................................................8
98. "Priority Claim"..............................................................................8
99. "Priority Tax Claim"..........................................................................8
100. "Professional"................................................................................8
101. "Pro Rata"....................................................................................8
102. "Quarterly Distribution Date".................................................................9
103. "Real Property Executory Contract and Unexpired Lease"........................................9
104. "Recovery Actions"............................................................................9
105. "Reinstated" or "Reinstatement"...............................................................9
106. "Reorganization Case".........................................................................9
107. "Reorganized . . ."...........................................................................9
108. "Reserved Shares"............................................................................10
109. "Restructuring Transactions".................................................................10
110. "Schedules"..................................................................................10
111. "Secondary Liability Claim"..................................................................10
112. "Secured Claim"..............................................................................10
113. "Securities Act".............................................................................10
114. "Share Purchase Rights"......................................................................10
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115. "Share Purchase Rights Agreement"............................................................10
116. "Stipulation of Amount and Nature of Claim"..................................................10
117. "Supplemental Transition Agreement"..........................................................10
118. "Tax"........................................................................................10
119. "Third Party Disbursing Agent"...............................................................10
120. "Tort Claim".................................................................................10
121. "Trade Claim"................................................................................11
122. "Transition Services Agreement"..............................................................11
123. "Unallocated Portion"........................................................................11
124. "Uninsured Claim"............................................................................11
125. "Unofficial Noteholders Committee"...........................................................11
126. "Unsecured Claim"............................................................................11
127. "Unsecured Claims Reserve"...................................................................11
128. "Voting Deadline"............................................................................11
129. "Warrant"....................................................................................11
130. "Warrant Agreement"..........................................................................11
131. "Warrant Purchase Agreement".................................................................11
132. "Workers' Compensation Order"................................................................11
B. Rules of Interpretation and Computation of Time.......................................................11
1. Rules of Interpretation......................................................................11
2. Computation of Time..........................................................................12
ARTICLE II. - CLASSES OF CLAIMS AND INTERESTS...........................................................................12
A. Unimpaired Classes of Claims..........................................................................12
1. Class 1 (Unsecured Priority Claims)..........................................................12
2. Class 3 (Non-Bank Secured Claims)............................................................12
3. Class 8 (PMI Subsidiary Debtors Old Common Stock Interests)..................................12
B. Impaired Classes of Claims and Interests..............................................................12
1. Class 2 (Convenience Claims).................................................................12
2. Class 4 (Bank Loan Claims)...................................................................12
3. Class 5 (General Unsecured Claims)...........................................................12
4. Class 6 (Intercompany Claims)................................................................12
5. Class 7 (PMI Old Common Stock Interests).....................................................12
6. Class 9 (PM Holdings Old Common Stock Interests).............................................12
ARTICLE III. - TREATMENT OF CLAIMS AND INTERESTS........................................................................13
A. Unclassified Claims...................................................................................13
1. Payment of Administrative Claims.............................................................13
a. Administrative Claims in General....................................................13
b. Statutory Fees......................................................................13
c. Ordinary Course Liabilities.........................................................13
d. Claims Under the DIP Credit Agreement...............................................13
e. Administrative Claims of Indenture Trustee..........................................13
f. Koch Agriculture Transition Settlement Payment, Koch Supplemental Transition
Agreement...........................................................................13
g. Bar Dates for Administrative Claims.................................................14
i. General Bar Date Provisions.................................................14
ii. Bar Dates for Certain Administrative Claims.................................14
A. Professional Compensation..........................................14
B. Ordinary Course Liabilities........................................14
C. Claims Under the DIP Credit Agreement..............................14
2. Payment of Priority Tax Claims...............................................................14
a. Priority Tax Claims.................................................................14
b. Other Provisions Concerning Treatment of Priority Tax Claims........................15
B. Unimpaired Classes of Claims..........................................................................15
1. Class 1 (Unsecured Priority Claims)..........................................................15
2. Class 3 (Non-Bank Secured Claims)............................................................15
3. Class 8 Interests (PMI Subsidiary Debtors Old Common Stock Interests)........................15
C. Impaired Classes of Claims and Interests..............................................................15
1. Class 2 Claims (Convenience Claims)..........................................................15
2. Class 4 Claims (Bank Loan Claims)............................................................15
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3. Class 5 Claims (General Unsecured Claims)....................................................16
4. Class 6 Claims (Intercompany Claims).........................................................16
5. Class 7 Interests (PMI Old Common Stock Interests)...........................................16
6. Class 9 Interests (PM Holdings Old Common Stock Interests)...................................16
D. Special Provisions Regarding the Treatment of Allowed Secondary Liability Claims......................16
E. Special Provisions Regarding Indenture Trustee Administrative Claims and Allowed Claims...............16
F. Special Provisions Regarding the Koch Agriculture Commodity Sale Claim and Other Claims...............16
G. Elections of Holders of Bank Loan Claims..............................................................17
ARTICLE IV. - MEANS FOR IMPLEMENTATION OF THE PLAN......................................................................17
A. Continued Corporate Existence and Vesting of Assets in the Reorganized Debtors........................17
B. Restructuring Transactions; Implementation of Koch Industries Settlement Agreement....................17
1. Restructuring Transactions Generally.........................................................17
2. Obligations of Any Successor Corporation in a Restructuring Transaction......................18
3. PMI Merger...................................................................................18
a. PMI Merger Escrow...................................................................18
b. PMI Merger..........................................................................18
c. Koch Tax Sharing Agreement..........................................................18
d. Warrant Purchase Agreement..........................................................18
C. Corporate Governance, Directors and Officers, Employment-Related Agreements and Compensation
Programs..............................................................................................18
1. Certificates of Incorporation and By-Laws....................................................18
a. Reorganized PM Holdings.............................................................18
b. Reorganized PMI Subsidiary Debtors..................................................19
2. Directors and Officers of the Reorganized Debtors............................................19
3. New Employment, Retirement, Indemnification and Other Related Agreements and Incentive
Compensation Programs........................................................................19
4. Corporate Action.............................................................................19
D. Exit Financing Facility, Obtaining Cash for Plan Distributions and Transfers of Funds Among the
Debtors...............................................................................................20
E. Preservation of Rights of Action; Settlement Agreements and Releases..................................20
1. Preservation of Rights of Action by the Debtors and the Reorganized Debtors..................20
2. Releases; Indemnification....................................................................20
a. General Releases by Holders of Claims or Interests..................................20
b. Koch Industries Settlement Agreement Releases; Indemnification......................21
i. Releases by the Debtors and Debtors in Possession...........................21
ii. Releases by Holders of Claims and Interests.................................21
iii. Releases by the Koch Entities...............................................21
iv. Indemnity by the Reorganized Debtors........................................22
v. Scope of Third Party Release Determination..................................22
c. Injunction Related to Releases......................................................22
F. Continuation of Certain Employee, Retiree and Workers' Compensation Benefits..........................22
1. Employee Benefits............................................................................22
2. CAP Plan; Related Indemnity..................................................................23
3. Retiree Medical Benefits.....................................................................23
4. Workers' Compensation Benefits...............................................................23
G. Limitations on Amounts to Be Distributed to Holders of Allowed Insured Claims.........................23
H. Cancellation and Surrender of Instruments, Securities and Other Documentation.........................23
I. New Registration Rights Agreement.....................................................................23
J. Share Purchase Rights Agreement.......................................................................24
K. Other Agreements Related to Implementation of the Plan................................................24
L. Release of Liens......................................................................................24
M. Effectuating Documents; Further Transactions; Exemption from Certain Transfer Taxes...................24
ARTICLE V. - TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES......................................................24
A. Executory Contracts and Unexpired Leases to Be Assumed or Assumed and Assigned........................24
1. Assumption and Assignment Generally..........................................................24
2. Assumptions and Assignments of Real Property Executory Contracts and
Unexpired Leases.............................................................................25
3. Assignments Related to the Restructuring Transactions........................................25
4. Approval of Assumptions and Assignments......................................................25
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B. Payments Related to the Assumption of Executory Contracts and Unexpired Leases........................25
C. Executory Contracts and Unexpired Leases to Be Rejected...............................................25
D. Bar Date for Rejection Damages........................................................................26
E. Special Executory Contract and Unexpired Lease Issues.................................................26
1. Obligations to Indemnify Directors, Officers and Employees...................................26
2. Reinstatement of Allowed Secondary Liability Claims Arising From or Related to Executory
Contracts or Unexpired Leases Assumed by the Debtors.........................................27
3. Assumed Customer Guarantees..................................................................27
F. Contracts and Leases Entered Into After the Petition Date.............................................27
ARTICLE VI. - PROVISIONS GOVERNING DISTRIBUTIONS........................................................................27
A. Distributions for Claims Allowed as of the Effective Date.............................................27
1. Distributions to Be Made on the Effective Date...............................................27
2. Distributions on the Effective Date in Respect of Class 5 General Unsecured Claims...........27
B. Method of Distributions to Holders of Claims..........................................................28
C. Compensation and Reimbursement for Services Related to Distributions..................................28
D. Provisions Governing the Unsecured Claims Reserve.....................................................28
1. Funding of the Unsecured Claims Reserve......................................................28
2. Property Held in Unsecured Claims Reserve....................................................28
a. Dividends and Distributions.........................................................28
b. Recourse............................................................................28
E. Delivery of Distributions and Undeliverable or Unclaimed Distributions................................28
1. Delivery of Distributions....................................................................28
a. Generally...........................................................................28
b. Special Provisions for Distributions to Holders of Old Senior Subordinated Note
Claims..............................................................................29
2. Undeliverable Distributions Held by Disbursing Agents........................................29
a. Holding and Investment of Undeliverable Distributions; Undelivered New Common
Stock...............................................................................29
b. After Distributions Become Deliverable..............................................29
c. Failure to Claim Undeliverable Distributions........................................30
F. Distribution Record Date..............................................................................30
G. Means of Cash Payments................................................................................30
H. Timing and Calculation of Amounts to Be Distributed...................................................30
1. Allowed Claims in Classes Other Than Class 5.................................................30
2. Allowed Claims in Class 5....................................................................30
a. Initial Distributions...............................................................31
b. Additional Distributions on Account of Previously Allowed Claims....................31
3. Distributions of New Common Stock............................................................31
4. De Minimis Distributions.....................................................................31
5. Compliance with Tax Requirements.............................................................31
I. Setoffs...............................................................................................32
J. Surrender of Canceled Instruments or Securities.......................................................32
1. Tender of Old Senior Subordinated Notes......................................................32
2. Lost, Stolen, Mutilated or Destroyed Old Senior Subordinated Notes...........................32
3. Failure to Surrender Old Senior Subordinated Notes...........................................32
4. Old Prepetition Credit Facility Notes........................................................33
ARTICLE VII. - PROCEDURES FOR RESOLVING DISPUTED CLAIMS.................................................................33
A. Prosecution of Objections to Claims...................................................................33
1. Objections to Claims.........................................................................33
2. Authority to Prosecute Objections............................................................33
B. Treatment of Disputed Claims..........................................................................33
C. Distributions on Account of Disputed Claims Once Allowed..............................................33
D. Tax Requirements for Income Generated by Unsecured Claims Reserve.....................................34
ARTICLE VIII. - SUBSTANTIVE CONSOLIDATION OF THE DEBTORS................................................................34
ARTICLE IX. - CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN.........................................34
A. Conditions to Confirmation............................................................................34
B. Conditions to the PMI Merger..........................................................................35
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C. Conditions to the Effective Date......................................................................36
D. Waiver of Conditions to the Confirmation, PMI Merger or Effective Date................................36
E. Effect of Nonoccurrence of Conditions to the Effective Date...........................................37
ARTICLE X. - CRAMDOWN...................................................................................................37
ARTICLE XI. - DISCHARGE, TERMINATION, INJUNCTION AND SUBORDINATION RIGHTS...............................................37
A. Discharge of Claims and Termination of Interests......................................................37
B. Injunctions...........................................................................................37
C. Termination of Subordination Rights and Settlement of Related Claims and Controversies................38
ARTICLE XII. - RETENTION OF JURISDICTION................................................................................38
ARTICLE XIII. - MISCELLANEOUS PROVISIONS................................................................................40
A. Dissolution of the Creditors' Committee and Creation of the Claims Resolution Committee...............40
1. Creditors' Committee.........................................................................40
2. Claims Resolution Committee..................................................................40
a. Function and Composition of the Claims Resolution Committee.........................40
b. Committee Procedures................................................................40
c. Employment of Professionals by the Claim Resolution Committee and
Reimbursement of Committee Members' Expenses........................................40
d. Dissolution of the Claims Resolution Committee......................................41
B. Limitation of Liability...............................................................................41
C. Modification of the Plan..............................................................................41
D. Revocation of the Plan................................................................................41
E. Severability of Plan Provisions.......................................................................41
F. Successors and Assigns................................................................................42
G. Service of Certain Plan Exhibits and Disclosure Statement Exhibits....................................42
H. Service of Documents..................................................................................42
1. The Debtors and the Reorganized Debtors......................................................42
2. The Creditors' Committee.....................................................................42
3. The DIP Lenders..............................................................................43
4. The Koch Entities............................................................................43
5. The United States Trustee....................................................................43
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TABLE OF EXHIBITS(1)
Exhibit I.A.6 Assumed Customer Guarantees(2)
Exhibit I.A.45 Exit Financing Facility(3)
Exhibit I.A.71 New Registration Rights Agreement(2)
Exhibit I.A.117 Supplemental Transition Agreement(3)
Exhibit III.C.2 Terms of the New Prepetition Credit Facility Notes(3)
Exhibit IV.B.3.a PMI Merger Escrow Agreement(3)
Exhibit IV.B.3.b Plan of Merger(3)
Exhibit IV.B.3.c Koch Tax Sharing Agreement(3)
Exhibit IV.B.3.d(i) Warrant Agreement(3)
Exhibit IV.B.3.d(ii) Warrant Purchase Agreement(3)
Exhibit IV.C.1.a(i) Certificate of Incorporation of Reorganized PM
Holdings(2)
Exhibit IV.C.1.a(ii) By-Laws of Reorganized PM Holdings(2)
Exhibit IV.C.1.b(i) Certificates of Incorporation of each Reorganized PMI
Subsidiary Debtor(2)
Exhibit IV.C.1.b(ii) By-Laws of each Reorganized PMI Subsidiary Debtor(2)
Exhibit IV.C.2 Initial directors and officers of each of the
Reorganized Debtors(2)
Exhibit IV.C.3(a) Initial grants under the 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.E.2.b.i List of additional released/releasing parties(3)
Exhibit IV.E.2.b.iv Koch Indemnity Agreement(3)
Exhibit IV.K.1 New Tax Sharing Agreement(2)
Exhibit IV.J Share Purchase Rights 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)
- --------
(1) Except as otherwise indicated, all Exhibits will be available for
review during regular business hours 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 Confirmation Hearing.
(3) To be Filed and available for review at the Document Reviewing Centers
no later than ten days before the hearing on the Disclosure Statement.
vii
<PAGE> 9
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. ss. 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. This Plan
constitutes the agreement among Koch Industries, Koch Agriculture, the
Creditors' Committee, the Consenting Noteholders (each as defined below) and the
Debtors regarding the settlement of issues among the Koch Entities (as defined
below), the Debtors and the Debtors' creditors.
ARTICLE I.
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),
including Claims under the DIP Credit Agreement; (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,
including Fee Claims; (c) all fees and charges assessed against the Estates
under chapter 123 of title 28, United States Code, 28 U.S.C. Sections 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; (e) all
Intercompany Claims accorded priority pursuant to section 364(c)(1) of the
Bankruptcy Code or the Cash Management Order; (f) Claims by Koch Agriculture or
Koch Industries under the Transition Services Agreement and the Supplemental
Transition Agreement; (g) the Koch Agriculture Transition Settlement Payment and
the Koch Supplemental Transition Agreement Claims; and (h) all reasonable fees
and expenses of the Indenture Trustee under the Prepetition Indenture.
2. "ADMINISTRATIVE TRADE CLAIM" means an Administrative Claim arising
from or with respect to the sale 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. "ALLOCABLE PORTION" means, if the Plan is approved by Class 4
pursuant to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code, as to any
Participating Bank Loan Claim Holder, a fractional participation in the Exit
Financing Facility equal to (a) the amount of the Allowed Bank Loan Claim of
such Participating Bank Loan Claim Holder, divided by (b) the sum of all Allowed
Bank Loan Claims.
4. "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
and, if prior to the Effective Date, approved by the Bankruptcy Court;
(iii) in a Final Order; or (iv) pursuant to the terms of the Plan.
<PAGE> 10
2
5. "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.
6. "ASSUMED CUSTOMER GUARANTEES" means the guarantees or other
agreements of a Debtor identified in Exhibit I.A.6.
7. "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, including, (a) in the case of a holder of Unsecured Claims,
other than Old Senior Subordinated Note Claims, whether such holder elects to
have its Unsecured Claims, other than any Old Senior Subordinated Note Claims,
treated in Class 2 rather than Class 5 and (b) in the case of a holder of a Bank
Loan Claim, if the Plan is approved by Class 4 pursuant to sections 1126(c) and
1129(a)(8) of the Bankruptcy Code, whether such holder elects to participate in
the Exit Financing Facility as a Participating Bank Loan Claim Holder and, if
so, whether such Participating Bank Loan Claim Holder further elects to
participate equally with all other Participating Bank Loan Claim Holders making
such further election in the Unallocated Portion of the Exit Financing Facility.
8. "BANK LOAN CLAIM" means an Old Tranche A Note Claim, an Old Tranche
B Note Claim or an Old Revolving Note Claim.
9. "BANKRUPTCY CODE" means title 11 of the United States Code, 11
U.S.C. Sections 101-1330, as now in effect or hereafter amended.
10. "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.
11. "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.
12. "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.
13. "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.
14. "BUSINESS DAY" means any day, other than a Saturday, Sunday or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
15. "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), (g) Discretionary (1992)
Capital Accumulation Plan for Key Employees, and (h) other plans within the
scope of the definition of "CAP Plan" under the Agreement and Plan of Merger
among Koch Agriculture, Arch Acquisition Corporation and PM Holdings dated as of
January 9, 1998 in existence prior to the Effective Date, all of which together
constitutes 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. For purposes of clarification, the
CAP Plan does not include any of PMI's supplemental executive retirement or
savings plans.
16. "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 exercise of the Warrant under the Warrant Option
Agreement and dividends and other distributions on account of New Common Stock),
which investment will be in a manner consistent with the Reorganized Debtors'
investment and deposit guidelines.
17. "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 entered by the Bankruptcy Court on or about November 1,
1999.
<PAGE> 11
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18. "CHASE BANK" means Chase Bank of Texas, National Association.
19. "CLAIM" means a "claim," as defined in section 101(5) of the
Bankruptcy Code, against any Debtor.
20. "CLAIMS OBJECTION BAR DATE" means, for all Claims, other than those
Claims allowed in accordance with Section I.A.4.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.
21. "CLAIMS RESOLUTION COMMITTEE" means the committee to be established
pursuant to Section XIII.A.2.
22. "CLASS" means a class of Claims or Interests, as described in
Article II.
23. "CONFIRMATION" means the entry of the Confirmation Order on the
docket of the Bankruptcy Court.
24. "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.
25. "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.
26. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
27. "CONSENTING HOLDERS" means the holders of Old PMI Senior
Subordinated Notes that are parties to the Koch Industries Settlement Agreement.
28. "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.
29. "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.
30. "DEBTORS" means, collectively, the above-captioned debtors and
debtors in possession identified on the cover page to this Plan.
31. "DERIVATIVE CLAIM" means a claim that is property of any of the
Debtors' Estates pursuant to section 541 of the Bankruptcy Code.
32. "DIP CREDIT AGREEMENT" means, collectively: (a) the Postpetition
Loan and Security Agreement, dated as of October 28, 1999, as it may be
subsequently amended and modified, among the Debtors (as borrowers or
guarantors), 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).
33. "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).
34. "DISBURSING AGENT" means Reorganized PM Holdings, in its capacity
as a disbursing agent pursuant to Section VI.B, or any Third Party Disbursing
Agent.
35. "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.
36. "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
<PAGE> 12
4
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 and such
objection has not been withdrawn or denied by a Final Order; 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.
37. "DISPUTED INSURED CLAIM" and "DISPUTED UNINSURED CLAIM" mean,
respectively, an Insured Claim or an Uninsured Claim that is also a Disputed
Claim.
38. "DISTRIBUTION RECORD DATE" means the date that is 15 days following
the PMI Merger Date.
39. "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.
40. "EFFECTIVE DATE" means a day, as determined by the Debtors, the
Creditors' Committee and Koch Industries, that is the Business Day as soon as
reasonably practicable after all conditions to the Effective Date in Section
IX.C have been met or waived pursuant to Section IX.D.
41. "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 Reorganized PM
Holdings.
42. "ESTATE" means, as to each Debtor, the estate created for that
Debtor in its Reorganization Case pursuant to section 541 of the Bankruptcy
Code.
43. "EXCHANGE ACT" means the Securities Exchange Act of 1934, 15 U.S.C.
Secitons 78a-78jj, as now in effect or hereafter amended.
44. "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.
45. "EXIT FINANCING FACILITY" means a senior secured revolving credit
facility in the anticipated amount of $50 million, including a $30 million
letter of credit sub-facility, that, if the Plan is approved by Class 4 pursuant
to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code, will be entered into
by the Debtors, the Exit Financing Facility Agent Bank and the Participating
Bank Loan Claim Holders on the Effective Date on substantially the terms set
forth on Exhibit I.A.45.
46. "EXIT FINANCING FACILITY AGENT BANK" means the agent bank under the
Exit Financing Facility.
47. "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
<PAGE> 13
5
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 or in the Schedules as an undisputed, noncontingent and
liquidated 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.
48. "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.
49. "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 entered by the
Bankruptcy Court on or about November 1, 1999.
50. "FILE," "FILED" or "FILING" means file, filed or filing with the
Bankruptcy Court or its authorized designee in the Reorganization Cases.
51. "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 or move for a new trial, reargument or
rehearing has expired, and no appeal or petition for certiorari or other
proceedings for a new trial, reargument or rehearing 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 withdrawn or resolved by the highest court to
which the order or judgment was appealed or from which certiorari was sought or
the new trial, reargument or rehearing shall have been denied or resulted in no
modification of such order.
52. "INDENTURE TRUSTEE" means Bank One Trust Company, N.A., f/k/a The
First National Bank of Chicago, as indenture trustee under the Prepetition
Indenture, or any successor thereto.
53. "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.
54. "INTERCOMPANY CLAIM" means any claim by a PMI Entity against a
Debtor.
55. "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.
56. "IRS" means the Internal Revenue Service of the United States of
America.
57. "KOCH AGRICULTURE" means Koch Agriculture Company, a Nebraska
corporation, and the direct parent corporation of PM Holdings.
58. "KOCH AGRICULTURE COMMODITY SALE CLAIM" means the Claim of Koch
Agriculture for commodities sold to any of the Debtors on or prior to the
Petition Date pursuant to the Master Procurement Agreement, which will be an
Allowed Claim in Class 5 in the amount of $26,050,000, which equals $31,400,000
reduced by an amount equal to the Koch Agriculture Transition Settlement
Payment.
59. "KOCH AGRICULTURE TRANSITION SETTLEMENT PAYMENT" means a Claim of
Koch Agriculture, which will be an Allowed Administrative Claim in the amount of
$5,350,000.
60. "KOCH ENTITIES" means, collectively and individually, Koch
Industries, Koch Agriculture and any affiliates, subsidiaries and divisions of
the foregoing, other than the PMI Entities.
61. "KOCH INDEMNITY AGREEMENT" means the Indemnity Agreement between
each of the Reorganized Debtors and the Koch Entities substantially in the form
attached hereunder as Exhibit IV.E.2.b.iv.
<PAGE> 14
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62. "KOCH INDUSTRIES" means Koch Industries, Inc., a Kansas
corporation.
63. "KOCH INDUSTRIES SETTLEMENT AGREEMENT" means the Agreement by and
among Koch Industries, Koch Agriculture and the Consenting Holders, dated as of
January [___], 2000, and all subsequent amendments and modifications thereto.
64. "KOCH PURCHASE TRANSACTION" means, collectively and individually,
the acquisition and merger transactions, including the issuance and sale of the
Old Senior Subordinated Notes, any related financing transactions or other
related contracts or transactions, by which Koch Agriculture acquired PM
Holdings on or about March 12, 1998.
65. "KOCH SUPPLEMENTAL TRANSITION AGREEMENT CLAIMS" means the Claims of
Koch Industries and Koch Agriculture under the Supplemental Transition
Agreement, which will be Allowed Administrative Claims in the aggregate amount
of $1,570,000 (and any amounts due from Reorganized Purina under paragraphs 9 or
11 thereof).
66. "KOCH TAX SHARING AGREEMENT" means the Koch Tax Sharing Agreement
in substantially the form of Exhibit IV.B.3.c.
67. "MASTER PROCUREMENT AGREEMENT" means the Master Procurement
Agreement between Koch Agriculture and PMI, dated as of March 12, 1998, as
amended.
68. "NATIONAL SECURITIES EXCHANGE" means any exchange registered
pursuant to Section 6(a) of the Exchange Act, including the National Association
of Securities Dealers Automated Quotation System.
69. "NEW COMMON STOCK" means the shares of common stock, par value $.01
per share, of Reorganized PM Holdings, authorized pursuant to the certificate of
incorporation of Reorganized PM Holdings.
70. "NEW PREPETITION CREDIT FACILITY NOTES" means, collectively, the
New Term Notes, the New Tranche A Notes and the New Tranche B Notes.
71. "NEW REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement between Reorganized PM Holdings and the holders of New Common Stock
named therein (which shall include Koch Industries and/or Koch Agriculture upon
their request) with respect to the registration of shares of New Common Stock
held by such parties, substantially in the form of Exhibit I.A.71.
72. "NEW TERM NOTES" mean the notes of Reorganized PM Holdings issued
on account of the Old Revolving Note Claims to holders of Allowed Bank Loan
Claims on the terms set forth in Part A of Exhibit III.C.2 if Class 4 approves
the Plan pursuant to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code or
on the terms set forth in Part B of Exhibit III.C.2 if Class 4 does not approve
the Plan.
73. "NEW TRANCHE A NOTES" means the notes of Reorganized PM Holdings
issued on account of the Old Tranche A Note Claims to holders of Allowed Bank
Loan Claims on the terms set forth in Part A of Exhibit III.C.2 if Class 4
approves the Plan pursuant to sections 1126(c) and 1129(a)(8) of the Bankruptcy
Code or on the terms set forth in Part B of Exhibit III.C.2 if Class 4 does not
approve the Plan.
74. "NEW TRANCHE B NOTES" means the notes of Reorganized PM Holdings
issued on account of the Old Tranche B Note Claims to holders of Allowed Bank
Loan Claims on the terms set forth in Part A of Exhibit III.C.2 if Class 4
approves the Plan pursuant to sections 1126(c) and 1129(a)(8) of the Bankruptcy
Code or on the terms set forth in Part B of Exhibit III.C.2 if Class 4 does not
approve the Plan.
75. "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.K.1.
76. "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.
77. "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.
<PAGE> 15
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78. "OLD REVOLVING NOTE CLAIM" means a Claim in respect of a Revolving
Note under the Prepetition Credit Facility.
79. "OLD SENIOR SUBORDINATED NOTE CLAIM" means a Claim under or
evidenced by the Prepetition Indenture.
80. "OLD SENIOR SUBORDINATED NOTES" means the senior subordinated notes
issued by PMI pursuant to the Prepetition Indenture.
81. "OLD TAX SHARING AGREEMENTS" mean (a) the Parent Tax Sharing
Agreement between Koch Industries and PM Holdings Corporation, dated March 12,
1998; and (b) the Sub-Group Tax Sharing Agreement by and among PM Holdings and
each other party listed therein as signatories, dated March 12, 1998, including,
in each case, any amendments thereto.
82. "OLD TRANCHE A NOTE CLAIM" means a Claim in respect of a Tranche A
Note under the Prepetition Credit Facility.
83. "OLD TRANCHE B NOTE CLAIM" means a Claim in respect of a Tranche B
Note under the Prepetition Credit Facility.
84. "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 entered by the Bankruptcy Court on or
about November 1, 1999.
85. "PARTICIPATING BANK LOAN CLAIM HOLDER" means, if Class 4 approves
the Plan pursuant to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code, a
holder of a Bank Loan Claim who, pursuant to its election on the Ballot, has
irrevocably agreed to participate, as of the Effective Date, in its respective
Allocable Portion and, if applicable, the Unallocated Portion of the Exit
Financing Facility.
86. "PETITION DATE" means October 28, 1999.
87. "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.
88. "PLAN OF MERGER" means the Plan of Merger by and among Koch
Agriculture, PM Holdings and PMI substantially in the form of Exhibit IV.B.3.b.
89. "PM HOLDINGS" means PM Holdings Corporation, a Delaware
corporation, one of the Debtors and the parent corporation of PMI.
90. "PMI MERGER" means the merger of PMI with and into PM Holdings as
contemplated by Section IV.B.3.b.
91. "PMI MERGER DATE" means a day, as determined by the Debtors, the
Creditors' Committee and Koch Industries, that is a Business Day as soon as
reasonably practicable after all conditions to the PMI Merger in Section IX.B
have been met or waived pursuant to Section IX.D, notice of which will be given
immediately to the Indenture Trustee.
92. "PMI MERGER ESCROW AGREEMENT" means the Escrow Agreement
substantially in the form of Exhibit IV.B.3.a.
93. "PMI" means Purina Mills, Inc., a Delaware corporation, one of the
Debtors and the parent corporation of each of the PMI Subsidiary Debtors.
94. "PMI ENTITIES" means PM Holdings, PMI and all of PMI's direct or
indirect debtor and nondebtor subsidiaries.
95. "PMI SUBSIDIARY DEBTORS" means, individually or collectively, a
Debtor or Debtors other than PMI or PM Holdings.
<PAGE> 16
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96. "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.
97. "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.
98. "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.
99. "PRIORITY TAX CLAIM" means a Claim that is entitled to priority in
payment pursuant to section 507(a)(8) of the Bankruptcy Code.
100. "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.
101. "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; provided, however, that any distribution of New Common
Stock will include related Share Purchase Rights; and
bB. 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 on
the basis of the amount of cash then being distributed on account of
such Claim (including dividends and other distributions on New Common
Stock being distributed on account of such Claim). Calculations of the
Pro Rata shares of Cash Investment Yield to be distributed at any
particular time will be based on the Cash Investment Yield generated as
of the last day of the month prior to the month in which such
distributions are to be made.
102. "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.
103. "REAL PROPERTY EXECUTORY CONTRACT AND UNEXPIRED LEASE" means,
collectively, an Executory Contract or Unexpired Lease relating to a Debtor's
interest in real property and any Executory Contracts and Unexpired Leases
granting rights or interests related to or 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.
104. "RECOVERY ACTIONS" means, collectively and individually: (a)
preference actions, fraudulent conveyance actions, rights of setoff and other
claims or causes of action under sections 510, 544, 547, 548, 549, 550 and 553
of the Bankruptcy Code and other applicable bankruptcy or nonbankruptcy law; (b)
claims or causes of action arising out of illegal dividends or similar theories
of liability; (c) claims or causes of action based on piercing the corporate
veil, alter ego liability or similar legal or equitable theories of recovery
arising out of the ownership or operation of the Debtors as of and following the
Koch Purchase Transaction; (d) claims or causes of action based on unjust
enrichment; (e) claims or causes of action for breach of fiduciary duty,
mismanagement, malfeasance or, to the extent they are claims or causes of action
of any of the Debtors, fraud; (f) claims or causes of action relating to the
provision of retiree medical benefits and the provision of director and officer
liability insurance or indemnification; (g) claims or causes of action arising
out of any contracts or other agreements between or among any of the Debtors and
any of the Koch Entities; and (h) any other claims or causes of action arising
out of or related in any way to the Koch Purchase Transaction that are based on
an injury that affects or affected any of the Debtors, or any of their
shareholders or creditors generally.
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105. "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.
106. "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.
107. "REORGANIZED . . ." means, when used in reference to a particular
Debtor, such Debtor on and after the Effective Date.
108. "RESERVED SHARES" means 9,910,000 shares of New Common Stock to be
placed in the Unsecured Claims Reserve for distribution to holders of Allowed
Claims in Class 5.
109. "RESTRUCTURING TRANSACTIONS" means, collectively, the PMI Merger
and 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, but not in any way inconsistent with the PMI Merger.
110. "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.
111. "SECONDARY LIABILITY CLAIM" means a 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 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.
112. "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.
113. "SECURITIES ACT" means the Securities Act of 1933, 15 U.S.C.
Sections 77a-77aa, as now in effect or hereafter amended.
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114. "SHARE PURCHASE RIGHTS" means the rights to purchase preferred
stock of Reorganized PM Holdings, which rights will be issued pursuant to the
Share Purchase Rights Agreement.
115. "SHARE PURCHASE RIGHTS AGREEMENT" means the rights agreement
substantially in the form of Exhibit IV.J, pursuant to which the Share Purchase
Rights will be issued.
116. "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.
117. "SUPPLEMENTAL TRANSITION AGREEMENT" means the agreement between
PMI, Koch Industries and Koch Agriculture in the form of Exhibit I.A.117.
118. "TAX" means (a) any net income, alternative or add-on minimum,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, property, environmental or other tax, assessment or
charge of any kind whatsoever (together in each instance with any interest,
penalty, addition to tax or additional amount) imposed by any federal, state,
local or foreign taxing authority; or (b) any liability for payment of any
amounts of the foregoing types as a result of being a member of an affiliated,
consolidated, combined or unitary group, or being a party to any agreement or
arrangement whereby liability for payment of any such amounts is determined by
reference to the liability of any other entity.
119. "THIRD PARTY DISBURSING AGENT" means an entity designated by
Reorganized PM Holdings to act as a Disbursing Agent pursuant to Section VI.B.
120. "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.
121. "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.
122. "TRANSITION SERVICES AGREEMENT" means the Transition Services
Agreement by and among PMI, Koch Industries and Koch Agriculture, dated as of
October 27, 1999.
123. "UNALLOCATED PORTION" means, if Class 4 approves the Plan pursuant
to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code, the portion of the
Exit Financing Facility after subtracting the Allocable Portions of all
Participating Bank Loan Claim Holders.
124. "UNINSURED CLAIM" means any Claim that is not an Insured Claim.
125. "UNOFFICIAL NOTEHOLDERS COMMITTEE" means the informal committee of
holders of Old Senior Subordinated Notes formed in August 1999.
126. "UNSECURED CLAIM" means any Claim that is not an Administrative
Claim, Cure Amount Claim, Priority Claim, Priority Tax Claim, Secured Claim or
Intercompany Claim.
127. "UNSECURED CLAIMS RESERVE" means the reserve of Reserved Shares
and cash, if any, 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.
128. "VOTING DEADLINE" means the deadline for submitting Ballots to
accept or reject the Plan in accordance with section 1126 of the Bankruptcy Code
that is specified in the Disclosure Statement, the Ballots or related
solicitation documents approved by the Bankruptcy Court.
129. "WARRANT" means the warrant issued under the Warrant Purchase
Agreement.
130. "WARRANT AGREEMENT" means the Warrant Agreement in substantially
the form of Exhibit IV.B.3.d(i).
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131. "WARRANT PURCHASE AGREEMENT" means the Warrant Purchase Agreement
in substantially the form of Exhibit IV.B.3.d(ii).
132. "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 entered by the Bankruptcy Court on or about November 1,
1999.
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 or delivered in connection with the
Plan, the rights and obligations arising under the Plan will 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 II.
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),
507(a)(5) 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.
<PAGE> 20
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B. IMPAIRED CLASSES OF CLAIMS AND INTERESTS
1. CLASS 2 (CONVENIENCE CLAIMS): Unsecured Claims against any Debtor,
other than Old Senior Subordinated Note Claims that otherwise would be
classified in Class 5, but with respect to which all such Claims of a particular
claim holder aggregate $2,500 or less or as to which such holder elects to
reduce all of such Claims to $2,500 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 2 or 4, including Old Senior
Subordinated Note Claims, Trade Claims, Tort Claims and the Koch Agriculture
Commodity Sale Claim.
4. CLASS 6 (INTERCOMPANY CLAIMS): Intercompany Claims that are not
Administrative Claims.
5. CLASS 7 (PMI OLD COMMON STOCK INTERESTS): Interests of PM Holdings
on account of the Old Common Stock of PMI.
6. CLASS 9 (PM HOLDINGS OLD COMMON STOCK INTERESTS): Interests of Koch
Agriculture on account of the Old Common Stock of PM Holdings.
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 Allowed Administrative Claim will receive, in full satisfaction of
its Administrative Claim, cash equal to the Allowed amount of such
Administrative Claim either (i) on the Effective Date or (ii) if the
Administrative Claim is not allowed as of the Effective Date, 30 days after the
date on which an order allowing such Administrative Claim becomes a Final Order
or a Stipulation of Amount and Nature of Claim is executed by the applicable
Reorganized Debtor and the holder of the Administrative Claim.
b. STATUTORY FEES
On or before the Effective Date, Administrative Claims for
fees payable pursuant to 28 U.S.C. ss. 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. Section 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),
Administrative Claims under the Transition Services Agreement and Supplemental
Transition Agreement 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 Administrative Claims.
d. CLAIMS UNDER THE DIP CREDIT AGREEMENT
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Unless otherwise agreed by the DIP Lenders pursuant to the DIP
Credit Agreement, on or before the PMI Merger Date, Allowed Administrative
Claims under or evidenced by the DIP Credit Agreement will be paid in cash equal
to the amount of such Allowed Administrative Claims.
e. ADMINISTRATIVE CLAIMS OF INDENTURE TRUSTEE
The Administrative Claims of the Indenture Trustee shall be
paid pursuant to the terms of Section III.E.
f. KOCH AGRICULTURE TRANSITION SETTLEMENT PAYMENT, KOCH
SUPPLEMENTAL TRANSITION AGREEMENT CLAIMS AND
OBLIGATIONS UNDER THE TRANSITION SERVICES AGREEMENT
The Koch Agriculture Transition Settlement Payment, the Koch
Supplemental Transition Agreement Claims and the claims of Koch Industries or
Koch Agriculture under the Transition Services Agreement will be deemed Allowed
Administrative Claims hereunder, and neither Koch Industries nor Koch
Agriculture will be required to File or serve any request for payment of the
Koch Agriculture Transition Settlement Payment, the Koch Supplemental Transition
Agreement Claims or payment of amounts due and owing under the Transition
Services Agreement. On the Effective Date, the Koch Agriculture Transition
Settlement Payment and the Koch Supplemental Transition Agreement Claims (to the
extent not previously paid) will be paid in cash to Koch Agriculture and Koch
Industries, as applicable, and all amounts due and owing under the Transition
Services Agreement (to the extent not previously paid) will be paid in cash to
Koch Industries or Koch Agriculture, as applicable. All outstanding bonds under
the bond program Services under paragraph A.4 of Exhibit 2.1(a)(iii) of the
Transition Services Agreement will be replaced or cash collateralized by the
Reorganized Debtors within 90 days after the Effective Date and any payments due
to a Koch Entity on account of any such bonds drawn on or prior to the Effective
Date will be deemed Allowed Administrative Claims to be paid on the Effective
Date (to the extent not previously paid) without any further action by any
party.
g. BAR DATES FOR ADMINISTRATIVE CLAIMS
i. GENERAL BAR DATE PROVISIONS
Except as otherwise provided in Sections III.A.1.f,
III.A.1.g.ii and III.E, 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 Administrative Claims and that do not File and serve such a
request by the applicable bar date will be forever barred from asserting such
Administrative Claims against the Debtors, the Reorganized Debtors or their
respective property and such Administrative 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, the Fee 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 (1) 90 days
after the Effective Date or (2) 30 days after the Filing of the applicable
request for payment of the Fee Claim. To the extent necessary, the Confirmation
Order will 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
<PAGE> 22
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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 Administrative Claims.
Such Administrative Claims will be satisfied pursuant to Section III.A.1.c.
C. CLAIMS UNDER THE 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 Administrative 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 an Allowed Priority Tax Claim will
receive, in full satisfaction of its Priority Tax Claim, deferred cash payments
over a period not exceeding six years from the date of assessment of such
Priority Tax 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 Allowed 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 the Allowed amount of such Priority Tax Claims). Unless otherwise
agreed by the holder of a Priority Tax Claim and the applicable Debtor or
Reorganized Debtor, the first payment on account of such Priority Tax Claim 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 Priority
Tax Claim becomes a Final Order or (ii) a Stipulation of Amount and Nature of
Claim is executed by the applicable Reorganized Debtor and the holder of the
Priority Tax Claim; provided, however, that the Reorganized Debtors will have
the right to pay any Allowed Priority Tax Claim, or any remaining balance of
such Priority Tax Claim, in full at any time on or after the Effective Date,
without premium or penalty.
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 elects 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 elects or is deemed to have
elected 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.
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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 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 a New Tranche B Note,
respectively, in the amount of such Claim; and (b) each holder of an Allowed
Bank Loan Claim constituting an Old Revolving Note Claim under the Prepetition
Credit Facility will receive a New Term Note in the amount of such Claim. As set
forth in Exhibit III.C.2, the terms of the New Tranche A Notes, the New Tranche
B Notes and the New Term Notes will depend upon whether or not the Plan is
approved by Class 4 pursuant to sections 1126(a) and 1129(a)(8) of the
Bankruptcy Code.
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 and any
accompanying Share Purchase Rights in accordance with the Share Purchase Rights
Agreement and Section VI.H.3.
4. CLASS 6 CLAIMS (INTERCOMPANY CLAIMS) ARE IMPAIRED. No property will
be distributed to or retained by the PMI Entities 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 PMI Entities holding an
Intercompany Claim in Class 6 will 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 pursuant to the PMI Merger on
the PMI Merger Date.
6. CLASS 9 INTERESTS (PM HOLDINGS OLD COMMON STOCK INTERESTS) ARE
IMPAIRED. No property will be distributed to or retained by the holder of
Allowed Interests in Class 9, and such Interests will be canceled on the
Effective Date immediately after receipt by PM Holdings of the funds in the PMI
Merger Escrow pursuant to Section IV.B.3.a and immediately prior to the issuance
of the New Common Stock.
D. SPECIAL PROVISIONS REGARDING THE 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:
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 or deemed 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 ADMINISTRATIVE CLAIMS
AND ALLOWED CLAIMS
In full satisfaction of the Indenture Trustee's Administrative
Claims, including 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 charging
lien held by the Indenture Trustee 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 the Indenture Trustee's
Administrative Claims. Notwithstanding any other provisions of the Plan, upon:
(1) 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 and (2) the failure of the
Reorganized Debtors to object on the grounds of reasonableness, as determined
under the terms of the Prepetition Indenture, to the payment of such fees and
expenses within ten days after receipt of such documentation, the Indenture
Trustee will be deemed to hold an Allowed Claim or Allowed Administrative Claim
for such fees and expenses,
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which the Reorganized Debtors will pay in cash within 30 days after the receipt
of such documentation regarding the fees and expenses of the Indenture Trustee,
without further Bankruptcy Court approval. If the Reorganized Debtors object to
the reasonableness of such fees, the Bankruptcy Court will determine the Allowed
amount of such fees, which will be paid within 30 days of such determination.
Except for the submission of such documentation, the Indenture Trustee will not
be required to File a proof of Claim or File or serve any request for payment of
its Administrative Claim.
F. SPECIAL PROVISIONS REGARDING THE KOCH AGRICULTURE COMMODITY SALE CLAIM
AND OTHER CLAIMS
As of the Effective Date, (1) the Koch Agriculture Commodity
Sale Claim will be treated as an Allowed Claim in Class 5 in the amount of
$26,050,000; (2) notwithstanding the provisions of Section VI.I, the Debtors,
their Estates and the Reorganized Debtors will be deemed to have waived any
defenses or rights of setoff in respect to the Koch Agriculture
Commodity Sale Claim; and (3) Koch Agriculture will be deemed to have waived its
rights, if any, to treatment of all or any portion of the Koch Agriculture
Commodity Sale Claim as a Claim for reclamation entitled to treatment, rights or
remedies under section 546(c) of the Bankruptcy Code, including treatment as an
Administrative Claim. Koch Agriculture will not be required to File any proof of
Claim in respect of the Koch Agriculture Commodity Sale Claim. In addition, any
Claims (other than Bank Loan Claims) in an aggregate amount not exceeding
$10,000,000 that are acquired by the Koch Entities, through right of subrogation
or otherwise, shall be allowed or disallowed, and such Koch Entity will be
entitled to distributions on account thereof under this Plan, subject to only
the defenses, if any, of a Debtor against the original holder thereof with
respect thereto, as if such Claims had not been acquired by a Koch Entity but
instead were held by the original holder thereof.
G. ELECTIONS OF HOLDERS OF BANK LOAN CLAIMS
Any holder of a Bank Loan Claim that does not timely return a
properly executed Ballot or fails to make an election on a timely returned,
properly executed Ballot to be a Participating Bank Loan Claim Holder will not
be treated as a Participating Bank Loan Claim Holder for any purpose under the
Plan. If Class 4 approves the Plan pursuant to sections 1126(c) and 1129(a)(8)
of the Bankruptcy Code, the election of a holder of a Bank Loan Claim on a
timely returned, properly executed Ballot to be treated as a Participating Bank
Loan Claim Holder will constitute the binding obligation of such holder to
participate in the Exit Financing Facility in accordance with the terms of such
election as set forth on the Ballot and the terms of the Exit Financing
Facility, which obligation will be enforceable by the Reorganized Debtors, the
Exit Financing Facility Agent Bank and each other Participating Bank Loan Claim
Holder in accordance with such terms, and each such Participating Bank Loan
Claim Holder will execute and deliver the documents required by the Exit
Financing Facility on the Effective Date.
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 (and subject to the
Restructuring Transaction provisions of Section IV.B), 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 (including fees relating to
the preparation of Professional fee applications) without application to the
Bankruptcy Court.
B. RESTRUCTURING TRANSACTIONS; IMPLEMENTATION OF KOCH INDUSTRIES
SETTLEMENT AGREEMENT
1. RESTRUCTURING TRANSACTIONS GENERALLY
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On or after the Confirmation Date, the applicable Debtors or
Reorganized Debtors, to the extent not inconsistent with the PMI Merger, may
enter into such Restructuring Transactions and may take such actions as may be
necessary or appropriate to effect a corporate restructuring of their respective
businesses or 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 the 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 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.
3. PMI MERGER
a. PMI MERGER ESCROW
On the PMI Merger Date, Koch Agriculture will deposit
$60,000,000 with the escrow agent under the PMI Merger Escrow Agreement. Such
funds will be (i) contributed to the capital of PM Holdings on the Effective
Date or (ii) returned to Koch Agriculture if the conditions to the Effective
Date are not satisfied or duly waived in accordance with Article IX, in each
case pursuant to the PMI Merger Escrow Agreement.
b. PMI MERGER
On the PMI Merger Date, the PMI Merger will be consummated in
accordance with the Plan of Merger. As part of the PMI Merger, on the PMI Merger
Date, (i) PMI will be merged with and into PM Holdings, with PM Holdings being
the corporation surviving such merger; (ii) PM Holdings will acquire all the
assets and shall assume all of the liabilities of PMI; (iii) the Old PMI Common
Stock will be canceled; and (iv) PM Holdings will change its name to "Purina
Mills, Inc."
c. KOCH TAX SHARING AGREEMENT
On the PMI Merger Date, Koch Industries and PM Holdings will
enter into the Koch Tax Sharing Agreement.
d. WARRANT PURCHASE AGREEMENT
On the PMI Merger Date, PM Holdings will grant to Koch
Agriculture an option to purchase the Warrant pursuant to the terms of the
Warrant Purchase Agreement. The terms and conditions of the Warrant will be
governed by the Warrant Agreement.
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C. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS, EMPLOYMENT-RELATED
AGREEMENTS AND COMPENSATION PROGRAMS
1. CERTIFICATES OF INCORPORATION AND BY-LAWS
a. REORGANIZED PM HOLDINGS
As of the Effective Date, the certificate of incorporation and
the by-laws of Reorganized PM Holdings will be substantially in the forms of
Exhibits IV.C.1.a(i) and IV.C.1.a(ii), respectively. The certificate of
incorporation and by-laws of Reorganized PM Holdings, 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) effective immediately after
the cancellation of the Old Common Stock of PM Holdings as set forth in Sections
III.C.6 and IV.H, authorize the issuance of New Common Stock and Share Purchase
Rights in amounts not less than the amounts necessary to permit the
distributions thereof required or contemplated by the Plan. After the Effective
Date, Reorganized PM Holdings 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, 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 (a) a list of
the employment agreements and plans that are in effect on the Effective Date and
(b) 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 (including the PMI Merger); 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 if Class 4 approves the Plan pursuant to
sections 1126(c) and 1129(a)(8) of the Bankruptcy Code; 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 (including the Plan of Merger, the Koch Tax
Sharing Agreement, the Warrant Purchase Agreement, the Warrant Agreement, the
Warrant, the New Registration Rights Agreement, the Share Purchase Rights
Agreement and the PMI Merger Escrow Agreement); the
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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 Equity Incentive Plan and 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 date
specified in the documents effectuating the applicable Restructuring
Transactions or the Effective Date, if no such other date is specified in such
other documents, 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.
D. EXIT FINANCING FACILITY, OBTAINING CASH FOR PLAN DISTRIBUTIONS AND
TRANSFERS OF FUNDS AMONG THE DEBTORS
On the Effective Date, if Class 4 approves the Plan pursuant
to sections 1126(c) and 1129(a)(8) of the Bankruptcy Code, the Reorganized
Debtors are authorized to 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 and/or the Exit Financing
Facility. Cash payments to be made pursuant to the Plan will be made by
Reorganized PM Holdings; 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 PM Holdings 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 THE
REORGANIZED DEBTORS
Except as provided in the Plan or in any contract, instrument,
release or other agreement entered into or delivered 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 against any person or entity to the extent not released under
Section IV.E.2.b.i. 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 (other than any of Koch
Entities, except as provided in Section III.F with respect to acquired Claims)
related to debit balances or deposits owed to any Debtor. Notwithstanding the
foregoing, on the Effective Date, the Reorganized Debtors will be deemed to
waive and release any claims, rights or causes of action arising under section
547 of the Bankruptcy Code relating to preferential transfers held by any
Reorganized Debtor against any entity.
2. RELEASES; INDEMNIFICATION
A. GENERAL RELEASES BY HOLDERS OF CLAIMS OR INTERESTS
As of the Effective Date, 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, agreements or documents to be entered into or delivered
in connection with the Plan (i) each holder of a Claim or Interest that votes in
favor of the Plan and (ii) to the fullest extent permissible under applicable
law, as such law may be extended or interpreted subsequent to the Effective
Date, each entity that has held, holds or may hold a Claim or Interest or at any
time was a creditor or stockholder of any of the Debtors and that does not vote
on the Plan or votes against the Plan will be deemed to forever release, waive
and discharge all claims (including Derivative Claims), obligations, suits,
judgments, damages, demands, debts, rights, causes of action and 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 in law, equity or otherwise, that are based
in whole or in part on any act, omission, transaction 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 or other PMI Entity, the members of the Unofficial Noteholders
Committee, the members of the Creditors' Committee and each of their respective
present or former directors, officers, employees, attorneys, accountants,
underwriters, investment bankers, financial advisors and agents, acting in such
capacity (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).
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b. KOCH INDUSTRIES SETTLEMENT AGREEMENT RELEASES;
INDEMNIFICATION
i. RELEASES BY THE DEBTORS AND DEBTORS IN
POSSESSION
As of the Effective Date, for good and valuable consideration,
including the consideration provided by the Koch Entities to the Reorganized
Debtors pursuant to the terms and conditions of the Plan, each of the Debtors in
their individual capacities and as a debtor in possession and, pursuant to a
written agreement which the Debtors shall cause to be executed and delivered on
the Effective Date, each other PMI Entity listed on Exhibit IV.E.2.b.i will be
deemed to forever release, waive and discharge (A) each of the Koch Entities and
their respective stockholders; (B) the respective present or former officers,
directors, employees, attorneys, accountants, financial advisors, investment
bankers and agents of any of the Koch Entities, acting in such capacity, and, to
the extent not otherwise included in this clause (B), the entities listed on
Exhibit IV.E.2.b.i; (C) any officer or director of any of the Debtors from and
after March 12, 1998; and (D) any employee, attorney, accountant, financial
advisor, investment banker or agent of any of the Debtors involved in the Koch
Purchase Transaction, any officer or director of any of the Debtors prior to
March 12, 1998 that is not released in clause (B) or (C) of this Section
IV.E.2.b.i and any other person or entity involved in the Koch Purchase
Transaction, in each case under this clause (D) solely to the extent that any
such person or entity, if not so released, would hold a claim for
indemnification, contribution or reimbursement against any entity or person
released in clauses (A), (B) or (C) of this Section IV.E.2.b.i, for and from any
and all claims (including Derivative Claims), obligations, suits, judgments,
damages, demands, debts, rights, rights of setoff (except as otherwise expressly
provided in Section VI.I), causes of action and liabilities, whether liquidated
or unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising in law, equity or
otherwise, that are based in whole or in part on any act, omission, transaction,
event or other occurrence taking place on or prior to the Effective Date,
including the Recovery Actions (excluding the right to enforce the terms of the
Transition Services Agreement, the Supplemental Transition Agreement and the
Plan and the contracts, instruments, releases, agreements and documents
delivered thereunder).
ii. RELEASES BY HOLDERS OF CLAIMS AND INTERESTS
As of the Effective Date, for good and valuable consideration,
including the consideration provided by the Koch Entities to the Reorganized
Debtors pursuant to the terms and conditions of the Plan, (A) each holder of a
Claim or Interest that votes in favor of the Plan and (B) to the fullest extent
permissible under applicable law, as such law may be extended or interpreted
subsequent to the Effective Date, each entity that has held, holds or may hold a
Claim or Interest or at any time was a creditor or stockholder of any of the
Debtors that does not vote on the Plan or votes against the Plan will be deemed
to forever release, waive and discharge (1) each of the Koch Entities and their
respective stockholders and (2) the respective present or former officers,
directors, employees, attorneys, accountants, financial advisors, investment
bankers and agents of any of the Koch Entities, acting in such capacity, for and
from any and all claims, obligations, suits, judgments, damages, demands, debts,
rights, causes of action and liabilities, whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter existing, in law, equity or otherwise,
that are not Derivative Claims and that are based in whole or in part on any
act, omission, transaction, event or other occurrence taking place on or prior
to the Effective Date in any way relating to the Debtors, the Koch Purchase
Transaction, the Old Senior Subordinated Notes, the Prepetition Indenture, any
Claim or Interest that is treated in the Plan or the Reorganization Cases.
iii. RELEASES BY THE KOCH ENTITIES
As of the Effective Date, for good and valuable consideration,
each of the Koch Entities will be deemed to forever release, waive and discharge
(A) each of the Debtors and, subject to their execution of a written agreement
contemplated by Section IV.E.2.b.i, the other PMI Entities listed on Exhibit
IV.E.2.b.i; (B) any stockholder or present officer, director or employee of any
of the Debtors or any of the other PMI Entities released under clause (A) of
this Section IV.E.2.b.iii; (C) the members of the Unofficial Noteholders
Committee and the members of the Creditors' Committee that vote in favor of the
Plan; (D) any creditor of the Debtors that has voted in favor of the Plan or
that is determined by a Final Order to have granted a binding and enforceable
release in favor of the Koch Entities; and (E) their respective attorneys,
accountants, financial advisors and agents, acting in such capacity, for and
from any and all claims, obligations, suits, judgments, damages, demands, debts,
rights, rights of setoff, causes of action and liabilities, whether liquidated
or unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter existing, in law, equity or
otherwise, that are based in whole or in part on any act, omission, transaction,
event or other occurrence taking place on or prior to the Effective Date in any
way relating to the Debtors, the Koch Purchase Transaction, the Old Senior
Subordinated Notes, the Prepetition Indenture, any Claim or Interest that is
treated in the Plan or the Reorganization Cases (excluding the right to receive
a full distribution on account of the Koch Agriculture Commodity
<PAGE> 29
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Sale Claim as a Class 5 Claim, the Administrative Claims
held by any Koch Entity Allowed under this Plan or any Exhibit to the Plan and
any Claim acquired by a Koch Entity from a third party that becomes an Allowed
Claim and to enforce the terms of the Transition Services Agreement, the
Supplemental Transition Agreement and the Plan and the contracts, instruments,
releases, agreements and documents delivered thereunder). Pursuant to the Koch
Indemnity Agreement, the Koch Entities will agree not to initiate litigation
against any former officer, director or employee of any PMI Entity.
iv. INDEMNITY BY THE REORGANIZED DEBTORS
As of the Effective Date, in accordance with the Koch
Indemnity Agreement, each of the Reorganized Debtors, jointly and severally,
will fully indemnify each of the Koch Entities and their respective stockholders
and present or former officers, directors, employees, accountants, attorneys,
investment bankers, financial advisors and agents, from any and all liabilities,
costs or expenses (including reasonable attorneys' fees paid as invoiced by such
indemnified party to the Reorganized Debtors within five Business Days after
receipt by a Reorganized Debtor of such invoice) related to any claims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
and liabilities asserted by any third party against any of the Koch Entities or
their respective stockholders or present or former officers, directors,
employees, accountants, attorneys, investment bankers, financial advisors or
agents, arising out of (A) the initiation by any of the Debtors, the Reorganized
Debtors or any other PMI Entity of litigation against such third party in any
way relating to a Koch Entity's ownership or operation of the Debtors, the Koch
Purchase Transaction, the Old Senior Subordinated Notes, the Prepetition
Indenture or any Claim or Interest; (B) any Services (as defined under the
Transition Services Agreement), any Additional Transition Items (as defined in
the Supplemental Transition Agreement) or any other services or benefits
provided by any Koch Entity to or for the benefit of any PMI Entity after the
Petition Date; and (C) with respect to a drawing of bonds under the bond program
Services within the meaning of paragraph A.4 of Exhibit 2.1(a)(iii) of the
Transition Services Agreement, whether such bond program Services were provided
before or after the Petition Date. Except as provided in clause (C) of this
Section IV.E.2.b.iv and Section IV.F.4, and in respect of the Koch Agriculture
Commodity Sale Claim and the Koch Agriculture Transition Settlement Payment, no
Koch Entity will have any Claim against any PMI Entity (and, as of the Effective
Date, any such Claim will be deemed to have been released) relating to any
services or benefits provided by any Koch Entity to or for the benefit of any
PMI Entity prior to the Petition Date, whether arising from a liability asserted
by any third party against any of the Koch Entities or otherwise.
Notwithstanding the foregoing, the Koch Entities will not be indemnified for (X)
any portion of the compensation of the directors of PMI paid by any Koch Entity
prior to the Effective Date or (Y) any claims in respect of any guarantee by any
Koch Entity of any employment contract of a PMI employee.
v. SCOPE OF THIRD PARTY RELEASE DETERMINATION
At any time prior to 30 days before the Confirmation Hearing,
Koch Industries may request that the Debtors and the Creditors' Committee join
with Koch Industries in Filing appropriate pleadings requesting a determination
of the Bankruptcy Court that under applicable law the releases contained in
Section IV.E.2.b.ii are valid and binding on each entity that has held, holds or
may hold a Claim or Interest or at any time was a creditor or stockholder of any
of the Debtors and that either does not vote on the Plan or votes against the
Plan. If Koch Industries makes such request, the Debtors and the Creditors'
Committee, in cooperation with Koch Industries, will use their best efforts in
good faith to obtain such a ruling from the Bankruptcy Court in connection with
Confirmation.
c. 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 claims, obligations, suits,
judgments, damages, demands, debts, rights, causes of action or liabilities
released pursuant to the Plan.
F. CONTINUATION OF CERTAIN EMPLOYEE, RETIREE AND WORKERS' COMPENSATION
BENEFITS
1. EMPLOYEE BENEFITS
From and after the Effective Date, the Reorganized Debtors
intend to continue (or continue as modified or replaced) their existing employee
benefit policies, plans and agreements identified on Exhibit IV.C.3(b),
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 policies; and (f) qualified deferred
compensation plans.
2. CAP PLAN; RELATED INDEMNITY
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The Claims of participants under the CAP Plan will be
Reinstated as of the Effective Date. Pursuant to the Koch Indemnity Agreement,
as of the Effective Date, each of the Reorganized Debtors, jointly and
severally, will indemnify each of the Koch Entities from any and all liabilities
asserted by any participant under the CAP Plan arising solely from the failure
by the Reorganized Debtors to pay the Reinstated Claims of such participant in
accordance with the terms of the CAP Plan.
3. RETIREE MEDICAL BENEFITS
Except to the extent such obligations are satisfied by Koch
Industries as set forth in the Supplemental Transition Agreement, 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.
4. WORKERS' COMPENSATION BENEFITS
From and after the Effective Date, the Reorganized Debtors
will continue to reimburse the Koch Entities for the payment of Claims arising
before or after the Petition Date under the Koch Entities' workers' compensation
programs in which the Debtors participate in accordance with 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
claims, obligations, suits, judgments, damages, demands, debts, rights, causes
of action or liabilities 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 entered into or delivered 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 and the Old Senior Subordinated
Notes will be canceled and of no further force and effect, without any further
action on the part of any Debtor or Reorganized Debtor. The Old Common Stock of
PM Holdings shall be deemed canceled and of no further force and effect on the
Effective Date immediately after receipt by PM Holdings of the amount payable to
it under Section IV.B.3.a. 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.
I. NEW REGISTRATION RIGHTS AGREEMENT
On the Effective Date, Reorganized PM Holdings and the holders
of New Common Stock that are parties thereto will execute and deliver the New
Registration Rights Agreement.
J. SHARE PURCHASE RIGHTS AGREEMENT
On the Effective Date, Reorganized PM Holdings will execute
and deliver the Share Purchase Rights Agreement.
K. 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.K.1, which will, among other things, allocate among
the parties thereto responsibility for any Tax obligations and rights to any Tax
benefits arising from and after the Effective Date.
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2. As of the Effective Date, (a) the Equity Incentive Plan, which is
included as part of Exhibit IV.C.3(b), will become effective pursuant to its
terms and (b) the Equity Incentive Plan and the initial grants thereunder
identified on Exhibit IV.C.3(a) will be deemed authorized and approved in all
respects and for all purposes without any requirements of further action by the
stockholders or directors of PM Holdings or Reorganized PM Holdings.
L. RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract,
instrument, release or other agreement or document entered into or delivered 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.
M. 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, the following will not be
subject to any stamp tax, real estate transfer tax or similar tax: (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; (5) any Restructuring Transaction; or (6) 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.
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 applicable Debtor or Debtors will assume or assume and assign, as
indicated, each of the other Executory Contracts and Unexpired Leases listed on
Exhibit V.A.1; provided, however, that the Debtors reserve the right, at any
time prior to the Effective 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 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 counsel to 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 described in Sections I.A.103 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,
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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 an applicable Restructuring
Transaction, any Executory Contract or Unexpired Lease (including any related
agreements as described in Sections I.A.103 and V.A.2) to be held by any Debtor
or another surviving, resulting or acquiring corporation in an 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. An 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 or assumption
and assignment of the applicable contract or lease or the amount of the proposed
Cure Amount Claim.
B. PAYMENTS RELATED TO THE 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 or assumption and assignment of such contract or
lease, the payment of any Cure Amount Claim 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.103 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 in Section I.A.103) 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 and not previously assumed, assumed and assigned or rejected by an
order of the Bankruptcy Court 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.
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
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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. Subject to the provisions of Section V.E.1.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 in such a capacity or as
a director, officer or employee of another corporation, partnership or other
legal entity, to the extent provided in the applicable certificates of
incorporation, by-laws or similar constituent documents, by statutory law or by
written agreement, policies or procedures 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, by
statutory law or by 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 for actions by such person solely in their
capacity 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 will 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.6 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.
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.
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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) 45
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 THE 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) (a) 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, (b) will be accounted for separately
and (c) 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 PM Holdings, or such Third Party Disbursing Agents
as Reorganized PM Holdings 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.
Reorganized PM Holdings may, at its option, employ the Indenture Trustee to act
as the Third Party Disbursing Agent in respect of Class 5 Claims.
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 PM Holdings,
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 PM Holdings 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
(i) will be deposited in a segregated bank account in the name of the applicable
Disbursing Agent and held in trust pending distribution by the Disbursing Agent
for the benefit of holders of Class 5 Claims, (ii) will be accounted for
separately and (iii) 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 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
A. GENERALLY
Except as provided in Section VI.E.1.b, 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 Filed by holders of such
Claims; (b) at the addresses set forth in any written certification of address
change delivered to the Disbursing Agent (including pursuant to a letter of
transmittal delivered to a Disbursing Agent) 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.
B. SPECIAL PROVISIONS FOR DISTRIBUTIONS TO HOLDERS OF
OLD SENIOR SUBORDINATED NOTE CLAIMS
Subject to the requirements of Section VI.J, distributions to
holders of Allowed Old Senior Subordinated Note Claims will be made by a
Disbursing Agent to the record holders of the Old Senior Subordinated Notes as
of the Distribution Record Date as identified on a record holder register to be
provided to the Disbursing Agent by the Indenture Trustee within five Business
Days after the Distribution Record Date. This record holder register will
provide the name, address and holdings of each respective registered holder of
Old Senior Subordinated Notes as of the Distribution Record Date.
2. UNDELIVERABLE DISTRIBUTIONS HELD BY DISBURSING AGENTS
A. HOLDING AND INVESTMENT OF UNDELIVERABLE
DISTRIBUTIONS; UNDELIVERED NEW COMMON STOCK
i. If any distribution to a holder of an
Allowed Claim 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. Subject to Section IV.E.2.c, 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 account of
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
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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 PM Holdings, (B) voted in any
election of directors of Reorganized PM Holdings for the nominees recommended by
the board of directors of Reorganized PM Holdings and (C) voted with respect to
any other matter as recommended by the board of directors of Reorganized PM
Holdings.
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
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, (i) unclaimed
cash and New Common Stock will be retained in the Unsecured Claims Reserve for
Pro Rata redistribution to holders of Allowed Claims in such Class, pursuant to
Section VI.H.2.b and (ii) 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 PM Holdings,
free of any restrictions thereon, and any such cash held by a Third Party
Disbursing Agent will be returned to Reorganized PM Holdings. 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 make distributions only to those
holders of Allowed Bank Loan Claims that 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 make distributions only to those holders of Old 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. currency by checks drawn on a domestic bank
selected by the applicable Debtor or Reorganized Debtor or, at the option of the
applicable Debtor or Reorganized Debtor, by wire transfer from a domestic bank;
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
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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.
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 DISTRIBUTIONS ON ACCOUNT OF PREVIOUSLY
ALLOWED CLAIMS
On the fourth Quarterly Distribution Date and annually
thereafter, 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 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 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 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 that are rounded
down. Each share of New Common Stock distributed pursuant to the Plan will be
accompanied by one Share Purchase Right.
4. DE MINIMIS DISTRIBUTIONS
No Disbursing Agent will 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 PM
Holdings, free of any restrictions thereon, and any such cash held by a Third
Party Disbursing Agent will be returned to Reorganized PM Holdings. 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.
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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, New Common Stock or New Prepetition Credit
Facility Notes 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.
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 entered into or delivered in connection with the Plan or
as otherwise provided in Section III.F, the Reorganized Debtors or, as
instructed by 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 that the Debtors will not have any rights of setoff
against any Claim held by a Koch Entity Allowed under or created by this Plan or
any Exhibit to the Plan or against any Claim held by a Koch Entity acquired from
a third party, other than any rights of setoff such Debtor has against the
original holder of such Claim; provided, further, that neither the failure to
effect a setoff nor the allowance of any Claim hereunder will constitute a
waiver or release by the applicable Debtor or Reorganized Debtor of any claims,
rights and causes of action that the Debtor or Reorganized Debtor may possess
against such a Claim 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 must 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. Pending such surrender, any distributions
pursuant to the Plan on account of any such Claim will 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
Old Senior Subordinated Note Claim must tender the applicable Old Senior
Subordinated 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 the applicable Old Senior Subordinated Notes 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 an Allowed Old Senior Subordinated Note Claim
with respect to which the underlying Old Senior Subordinated Note has been lost,
stolen, mutilated or destroyed must, 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 this Section VI.J.2 by a holder of an Allowed Old Senior Subordinated Note
Claim, such holder will, for all purposes under the Plan, be deemed to have
surrendered the applicable Old Senior Subordinated Note.
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3. FAILURE TO SURRENDER OLD SENIOR SUBORDINATED NOTES
Any holder of an Allowed Old Senior Subordinated Note Claim
that fails to surrender or be deemed to have surrendered the applicable Old
Senior Subordinated Notes within two years after the Effective Date will have
its right to distribution pursuant to the Plan on account of such Old Senior
Subordinated Note Claim discharged and will be forever barred from asserting any
such Claim against the Reorganized Debtors or their respective property. In such
case, any cash or New Common Stock held for distribution on account of such Old
Senior Subordinated Note Claim will be treated 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 tender
any Old Prepetition Credit Facility Notes or, if not evidenced by a note, any
other instrument evidencing their respective Allowed Claims to the applicable
Disbursing Agent as and when such entities receive New Prepetition Credit
Facility Notes. If any such entity's notes or other 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 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 will 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 will 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 Tort Claim will remain a Disputed Claim until it
becomes an Allowed Claim in accordance with Section I.A.4.
2. AUTHORITY TO PROSECUTE OBJECTIONS
After the Confirmation Date, only the Debtors or the
Reorganized Debtors will have the authority to File, 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 will 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
will 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 20 days of the service of the settlement notice. If
no such objection is Filed, the applicable settlement or compromise will be
deemed 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 PM
Holdings will fund the Unsecured Claims Reserve with New Common Stock, as
described in Section VI.D.1.
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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.
D. TAX REQUIREMENTS FOR INCOME GENERATED BY UNSECURED CLAIMS RESERVE
The recovery of holders of Allowed 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
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 Allowed 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 the purpose of
implementing 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 PM Holdings, PMI and the PMI Subsidiary Debtors will be
deemed merged; (B) all guarantees by one Debtor of the obligations of any other
Debtor will 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 will 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 will be deemed Filed against the
consolidated Debtors, and will be deemed one Claim against and a single
obligation of the consolidated Debtors. Such substantive consolidation (other
than for the purpose of implementing the Plan) will not affect (A) the legal and
corporate structures of the Reorganized Debtors, subject to the PMI Merger and
the right of the Debtors or Reorganized Debtors to affect restructurings as
provided in Section IV.B of the Plan; (B) the 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 conditions have been satisfied or duly waived
pursuant to Section IX.D:
1. The Confirmation Order will be reasonably acceptable in form and
substance to the Debtors, the Creditors' Committee and Koch Industries and will
include the following:
a. an approval of the substantive consolidation of the Debtors
as contemplated by Article VIII;
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b. a finding that each of the Recovery Actions is the exclusive
property of the Debtors as debtors in possession pursuant to section 541 of the
Bankruptcy Code; and
c. a ruling that each of the Recovery Actions against (i) the
Koch Entities and any of their respective stockholders and their respective
present or former officers, directors, employees, attorneys, accountants,
financial advisors, investment bankers or agents and (ii) the other persons or
entities as set forth in Section IV.E.2.b.i will be fully settled and released
as of the Effective Date.
2. The Koch Industries Settlement Agreement shall not have been
terminated.
3. If Class 4 approves the Plan pursuant to sections 1126(c) and
1129(a)(8) of the Bankruptcy Code, the Debtors shall have received a binding,
unconditional (except for a normal "market-out" condition and for conditions
relating to occurrence of the Effective Date) commitment for the Exit Financing
Facility from the Exit Financing Facility Agent Bank on terms and conditions
satisfactory to the Debtors and the Creditors' Committee.
4. The Confirmation Hearing has been commenced by May 31, 2000.
5. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C.
6. All Exhibits to the Plan are in form and substance reasonably
satisfactory (a) to the Debtors and the Creditors' Committee and (b) to Koch
Industries, if any Koch Entity is affected thereby (other than effects generally
applicable to holders of Class 5 Claims), as determined in the reasonable
judgment of Koch Industries.
7. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i or (b)
any of the Koch Entities against any of the Debtors or any other party to be
released pursuant to Section IV.E.2.b.iii.
B. CONDITIONS TO THE PMI MERGER
The PMI Merger will not occur, and accordingly no action in
connection therewith (including the deposit by Koch Agriculture of any funds to
the escrow agent under the PMI Merger Escrow Agreement) will occur unless and
until the following conditions have been satisfied or duly waived pursuant to
Section IX.D:
1. The New Common Stock shall have been registered under 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 subject to
official notice of issuance.
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
the Plan in form and substance acceptable to the Debtors, the Creditors'
Committee and Koch Industries, 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 entered into or delivered in connection with the
Plan.
4. Simultaneously with the effectiveness of the PMI Merger, the
respective parties thereto shall have executed and delivered the PMI Merger
Escrow Agreement, the Plan of Merger, the Koch Tax Sharing Agreement and the
Warrant Purchase Agreement.
5. The Confirmation Order shall have become a Final Order.
6. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C, and all
Exhibits to the Plan remain in form and substance reasonably satisfactory (a) to
the Debtors and the Creditors' Committee and (b) to Koch Industries, if any Koch
Entity is affected thereby (other than effects generally applicable to holders
of Class 5 Claims), as determined in the reasonable judgment of Koch Industries.
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7. The PMI Merger has been consummated by June 15, 2000.
8. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i or (b)
any of the Koch Entities against any of the Debtors or any other party to be
released pursuant to Section IV.E.2.b.iii.
C. CONDITIONS TO THE EFFECTIVE DATE
The Effective Date will not occur and the Plan will not be
consummated unless and until each of the following conditions have been
satisfied or duly waived pursuant to Section IX.D.
1. The PMI Merger Date has occurred and the PMI Merger has been
consummated.
2. Twenty days have elapsed since the PMI Merger Date.
3. The escrow established pursuant to the PMI Merger Escrow Agreement
has been and remains funded in accordance with Section IV.B.3.a and the PMI
Merger Escrow Agreement.
4. If Koch Agriculture has exercised the option to purchase the Warrant
pursuant to the Warrant Purchase Agreement, Koch Agriculture shall have paid
$5.0 million to PM Holdings.
5. If Class 4 approves the Plan pursuant to sections 1126(c) and
1129(a)(8) of the Bankruptcy Code, the documents effectuating the Exit Financing
Facility shall have been executed and delivered by the Reorganized Debtors, the
Exit Financing Facility Agent Bank and each of the Participating Bank Loan Claim
Holders.
6. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C, and all
Exhibits to the Plan remain in form and substance reasonably satisfactory to the
Debtors and the Creditors' Committee and to Koch Industries, if any Koch Entity
is affected thereby (other than effects generally applicable to holders of Class
5 Claims) as determined in the reasonable judgment of Koch Industries..
7. The Effective Date has occurred by July 14, 2000.
8. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i or (b)
any of the Koch Entities against any of the Debtors or any other party to be
released pursuant to Section IV.E.2.b.iii.
D. WAIVER OF CONDITIONS TO THE CONFIRMATION, PMI MERGER OR EFFECTIVE DATE
The conditions to Confirmation set forth in Section IX.A.1.a,
IX.A.3, IX.A.4, IX.A.5 and IX.A.6; the conditions to the Effective Date set
forth in Section IX.C.1, IX.C.3, IX.C.4 , IX.C.5, IX.C.6 and IX.C.7; and the
conditions to the PMI Merger set forth in Sections IX.B.3, IX.B.4, IX.B.6 and
IX.B.7 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
proposed waiver to and the prior written consent of the Creditors' Committee and
Koch Industries. The conditions to Confirmation set forth in Sections IX.A.1.b,
IX.A.1.c and IX.A.2 and clause (a) of Section IX.A.7; the conditions to the PMI
Merger set forth in Section IX.B.5 and clause (a) of Section IX.B.8; and the
conditions to the Effective Date set forth in Section IX.C.2 and clause (a) of
Section IX.C.8 may be waived in whole or in part by and in the sole discretion
of Koch Industries at any time without an order of the Bankruptcy Court and, if
any such condition is waived by Koch Industries, such waiver shall be deemed
granted by all parties for all purposes under the Plan. The condition to
Confirmation set forth in clause (b) of Section IX.A.7; the conditions to the
PMI Merger set forth in Sections IX.B.1 and IX.B.2 and clause (b) of Section
IX.B.8; and the condition to the Effective Date in clause (b) of Section IX.C.8
may be waived in whole or part by the Debtors at any time without an order of
the Bankruptcy Court after three Business Days' notice to and prior written
consent of the Creditors' Committee, and no consent of Koch Industries shall be
required. The failure to satisfy or waive a condition may be asserted (in
writing to the Debtors, the Creditors' Committee and Koch Industries) by a party
with the right to waive such condition, regardless of the circumstances giving
rise to the failure of such condition to be satisfied (including any action or
inaction by such party).
E. EFFECT OF NONOCCURRENCE OF CONDITIONS TO THE EFFECTIVE DATE
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If each of the conditions to the Effective Date is not
satisfied or duly waived in accordance with Section IX.D, then upon motion by
the Debtors, the Creditors' Committee or Koch Industries 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.E, (1) the Plan
will be null and void in all respects (other than with respect to the PMI Merger
and the documents executed in connection therewith, which will continue in full
force and effect if the PMI Merger has been consummated), 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 and 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.
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 and immediately after cancellation of the Old PM
Holdings Common Stock: (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.
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 and immediately after the cancellation of the Old
Common Stock of PM Holdings and the issuance of the New Common Stock, of a
discharge of all Claims and other debts and liabilities against the Debtors and
a 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.
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
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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 any claims, obligations, suits, judgments, damages, demands,
debts, rights, causes of action or liabilities that are 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,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
or liabilities: (a) commencing or continuing in any manner any action or other
proceeding; (b) enforcing, attaching, collecting or recovering in any manner any
judgment, award, decree or order; (c) creating, perfecting or enforcing any lien
or encumbrance; (d) asserting a setoff, right of subrogation or recoupment of
any kind against any debt, liability or obligation due to any released entity;
and (e) commencing or continuing any action, in any manner, in any place that
does not comply with or is inconsistent with the provisions of the Plan.
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.B.
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.
2. 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.
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, priority or
classification 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 any Cure Amount Claims;
4. Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan;
<PAGE> 45
37
5. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters, including the Recovery Actions to the
extent not released hereunder, 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 entered into or delivered 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 entered into or delivered 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.A.2.d.
9. Modify the Plan before or after the Effective Date pursuant to
section 1127 of the Bankruptcy Code; modify the Disclosure Statement, the
Confirmation Order or any contract, instrument, release or other agreement or
document entered into or delivered 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 entered into, delivered or 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 entered into or
delivered in connection with the Plan, the Disclosure Statement or the
Confirmation Order;
13. Enter a final decree closing the Reorganization Cases; and
14. Determine matters concerning state, local and federal Taxes in
accordance with sections 346, 505 and 1146 of the Bankruptcy Code, including any
Disputed Claims for Taxes.
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.g.ii.A and
in connection with any appeal of the Confirmation Order.
<PAGE> 46
38
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.47.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'
EXPENSES
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 PM
Holdings' 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.
d. DISSOLUTION OF THE CLAIMS RESOLUTION COMMITTEE
Subject to further order of the Bankruptcy Court, the Claims
Resolution Committee will dissolve upon distribution (other than on account of
undeliverable distributions pursuant to Section VI.E.2) of 95% or more of the
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; the
Creditors' Committee and its members and professionals; and the Koch Entities
and their respective directors, officers, employees 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 entered into or
delivered 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.
<PAGE> 47
39
C. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in
section 1127 of the Bankruptcy Code, upon not less than ten days' prior written
notice to Koch Industries, the Debtors or the Reorganized Debtors, as
applicable, reserve the right to alter, amend or modify the Plan before its
substantial consummation; provided that no alteration, amendment or modification
of the Plan of any nature whatsoever may occur without the prior written consent
of the Creditors' Committee; and provided further that if Koch Industries
notifies the Debtors within ten days after receipt of such notice that Koch
Industries has determined in its reasonable good faith judgment that such
proposed alteration, amendment or modification would adversely affect any rights
or obligations of any Koch Entity under the Plan or any documents or agreements
to be executed in connection therewith, such proposed alteration, amendment or
modification may not occur without the prior written consent of Koch Industries.
Notwithstanding the preceding sentence, any proposed alteration, amendment or
modification affecting the distributions on account of Allowed Class 5 Claims
generally and equally will not require the prior written consent of Koch
Industries.
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 Debtors or any other party.
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; provided that any such alteration or
interpretation must be in form and substance acceptable to the Debtors and the
Creditors' Committee and to Koch Industries, if such alteration or
interpretation would, in the reasonable good faith judgment of Koch Industries,
adversely affect any rights or obligations of any Koch Entity under the Plan or
any documents or agreements to be executed in connection therewith.
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.
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:
<PAGE> 48
40
1. THE DEBTORS AND THE REORGANIZED DEBTORS:
David G. Kabbes, General Counsel
PURINA MILLS, INC.
1401 South Hanley Road
St. Louis, Missouri 63144
Fax: (314) 768-4470
Richard M. Cieri, Esq.
Jeffrey B. Ellman, Esq.
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
Henry L. Gompf, Esq.
JONES, DAY, REAVIS & POGUE
2727 North Harwood
Dallas, Texas 75201
Fax: (214) 969-5100
Thomas L. Ambro, Esq.
Daniel J. DeFranceschi, Esq.
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Fax: (302) 658-6548
(Counsel to the Debtors and Reorganized Debtors)
2. THE CREDITORS' COMMITTEE:
Daniel H. Golden, Esq.
Lisa G. Beckerman, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD LLP
590 Madison Avenue
New York, New York 10022
Fax: (212) 872-1002
M. Blake Cleary, Esq.
YOUNG, CONAWAY, STARGATT & TAYLOR, LLP
1100 North Market Street Wilmington Trust
Center, 11th Floor Wilmington, Delaware 19801
Fax: (302) 571-1253
(Counsel to the Creditors' Committee)
3. THE DIP LENDERS:
Lewis Kruger, Esq.
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038-4982
Fax: (212) 806-6006
<PAGE> 49
41
Kevin Gross, Esq.
ROSENTHAL, MONHAIT, GROSS & GODDESS P.A.
Suite 1401
Mellon Bank Center
919 North Market Street
Wilmington, Delaware 19801
Fax: (302) 658-7567
(Counsel to the DIP Lender and Lenders under the Prepetition
Credit Facility)
4. THE KOCH ENTITIES
Tye G. Darland, Esq.
KOCH INDUSTRIES, INC.
4111 East 37th Street North
Wichita, Kansas 67220
Fax: (316) 828-3133
David S. Kurtz, Esq.
Timothy R. Pohl, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Fax: (312) 407-0411
(Counsel to the Koch Entities)
5. THE UNITED STATES TRUSTEE
John D. McLaughlin, Jr., Esq.
OFFICE OF THE UNITED STATES TRUSTEE
Curtis Center, Suite 950 West
Philadelphia, Pennsylvania 19106
Fax: (215) 597-5795
<PAGE> 50
42
<TABLE>
<S> <C>
Dated: January 18, 2000 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
PM HOLDINGS CORPORATION
By:________________________________________________
Name: David G. Kabbes
Title: Secretary
</TABLE>
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
ATTORNEYS FOR DEBTORS AND DEBTORS IN
POSSESSION
<PAGE> 51
EXHIBIT III.C.2 TO PLAN OF REORGANIZATION
PART A
PURINA MILLS, INC.
SUMMARY OF TERMS OF TREATMENT OF HOLDERS
OF BANK LOAN CLAIMS IF HOLDERS OF
BANK LOAN CLAIMS APPROVE THE
PLAN OF REORGANIZATION:(4)
<TABLE>
<S> <C>
BORROWER: Reorganized PM Holdings, Inc. (the "Borrower").
GUARANTORS: Those subsidiaries of the Borrower still in existence parties to the
prepetition Collateral and Guarantee Agreement.
ADMINISTRATIVE AGENT: [To be determined] (the "Administrative Agent").
LENDERS: Bank Loan Claim Holders (collectively, the "Lenders").
FACILITY: The original aggregate principal amount of the facility will be equal
to the aggregate amount of Allowed Bank Loan Claims held by the Bank
Loan Claim Holders and will be structured as follows:
- New Tranche A Notes will be issued to Bank Loan Claim Holders
on account of their Old Tranche A Note Claims ("New Tranche A
Notes").
- New Tranche B Notes will be issued to Bank Loan Claim Holders
on account of their Old Tranche B Note Claims ("New Tranche B
Notes").
- New Term Notes will be issued to Bank Loan Claim Holders on
account of their Old Revolving Note Claims ("New Term Notes"
and, collectively with the New Tranche A Notes and the New
Tranche B Notes, the "New Prepetition Credit Facility Notes").
INTEREST RATES: At Borrower's option: New Tranche A Notes: LIBOR plus 3.0% or Base Rate
plus 2.0% New Tranche B Notes: LIBOR plus 3.50% or Base Rate plus 2.50%
New Term Notes: LIBOR plus 3.0% or Base Rate plus 2.0%
</TABLE>
- --------
(4) This term sheet summarizes the principal terms and conditions of the Notes
to be issued to Bank Loan Claim Holders if such Holders, as a class, approve the
Joint Plan of Reorganization of Purina Mills, Inc., its Parent Corporation and
its Debtor Subsidiaries (the "Plan"). Capitalized terms used herein and not
otherwise defined have the meanings assigned such terms in the Plan.
1
<PAGE> 52
MATURITY: New Tranche A Notes and New Term Notes: March 12,
2005 New Tranche B Notes: March 12, 2007
COLLATERAL: The obligations of the Borrower and the Guarantors
with respect to the New Prepetition Credit Facility
Notes will be secured by a security interest in all
of the tangible and intangible assets of the
Borrower and the Guarantors that secured the
Prepetition Credit Facility.
SUBORDINATION: The New Prepetition Credit Facility Notes will be
subordinated in both payment and lien priority to the
Exit Financing Facility in accordance with the
subordination terms attached hereto as Annex 1.
PARTICIPATION FEE: Each Lender will receive a participation fee
equal to .50% of the aggregate amount of such
Lender's New Prepetition Credit Facility Notes after
giving effect to the prepayment of such Notes from
the Koch Settlement Proceeds described "Mandatory
Prepayments" below.
AMORTIZATION: New Tranche A Notes: The New Tranche A Notes will
amortize in accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Quarterly
Date Amount Date Amount
---- ------ ---- ------
<S> <C> <C> <C>
December 31, March 31,
2000 $2,750,000 2003 $4,250,000
March 31,
2001 $2,750,000 June 30, 2003 $5,000,000
September
June 30, 2001 $3,500,000 30, 2003 $5,000,000
September 30, December 31,
2001 $3,500,000 2003 $5,000,000
December 31, March 31,
2001 $3,500,000 2004 $5,000,000
March 31,
2002 $3,500,000 June 30, 2004 $6,250,000
September
June 30, 2002 $4,250,000 30, 2004 $6,250,000
September 30, December 31,
2002 $4,250,000 2004 $6,250,000
December 31, March 12, remaining
2002 $4,250,000 2005 balance
</TABLE>
New Tranche B Notes: The New Tranche B Notes will
amortize in accordance with the following schedule:
2
<PAGE> 53
<TABLE>
<CAPTION>
Quarterly Quarterly
Date Amount Date Amount
---- ------ ---- ------
<S> <C> <C> <C>
December 31, March 31,
2000 $75,000 2004 $75,000
March 31,
2001 $75,000 June 30, 2004 $75,000
September
June 30, 2001 $75,000 30, 2004 $75,000
September 30, December 31,
2001 $75,000 2004 $75,000
December 31, March 31,
2001 $75,000 2005 $75,000
March 31,
2002 $75,000 June 30, 2005 $75,000
September
June 30, 2002 $75,000 30, 2005 $75,000
September 30, December 31,
2002 $75,000 2005 $75,000
December 31, March 31,
2002 $75,000 2006 $75,000
March 31,
2003 $75,000 June 30, 2006 $24,400,000
September
June 30, 2003 $75,000 30, 2006 $24,400,000
September 30, December 31,
2003 $75,000 2006 $24,400,000
December 31, March 12, remaining
2003 $75,000 2007 balance
</TABLE>
New Term Notes: The New Term Notes will be
due and payable in full on their maturity
date.
VOLUNTARY PREPAYMENTS: The Borrower may prepay the New Prepetition
Credit Facility Notes in whole or in part at
any time without premium or penalty. Any
such prepayment will be applied to the New
Prepetition Credit Facility Notes pro rata
in accordance with the aggregate outstanding
principal amount of the New Prepetition
Credit Facility Notes.
MANDATORY PREPAYMENTS: Koch Settlement: 15 days after the Effective
Date of the Plan of Reorganization, the
Borrower will apply no less than $35 million
of Koch
3
<PAGE> 54
settlement proceeds to prepay the New
Prepetition Credit Facility Notes. Such
proceeds will be applied to the Notes pro
rata in accordance with the aggregate
outstanding principal amount of the New
Prepetition Credit Facility Notes.
Vitamin Litigation Settlement: The first $10
million of the proceeds of the vitamin
settlement litigation will be applied to
prepay the New Prepetition Credit Facility
Notes on a pro rata basis. Any additional
amounts realized from the settlement that
are not required to be applied to the Exit
Financing Facility will also be applied to
the pro rata prepayment of the New
Prepetition Credit Facility Notes.
Asset Sales: To the extent proceeds of
non-ordinary-course asset sales are not
required to be applied to prepay the Exit
Financing Facility, such proceeds will be
applied to the pro rata prepayment of the
New Prepetition Credit Facility Notes in
accordance with the provisions of the
Prepetition Credit Agreement.
Excess Cash Flow: To the extent the Exit
Financing Facility does not require
prepayments from excess cash flow, the
Borrower will prepay the New Prepetition
Credit Facility Notes pro rata from excess
cash flow on the basis and at the times
specified in the Prepetition Credit
Agreement.
CONDITIONS PRECEDENT
TO EFFECTIVENESS: Usual and customary for transactions of this
type, including the execution and delivery
of satisfactory documentation governing the
New Prepetition Credit Facility Notes and
the occurrence of the Effective Date of the
Plan of Reorganization.
REPRESENTATIONS AND
WARRANTIES: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition upon the occurrence of the
Effective Date of the Plan of
Reorganization.
AFFIRMATIVE COVENANTS: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition and business requirements from and
after the Effective Date of the Plan of
Reorganization.
NEGATIVE COVENANTS: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition and business requirements from and
after the Effective Date of the Plan of
Reorganization.
FINANCIAL COVENANTS: Each of the financial covenants will be
based on the definitions thereof set forth
in the Prepetition Credit Agreement (without
giving effect to the
4
<PAGE> 55
First Amendment to the Prepetition Credit
Agreement dated as of December 31, 1998
except as noted below and that EBITDA for
all periods through March 31, 2001 will be
calculated as defined in the DIP Credit
Agreement) and will be set at the following
levels:
Consolidated Interest Coverage Ratio (the
denominator of which will be defined as net
interest expense, which equals Consolidated
Interest Expense less interest income):
Each Rolling Period from
and after March 31, 2000 Not less than 2.00
Consolidated Fixed Charge Coverage Ratio
(Fixed Charges will include net interest
expense as above):
<TABLE>
<CAPTION>
Each Rolling Period Ending: Ratio:
- -------------------------- -----
<S> <C>
March 31, 2000 .75 to 1.00
June 30, 2000 .75 to 1.00
September 30, 2000 .75 to 1.00
December 31, 2000 .75 to 1.00
March 31, 2001 .85 to 1.00
June 30, 2001 .85 to 1.00
September 30, 2001 .85 to 1.00
December 31, 2001 .85 to 1.00
March 31, 2002 1.00 to 1.00
June 30, 2002 1.00 to 1.00
September 30, 2002 1.00 to 1.00
December 31, 2002 1.00 to 1.00
Thereafter 1.05 to 1.00
</TABLE>
Consolidated Leverage Ratio:
<TABLE>
<CAPTION>
Each Rolling Period Ending: Ratio:
- -------------------------- -----
<S> <C>
March 31, 2000 5.25 to 1.00
June 30, 2000 5.25 to 1.00
</TABLE>
5
<PAGE> 56
<TABLE>
<S> <C>
September 30, 2000 5.25 to 1.00
December 31, 2000 5.25 to 1.00
March 31, 2001 4.75 to 1.00
June 30, 2001 4.75 to 1.00
September 30, 2001 4.75 to 1.00
December 31, 2001 4.75 to 1.00
March 31, 2002 4.50 to 1.00
June 30, 2002 4.50 to 1.00
September 30, 2002 4.50 to 1.00
December 31, 2002 4.50 to 1.00
Thereafter 4.25 to 1.00
</TABLE>
EVENTS OF DEFAULT: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition and business requirements from and
after the Effective Date of the Plan of
Reorganization.
ASSIGNMENTS AND
PARTICIPATIONS: As set forth in the Prepetition Credit
Agreement.
WAIVERS AND
AMENDMENTS: As set forth in the Prepetition Credit
Agreement
INDEMNIFICATION: As set forth in the Prepetition Credit
Agreement.
GOVERNING LAW: New York
6
<PAGE> 57
ANNEX 1
-------
FORM OF SUBORDINATION PROVISIONS
EACH CREDIT AGREEMENT GOVERNING THE NOTES AND EACH NOTE
SHALL INCLUDE THE FOLLOWING:
Section 1.1. SUBORDINATION OF LIABILITIES. Reorganized PM
Holdings (the "Borrower"), for itself and its successors and assigns covenants
and agrees, and each holder of the indebtedness evidenced hereby (the "Note") by
its acceptance hereof likewise covenants and agrees, that (a) the payment of the
principal of, and interest on, and all other amounts owing in respect of, the
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Senior Indebtedness
(as defined in Section 1.07), (b) any existing or hereafter acquired or arising
security interest in security title to or lien against any property in favor of
any holder of the Note securing payment of the Note shall be and at all times
remain subordinate and inferior in priority to any security interest in security
title to or lien against any such property securing payment of Senior
Indebtedness, and (c) no such holder will ask for, demand, sue for, take or
receive from the Borrower, by set-off or in any other manner, the whole, or any
part, of any monies owing under the Note to such holder, nor any security
therefor, unless and until all Lender Obligations shall have been fully paid
with interest. The provisions of this Article __ shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become holders of,
or continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness, and such holders are hereby made
obligees hereunder the same as if their names were written herein as such, and
they are/or each of them may proceed to enforce such provisions.
Section 1.02. BORROWER NOT TO MAKE PAYMENTS WITH RESPECT TO
NOTE IN CERTAIN CIRCUMSTANCES. (a) Upon the maturity of any Senior Indebtedness
(including interest thereon or fees or any other amounts owing in respect
thereof), whether at stated maturity, by acceleration or otherwise, all
Obligations (as defined in Section 1.07) owing in respect thereof, in each case
to the extent due and owing, shall first be paid in full in cash or such payment
duly provided for in cash or in a manner satisfactory to the holder or holders
of such Senior Indebtedness before any payment is made on account of the
principal of (including installments thereof), or interest on, or any amount
otherwise owing in respect of, the Note. The Borrower may not, directly or
indirectly, make any payment of any principal of, and interest on, or any other
amount owing in respect of, the Note and may not acquire all or any part of the
Note for cash or property until all Senior Indebtedness has been paid in full in
cash if any Event of Default (as defined below) in respect of any Senior
Indebtedness is then in existence. Each holder of the Note hereby agrees that,
so long as an Event of Default in respect of any Senior Indebtedness exists, it
will not ask, demand, sue for, or otherwise take, accept or receive, any amounts
owing in respect of the Note. As used herein, the term "Event of Default" shall
mean any Event of Default, under and as defined in, the relevant documentation
governing any Senior Indebtedness and in any event shall include any payment
default with respect to any Senior Indebtedness.
(b) If notwithstanding the provisions of the preceding
subsection (a) of this Section 1.02 any payment shall be made on account of the
principal of, or interest on, or amounts otherwise owing in respect of, the
Note, at a time when payment is not permitted by the terms of the NOTE or by
such subsection (a), such payment shall be held by the holder of the Note in
trust for the benefit of, and
<PAGE> 58
shall be paid forthwith over and delivered to, the holders of Senior
Indebtedness or their representative or representatives under the agreements
pursuant to which the Senior Indebtedness may have been issued, as their
respective interests may appear, for application pro rata to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with the terms of such Senior Indebtedness,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
Section 1.03. NOTE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF BORROWER. Upon any
distribution of assets of the Borrower upon any dissolution, winding up,
liquidation or reorganization of the Borrower (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in cash of all Senior Indebtedness
(including, without limitation, postpetition interest) before the holder of the
Note is entitled to receive any payment on account of the principal of or
interest on or any other amount owing in respect of the Note;
(b) any payment or distributions of assets of the Borrower of
any kind or character, whether in cash, property or securities to which the
holder of the Note would be entitled except for the provisions of this Article
__, shall be paid by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders of Senior
Indebtedness or their representative or representatives under the agreements
pursuant to which the Senior Indebtedness may have been issued, to the extent
necessary to make payment in full of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness; and
(c) if notwithstanding the foregoing provisions of this
Section 1.03 any payment or distribution of assets of the Borrower of any kind
or character, whether in cash, property or securities, shall be received by the
holder of the Note on account of principal of, or interest or other amounts due
on, the Note before all Senior Indebtedness is paid in full in cash or in a
manner satisfactory to the holder or holders of such Senior Indebtedness, or
effective provision made for its payment, such payment or distribution shall be
received and held in trust for and shall be paid over to the holders of the
Senior Indebtedness remaining unpaid or unprovided for or their representative
or representatives under the agreements pursuant to which the Senior
Indebtedness may have been issued, for application to the payment of such Senior
Indebtedness until all such Senior Indebtedness shall have been paid in full,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness.
Section 1.04. SUBROGATION. Subject to the prior payment in
full of all Senior Indebtedness, the holder of the Note shall be subrogated to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets applicable to the Senior Indebtedness until all amounts
owing on the Note shall be paid in full, and for the purpose of such subrogation
no payments or distributions to the holders of the Senior Indebtedness by or on
behalf of the Borrower or by or on behalf of the holder of the Note by virtue of
this Article __ which otherwise would have been made to the holder of the Note
shall, as between the Borrower, its creditors other than the holders of Senior
Indebtedness, and the holder of the Note, be deemed to be payment by the
Borrower to or on account of the Senior Indebtedness, it being understood that
the provisions of this Article __ are and are intended
2
<PAGE> 59
solely for the purpose of defining the relative rights of the holder of the
Note, on the one hand, and the holders of the Senior Indebtedness, on the other
hand.
Section 1.05. OBLIGATION OF BORROWER UNCONDITIONAL. Nothing
contained in this Article __ or in the Note is intended to or shall impair, as
between Borrower and the holder of the Note, the obligation of Borrower, which
is absolute and unconditional, to pay to the holder of the Note the principal of
and interest on the Note as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holder of the Note and creditors of Borrower other than the
holders of the Senior Indebtedness, nor shall anything herein or therein, except
as expressly provided, prevent the holder of the Note from exercising all
remedies otherwise permitted by applicable law, subject to the rights, if any,
under this Article __ of the holders of Senior Indebtedness in respect of cash,
property, or securities of the Borrower received upon the exercise of any such
remedy. Upon any distribution of assets of the Borrower referred to in this
Article __, the holder of the Note shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the holder of the Note, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Borrower, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article __.
Section 1.06. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF BORROWER OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present
or future holders of any Senior Indebtedness to endorse subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Borrower or by any act or failure to act in
good faith by any such holder, or by any noncompliance by the Borrower with the
terms and provisions of the Note, regardless of any knowledge thereof which any
such holder may have or be otherwise charged with. The holders of the Senior
Indebtedness may, without in any way affecting the obligations of the holder of
the Note with respect thereto, at any time or from time to time and in their
absolute discretion, change the manner, place or terms of payment of, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend, modify or supplement any agreement or instrument governing or evidencing
such Senior Indebtedness or any other document referred to therein, or exercise
or refrain from exercising any other of their rights under the Senior
Indebtedness including, without limitation, the waiver of default thereunder and
the release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holder of the Note.
Section 1.07. SENIOR INDEBTEDNESS. (a) The term "Senior
Indebtedness" shall mean all Obligations of each of Borrower and any of its
Subsidiaries (including, without limitation, the Borrower) under the Credit
Agreement and the other Credit Documents and any renewal, extension,
restatement, refinancing or refunding hereof; and (ii) of the Borrower in
respect of all Interest Rate Protection or Other Hedging Agreements with Other
Creditors.
(b) As used in preceding Section 1.07(a), the terms set forth
below shall have the respective meanings provided below:
"Credit Agreement" shall mean the [Exit Financing Facility],
dated as of ___________ __, 2000, among the Borrower, the financial institutions
from time to time party thereto (the "Lenders") and [_____________], as
administrative agent (the "Agent"); as the same may be amended, modified,
3
<PAGE> 60
extended, renewed, replaced, restated, supplemented or refinanced from time to
time, and including any agreement extending the maturity of, refinancing or
restructuring (including but not limited to any increase in the amount borrowed)
all of any portion of, the Indebtedness under such agreement or any successor
agreements.
["Credit Documents" shall have the meaning provided in the
Credit Agreement.]
"Interest Rate Protection or Other Hedging Agreements" shall
have the meaning provided in the Credit Agreement.
"Obligation" shall mean any principal, interest, premium,
penalties, fees and other liabilities and obligations payable under the
documentations governing any Senior Indebtedness (including interest after the
commencement of any bankruptcy, insolvency, receivership or similar proceeding
at the rate provided in the governing documentation, whether or not such
interest is an allowed claim in such proceeding).
"Other Creditors" shall mean each of the Lenders party from
time to time to the Credit Agreement, and their subsequent assigns, if any, and
any other institution which participates with such Lenders in the extension of
Interest Rate Protection or Other Hedging Agreements and their subsequent
assigns, if any, in all such cases in their capacity as creditor with respect to
Interest Rate Protection and Other Hedging Agreements.
"Subsidiaries" shall have the meaning provided in the Credit
Agreement.
Section 1.08. MISCELLANEOUS. If, at any time, all or part of
any payment with respect to Senior Indebtedness theretofore made by the Borrower
or any other Person is rescinded or must otherwise be returned by the holders of
Senior Indebtedness for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of the Borrower or such other
Persons), the subordination provisions set forth herein shall continue to be
effective or be reinstated, as the case may be, all as though such payment had
not be made.
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<PAGE> 61
EXHIBIT III.C.2 TO PLAN OF REORGANIZATION
PART B
PURINA MILLS, INC.
SUMMARY OF TERMS OF TREATMENT OF HOLDERS
OF BANK LOAN CLAIMS IF HOLDERS OF
BANK LOAN CLAIMS DO NOT APPROVE
THE PLAN OF REORGANIZATION: (5)
<TABLE>
<S> <C>
BORROWER: Reorganized PM Holdings, Inc. (the "Borrower").
GUARANTORS: Those subsidiaries of the Borrower still in existence parties to the
prepetition Collateral and Guarantee Agreement.
ADMINISTRATIVE AGENT: [To be determined] (the "Administrative Agent").
LENDERS: Holders of Bank Loan Claims (collectively, the "Lenders").
FACILITY: The original aggregate principal amount of the facility will be equal
to the aggregate amount of Allowed Bank Loan Claims held by Holders of
Bank Loan Claims and will be structured as follows:
- New Tranche A Notes will be issued to Bank Loan Claim Holders
on account of their Old Tranche A Note Claims ("New Tranche A
Notes").
- New Tranche B Notes will be issued to Bank Loan Claim Holders
on account of their Old Tranche B Note Claims ("New Tranche B
Notes").
- New Term Notes will be issued to Bank Loan Claim Holders on
account of their Old Revolving Note Claims ("New Term Notes"
and, collectively with the New Tranche A Notes and the New
Tranche B Notes, the "Notes").
</TABLE>
- --------
(5)This term sheet summarizes the principal terms and conditions of the Notes to
be issued to Bank Loan Claim Holders if such Holders, as a class, do not approve
the Joint Plan of Reorganization of Purina Mills, Inc., its Parent Corporation
and its Debtor Subsidiaries (the "Plan"). Capitalized terms used herein and not
otherwise defined have the meanings assigned such terms in the Plan.
<PAGE> 62
INTEREST RATES: At Borrower's option:
New Tranche A Notes: LIBOR plus 2.75% or
Base Rate plus 1.75%
New Tranche B Notes: LIBOR plus 3.25% or
Base Rate plus 2.25%
New Term Notes: LIBOR plus 2.75% or Base
Rate plus 1.75%
MATURITY: New Tranche A Notes and New Term Notes: March 12,
2005 New Tranche B Notes: March 12, 2007
COLLATERAL: The obligations of the Borrower and the Guarantors
with respect to the Notes will be secured by a
security interest in all of the tangible and
intangible assets of the Borrower and the Guarantors
that secured the Prepetition Credit Facility.
RANKING OF NOTES: The Notes will rank pari passu with the Exit
Financing Facility.
AMORTIZATION: New Tranche A Notes: The New Tranche A Notes will
amortize in accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Quarterly
Date Amount Date Amount
---- ------ ---- ------
<S> <C> <C> <C>
December 31, March 31,
2000 $2,750,000 2003 $4,250,000
March 31,
2001 $2,750,000 June 30, 2003 $5,000,000
September
June 30, 2001 $3,500,000 30, 2003 $5,000,000
September 30, December 31,
2001 $3,500,000 2003 $5,000,000
December 31, March 31,
2001 $3,500,000 2004 $5,000,000
March 31,
2002 $3,500,000 June 30, 2004 $6,250,000
September
June 30, 2002 $4,250,000 30, 2004 $6,250,000
September 30, December 31,
2002 $4,250,000 2004 $6,250,000
December 31, March 12, remaining
2002 $4,250,000 2005 balance
</TABLE>
2
<PAGE> 63
New Tranche B Notes: The New Tranche B Notes will amortize in
accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Quarterly
Date Amount Date Amount
---- ------ ---- ------
<S> <C> <C> <C>
December 31, March 31,
2000 $75,000 2004 $75,000
March 31,
2001 $75,000 June 30, 2004 $75,000
September
June 30, 2001 $75,000 30, 2004 $75,000
September 30, December 31,
2001 $75,000 2004 $75,000
December 31, March 31,
2001 $75,000 2005 $75,000
March 31,
2002 $75,000 June 30, 2005 $75,000
September
June 30, 2002 $75,000 30, 2005 $75,000
September 30, December 31,
2002 $75,000 2005 $75,000
December 31, March 31,
2002 $75,000 2006 $75,000
March 31,
2003 $75,000 June 30, 2006 $24,400,000
September
June 30, 2003 $75,000 30, 2006 $24,400,000
September 30, December 31,
2003 $75,000 2006 $24,400,000
December 31, March 12, remaining
2003 $75,000 2007 balance
</TABLE>
New Term Notes: The New Term Notes will be
due and payable in full on their maturity
date.
VOLUNTARY PREPAYMENTS: The Borrower may prepay the Notes in whole
or in part at any time without premium or
penalty. Any such prepayment will be applied
to the
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<PAGE> 64
Notes pro rata in accordance with the
aggregate outstanding principal amount of
the Notes.
MANDATORY PREPAYMENTS: Asset Sales: To the extent proceeds of
non-ordinary-course asset sales are not
required to be applied to prepay the Exit
Financing Facility, such proceeds will be
applied to the pro rata prepayment of the
Notes in accordance with the provisions of
the Prepetition Credit Agreement, but only
to the extent the Lenders had valid and
perfected prepetition security interests in
the assets sold.
Excess Cash Flow: To the extent the Exit
Financing Facility does not require
prepayments from excess cash flow, the
Borrower will prepay the Notes pro rata from
excess cash flow on the basis and at the
times specified in the Prepetition Credit
Agreement.
No prepayments of the Notes will be required
to be made from the proceeds of the Koch
settlement or the vitamin litigation.
CONDITIONS PRECEDENT
TO EFFECTIVENESS: Usual and customary for transactions of this
type, including the execution and delivery
of satisfactory documentation governing the
Notes and the occurrence of the Effective
Date of the Plan of Reorganization.
REPRESENTATIONS AND
WARRANTIES: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition upon the occurrence of the
Effective Date of the Plan of
Reorganization.
AFFIRMATIVE COVENANTS: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition and business requirements from and
after the Effective Date of the Plan of
Reorganization.
NEGATIVE COVENANTS: Substantially identical to those contained
in the Prepetition Credit Agreement, with
such adjustments as are necessary to conform
to the Borrower's and its Subsidiaries'
condition and business requirements from and
after the Effective Date of the Plan of
Reorganization.
FINANCIAL COVENANTS: Each of the financial covenants will be
based on the definitions thereof set forth
in the Prepetition Credit Agreement (without
giving effect to the First Amendment to the
Prepetition Credit Agreement dated as of
December 31, 1998 except as noted below and
that EBITDA for all periods through March
31, 2001 will be calculated as defined in
the DIP Credit Agreement) and will be set at
the following levels:
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<PAGE> 65
Consolidated Interest Coverage Ratio (the
denominator of which will be defined as net
interest expense, which equals Consolidated
Interest Expense less interest income):
Each Rolling Period from
and after March 31, 2000 Not less than 2.00
Consolidated Fixed Charge Coverage Ratio
(Fixed Charges will include net interest
expense as above):
<TABLE>
<CAPTION>
Each Rolling Period Ending: Ratio:
- -------------------------- -----
<S> <C>
March 31, 2000 .75 to 1.00
June 30, 2000 .75 to 1.00
September 30, 2000 .75 to 1.00
December 31, 2000 .75 to 1.00
March 31, 2001 .85 to 1.00
June 30, 2001 .85 to 1.00
September 30, 2001 .85 to 1.00
December 31, 2001 .85 to 1.00
March 31, 2002 1.00 to 1.00
June 30, 2002 1.00 to 1.00
September 30, 2002 1.00 to 1.00
December 31, 2002 1.00 to 1.00
Thereafter 1.05 to 1.00
</TABLE>
Consolidated Leverage Ratio (the numerator
of which will be defined as Senior Debt less
cash and cash equivalents):
<TABLE>
<CAPTION>
Each Rolling Period Ending: Ratio:
- -------------------------- -----
<S> <C>
March 31, 2000 5.25 to 1.00
June 30, 2000 5.25 to 1.00
September 30, 2000 5.25 to 1.00
December 31, 2000 5.25 to 1.00
March 31, 2001 4.75 to 1.00
</TABLE>
5
<PAGE> 66
<TABLE>
<S> <C>
June 30, 2001 4.75 to 1.00
September 30, 2001 4.75 to 1.00
December 31, 2001 4.75 to 1.00
March 31, 2002 4.50 to 1.00
June 30, 2002 4.50 to 1.00
September 30, 2002 4.50 to 1.00
December 31, 2002 4.50 to 1.00
Thereafter 4.25 to 1.00
</TABLE>
EVENTS OF DEFAULT: Substantially identical to those contained in the
Prepetition Credit Agreement, with such adjustments
as are necessary to conform to the Borrower's and its
Subsidiaries' condition and business requirements
from and after the Effective Date of the Plan of
Reorganization.
ASSIGNMENTS AND
PARTICIPATIONS: As set forth in the Prepetition Credit Agreement.
WAIVERS AND
AMENDMENTS: As set forth in the Prepetition Credit Agreement
INDEMNIFICATION: As set forth in the Prepetition Credit Agreement.
GOVERNING LAW: New York
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<PAGE> 67
EXHIBIT IV.B.3.d(i) TO PLAN OF REORGANIZATION
DRAFT OF 1/18/00
WARRANT AGREEMENT
This Warrant Agreement (this "AGREEMENT") dated as of ______
__, 2000, is made and entered into by and between Koch Agriculture Company, a
Nebraska corporation ("KOCH") and Purina Mills, Inc., a Delaware corporation
formerly known as PM Holdings Corporation ("PURINA").
RECITALS
--------
A. Prior to ______ __, 2000, Purina was known as PM Holdings Corporation
("PM HOLDINGS") and owned one-hundred percent (100%) of the capital
stock of the Delaware corporation known as Purina Mills, Inc. ("OLD
PMI").
B. On October 28, 1999 (the "Petition Date"), PM Holdings, Old PMI and
certain of Old PMI's subsidiaries (collectively the "DEBTORS") filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code.
C. On January __, 2000, the Debtors filed a Joint Plan of Reorganization
(as the same may be amended in accordance with the terms thereof, the
"PLAN") with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court").
D. Pursuant to the Plan and that certain Agreement and Plan of Merger
dated as of , 2000, Old PMI has merged with and into PM Holdings (the
"MERGER"). PM Holdings survived the Merger and changed its name to
Purina Mills, Inc.
E. Pursuant to the Plan, and in connection with the Merger, Purina and
Koch entered into a warrant purchase agreement (the "WARRANT PURCHASE
AGREEMENT"), which granted Koch an option (the "OPTION") to purchase
certain warrants (the "WARRANTS") entitling Koch to purchase certain
shares of common stock of Purina authorized pursuant to the Plan (the
"NEW COMMON STOCK").
F. Pursuant to the Warrant Purchase Agreement, Koch sent written notice to
Purina on __________, 2000 declaring that it was exercising the Option
on __________, 2000, as set forth in the Warrant Purchase Agreement.
The Closing Date (as defined in the Warrant Purchase Agreement) has
occurred.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
<PAGE> 68
Section 1. WARRANT CERTIFICATES. (a) As set forth in this
Agreement, from time to time, certificates representing the Warrants shall be
issued by Purina in substantially the form attached hereto as EXHIBIT A (the
"WARRANT CERTIFICATES"). The Warrant Certificates shall evidence the right,
subject to the provisions of this Agreement and of the Warrant Certificate, to
purchase that number of shares of New Common Stock equal to the number of
Warrants as set forth on the face thereof.
(b) Within three (3) business days from the date
hereof, Purina shall deliver to Koch one Warrant Certificate representing
Warrants that entitle Koch to purchase a number of shares of New Common Stock
equal to ten percent (10%) of the aggregate number of shares of New Common Stock
that are issued and outstanding as of the Effective Date (as defined in and
under the Plan) after giving effect to the exercise of the Warrants.
(c) The Warrant Certificate shall be dated the date
hereof and shall bear the signature of those officers of Purina as directed by
Purina's Bylaws and Certificate of Incorporation and as required by applicable
law.
Section 2. NO TRANSFER. Neither this Agreement nor any
Warrants issued pursuant to this Agreement may be transferred or assigned by
Koch without the prior written consent of Purina, which consent may be withheld
in the sole discretion of Purina.
Section 3. EXERCISE OF WARRANTS.
(a) Each Warrant shall entitle Koch to purchase,
subject to the provisions of this Agreement, one share of fully paid and
non-assessable New Common Stock free from all taxes, liens and charges, at a
price per share of [1.5 times Purina's per share reorganization equity value as
set forth in the Plan] payable in immediately available funds (the "EXERCISE
PRICE").
(b) Koch may exercise the Warrants by surrendering
the Warrant Certificate at any time and from time to time, during normal
business hours, at the principal executive office of Purina (the "PURINA
OFFICE") along with (i) the Election to Receive Form set forth on the Warrant
Certificate, duly executed and completed, (ii) the Exercise Price times the
number of shares of New Common Stock to be issued upon the exercise of such
Warrants, (iii) any taxes payable pursuant to Section 6 and (iv) reasonable
proof of the fulfillment of any regulatory approvals or consents required as a
condition to the exercise of such Warrants, if any.
(c) If Koch exercises less than all the Warrants
represented by the Warrant Certificate, Purina shall issue and deliver a new
Warrant Certificate representing the unexercised Warrants to Koch.
(d) Purina shall deliver to Koch evidence of
ownership of one share of New Common Stock for each Warrant exercised, together
with any amount of cash due in lieu of any fractional shares pursuant to Section
9. Koch will be deemed to be the holder of record of the shares of New Common
Stock as of the date Koch surrenders the Warrant Certificate and
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<PAGE> 69
delivers the Exercise Price therefor, regardless of when Purina delivers the
evidence of owner ship to Koch pursuant to this Section 3(d).
(e) Warrants may be exercised only on or before 5:00
p.m. (Central time) on ___________, 2001 (the "EXPIRATION DATE"). Any Warrant
not exercised on or before the Expiration Date shall be void and all rights with
respect thereto shall cease.
Section 4. REPRESENTATIONS AND WARRANTIES OF PURINA. Purina
represents and warrants to Koch that:
(a) Purina is a corporation organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement;
(b) the execution and delivery by Purina of this
Agreement and the consummation by Purina of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of Purina and have been approved by the Bankruptcy Court;
(c) this Agreement has been duly executed and
delivered by Purina and constitutes the valid and binding obligation of Purina,
enforceable against Purina in accordance with its terms;
(d) on or prior to the Effective Date, Purina shall
have taken all necessary corporate action to authorize and reserve and permit it
to issue, at all times from the Effective Date through the Expiration Date (as
defined in the Warrant Agreement) shall have reserved, a sufficient number of
shares of New Common Stock for issuance pursuant to the Warrant Agreement; and
(e) the execution and delivery of this Agreement by
Purina does not, and the consummation by Purina of the transactions contemplated
by this Agreement will not
(i) conflict with, or result in any violation
or breach of any provision of the certificate of incorporation, as
amended to date, or bylaws, as amended to date, of Purina,
(ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default
(or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any post-Petition Date note, bond,
mortgage, indenture, lease, contract or other post-Petition Date
agreement, instrument or obligation to which Purina or any of its
subsidiaries is a party or by which any of them or any of their
properties or assets may be bound,
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<PAGE> 70
(iii) conflict or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purina or any of its
subsidiaries or any of its or their respective properties or assets, or
(iv) except as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the
"HSR Act") (if applicable), do not require any filing or notification
with, or authorization, consent or approval of, any governmental
entity,
other than in the case of (ii) and (iii) for any such
violations, breaches, defaults, terminations, cancellations, accelerations,
conflicts, filings, notifications, authorizations, consent or approvals which
would not, individually or in the aggregate, have a material adverse effect on
Purina and the Debtors taken as a whole.
Section 5. REPRESENTATIONS AND WARRANTIES OF KOCH. Koch
represents and warrants to Purina that:
(a) Koch is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nebraska, and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement;
(b) the execution and delivery by Koch of this
Agreement and the consummation by Koch of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Koch;
(c) this Agreement has been duly executed and
delivered by Koch and constitutes the valid and binding obligation of Koch,
enforceable against Koch, in accordance with its terms;
(d) the execution and delivery of this Agreement by
Koch does not, and the consummation by Koch of the transactions contemplated by
this Agreement will not
(i) conflict with, or result in any violation
or breach of any provision of the certificate of incorporation, as
amended to date, or bylaws, as amended to date, of Koch,
(ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default
(or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Koch or
any of its subsidiaries is a party or by which any of them or any of
their properties or assets may be bound,
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<PAGE> 71
(iii) conflict or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Koch or any of its
subsidiaries or any of its their properties or assets, or
(iv) except as may be required under the HSR
Act, as amended, do not require any filing or notification with, or
authorization, consent or approval of, any governmental entity,
other than in the case of (ii) and (iii) for any such
violations, breaches, defaults, terminations, cancellations, accelerations,
conflicts, filings, notifications, authorizations, consent or approvals which
would not, individually or in the aggregate, have a material adverse effect, on
Koch Industries Inc. and Koch.
(e) Koch is effecting the purchase contemplated
hereby for its own account, for investment and not with a view to resale or
distribution except in compliance with federal and state securities laws. Koch
agrees not to sell or otherwise transfer the Warrants or the shares of New
Common Stock issuable upon the exercise thereof without registration under
federal and state securities laws or an exemption therefrom. Koch acknowledges
that the Warrants have not been, and the shares of New Common Stock issuable
upon the exercise thereof will not be, registered under the Securities Act of
1933, as amended (the "Securities Act") or the securities laws of any state, and
that the issuance of the Warrants is being, and the issuance of shares of New
Common Stock upon exercise thereof will be, made in reliance upon an exemption
from registration under the Securities Act for an offer and sale of securities
that does not involve a public offering.
(f) Koch is qualified as an accredited investor
within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act.
Section 6. TAXES. Koch shall pay all taxes attributable to the
initial issuance of shares of New Common Stock upon the exercise of the
Warrants.
Section 7. MUTILATED, DESTROYED, LOST AND STOLEN WARRANT
CERTIFICATES. In the event that any Warrant Certificate shall be mutilated,
lost, stolen or destroyed, Purina shall issue a new Warrant Certificate in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate
destroyed, lost or stolen. The new Warrant Certificate shall be of like tenor
and represent an equivalent number of Warrants, but shall be issued and
delivered only upon receipt of evidence reasonably satisfactory to Purina of
such destruction, loss or theft of such Warrant Certificate and indemnity or
bond, if requested, also reasonably satisfactory to Purina.
Section 8. ADJUSTMENT. The number of shares of New Common
Stock issuable upon the exercise of each Warrant shall be subject to adjustment
from time to time upon certain events (each, an "ADJUSTMENT EVENT") as follows:
(a) In the event that Purina shall (i) declare and
pay a dividend or make any other distribution with respect to the New Common
Stock in shares of New Common Stock,
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(ii) subdivide the outstanding New Common Stock, (iii) combine the outstanding
New Common Stock into a smaller number of shares or (iv) issue any shares of the
New Common Stock in a reclassification of the New Common Stock (including any
such reclassification in connection with a merger, consolidation or other
business combination in which Purina is the continuing corporation), the number
of shares of New Common Stock issuable upon the exercise of each Warrant
immediately prior to an Adjustment Event shall be adjusted so that Koch shall
thereafter be entitled to receive the number of shares of New Common Stock that
Koch is entitled to pursuant to Section 1.
(b) In the event that Purina shall issue rights,
options, warrants or securities convertible into or exchangeable for shares of
New Common Stock (other than rights, options, warrants or securities issued
under an employee or director plan or award or upon the exercise thereof) at a
price that is lower than the current market value per share of New Common Stock
as of the Adjustment Event, the number of shares of New Common Stock thereafter
issuable upon the exercise of all the Warrants shall be determined by
multiplying the number of shares of New Common Stock to which Koch would have
been entitled upon the exercise of all the Warrants before the Adjustment Event
by a fraction consisting of (i) a numerator equal to the number of shares of New
Common Stock outstanding immediately before the Adjustment Event plus the number
of shares of New Common Stock available for subscription or purchase or to be
issued upon conversion or exchange of each convertible or exchangeable
securities and (ii) a denominator equal to the number of shares of New Common
Stock outstanding immediately before the Adjustment Event plus the number of
shares of New Common Stock that could have been purchased immediately before the
Adjustment Event with the aggregate consideration to be received by Purina in
connection with the Adjustment Event. Notwithstanding anything to the contrary
contained herein, the issuance of shares of New Common Stock or rights, options,
warrants or securities convertible into or exchangeable for shares of New Common
Stock to any officer, director or employee of Purina or any of its subsidiaries
pursuant to a benefit plan shall not constitute an Adjustment Event.
(c) In the event that Purina shall distribute to all
holders of shares of New Common Stock evidence of indebtedness or any other
assets (other than a cash distribution made as a dividend payable out of
earnings or out of any surplus legally available for dividends under the laws of
the state of Delaware) or rights to subscribe or purchase shares of New Common
Stock, the number of shares of New Common Stock thereafter issuable upon the
exercise of a Warrant shall be determined by multiplying the number of shares of
Common Stock issuable upon exercise of a Warrant immediately prior to Adjustment
Event by a fraction consisting of (i) a numerator equal to the current market
price per share of New Common Stock at the record date used to determine the
holders entitled to such dividend or distribution and (ii) a denominator equal
to such current market value per share less the then fair market value of the
portion of such evidence of indebtedness or assets so distributed, or of such
subscription or purchase rights, applicable to one share of New Common Stock, as
determined in good faith by the Board of Directors of Purina (the "BOARD OF
DIRECTORS"). Any adjustment made pursuant to this Section 8(c) shall become
effective retroactively immediately after the record date for the determination
of stockholders entitled to receive such distribution.
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(d) In the event that Purina enters into a merger,
consolidation or other business combination with or into another corporation, or
Purina sells or transfers its property, assets and business substantially as an
entirety to a successor corporation, then the New Common Stock is, in effect,
changed into a different kind or class of stock or other securities or property,
in whole or in part, and Purina or the successor company, as the case may be,
shall execute and deliver to Koch a supplemental agreement providing that Koch
shall have the right under and upon the exercise of each Warrant to receive the
kind and amount of shares of stock or other securities or property receivable
upon such merger, consolidation or other business combination, or upon the
dissolution following such sale or transfer, by a holder of the number of shares
of New Common Stock of the successor company immediately prior to such change.
Such supplemental agreement shall provide for adjustments that are as equivalent
as practicable to the adjustments provided for in this Section 8.
(e) In the event that Purina shall take any action
other than an action described in this Section 8 that would materially and
adversely affect the rights of Koch under this Agreement, the number of shares
of New Common Stock issuable upon the exercise of each Warrant shall be adjusted
in such manner and at such time as the Board of Directors may determine, in good
faith, to be equitable under the circumstances.
(f) The certificate of any independent firm of public
accounting of recognized standing, to be mutually agreed upon by Purina and
Koch, shall be conclusive evidence that any calculation made pursuant to this
Section 8 is correct. The fees and expenses of such public accounting firm shall
be borne one-half (1/2) by Purina and one-half (1/2) by Koch.
(g) For the purpose of any calculation made pursuant
to this Section 8, the current market price per share of New Common Stock at any
date shall be deemed to be the closing price for the date immediately prior to
the public announcement of any Adjustment Event or, if there is no such closing
price, the average of the last reported bid and asked prices immediately prior
to the public announcement of any Adjustment Event. The closing price shall be
the last reported sale price for a share of New Common Stock. In the event that
no such reported sale takes place and there are no such reported bid and asked
prices or if the shares of New Common Stock are not listed or admitted for
trading on a principal national securities exchange, the current market value
shall equal the book value per share of New Common Stock, calculated by dividing
(i) the stockholders' equity as reflected in the most recently available
quarterly or year-end consolidated financial statements of Purina prepared in
accordance with generally accepted accounting principles by (ii) the total
number of shares of New Common Stock and New Common Stock equivalents as of the
date of such financial statements.
(h) Whenever an adjustment is made pursuant to this
Section 8, Purina shall give notice to Koch setting forth, in reasonable detail,
the events requiring such adjustment and the method by which such adjustment was
calculated, as well as the number, kind or class of securities or property
issuable upon the exercise of a Warrant after giving effect to such adjustment.
(i) No adjustment in the number of shares of New
Common Stock issuable upon exercise of a Warrant shall be required unless such
adjustment would require an
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increase or decrease of at least 1% in the current market value of the New
Common Stock to be issued upon exercise of all the Warrants. All calculations
under this section 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
Section 9. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) Purina shall not be required to issue fractions
of Warrants or to distribute Warrant Certificates which evidence fractional
Warrants. In lieu of such fractional Warrants, at Purina's option, Purina shall
either (i) issue to Koch a full Warrant (by rounding fractional Warrants equal
to one-half (1/2) or greater up and rounding fractional Warrants of less than
one-half (1/2) down) or (ii) pay to Koch an amount in cash equal to the same
fraction of the current market value of a full Warrant as determined in good
faith by the Board of Directors.
(b) Notwithstanding an adjustment in the number of
shares of New Common Stock issuable upon the exercise of a Warrant, Purina shall
not be required to issue fractions of shares of New Common Stock or to
distribute certificates which evidence fractional shares of New Common Stock. In
lieu of fractional shares of New Common Stock, at Purina's option, Purina shall
either (i) issue to Koch a full share of New Common Stock (by rounding
fractional shares up) or (ii) pay to Koch an amount in cash equal to the same
fraction of the current market value of a share of New Common Stock, as
determined in good faith by the Board of Directors.
Section 10. RESERVATION OF SHARES OF NEW COMMON STOCK. At all
times prior to the Expiration Date, Purina shall reserve and keep available,
free from preemptive rights, a number of shares of authorized but unissued New
Common Stock for the purpose of satisfying its obligation to issue shares of New
Common Stock upon the exercise of the Warrants as provided herein. The shares of
New Common Stock reserved and kept available pursuant to this Section 10 shall
be duly and validly issued, fully paid and non-assessable upon the exercise of
the Warrants and payment in full of the Exercise Price therefor.
Section 11. SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur in the event that any provision of this
Agreement is not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy available at law or in equity.
Section 12. NOTICE TO KOCH. In the event that Purina takes any
action which would result in an Adjustment Event, Purina shall give Koch written
notice that shall describe the circumstances and adjustment required as a result
of such Adjustment Event, both in reasonable detail.
Section 13. NOTICES. Any notice required to be given to Koch
or to Purina by this Agreement shall be sufficiently given if sent by mail,
first class or registered, postage prepaid, return receipt requested, addressed
as follows:
(a) if to Purina, to:
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Purina Mills, Inc.
1401 South Hanley Road
St. Louis, Missouri 63144
facsimile: (314) 768-4470
attention: David G. Kabbes, General Counsel
(b) if to Koch, to:
Koch Agriculture Company
4111 East 37th Street North
Wichita, Kansas 67220
facsimile: (316) 828-3133
attention: Tye Darland, Esq.
Section 14. SUCCESSORS. All the covenants and provisions of
this Agreement by or for the benefit of Purina or Koch shall bind and inure to
the benefit of their respective permitted successors and assigns hereunder.
Section 15. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD FOR CONFLICT OF LAWS
PRINCIPLES.
Section 16. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any person or corporation other than
Purina and Koch any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
Purina and Koch.
Section 17. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above.
PURINA MILLS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
KOCH AGRICULTURE COMPANY
By:_______________________________
Name:_____________________________
Title:____________________________
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EXHIBIT A
---------
THIS WARRANT IS SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT
AGREEMENT, DATED ____________, 2000 (THE "WARRANT AGREEMENT"), BY AND
BETWEEN PURINA MILLS, INC., FORMERLY KNOWN AS PM HOLDINGS CORPORATION
("PURINA") AND KOCH AGRICULTURE COMPANY. IF THERE IS ANY CONFLICT
BETWEEN THE TERMS OF THE WARRANT AGREEMENT AND THIS WARRANT, THE TERMS
OF THE WARRANT AGREEMENT SHALL APPLY. THIS WARRANT MAY NOT BE
TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF PURINA, WHICH CONSENT
MAY BE WITHHELD IN THE SOLE DISCRETION OF PURINA. IN ADDITION, THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO PURINA, (B) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE ACT PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE OR (C) IN A TRANSACTION THAT IS IN COMPLIANCE
WITH THE REQUIREMENTS OF OR EXEMPTIONS UNDER THE ACT AND ANY
APPLICABLE UNITED STATES LAWS GOVERNING THE OFFER AND SALE OF
SECURITIES.
[Form of Warrant Certificate]
[Face]
This Warrant Certificate certifies that Koch Agriculture
Company ("KOCH") is the registered holder of [_______] Warrants (the "WARRANTS")
to purchase shares [________] of common stock (the "NEW COMMON STOCK") of Purina
Mills, Inc., formerly known as PM Holdings Corporation ("PURINA") authorized
under that certain plan of reorganization for Purina and certain of its
subsidiaries, dated as of ___________, 2000, filed with the United States
Bankruptcy Court for the District of Delaware (the "PLAN"). Each Warrant
entitles Koch to purchase one share of New Common Stock from Purina after the
date the Plan is made effective (the "EFFECTIVE DATE") and on or before 5:00
p.m. (Central time) on the one (1) year anniversary of the Effective Date, at
which time the Warrants shall expire (the "EXPIRATION DATE"). Each share of New
Common Stock may be purchased at the initial exercise price (as adjusted, the
"EXERCISE PRICE") of $[___], payable in lawful money of the United States of
America, upon surrender of this Warrant Certificate and payment of the Exercise
Price at the office of Purina at 1401 South Hanley Road St. Louis, Missouri
63144 (the "PURINA OFFICE") subject to the conditions set forth herein and in
the Warrant Agreement, dated ____________, 2000 (the "WARRANT AGREEMENT"),
between Purina and Koch. The Exercise Price and number of shares of New Common
Stock purchasable upon exercise of the Warrants are subject to adjustment upon
the occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after the Expiration Date. After
the Expiration Date, any unexercised Warrants will be void and all rights of
Koch with respect thereto shall
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cease. Cash payments (or additional shares of New Common Stock) as determined
pursuant to the Warrant Agreement may be made in lieu of fractional shares
otherwise issuable upon such exercise.
This Warrant may not be sold, assigned, transferred, pledged,
encumbered, hypothecated, given or otherwise disposed of (each a "TRANSFER")
without the prior written consent of Purina, which consent may be withheld in
the sole discretion of Purina. Any attempted Transfer of this Warrant or any
portion hereof without the prior written consent of Purina shall be null and
void and of no force or effect.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
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[Form of Warrant Certificate]
[Reverse]
PURINA MILLS, INC
The Warrant Agreement, dated ____________, 2000 (the "WARRANT
AGREEMENT"), between Purina Mills, Inc., formerly known as PM Holdings
Corporation ("PURINA") and Koch Agriculture Company ("KOCH") is hereby
incorporated by reference and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of Purina and Koch.
The warrants represented by this Warrant Certificate (the
"WARRANTS") may be exercised to purchase shares of common stock (the "NEW COMMON
STOCK") of Purina authorized under that certain plan of reorganization for
Purina and certain of its subsidiaries, dated as of ___________, 2000, filed
with the United States Bankruptcy Court for the District of Delaware (the
"PLAN") at any time after the date the Plan is made effective (the "EFFECTIVE
DATE") and on or before 5:00 p.m. (Central time) on the one (1) year anniversary
of the Effective Date, at which time the Warrants shall expire (the "EXPIRATION
DATE"). Koch may exercise the Warrants evidenced by this Warrant Certificate by
surrendering the Warrant Certificate, with the form of election to receive set
forth hereon properly completed and executed, together with payment of $[___]
per share of New Common Stock purchased (the "EXERCISE PRICE") and any taxes
required to be paid pursuant to the Warrant Agreement, at the Purina Office. In
the event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the holder hereof a new Warrant Certificate
evidencing the number of Warrants not exercised.
The Warrant Agreement provides that, upon the occurrence of
certain events, the Exercise Price and the number of shares of New Common Stock
issuable upon the exercise of the Warrant, in each case set forth on the face
hereof may, subject to certain conditions, be adjusted.
Purina may deem and treat Koch as the absolute owner of this
Warrant Certificate (notwithstanding any notation of ownership or other writing
hereon made by anyone), for the purpose of any exercise or conversion hereof and
for all other purposes, and Purina shall not be affected or in any way bound by
any notice to the contrary.
WITNESS the signature of the duly authorized officer of Purina
Mills, Inc.
Dated:
By: _____________________________
Name:
Title:
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[Form of Election to Purchase]
(To be executed upon exercise of Warrant
on or before the Expiration Date)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____ shares of New
Common Stock and herewith tenders payments for such shares of New Common Stock
in the amount of $_________ in accordance with the terms hereof. The undersigned
requests that a certificate representing such shares of New Common Stock be
registered in the name of ______________ whose address is ___________ and that
such certificate be delivered to ____________ whose address is ______________.
If said number of shares of New Common Stock is less than all purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the balance of the shares of New Common Stock be registered in the name of
__________ whose address is ___________ and that such Warrant Certificate be
delivered to __________ whose address is ___________. Any cash payments or
payments of additional shares of New Common Stock to be paid in lieu of a
fractional share of New Common Stock should be made to ___________ whose address
is ___________ and the check representing payment thereof should be delivered to
____________ whose address is ___________.
Dated:___________________
Name of Holder of Warrant Certificate:
Koch Agriculture Company
Address: 4111 East 37th Street North
Wichita, Kansas 67220
By: ________________________________
Name:
Title:
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<PAGE> 81
EXHIBIT IV.B.3.d(ii) TO PLAN OF REORGANIZATION
DRAFT OF 1/18/00
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement, dated as of , 2000 (this
"AGREEMENT"), is made and entered into by and between Koch Agriculture Company,
a Nebraska corporation ("KOCH"), and Purina Mills, Inc., a Delaware corporation
formerly known as PM Holdings Corporation ("PURINA").
RECITALS
--------
A. Prior to ___________, 2000, Purina was known as PM Holdings Corporation
("PM HOLDINGS") and owned one-hundred percent (100%) of the capital
stock of the Delaware corporation known as Purina Mills, Inc. ("OLD
PMI").
B. On October 28, 1999 (the "Petition Date"), PM Holdings, Old PMI and
certain of Old PMI's subsidiaries (collectively, the "DEBTORS") filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code.
C. On January __, 2000, the Debtors filed a Joint Plan of Reorganization
(as the same may be amended in accordance with the terms thereof, the
"PLAN") with the United States Bankruptcy Court for the District of
Delaware (the "BANKRUPTCY COURT").
D. Pursuant to the Plan and that certain Agreement and Plan of Merger
dated as of , 2000, Old PMI has merged with and into PM Holdings (the
"MERGER"). PM Holdings survived the Merger and changed its name to
Purina Mills, Inc.
E. Pursuant to the Plan and in connection with the Merger and this
Agreement, Purina has agreed to grant Koch an option to purchase
certain warrants entitling Koch to purchase certain shares of its
common stock to be authorized and issued pursuant to the Plan (the "NEW
COMMON STOCK").
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. GRANT OF OPTION. Purina hereby grants to Koch an option
(the "OPTION) to purchase, subject to the terms hereof, warrants (the
"WARRANTS") entitling Koch to purchase up to ten percent (10%) of the aggregate
number of shares of the New Common Stock that are issued and outstanding
immediately after the Effective Date (as defined in the Plan) (after giving
effect to the exercise of the Warrant) for a purchase price of five-million
dollars ($5,000,000) (the
<PAGE> 82
"OPTION EXERCISE PRICE"). If the Option is not exercised prior to or on the
Effective Date, it will terminate and be of no further force and effect.
2. EXERCISE OF OPTION. (a) Koch may exercise the Option at any
time prior to and including the Effective Date of the Plan.
(b) In the event Koch desires to exercise the Option,
Koch shall send a written notice (the "EXERCISE NOTICE") to Purina declaring
that it is exercising the Option and specifying a date (the "CLOSING DATE"),
which shall be a business day which is no more than five (5) business days after
delivery of such notice, and place for the closing of such purchase but in any
event shall be on or before the Effective Date (the "CLOSING").
3. CLOSING. At the Closing:
(a) Koch shall deliver the Option Exercise Price to
Purina by wire transfer of immediately available funds to an account specified
in writing by Purina or by such other method as Purina may specify; and
(b) Purina and Koch shall execute an agreement that
sets forth the terms and conditions governing the Warrants in the form attached
hereto as EXHIBIT A (the "WARRANT AGREEMENT").
4. LOST OPTION. Upon receipt by Purina of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Purina shall execute and deliver a new Agreement of
like tenor and date.
5. REPRESENTATIONS AND WARRANTIES OF PURINA. Purina represents
and warrants to Koch that:
(a) Purina is a corporation organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement;
(b) the execution and delivery by Purina of this
Agreement and the consummation by Purina of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of Purina and have been approved by the Bankruptcy Court;
(c) this Agreement has been duly executed and
delivered by Purina and constitutes the valid and binding obligation of Purina,
enforceable against Purina in accordance with its terms;
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(d) on or prior to the Effective Date, Purina shall
have taken all necessary corporate action to authorize and reserve and permit it
to issue, and, if the Option is exercised, at all times from the Effective Date
through the Expiration Date (as defined in the Warrant Agreement) shall have
reserved, all shares of New Common Stock issuable pursuant to the Warrant
Agreement; and
(e) the execution and delivery of this Agreement by
Purina does not, and the consummation by Purina of the transactions contemplated
by this Agreement will not
(i) conflict with, or result in any violation or
breach of any provision of the certificate
of incorporation, as amended to date, or
bylaws, as amended to date, of Purina,
(ii) result in any violation or breach of, or
constitute (with or without notice or lapse
of time, or both) a default (or give rise to
a right of termination, cancellation or
acceleration of any obligation or loss of
any benefit) under any of the terms,
conditions or provisions of any
post-Petition Date note, bond, mortgage,
indenture, lease, contract or other
post-Petition Date agreement, instrument or
obligation to which Purina or any of its
subsidiaries is a party or by which any of
them or any of their properties or assets
may be bound,
(iii) conflict or violate any permit, concession,
franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation
applicable to Purina or any of its
subsidiaries or any of its or their
properties or assets, or
(iv) except as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, (the "HSR Act") (if
applicable), do not require any filing or
notification with, or authorization, consent
or approval of, any governmental entity,
other than in the case of (ii) and (iii) for any such
violations, breaches, defaults, terminations, cancellations, accelerations,
conflicts, filings, notifications, authorizations, consent or approvals which
would not, individually or in the aggregate, have a material adverse effect on
Purina and the Debtors taken as a whole.
6. REPRESENTATIONS AND WARRANTIES OF KOCH. Koch represents and
warrants to Purina that:
(a) Koch is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nebraska, and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement;
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(b) the execution and delivery by Koch of this
Agreement and the consummation by Koch of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Koch;
(c) this Agreement has been duly executed and
delivered by Koch and constitutes the valid and binding obligation of Koch,
enforceable against Koch, in accordance with its terms;
(d) the execution and delivery of this Agreement by
Koch does not, and the consummation by Koch of the transactions contemplated by
this Agreement will not
(i) conflict with, or result in any violation or
breach of any provision of the certificate
of incorporation, as amended to date, or
bylaws, as amended to date, of Koch,
(ii) result in any violation or breach of, or
constitute (with or without notice or lapse
of time, or both) a default (or give rise to
a right of termination, cancellation or
acceleration of any obligation or loss of
any benefit) under any of the terms,
conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or
other agreement, instrument or obligation
to which Koch or any of its subsidiaries is
a party or by which any of them or any of
their properties or assets may be bound,
(iii) conflict or violate any permit, concession,
franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation
applicable to Koch or any of its
subsidiaries or any of its or their
properties or assets, or
(iv) except as may be required under the HSR Act,
do not require any filing or notification
with, or authorization, consent or approval
of, any governmental entity,
other than in the case of (ii) and (iii) for any such
violations, breaches, defaults, terminations, cancellations, accelerations,
conflicts, filings, notifications, authorizations, consent or approvals which
would not, individually or in the aggregate, have a material adverse effect, on
Koch Industries, Inc. and Koch.
(e) Koch is effecting the purchase contemplated
hereby for its own account, for investment and not with a present view to resale
or distribution except in compliance with federal and state securities laws.
Koch agrees not to sell or otherwise transfer the Option without registration
under federal and state securities laws or an exemption therefrom. Koch
acknowledges that the Option has not been registered under the Securities Act of
1933, as amended (the "Securities Act") or the securities laws of any state, and
that the issuance of the Option is being made in reliance upon an exemption from
registration under the Securities Act for an offer and sale of securities that
does not involve a public offering.
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<PAGE> 85
(f) Koch is qualified as an accredited investor
within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act.
7. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
8. ASSIGNMENT. Neither Koch nor Purina may assign any of its
rights or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, which
may be withheld in such party's sole discretion.
9. AMENDMENT; WAIVER. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
10. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect, insofar as the foregoing can be
accomplished without materially affecting the economic benefits anticipated by
the parties to this Agreement. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
11. NOTICES. All notices, consents, requests, claims,
instructions or other communications to be given hereunder shall be in writing.
All such notices, consents, requests, claims, instructions or other
communications may be given personally, by registered or certified mail (with
proof of receipt, postage and expenses prepaid, return receipt requested),
express package service or facsimile. All notices will be deemed received as
follows: (a) if delivered personally, when received, (b) if mailed, three (3)
days after being mailed, (c) if sent by express package service, when signed for
and (d) if sent by facsimile, when the facsimile has transmitted over telephone
lines, as evidenced by a facsimile confirmation report generated by the transmit
ted machine. Notices shall be addressed as follows:
(1) if to Koch, to:
Koch Agriculture Company
4111 East 37th Street North
Wichita, Kansas 67220
facsimile: (316) 828-3133
attention: Tye Darland, Esq.
with a copy to:
5
<PAGE> 86
Skadden, Arps, Slate, Meagher & Flom
(Illinois)
333 West Wacker Drive
Suite 2100
Chicago, Illinois 60606
facsimile: (312) 407-0411
attention: David S. Kurtz, Esq.
(2) if to Purina, to:
Purina Mills, Inc.
1401 South Hanley Road
St. Louis, Missouri 63144
facsimile: (314) 768-4470
attention: David G. Kabbes, General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
North Point
911 Lakeside Avenue
Cleveland, Ohio 44114
facsimile: (216) 579-0212
attention: Richard M. Cieri, Esq.
12. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Delaware, without regard to conflict of
laws principles.
13. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in two or
more counter parts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
15. ENTIRE AGREEMENT. Except as otherwise expressly provided,
this Agree ment contains the entire agreement between the parties with respect
to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. This Agreement
may not be modified, amended, altered or supplemented except upon the execution
and delivery of a written agreement executed by the parties hereto.
6
<PAGE> 87
16. FURTHER ASSURANCES. In the event that Koch exercises the
Option, Purina and Koch shall execute and deliver all other documents and
instruments, including, but not limited to, the Warrant Agreement, and take all
other action that may be reasonably necessary to the fullest extent permitted by
law in order to consummate the transactions provided for by such exercise.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above.
KOCH AGRICULTURE COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
PURINA MILLS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
7
<PAGE> 88
EXHIBIT A
---------
Warrant Agreement
8
<PAGE> 1
Exhibit 99.3
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
<TABLE>
<S> <C>
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 HOLDINGS CORPORATION) : (CASE NO. 99-3937 (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))
:
: DISCLOSURE STATEMENT PURSUANT TO SECTION 1125
: OF THE BANKRUPTCY CODE FOR THE JOINT PLAN OF
: REORGANIZATION OF PURINA MILLS, INC., ITS PARENT
: CORPORATION AND ITS DEBTOR SUBSIDIARIES
- ----------------------------------------------------- ------------------------------------------------------
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
January 18, 2000 ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
</TABLE>
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> 2
DISCLOSURE STATEMENT, DATED JANUARY 18, 2000
SOLICITATION OF VOTES
WITH RESPECT TO THE
JOINT PLAN OF REORGANIZATION
OF
PURINA MILLS, INC., ITS PARENT CORPORATION AND ITS DEBTOR SUBSIDIARIES
---------------------------
THE BOARDS OF DIRECTORS OF PURINA MILLS, INC. ("PMI"); PM HOLDINGS
CORPORATION, ITS PARENT CORPORATION ("PM HOLDINGS"); AND EACH OF ITS DEBTOR
SUBSIDIARIES LISTED ON EXHIBIT I (COLLECTIVELY WITH PMI AND PMI HOLDINGS, THE
"DEBTORS") AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS APPOINTED IN THE
REORGANIZATION CASES (THE "CREDITORS' COMMITTEE") BELIEVE THAT THE JOINT PLAN OF
REORGANIZATION OF PURINA MILLS, INC., ITS PARENT CORPORATION AND ITS DEBTOR
SUBSIDIARIES, DATED JANUARY 18, 2000 AND ATTACHED AS EXHIBIT II (THE "PLAN"), IS
IN THE BEST INTERESTS OF CREDITORS. ALL CREDITORS ENTITLED TO VOTE THEREON ARE
URGED TO VOTE IN FAVOR OF THE PLAN. A SUMMARY OF THE VOTING INSTRUCTIONS ARE SET
FORTH AT PAGE 87 OF THIS DISCLOSURE STATEMENT. MORE DETAILED INSTRUCTIONS ARE
CONTAINED ON THE BALLOTS DISTRIBUTED TO CREDITORS ENTITLED TO VOTE ON THE PLAN.
TO BE COUNTED, YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED AND RECEIVED BY 5:00
P.M., EASTERN TIME, ON [____________], 2000 OR SUCH OTHER DATE IDENTIFIED ON
YOUR BALLOT (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, THE PMI MERGER AND THE
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 make available 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> 3
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.......................................................................................................1
OVERVIEW OF THE PLAN...............................................................................................3
Introduction..............................................................................................3
General Information Concerning Treatment of Claims and Interests..........................................3
Summary of Classes and Treatment of Claims and Interests..................................................3
Additional Information Regarding Assertion and Treatment of Administrative Claims and Priority
Tax Claims.......................................................................................7
Administrative Claims............................................................................7
Priority Tax Claims..............................................................................8
Special Provisions Regarding the Treatment of Allowed Secondary Liability Claims..........................9
Summary of Terms of Certain Securities to Be Issued Pursuant to the Plan..................................9
Conditions to Confirmation, the PMI Merger and the Effective Date of the Plan............................10
Conditions to Confirmation......................................................................10
Conditions to the PMI Merger....................................................................11
Conditions to the Effective Date................................................................11
Waiver of Conditions to Confirmation, the PMI Merger or the Effective Date......................12
Effect of Nonoccurrence of Conditions to the Effective Date.....................................12
Substantive Consolidation................................................................................13
PMI Merger...............................................................................................13
Exit Financing Facility; Participating Bank Loan Claim Holders...........................................13
Modification or Revocation of the Plan...................................................................14
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS..........................................................14
Prepetition Events.......................................................................................14
General .......................................................................................14
1998 Merger.....................................................................................15
Transactions with Koch Industries...............................................................16
Changes in Board of Directors and Management....................................................18
Agricultural Industry Market Conditions.........................................................18
Swine Operations and Market Risk................................................................18
Credit Risk, Including Loan Guarantees..........................................................19
Vitamin Litigation and Proposed Settlement......................................................20
Prepetition Operations and Liquidity.....................................................................20
Prepetition Restructuring Negotiations...................................................................21
OPERATIONS DURING THE REORGANIZATION CASES........................................................................22
Commencement of Reorganization Cases and Related Case Administration Activities..........................22
Commencement of Reorganization Cases and First Day Relief.......................................22
Appointment of the Creditors' Committee.........................................................23
Retention of Financial Advisors.................................................................25
Rejection of Certain Burdensome Executory Contracts and Unexpired Leases........................25
Assumption of Doane Pet Care Company Agreement..................................................25
Key Employee Retention Program..................................................................25
Claims Process and Bar Dates....................................................................26
Payment of Obligations Under the CAP Plan.......................................................26
Payment of Certain Claims Subject to Regulations................................................27
Postpetition Operations and Liquidity....................................................................27
KOCH INDUSTRIES SETTLEMENT........................................................................................28
Introduction.............................................................................................28
Certain Recovery Actions ................................................................................29
Preference Claims...............................................................................29
Fraudulent Conveyance Actions...................................................................29
Illegal Dividend Actions........................................................................30
"Veil Piercing" and "Alter Ego" Claims..........................................................31
Breach of Fiduciary Duty Actions................................................................32
Other Potential Claims..........................................................................32
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Postpetition Disputes....................................................................................32
The Settlement...........................................................................................33
Background and Justifications for the Settlement................................................33
Principal Terms of the Settlement...............................................................34
REORGANIZED PURINA................................................................................................35
PMI Merger; the Warrant..................................................................................35
Restructuring Transactions...............................................................................36
Business and Properties of Reorganized Purina............................................................36
Business .......................................................................................36
Properties......................................................................................37
Additional Information..........................................................................37
Business Plan and Strategy for Reorganized Purina...............................................37
Dealer Business Group Strategy..................................................................38
Livestock Production Systems Business Group Strategy............................................39
Manufacturing Strategy..........................................................................39
Administrative Strategy.........................................................................39
Human Resource Strategy.........................................................................39
Selected Historical Financial Information................................................................40
Projected Financial Information..........................................................................43
Introduction....................................................................................43
Principal Assumptions...........................................................................44
Projections.....................................................................................46
Management...............................................................................................53
Current Executive Officers and Directors of PMI.................................................53
Executive Compensation..........................................................................55
Reorganized Purina Board of Directors...........................................................55
Board Committees................................................................................56
Director Nomination Procedures..................................................................56
Director Compensation...........................................................................57
Employee Benefit Matters.................................................................................57
Existing Benefit Plans and Agreements...........................................................57
New Benefit Programs; Continuation or Termination of Existing Plans and Agreements..............61
Certain Corporate Governance Matters.....................................................................62
Indemnity Arrangements...................................................................................63
Existing Indemnification Obligations............................................................63
Treatment of Existing Indemnification Obligations Under the Plan................................64
New Indemnification Arrangements................................................................64
SECURITIES TO BE ISSUED PURSUANT TO THE PLAN......................................................................65
Reorganization Value.....................................................................................65
New Common Stock.........................................................................................66
New Preferred Stock......................................................................................67
General .......................................................................................67
New Class A Preferred Stock.....................................................................67
New Class B Preferred Stock.....................................................................67
Future Issuances of Stock................................................................................67
Share Purchase Rights Agreement..........................................................................67
New Prepetition Credit Facility Notes....................................................................69
Exit Financing Facility..................................................................................69
RISK FACTORS......................................................................................................69
Projections..............................................................................................69
Federal Income Tax.......................................................................................70
Competitive Industry Conditions..........................................................................70
Fluctuations in Commodity Prices.........................................................................71
Integration of Commodity Purchasing and Other Business Functions.........................................71
Business Strategy Risks..................................................................................71
Substantial Leverage.....................................................................................72
Treatment of Claims......................................................................................72
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Seasonality..............................................................................................72
Consumer Trends..........................................................................................72
Year 2000 Compliance.....................................................................................72
Regulatory Compliance....................................................................................73
Certain Anti-Takeover Effects............................................................................73
Lack of Established Market for New Common Stock; Certain Investment Limitations; Possible
Volatility......................................................................................73
Security Interests.......................................................................................74
Dividend Policies; Restrictions on Payment of Dividends..................................................74
Noncomparability of Historical Financial Information.....................................................74
Dilution ................................................................................................74
GENERAL INFORMATION CONCERNING THE PLAN...........................................................................75
Legal Effects of the Plan................................................................................75
Discharge of Claims and Termination of Interests; Related Injunction............................75
Preservation of Rights of Action Held by the Debtors or the Reorganized Debtors.................76
Releases, Indemnity and Related Injunction......................................................76
Continuation of Certain Employee and Retiree Benefits...........................................78
Executory Contracts and Unexpired Leases........................................................79
Substantive Consolidation................................................................................80
DISTRIBUTIONS UNDER THE PLAN......................................................................................81
General ................................................................................................81
Methods of Distributions.................................................................................81
Distributions to Holders of Allowed Claims and Interests........................................81
Compensation and Reimbursement for Services Related to Balloting and Distributions..............81
Delivery of Distributions in General............................................................81
Special Provisions for Distributions to Holders of Old Senior Subordinated Note Claims..........81
Undeliverable or Unclaimed Distributions.................................................................81
Distribution Record Date.................................................................................82
Means of Cash Payments...................................................................................82
Timing and Calculation of Amounts to Be Distributed......................................................83
Distributions of New Common Stock...............................................................83
De Minimis Distributions........................................................................83
Compliance with Tax Requirements................................................................84
Surrender of Canceled Securities or Other Instruments....................................................84
Setoffs ................................................................................................84
Disputed Claims; Reserve and Estimations.................................................................85
Funding of Unsecured Claims Reserve.............................................................85
Distributions on Account of Disputed Claims Once They Are Allowed...............................85
Payment of Post-Effective Date Interest from Cash Investment Yield.......................................85
Objections to Claims or Interests and Authority to Prosecute Objections..................................85
Dissolution of the Creditors' Committees and Creation of the Claims Resolution Committee.................86
Function and Composition of the Claims Resolution Committee.....................................86
Claims Resolution Committee Procedures..........................................................86
Employment of Professionals by the Claims Resolution Committee and Reimbursement of
Committee Members' Expenses............................................................86
Dissolution of the Claims Resolution Committee..................................................87
VOTING AND CONFIRMATION OF THE PLAN...............................................................................87
General ................................................................................................87
Voting Procedures and Requirements.......................................................................87
Confirmation Hearing.....................................................................................88
Confirmation.............................................................................................88
Acceptance or Cramdown...................................................................................88
Best Interests Test; Liquidation Analysis................................................................89
Feasibility..............................................................................................90
Compliance with Applicable Provisions of the Bankruptcy Code.............................................90
Alternatives to Confirmation and Consummation of the Plan................................................91
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN.......................................................91
General ................................................................................................91
Federal Income Tax Consequences to the Debtors; Reduction of the Debtors' Indebtedness...................91
Federal Income Tax Consequences to Holders of Claims.....................................................92
Definition of Tax Securities....................................................................92
Holders of Claims Constituting Tax Securities...................................................92
Holders of Claims Not Constituting Tax Securities...............................................92
Dividend and Interest Income Earned by the Unsecured Claims Reserve.............................93
Certain Other Tax Considerations for Holders of Claims...................................................93
Receipt of Pre-Effective Date Interest..........................................................93
Receipt of Dividend and Interest Income Earned by the Unsecured Claims Reserve..................93
Reinstatement of Claims.........................................................................94
Receipt by Holders of Bank Loan Claims of New Prepetition Credit Facility Notes.................94
Bad Debt Deduction..............................................................................94
Information Reporting and Backup Withholding....................................................94
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS........................................................94
Applicability of Certain Federal and State Securities Laws...............................................94
Bankruptcy Code Exemptions from Registration Requirements.......................................94
Certain Transactions by Stockbrokers............................................................96
Registration Rights......................................................................................96
ADDITIONAL INFORMATION............................................................................................96
RECOMMENDATION AND CONCLUSION.....................................................................................97
</TABLE>
TABLE OF EXHIBITS
-----------------
Exhibit I - PMI Debtor Subsidiaries
Exhibit II - Joint Plan of Reorganization of Purina Mills, Inc., Its Parent
Corporation and Its Debtor Subsidiaries
Exhibit III - Purina Mills, Inc., Form 10-K Annual Report for the year
ended December 31, 1998, and Form 10-Q Quarterly Report for the
quarter ended September 30, 1999
Exhibit IV - Liquidation Analysis
iv
<PAGE> 7
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, New Common Stock or New Prepetition
Credit Facility Notes; (ii) the discharge of prepetition Intercompany Claims
among the Debtors; (iii) the assumption, assumption and assignment 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; (v) the
settlement of claims by and against the Koch Entities and certain related
parties; (vi) the merger of PMI into PM Holdings prior to the Effective Date of
the Plan (the "PMI Merger") and certain other corporate restructuring
transactions designed to simplify the Debtors' corporate structure; and (vii)
the substantive consolidation of the Debtors. Subsequent to the PMI Merger, the
business of PMI will be conducted by PM Holdings, and PM Holdings will change
its name to "Purina Mills, Inc." Reorganized PM Holdings following the PMI
Merger and the Effective Date is referred to herein as Reorganized Purina.
On November 9, 1999, Koch Industries, Inc. ("Koch Industries"); Koch
Agriculture Company, the parent corporation of PM Holdings ("Koch Agriculture");
and the holders (collectively, the "Consenting Holders") of approximately 55% of
the principal amount of PMI's 9% Senior Subordinated Notes Due 2010 (the "Old
Senior Subordinated Notes") entered into an agreement (the "November
Settlement") with respect to the Debtors' restructuring and the resolution of
potential claims by and against Koch Industries, Koch Agriculture and their
affiliates. The Debtors were not parties to the November Settlement. Pursuant to
the November Settlement, the Consenting Holders agreed not to vote in favor of a
plan of reorganization for the Debtors unless such plan incorporated certain
provisions set forth therein. See "Certain Events Preceding the Debtors' Chapter
11 Filings -- Prepetition Events -- Transactions with Koch Industries" and "Koch
Industries Settlement." Subsequently, Koch Industries, Koch Agriculture and the
Consenting Holders agreed to amend the November Settlement to extend the time
periods in which they and the Debtors were required to agree upon all of the
terms of a plan of reorganization and an accompanying disclosure statement. In
addition, in late December 1999, the Debtors, Koch Industries and the Creditors'
Committee met and reached further agreements regarding certain disputes and
issues that had arisen under the November Settlement and in connection with the
Transition Services Agreement (the "December Settlement"). See "Certain Events
Proceeding the Debtors' Chapter 11 Filings -- Prepetition Events -- Transactions
with Koch Industries." The Plan constitutes the agreement among Koch Industries,
Koch Agriculture, the Creditors' Committee, the Consenting Noteholders and the
Debtors regarding the settlement of issues among the Koch Entities, the Debtors
and the Debtors' creditors. It is contemplated that Koch Industries, Koch
Agriculture and the Consenting Holders will enter into a new agreement (the
"Koch Industries Settlement Agreement") pursuant to which the Consenting Holders
will agree to vote in favor of the Plan, subject to the satisfaction of certain
conditions, including approval by the Bankruptcy Court of this Disclosure
Statement pursuant to section 1125 of the Bankruptcy Code.
Among other things, the Plan provides for: (a) a contribution of $60.0
million by Koch Agriculture to the capital of PM Holdings on the Effective Date;
(b) the PMI Merger on the PMI Merger Date; (c) the grant of an option to Koch
Agriculture to purchase for $5.0 million a warrant (the "Warrant") to acquire
during the one year following the Effective Date shares of New Common Stock
comprising up to 10% of the aggregate amount of New Common Stock outstanding as
of the Effective Date, on a fully diluted basis, at a warrant exercise price of
$27.75 per share (which equals 150% of the estimated reorganization value of
each share of New Common Stock as of the Effective Date); (d) the allowance and
treatment of certain Claims of Koch Agriculture as general Unsecured Claims, as
described below; (e) the allowance and payment to Koch Agriculture on the
Effective Date of an Administrative Claim of $5.35 million in respect of certain
commodity sales (the "Koch Agriculture Transition Settlement Payment") and an
additional $1.57 million under the Supplemental Transition Agreement for certain
specific transition activities (collectively, the "Koch Supplemental Transition
Agreement Claims"); (f) the indemnification of the Koch Entities by the Debtors
from third party claims in respect to certain services and benefits furnished to
the PMI Entities by the Koch Entities; (g) releases of potential claims by and
against the Koch Entities and certain related parties; (h) the resolution of
certain tax issues arising out of the fact that the PMI Entities currently are
members of the Koch Industries consolidated return group; and (i) an injunction
against the assertion of any released claims against the
1
<PAGE> 8
Koch Entities and certain related parties. The Debtors and the Creditors'
Committee believe that the potential settlement embodied in the Plan is a fair
and appropriate resolution of the issues and claims addressed therein.
Under the terms of the Plan, holders of Allowed Claims in respect of
the Old Senior Subordinated Notes, together with holders of Allowed general
Unsecured Claims ("General Unsecured Claims") against any Debtor (other than
certain current and former employee Claims and convenience class Claims, as
described below) (collectively,"General Unsecured Creditors") will receive their
Pro Rata share of 9,910,000 shares of New Common Stock of Reorganized Purina
(the "Reserved Shares"). General Unsecured Creditors receiving a Pro Rata share
of the Reserved Shares include Koch Agriculture on account of an Allowed General
Unsecured Claim of $26.05 million (the "Koch Agriculture Commodity Sale Claim"),
calculated as follows: (a) $31.40 million in obligations arising out of
prepetition commodity purchases from Koch Agriculture by the Debtors, as
described below (see "Certain Events Preceding the Debtors' Chapter 11 Filing --
Prepetition Events -- Transactions with Koch Industries"), reduced by (b) the
Koch Agriculture Transition Settlement Payment in the amount of $5.35 million,
which will be treated as an Allowed Administrative Claim. Holders of Allowed
General Unsecured Claims against the Debtors aggregating $2,500 or less (or as
to which the holder consents on the Ballot to reduce its aggregate Claims to
$2,500) (collectively, the "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 (collectively, the "Bank Loan Claims")
will receive the New Prepetition Credit Facility Notes to be issued pursuant to
the Plan. The terms of the New Prepetition Credit Facility Notes issued to a
holder of a Bank Loan Claim will depend upon whether the holders of Bank Loan
Claims, as a Class, approve the Plan pursuant to sections 1126(c) and 1129(a)(8)
of the Bankruptcy Code ("Class 4 Approval of the Plan"). See "Overview of the
Plan -- Summary of Classes and Treatment of Claims and Interests". If the Plan
is confirmed and consummated in accordance with its terms, substantially all of
the New Common Stock of Reorganized Purina initially will be owned by
prepetition General Unsecured Creditors of the Debtors, which include Koch
Agriculture. In addition, if the Warrant is purchased and exercised by Koch
Agriculture, Koch Agriculture could acquire additional shares of New Common
Stock comprising up to 10% of the total New Common Stock outstanding as of the
Effective Date, on a fully diluted basis. Further, up to 90,000 shares of New
Common Stock will be issued on or after the Effective Date to certain of the
Debtors' employees pursuant to a key employee retention program (the "KERP
Program") and 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. In particular, [______] 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 Purina --
Employee Benefit Matters." Finally, as part of their respective fee
arrangements, Houlihan Lokey Howard & Zukin Capital, the financial advisors to
the Debtors ("Houlihan Lokey"), and Chanin Capital Partners, the financial
advisors to the Creditors' Committee ("Chanin"), will be entitled to convert
certain promissory notes they may receive in partial payment of their respective
fees (collectively, the "Financial Advisor Notes") into up to approximately
100,000 shares of New Common Stock (which amount ultimately will depend upon the
value ascribed to such shares by the Bankruptcy Court at Confirmation and
potentially will be lower depending upon the timing of Confirmation). See
"Operations During the Reorganization Cases -- Retention of Financial Advisors"
and "Securities to Be Issued Pursuant to the Plan -- New Common Stock."
[BY AN ORDER OF THE BANKRUPTCY COURT DATED ______________, 2000, 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 INTERESTS OF THE RELEVANT
CLASS TO MAKE AN INFORMED JUDGMENT ABOUT THE PLAN . . . ." 11 U.S.C. SS.
1125(A)(1).]
THE BOARDS OF DIRECTORS OF THE DEBTORS AND THE CREDITORS' COMMITTEE
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 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, the PMI Merger and the Effective Date of the
Plan." There is no assurance that these conditions will be satisfied or waived.
2
<PAGE> 9
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 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
Purina 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 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 March 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 differ from these estimates if
the estimates, despite the Debtors' best efforts, prove to be inaccurate.
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 to 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
3
<PAGE> 10
that 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.
THE ESTIMATED AGGREGATE CLAIMS AMOUNTS SHOWN IN THE TABLE BELOW ARE
BASED UPON THE DEBTORS' PRELIMINARY REVIEW OF CLAIMS FILED ON OR BEFORE THE
JANUARY 26, 2000 GENERAL BAR DATE AND THE DEBTORS' BOOKS AND RECORDS AND MAY BE
SUBSTANTIALLY REVISED FOLLOWING THE PASSAGE OF THE APPLICABLE BAR DATES AND THE
COMPLETION OF A DETAILED ANALYSIS OF THE CLAIMS FILED. SEE "OPERATIONS DURING
THE REORGANIZATION CASES -- COMMENCEMENt OF REORGANIZATION CASES AND RELATED
CASE ADMINISTRATION ACTIVITIES -- CLAIMS PROCESS AND BAR DATE." 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 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 UNSECURED CLAIM IN CLASS 5 MAY BE
ADVERSELY OR FAVORABLY AFFECTED BY THE AGGREGATE AMOUNT OF CLAIMS ULTIMATELY
ALLOWED IN SUCH CLASS. SEE "RISK FACTORS -- TREATMENT OF CLAIMS." DISTRIBUTIONS
OF NEW COMMON STOCK To HOLDERS OF ALLOWED UNSECURED 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 designated 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. Such estimated Allowed Claims include the Koch
Agriculture Commodity Sale Claim in the amount of $26.05 million, which (a) is
comprised of obligations for commodities agreed to have been sold to the Debtors
under the Master Procurement Agreement (as defined below) on or prior to the
Petition Date in the agreed amount of $31.40 million, reduced by the amount of
the Koch Agriculture Transition Settlement Payment of $5.35 million, and (b)
will be treated as an Allowed Claim in Class 5 as of the Effective Date pursuant
to the Plan. See "Certain Events Preceding the Debtors' Chapter 11 Filing --
Prepetition Events -- Transactions with Koch Industries" and "Koch Industries
Settlement -- The Settlement -- Principal Terms of the Settlement." For purposes
of illustration only, because the Debtors do not know (a) whether Koch
Agriculture will purchase or exercise the Warrant or (b) the amount of New
Common Stock that ultimately will be issued pursuant to the KERP Program, the
Equity Incentive Plan or to Houlihan Lokey and Chanin upon conversion of the
Financial Advisor Notes, it is assumed that the Warrant will not be purchased or
exercised by Koch Agriculture and that the New Common Stock to be distributed to
holders of Unsecured Claims in Class 5 under the Plan and to certain employees
under the KERP Program and will have an aggregate value of $185 million as of
the Effective Date. See "Securities to Be Issued Pursuant 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.
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 equity securities, such as the
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
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 actually will be realized by a holder of an Allowed Unsecured Claim in
Class 5.
4
<PAGE> 11
<TABLE>
<CAPTION>
DESCRIPTION AND AMOUNT
OF CLAIMS OR INTERESTS TREATMENT
<S> <C>
- - Class 1 (Unsecured Priority Claims): Priority Claims Unimpaired; on the Effective Date, each holder of an
against any Debtor entitled to priority under sections Allowed Claim in Class 1 will receive cash equal to the
507(a)(3), 507(a)(4), 507(a)(5) or 507(a)(6) of the amount of such Claim.
Bankruptcy Code.
Estimated Percentage Recovery: 100%
Estimated Aggregate Claims Amount: $0
- - Class 2 (Convenience Claims): Unsecured Claims against Impaired; on the Effective Date each holder of an Allowed
any Debtor, other than Old Senior Subordinated Note Claim or Allowed Claims in Class 2 will receive cash
Claims, that otherwise would be classified in Class 5, equal to the aggregate amount of such Claims (as reduced,
but with respect to which all such Claims of a particular if applicable, pursuant to an election by the holder
claim holder aggregate $2,500 or less or as to which such thereof). Giving effect to the aggregation or election as
holder elects to reduce all of such Claims to $2,500 on to such Claims, the maximum aggregate distribution to any
the Ballot provided for voting on the Plan by the Voting holder of Class 2 Claims shall not exceed $2,500.
Deadline. Multiple Unsecured Claims of a holder against
the Debtors will be aggregated for purposes of this Estimated Percentage Recovery: 100%
classification, such that such holder will only have a
single Convenience Class Claim under the Plan equal to
not more than $2,500.
Estimated Aggregate Claims Amount: $3,500,000
- - Class 3 (Non-Bank Secured Claims): Secured Claims against Unimpaired; on the Effective Date, unless otherwise
any Debtor that are not classified in Class 4. agreed by a Claim holder and the applicable Debtor or
Reorganized Debtor, each holder of an Allowed Claim in
Estimated Aggregate Claims Amount: $2,600,000 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 elects 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 elects or is
deemed to have elected Option B will be Reinstated.
Estimated Percentage Recovery: 100%
</TABLE>
5
<PAGE> 12
<TABLE>
<CAPTION>
DESCRIPTION AND AMOUNT
OF CLAIMS OR INTERESTS TREATMENT
<S> <C>
- - Class 4 (Bank Loan Claims): Bank Loan Claims against any Impaired; on the Effective Date each holder of an Allowed
Debtor under the Prepetition Credit Facility. Bank Loan Claim in Class 4 will be treated as follows:
Estimated Aggregate Claims Amount: $278,000,000 - Each holder of an Allowed Bank Loan Claim 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 a New Tranche B Note,
respectively, in the amount of such Claim in
accordance with the terms of Exhibit III.C.2 to the
Plan.
- Each holder of an Allowed Bank Loan Claim constituting
an Old Revolving Note Claim under the Prepetition
Credit Facility will receive a New Term Note in the
amount of such Claim in accordance with the terms of
Exhibit III.C.2 to the Plan.
As set forth on Exhibit III.C.2 to the Plan, the terms of
the New Tranche A Notes, the New Tranche B Notes and the
New Term Notes to be received by holders of Allowed Bank
Loan Claims will depend upon whether or not there is a
Class 4 Approval of the Plan.
Estimated Percentage Recovery: 100%
- - Class 5 (General Unsecured Claims): Unsecured Claims Impaired; on the Effective Date, each holder of an
against any Debtor that are not otherwise classified in Allowed Claim in Class 5 will receive, in full
Classes 2 or 4, including Old Senior Subordinated Note satisfaction of such Allowed Claim, its Pro Rata share,
Claims, Trade Claims, Tort Claims and the Koch based upon the principal amount of each holder's Allowed
Agriculture Commodity Sale Claim. Claim, of the Reserved Shares and the accompanying Share
Purchase Rights in accordance with the Share Purchase
Estimated Aggregate Claims: $435,000,000 Rights Agreement and Section VI.H.3 of the Plan.
Estimated Percentage Recovery: 42%
- - Class 6 (Intercompany Claims): Claims of a PMI Entity Impaired; no property will be distributed to or retained
against a Debtor that are not Administrative Claims. by the PMI Entities 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 PMI Entities holding an Intercompany Claim in
Class 6 will be deemed to have accepted the Plan.
Estimated Percentage Recovery: 0%
- - Class 7 (PMI Old Common Stock Interests): Interests of PM Impaired; no property will be distributed to or retained
Holdings on account of the Old Common Stock of PMI. by the holder of Allowed Interests in Class 7, and such
Interests will be canceled pursuant to the PMI Merger on
the PMI Merger Date.
Estimated Percentage Recovery: 0%
- - Class 8 (PMI Subsidiary Debtors Old Common Stock Unimpaired; on the Effective Date, Allowed Interests in
Interests): Interests on account of the Old Common Stock Class 8 will be Reinstated.
of the PMI Subsidiary Debtors.
Estimated Percentage Recovery: 100%
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
DESCRIPTION AND AMOUNT
OF CLAIMS OR INTERESTS TREATMENT
<S> <C>
- - Class 9 (PM Holdings Old Common Stock Interests): Impaired; no property will be distributed or retained by
Interests of Koch Agriculture on account of Old Common the holder of Class 9 Interests, and such Interests will
Stock of PM Holdings. be canceled on the Effective Date immediately after
receipt by PM Holdings of the funds in the PMI Merger
Escrow pursuant to Section IV.B.3.a of the Plan and
immediately prior to the issuance of the New Common
Stock.
Estimated Percentage Recovery: 0%
</TABLE>
ADDITIONAL INFORMATION REGARDING ASSERTION AND TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS
ADMINISTRATIVE CLAIMS
Unless otherwise agreed by the holder of an Administrative Claim and
the applicable Debtor or Reorganized Debtor, each holder of an Allowed
Administrative Claim will receive, in full satisfaction of its Administrative
Claim, cash equal to the Allowed amount of such Administrative Claim either (a)
on the Effective Date or (b) if the Administrative Claim is not allowed as of
the Effective Date, 30 days after the date on which an order allowing such
Administrative Claim becomes a Final Order or a Stipulation of Amount and Nature
of Claim is executed by the applicable Reorganized Debtor and the holder of the
Administrative Claim. 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: (i) 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), including Claims under the DIP Credit Agreement; (ii) 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, including Fee Claims; (iii) 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; (iv) Claims for reclamation allowed in accordance with section
546(c)(2) of the Bankruptcy Code and section 2-702 of the Uniform Commercial
Code; (v) all Intercompany Claims accorded priority pursuant to section
364(c)(1) of the Bankruptcy Code or the Cash Management Order; (vi) Claims of
Koch Agriculture or Koch Industries under the Transition Services Agreement and
the Supplemental Transition Agreement; (vii) the Koch Agriculture Transition
Settlement Payment and the Koch Supplemental Transition Agreement Claims; and
(viii) all reasonable fees and expenses of the Indenture Trustee under the
Prepetition Indenture. 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. The Debtors estimate that the Administrative Claims will
aggregate approximately [$__] as of the Effective Date.
Except as otherwise provided below, 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 Administrative Claims and that do not File
and serve such a request by the applicable bar date will be forever barred from
asserting such Administrative Claims against the Debtors, the Reorganized
Debtors or their respective property, and such Administrative 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.
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, the Fee Order or other order of the Bankruptcy Court an
application for final allowance of such
7
<PAGE> 14
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,
entry of the Confirmation Order will amend and supersede any previously entered
order of the Bankruptcy Court, including the Fee Order, regarding the payment of
Fee Claims.
Holders of: (a) 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 or under those contracts and leases entered into or assumed after the
Petition Date; (b) Administrative Claims of Koch Agriculture or Koch Industries
arising under the Transition Services Agreement or on account of the Koch
Agriculture Transition Settlement Payment and the Koch Supplemental Transition
Agreement Claims; (c) Administrative Claims under the DIP Credit Agreement; and
(d) Administrative Claims of the Indenture Trustee will not be required to File
or serve any request for payment of such Administrative Claims.
In full satisfaction of the Indenture Trustee's Administrative Claims,
including 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 charging lien held by
the Indenture Trustee 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 the Indenture Trustee's
Administrative Claims. 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 and (b) the failure of the
Reorganized Debtors to object on the grounds of reasonableness, as determined
under the terms of the Prepetition Indenture, to the payment of such fees and
expenses within ten days after receipt of such documentation, the Indenture
Trustee will be deemed to hold an Allowed Claim or an Allowed Administrative
Claim for such fees and expenses, which the Reorganized Debtors will pay in cash
within 30 days after the receipt of such documentation regarding the fees and
expenses of the Indenture Trustee, without further Bankruptcy Court approval. If
the Reorganized Debtors object to the reasonableness of such fees, the
Bankruptcy Court will determine the Allowed amount of such fees, which will be
paid within 30 days of such determination. Except for the submission of such
documentation, the Indenture Trustee will not be required to File a proof of
Claim or File or serve any request for payment of its Administrative Claim.
PRIORITY TAX CLAIMS
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed by the holder thereof and the applicable Debtor or Reorganized
Debtor, each holder of an Allowed Claim for Taxes entitled to priority payment
pursuant to section 507(a)(8) of Bankruptcy Code (a "Priority Tax Claim") will
receive, in full satisfaction of its Priority Tax Claim, deferred cash payments
over a period not exceeding six years from the date of assessment of such
Priority Tax 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 Allowed 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 the Allowed amount of such Priority Tax Claims). Unless otherwise
agreed by the holder of a Priority Tax Claim and the applicable Debtor or
Reorganized Debtor, the first payment or account of an Allowed Priority Tax
Claim 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 (a) an order allowing such
Priority Tax Claim becomes a Final Order or (b) a Stipulation of Amount and
Nature of Claim is executed by the applicable Reorganized Debtor and the holder
of the Priority Tax Claim, provided, however, that the Reorganized Debtors will
have the right to pay any Allowed Priority Tax Claim, or any remaining balance
of such Priority Tax Claim, in full at any time on or after the Effective Date,
without premium or penalty. The Debtors estimate that the Priority Tax Claims
will aggregate approximately [$_____] as of the Effective Date.
Notwithstanding the foregoing, a 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 such Allowed Priority Tax Claim.
8
<PAGE> 15
Any such penalty will be subject to treatment in Class 5 and the holder of an
Allowed Priority Tax Claim will not assess or attempt to collect such penalty
from the Reorganized Debtors or their property.
SPECIAL PROVISIONS REGARDING THE 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 or deemed 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 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.
SUMMARY OF TERMS OF CERTAIN SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
The Plan provides that as of the Effective Date, Reorganized Purina
will be authorized to issue 20,000,000 shares of New Common Stock, par value
$0.01 per share. Reorganized Purina will issue 9,910,000 shares of New Common
Stock to holders of Allowed General Unsecured Claims in Class 5 and up to 90,000
shares of New Common Stock to certain employees under the KERP Program. In
addition, as of the Effective Date, [_____] 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. Up to approximately 100,000
additional shares of New Common Stock may be issued to Houlihan Lokey and Chanin
if they exercise their rights to convert the Financial Advisor Notes into New
Common Stock.
Holders of New Common Stock will be entitled to receive ratably such
dividends as declared by Reorganized Purina's Board of Directors and will have
no preemptive, subscription, redemption or conversion rights. Subject to the
terms and conditions set forth in Reorganized Purina's Share Purchase Rights
Agreement, each share of New Common Stock issued pursuant to the Plan will be
accompanied by a Share Purchase Right.
In addition to the New Common Stock issued pursuant to the Plan,
Reorganized Purina's Board of Directors will 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 Purina also
will be authorized to issue additional shares of New Common Stock from time to
time following the Effective Date under the provisions of the Amended
Certificate of Incorporation of Reorganized Purina (the "Amended Certificate"),
the Amended By-Laws of Reorganized Purina (the "Amended By-Laws") and applicable
law.
Reorganized Purina 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 Purina will be a party will restrict, and may
prohibit, the ability of Reorganized Purina to pay dividends.
In connection with the consummation of the PMI Merger, Koch Agriculture
will be granted an option to purchase the Warrant pursuant to the Warrant
Purchase Agreement. Under the Warrant Purchase Agreement, Koch Agriculture will
have the right, during the period commencing immediately after consummation of
the PMI Merger and ending on the Effective Date, to purchase the Warrant from PM
Holdings for $5.0 million. Pursuant to the terms of the Warrant and the Warrant
Agreement governing the terms and conditions of the Warrant, Koch Agriculture
will have the right for one year after the Effective Date to purchase shares of
New Common Stock comprising up to 10% of the aggregate amount of New Common
Stock outstanding as of the Effective Date, on a fully diluted basis, at a
purchase price of $27.75 per share. This price equals 150% of the estimated
reorganization value of each share of New Common Stock as of the Effective Date.
See "Reorganized Purina -- PMI Merger; the Warrant."
Fifteen days after the Effective Date, assuming a Class 4 Approval of
the Plan, holders of Allowed Claims under the Prepetition Credit Facility will
receive New Prepetition Credit Facility Notes in an estimated principal amount
of approximately $278.0 million, approximately $51.0 million of which will be
paid within 15 days of the Effective Date. The New Prepetition Credit Facility
Notes will be secured by a lien on substantially all of the assets of the
Debtors, which, if there is a Class 4 Approval of the Plan, will be subordinated
to the lien securing the Exit Financing Facility, and will be on the terms
specified in Exhibit III.C.2 of the Plan. As set forth on Exhibit III.C.2 of
9
<PAGE> 16
the Plan, certain terms of the New Prepetition Credit Facility Notes to be
received by holders of Bank Loan Claims will depend upon whether or not there is
a Class 4 Approval of the Plan. See "Securities to Be Issued Pursuant to the
Plan -- New Prepetition Credit Facility Notes."
In addition, if there is a Class 4 Approval of the Plan, as of the
Effective Date, the Debtors, the Exit Facility Agent Bank and the Participating
Bank Loan Claim Holders will 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."
CONDITIONS TO CONFIRMATION, THE PMI MERGER AND THE EFFECTIVE DATE OF THE PLAN
There are several conditions precedent to Confirmation, the PMI Merger
and the Effective Date. Subject to applicable legal requirements, the Debtors,
with the consent of the Creditors' Committee and Koch Industries, or in some
instances Koch Industries alone (as specified in the Plan and below under
"Waiver of Conditions to Confirmation, the PMI Merger or the Effective Date"),
may waive any of these conditions upon the terms and subject to the conditions
set forth in Section IX.D of the Plan.
CONDITIONS TO CONFIRMATION
The Bankruptcy Court will not enter the Confirmation Order unless and
until the following conditions have been satisfied or duly waived pursuant to
Section IX.D of the Plan:
1. The Confirmation Order will be reasonably acceptable in form and
substance to the Debtors, the Creditors' Committee and Koch Industries and will
include the following:
A. an approval of the substantive consolidation of the Debtors
as contemplated by Article VIII of the Plan;
B. a finding that each of the Recovery Actions is the
exclusive property of the Debtors as debtors in possession pursuant to section
541 of the Bankruptcy Code; and
C. a ruling that each of the Recovery Actions against (i) the
Koch Entities and any of their respective stockholders and their respective
present or former officers, directors, employees, attorneys, accountants,
financial advisors, investment bankers or agents and (ii) the other persons or
entities as set forth in Section IV.E.2.b.i of the Plan will be fully settled
and released as of the Effective Date.
2. The Koch Industries Settlement Agreement shall not have been
terminated.
3. If there is a Class 4 Approval of the Plan, the Debtors shall have
received a binding, unconditional (except for a normal "market-out" condition
and for conditions relating to occurrence of the Effective Date) commitment for
the Exit Financing Facility from the Exit Financing Facility Agent Bank on terms
and conditions satisfactory to the Debtors and the Creditors' Committee.
4. The Confirmation Hearing has been commenced by May 31, 2000.
5. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C of the
Plan.
6. All Exhibits to the Plan are in form and substance reasonably
satisfactory (a) to the Debtors and the Creditors' Committee and (b) to Koch
Industries, if any Koch Entity is affected thereby (other than effects generally
applicable to holders of Class 5 Claims), as determined in the reasonable
judgment of Koch Industries.
7. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i
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<PAGE> 17
of the Plan or (b) any of the Koch Entities against any of the Debtors or any
other party to be released pursuant to Section IV.E.2.b.iii 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 THE PMI MERGER
The PMI Merger will not occur, and accordingly no action in connection
therewith (including the deposit by Koch Agriculture of any funds to the escrow
agent under the PMI Merger Escrow Agreement) will occur unless and until the
following conditions have been satisfied or duly waived pursuant to Section IX.D
of the Plan:
1. The New Common Stock shall have been registered under the Securities
Exchange Act of 1934, as now in effect or hereafter amended, 15 U.S.C. ss.ss.
78a - 78jj (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 subject to
official notice of issuance.
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
the Plan in form and substance acceptable to the Debtors, the Creditors'
Committee and Koch Industries, 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 entered into or delivered in connection with the
Plan.
4. Simultaneously with the effectiveness of the PMI Merger, the
respective parties thereto shall have executed and delivered the PMI Merger
Escrow Agreement, the Plan of Merger, the Koch Tax Sharing Agreement and the
Warrant Purchase Agreement.
5. The Confirmation Order shall have become a Final Order.
6. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C of the
Plan, and all Exhibits to the Plan remain in form and substance reasonably
satisfactory (a) to the Debtors and the Creditors' Committee and (b) to Koch
Industries, if any Koch Entity is affected thereby (other than effects generally
applicable to holders of Class 5 Claims), as determined in the reasonable
judgment of Koch Industries.
7. The PMI Merger has been consummated by June 15, 2000.
8. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i of the
Plan or (b) any of the Koch Entities against any of the Debtors or any other
party to be released pursuant to Section IV.E.2.b.iii of the Plan.
CONDITIONS TO THE 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 pursuant to Section IX.D of the Plan:
1. The PMI Merger Date has occurred and the PMI Merger has been
consummated.
2. Twenty days have elapsed since the PMI Merger Date.
3. The escrow established pursuant to the PMI Merger Escrow Agreement
has been and remains funded in accordance with Section IV.B.3.a of the Plan and
the PMI Merger Escrow Agreement.
11
<PAGE> 18
4. If Koch Agriculture has exercised the option to purchase the Warrant
pursuant to the Warrant Purchase Agreement, Koch Agriculture shall have paid
$5.0 million to PM Holdings.
5. If there is a Class 4 Approval of the Plan, the documents
effectuating the Exit Financing Facility shall have been executed and delivered
by the Reorganized Debtors, the Exit Financing Facility Agent Bank and each of
the Participating Bank Loan Claim Holders.
6. The Plan shall not have been amended, altered or modified from the
Plan as filed on January 18, 2000, unless such amendment, alteration or
modification has been consented to in accordance with Section XIII.C of the
Plan, and all Exhibits to the Plan remain in form and substance reasonably
satisfactory(a) to the Debtors and the Creditors' Committee and (b) to Koch
Industries, if any Koch Entity is affected thereby (other than effects generally
applicable to holders of Class 5 Claims), as determined in the reasonable
judgment of Koch Industries.
7. The Effective Date has not occurred by July 14, 2000.
8. No litigation has been commenced by (a) any of the Debtors, the
Creditors' Committee or any of the Consenting Holders against any of the Koch
Entities or any other party to be released pursuant to Section IV.E.2.b.i of the
Plan or (b) any of the Koch Entities against any of the Debtors or any other
party to be released pursuant to Section IV.E.2.b.iii of the Plan.
WAIVER OF CONDITIONS TO CONFIRMATION, THE PMI MERGER OR THE EFFECTIVE
DATE
The conditions to Confirmation set forth in Sections IX.A.1.a, IX.A.3,
IX.A.4, IX.A.5 and IX.A.6 of the Plan; the conditions to the Effective Date set
forth in Section IX.C.1, IX.C.3, IX.C.4, IX.C.5, IX.C.6 and IX.C.7 of the Plan;
and the conditions to the PMI Merger set forth in Sections IX.B.3, IX.B.4,
IX.B.6 and IX.B.7 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 proposed waiver to and the prior written consent of the
Creditors' Committee and Koch Industries. The conditions to Confirmation set
forth in Sections IX.A.1.b, IX.A.1.c and IX.A.2 and clause (a) of Section IX.A.7
of the Plan, the conditions to the PMI Merger set forth in Section IX.B.5 of the
Plan and clause (a) of Section IX.A.7 of the Plan and the conditions to the
Effective Date set forth in Section IX.C.2 of the Plan and clause (a) of Section
IX.C.8 of the Plan may be waived in whole or in part by and in the sole
discretion of Koch Industries at any time without an order of the Bankruptcy
Court and, if any such condition is waived by Koch Industries, such waiver shall
be deemed granted by all parties for all purposes under the Plan. The condition
to Confirmation set forth in clause (b) of Section IX.A.7 of the Plan, the
conditions to the PMI Merger set forth in Sections IX.B.1 and IX.B.2 and clause
(b) of Section IX.B.8 of the Plan and the condition to the Effective Date in
clause (b) of Section IX.C.8 of the Plan may be waived in whole or in part by
the Debtors at any time without an order of the Bankruptcy Court after three
Business Days' notice to and prior written consent of the Creditors' Committee,
and no consent of Koch Industries will be required. The failure to satisfy or
waive a condition may be asserted (in writing to the Debtors, the Creditors'
Committee and Koch Industries) by a party with the right to waive such
condition, regardless of the circumstances giving rise to the failure of such
condition to be satisfied (including any action or inaction by such party).
EFFECT OF NONOCCURRENCE OF CONDITIONS TO THE EFFECTIVE DATE
If each of the conditions to the Effective Date provided in the Plan is
not satisfied or duly waived in accordance with Section IX.D of the Plan, then
upon motion by the Debtors, the Creditors' Committee or Koch Industries 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 Section IX.E of
the Plan, (a) the Plan will be null and void in all respects (other than with
respect to the PMI Merger and the documents executed in connection therewith,
which will continue in full force and effect if the PMI Merger has been
consummated), including with respect to: (i) the discharge of Claims and
termination of Interests pursuant to section 1141 of the Bankruptcy Code; (ii)
the assumptions, assignments or rejections of Executory Contracts and Unexpired
Leases pursuant to Sections V.A and V.C of the Plan; and (iii) the substantive
consolidation of the Debtors; and (b) nothing contained in the Plan will: (i)
constitute a waiver or release of any claims by or against, or any Interest in,
the Debtors; or (ii) prejudice in any manner the rights of the Debtors or any
other party in interest.
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<PAGE> 19
SUBSTANTIVE CONSOLIDATION
As for purposes of implementing the Plan, 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 PM Holdings, PMI
and the PMI Subsidiary Debtors will be deemed merged; (b) all guarantees by one
Debtor of the obligations of any other Debtor will 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 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 of the Debtors will be deemed
Filed against the consolidated Debtors, and will be deemed one Claim against and
a single obligation of the consolidated Debtors. Such substantive consolidation
(other than for the purpose of implementing the Plan) will not affect (i) the
legal and corporate structures of the Reorganized Debtors, subject to the PMI
Merger and the right of the Debtors or Reorganized Debtors to affect
restructurings as provided in Section IV.B of the Plan; (ii) the Old Common
Stock of the PMI Subsidiary Debtors; and (iii) pre- and post-Effective Date
guarantees 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. See "General Information Concerning the Plan -- Substantive
Consolidation."
PMI MERGER
Prior to the Effective Date, on the PMI Merger Date, PMI will be merged
with and into PM Holdings in accordance with the Plan of Merger. PM Holdings
will be the surviving corporation and will change its name to "Purina Mills,
Inc." Thereafter, the business of PMI will be conducted by PM Holdings or
Reorganized Purina. In connection with the PMI Merger, pursuant to the Warrant
Purchase Agreement, PM Holdings will grant to Koch Agriculture the right through
the Effective Date to purchase the Warrant for $5.0 million. In addition, Koch
Industries and PM Holdings will enter into the Koch Tax Sharing Agreement, which
will become effective on the PMI Merger Date, and Koch Agriculture, pursuant to
the PMI Merger Escrow Agreement, will deposit into escrow $60.0 million to be
contributed to the capital of PM Holdings on the Effective Date. Such funds will
be returned to Koch Agriculture if the conditions to the Effective Date are not
satisfied or duly waived in accordance with Article IX of the Plan. See "Koch
Industries Settlement -- The Settlement -- Principal Terms of the Settlement"
and "Reorganized Purina -- PMI Merger; the Warrant."
EXIT FINANCING FACILITY; PARTICIPATING BANK LOAN CLAIM HOLDERS
The Debtors have determined that, if there is a Class 4 Approval of the
Plan, it is desirable to obtain the Exit Financing Facility on the Effective
Date of the Plan. However, if there is no Class 4 Approval of the Plan, the
Debtors believe that the Plan is feasible and still may be confirmed without the
Exit Financing Facility. As a consequence, if there is a Class 4 Approval of the
Plan, (a) the commitment by the Confirmation Date of the Exit Financing Facility
Agent Bank to provide the Exit Financing Facility on terms satisfactory to the
Debtors, the Creditors' Committee and Koch Industries is a condition to
Confirmation, and (b) the execution and delivery of the documents effectuating
the Exit Financing Facility by the Reorganized Debtors, the Exit Financing
Facility Agent Bank and the Participating Bank Loan Claim Holders are conditions
to the Effective Date. The Debtors currently contemplate that such Exit
Financing Facility would consist of a senior secured $50 million revolving
credit facility, including a $30.0 million letter of credit sub-facility. If
there is a Class 4 Approval of the Plan, the Exit Financing Facility Agent Bank
would provide all financing under the Exit Financing Facility, provided that, as
described below, Participating Bank Loan Claim Holders may elect to participate
in the Exit Financing Facility. Although the Debtors have been engaged in
negotiations to obtain the Exit Financing Facility with certain potential
entities that would serve as the Exit Financing Facility Agent Bank, no
commitment for the Exit Financing Facility has been obtained at this time. Prior
to the hearing by the Bankruptcy Court for approval of this Disclosure
Statement, the Debtors will identify the Exit Financing Facility Agent Bank and
the principal terms of the Exit Financing Facility.
In connection with submitting Ballots on the Plan, in addition to
indicating whether they vote in favor of or against the Plan, each holder of a
Bank Loan Claim will indicate whether, if there is a Class 4 Approval of the
Plan, such holder wishes to be treated under the Plan as a Participating Bank
Loan Claim Holder by electing to participate, as of the Effective Date, in its
Allocable Portion of the Exit Financing Facility. See "Voting and Confirmation
of the Plan -- Voting Procedures and Requirements." The Allocable Portion means,
as to any Participating Bank Loan Claim Holder, the fractional participation in
the Exit Financing Facility equal to (a) the amount of the Allowed Bank
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<PAGE> 20
Loan Claim of such Participating Bank Loan Claim Holder, divided by (b) the sum
of all Allowed Bank Loan Claims. In addition, each Participating Bank Loan Claim
Holder may further elect on the Ballot to participate equally with all other
Participating Bank Loan Claim Holders making such further election in the
Unallocated Portion of the Exit Financing Facility. Any holder of a Bank Loan
Claim that does not timely return a properly executed Ballot or fails to make an
election on a timely returned, properly executed Ballot to be a Participating
Bank Loan Claim Holder will not be treated as a Participating Bank Loan Claim
Holder for any purpose under the Plan. If there is a Class 4 Approval of the
Plan, the election of a holder of a Bank Loan Claim on a timely returned,
properly executed Ballot to be treated as a Participating Bank Loan Claim Holder
will constitute the binding obligation of such holder to participate in the Exit
Financing Facility in accordance with the terms of such election as set forth on
the Ballot and the terms of the Exit Financing Facility, which obligation will
be enforceable by the Reorganized Debtors, the Exit Financing Facility Agent
Bank and each other Participating Bank Loan Claim Holder in accordance with such
terms, and each such Participating Bank Loan Claim Holder will execute and
deliver the documents required by the Exit Financing Facility on the Effective
Date.
As more fully described in Exhibit III.C.2 of the Plan, if there is a
Class 4 Approval of the Plan, the New Prepetition Credit Facility Notes to be
received by holders of Allowed Bank Loan Claims will bear interest at higher
rates and will be entitled to the benefit of certain additional mandatory
prepayments as compared to the New Prepetition Credit Facility Notes that will
be issued to holders of Allowed Bank Loan Claims if there is no such Approval.
MODIFICATION OR REVOCATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127
of the Bankruptcy Code, upon not less than ten days' prior written notice to
Koch Industries, the Debtors or the Reorganized Debtors, as applicable, reserve
the right to alter, amend or modify the Plan before its substantial
consummation; provided that no alteration, amendment or modification of the Plan
of any nature whatsoever may occur without the prior written consent of the
Creditors' Committee; and provided further that, if Koch Industries notifies the
Debtors within ten days after receipt of such notice that Koch Industries has
determined in its reasonable good faith judgment that such proposed alteration,
amendment or modification would adversely affect any rights or obligations of
any Koch Entity under the Plan or any documents or agreements to be executed in
connection therewith, such proposed alteration, amendment or modification may
not occur without the prior written consent of Koch Industries. Any proposed
alteration, amendment or modification affecting the distributions on account of
Allowed Class 5 Claims generally and equally, however, will not require the
prior written consent of Koch Industries. The Debtors also 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 Debtors or any other party.
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), the "Checkerboard" Nine
Square Logo(R) and other 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.
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<PAGE> 21
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. PM Holdings has had no business operations other than its ownership of
all of the Old Common Stock of PMI.
1998 MERGER
On March 12, 1998, Koch Agriculture acquired PMI through a merger of a
subsidiary of Koch Agriculture, which was capitalized with $109.7 million of
cash, 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, Koch Agriculture provided
$109.7 million of cash equity. In addition, 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 Facility. The Old
Senior Subordinated Notes also are structurally subordinated to all obligations
of PMI's subsidiaries.
In connection with the 1998 Merger, PMI entered into the Prepetition
Credit Facility, which provides for up to $300.0 million in secured borrowings
from a syndicate of lenders as follows: (a) a $200.0 million term loan facility
(the "Term Loan"), consisting of two $100.0 million tranches (the "Tranche A
Term Loan" and the "Tranche B Term Loan," respectively) and (b) a $100.0 million
revolving credit facility, with a $40.0 million sublimit for letters of credit
(the "Revolving 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"). Except for certain notes with a face amount
of $15,000, all of the then-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 PM
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. The
consideration was funded by the $109.7 million of cash contributed by Koch
Agriculture and two dividends paid by PMI to PM Holdings totaling $237.1
million.
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<PAGE> 22
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 (i) approximately $90.5 million and approximately $203.0
million, respectively, required to fund the consummation of the two
Tender Offers and (ii) 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 a commodity purchasing arrangement between PMI and
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.
To the Debtors' knowledge, no claims or causes of action have been
brought by any third party arising out of any of the financing or other
transactions involved in the 1998 Merger.
TRANSACTIONS WITH KOCH INDUSTRIES
Following the 1998 Merger, PMI entered into an exclusive commodity
purchasing agreement (the "Master Procurement Agreement") with Koch Agriculture.
Under the terms of the Master Procurement 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 provided
that PMI and its subsidiaries would 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 from time to time. Until October 28, 1999, this
discount was $3.50 per ton. As part of this exclusive arrangement, PMI
transferred most of its commodity purchasing operations, including certain
employees, to Koch Agriculture. In the nine months ended September 30, 1999, PMI
purchased approximately $320.1 million in commodities from Koch Agriculture's
Nutrient Services Division. PMI and Koch Industries have agreed that, as of the
Petition Date, PMI had outstanding payables under this agreement of $31.4
million. Of this amount, $26.05 million is treated as an Allowed Unsecured Claim
in Class 5 under the Plan (i.e., the Koch Agriculture Commodity Sale Claim) and
$5.35 million is treated as an Allowed Administrative Claim under the Plan
(i.e., the Koch Agriculture Transition Settlement Payment). As described below,
PMI has entered into an arrangement to continue purchases under the Master
Procurement agreement after the Petition Date.
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<PAGE> 23
Since the 1998 Merger, PMI also has contracted with Koch Industries for
numerous administrative and support services, including all payroll systems and
most employee benefit programs through December 31, 1999. See "Reorganized
Purina -- Employee Benefit Matters -- Existing Benefit Plans and Agreements."
For the nine months ended September 30, 1999, the total fees paid in connection
with such services amounted to $3.9 million. In addition, commencing in May
1998, Koch Industries began administering and funding all of PMI's employee
payroll, benefit and related costs, for which it was to be reimbursed by PMI.
Beginning in late October 1998, PMI began to reimburse Koch Industries
periodically 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 1998 through September
1998. As described below, PMI has entered into an arrangement to continue to
obtain certain administrative and support services following the Petition Date.
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 certain of the
necessary systems and programs will not be available on a stand-alone basis
until March 2000, leaving a transition period during which the Debtors will
continue to rely on and reimburse Koch Industries and Koch Agriculture for
certain support services. To ensure that critical support services would be
available to the Debtors following the Petition Date and during this
transitional period, prior to the Petition Date, the Debtors negotiated and
entered into the Transition Services Agreement with Koch Industries and Koch
Agriculture. Pursuant to the Transition Services Agreement, Koch Industries and
Koch Agriculture will continue to provide and be reimbursed for, 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 the Master Procurement Agreement. 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 Master
Procurement Agreement, to continue to sell commodities to the Debtors, but
without the discount previously in effect thereunder. 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. To date, almost all purchasing functions have been
transitioned back to PMI. Further, in connection with the November Settlement
and the December Settlement, and as set forth in detail in the Supplemental
Transition Agreement, Koch Industries, Koch Agriculture and PMI agreed to
certain additional specific steps to be taken in respect to that transition, as
well as certain matters relating to retiree medical benefits and other employee
benefits. In connection with the Transition Services Agreement, prior to the
Petition Date, PMI paid Koch Industries approximately $1.9 million, after
deduction of approximately $1.8 million that Koch Industries owed to PMI, in
full satisfaction and settlement of any claims by the Koch Entities relating to
Koch Industries' provision of Services (as defined in the Transition Services
Agreement) through October 1999 and the settlement of certain contract claims.
The Supplemental Transition Agreement will remain in effect from and after the
Effective Date in accordance with its terms. See "General Information Concerning
the Plan -- Legal Effects of the Plan -- Executory Contracts and Unexpired
Leases." Subsequent to the Petition Date, certain disputes arose between the
Debtors and the Koch Entities in respect of the Transition Services Agreement.
These disputes, among other issues, were resolved as part of the December
Settlement. See "Koch Industries Settlement."
Two tax sharing agreements were executed effective as of the date of
the 1998 Merger: (a) the Parent Tax Sharing Agreement (the "Parent Tax Sharing
Agreement"), between Koch Industries and PM Holdings and (b) the Sub-Group Tax
Sharing Agreement (the "Sub-Group Tax Sharing Agreement"), between PM Holdings
and each of its subsidiaries (including PMI). The Parent Tax Sharing Agreement
provides that the federal income tax liability of the entire Koch Industries
consolidated group (including the PMI Entities) will be allocated between the
aggregate Koch Entities and the PMI Entities on the basis of the percentage that
each group's total tax, hypothetically computed as if each group was a separate
consolidated group, would bear to the total of the hypothetically-computed
taxes. If the hypothetical computation yielded a loss for the aggregate PMI
Entities, (i) the PMI Entities would have no liability to Koch Industries for
income taxes in that year and would be permitted to take the loss into account
in a later tax year when the loss could be used on a stand-alone basis and (ii)
Koch Industries would have no obligation to make a cash payment to the PMI
Entities for the benefit of such loss. The Sub-Group Tax Sharing Agreement
provided an identical method for sharing any liability of the PMI Entities under
the Parent Tax Sharing Agreement among the PMI Entities. The results of
operations of PMI after March 12, 1998 have been included in the consolidated
federal
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corporate income tax return and certain consolidated state income tax returns of
Koch Industries. Under the Koch Tax Sharing Agreement (which will be signed in
connection with the PMI Merger but will be effective for most, but not all
purposes on the Effective Date), the following will occur: (a) the parties to
the Parent Tax Sharing Agreement will waive all claims that they might have
under that Agreement (which will be superseded by the Koch Tax Sharing
Agreement); (b) Koch Industries and Reorganized Purina will indemnify each other
for any taxes owed by the other for periods during which the PMI Entities are
not part of the Koch Industries consolidated group; (c) Koch Industries will
indemnify the PMI Entities for any taxes associated with the PMI Merger; and (d)
the PMI Entities will indemnify Koch Industries for certain tax liabilities
arising on audit to the extent that those liabilities would have been due and
payable by the PMI Entities had they never been members of the Koch Industries
consolidated group.
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 following the 1998 merger,
which PMI believes was not formally elected until August 1998, consisted of
Scott Deeter, Dean Watson, Paul Wheeler and Christopher Wilkins, all four of
whom were employees of Koch Industries, and David Abbott, PMI's Chief Executive
Officer. This Board of Directors did not conduct formal Board meetings or
participate in other customary corporate governance practices, although certain
individual PMI Board members and other employees of Koch Industries were
extensively involved in the day-to-day operations of PMI in the months following
the 1998 Merger through March 1999. Koch Agriculture disputes the accuracy of
the Debtors' characterization of the PMI Board's corporate governance practices.
Mr. Abbott resigned as PMI's Chief Executive Officer effective December
31, 1998 and was replaced by Dean Watson, who also was serving as Koch
Agriculture's President at the time. On March 12, 1999, the PMI Board of
Directors was replaced in its entirety by the current PMI Board of Directors --
James M. Dumler, Timothy A. Durkin and Richard E. Knudson -- all of whom also
are employees of Koch Industries. The current Board has conducted formal Board
meetings and performed other customary corporate governance activities. In late
April 1999, Mr. Watson resigned as Chief Executive Officer, and the current
Board of Directors implemented an interim three- member Office of the Chief
Executive Officer consisting of the three-members of the Board of Directors.
Effective March 1, 2000, it is anticipated that the three-member Office of the
Chief Executive Officer will be eliminated. For more information on PMI's
current management, see "Reorganized Purina -- 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 industry. Livestock commodity prices have been depressed and
have reached historic lows in many markets. In addition to the overall adverse
economic environment, there are significant continuing competitive pressures 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,
operators have sought to integrate their production businesses by acquiring or
constructing feed production facilities to meet some or all of their feed
requirements.
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%
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<PAGE> 25
of these commitments were 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. Because 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
September 30, 1999 and December 31, 1998, PMI had $9.5 million and $10.3
million, respectively, in hog inventory.
Based, in part, 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 changes in hog market prices. Upon receipt of the feeders, PMI
can either sell the feeders at current market prices, feed them at PMI's owned
or leased facilities to produce finished hogs for market or contract with
independent producers to finish the feeders for market.
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 be approximately $16.0
million.
PMI's contract with Tyson Foods, Inc. and a subsidiary (collectively,
"Tyson Foods") in particular resulted in significant negative financial impacts
on PMI during 1999. This contract involved the purchase of feeders and
eventually was expected to result in the purchase of over 500,000 feeders per
year. Tyson Foods has indicated to PMI that it believes its Claims under this
contract would exceed $30.0 million. PMI will dispute such Claims and believes
that it has defenses to any Claims under this contract. PMI has taken steps to
reject this contract, effective as of October 28, 1999, by Filing of a motion
seeking this relief. A proposed order granting this relief has been submitted to
the Bankruptcy Court by the Debtors on a consensual basis with Tyson Foods. See
"Operations During the Reorganization Cases -- Commencement of Reorganization
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 (the "Purina Ag
Guarantee") related to obligations of Purina Ag Capital Corp. ("Purina Ag
Capital"), a non-stock membership corporation formed in 1995 to provide funding
for the growth, consolidation and expansion of PMI's network of
independently-owned dealers and listed producers, consisting of a $10.0 million
guarantee by Purina Ag Capital to Purina Ag Capital's back-stop funding banks
(the "Back-Stop Guarantee"), plus a $1.5 million guarantee 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 Purina Ag Guarantee during the fourth
quarter of 1998. At September 30, 1999, PMI had funded $6.7 million on account
of potential obligations under the Purina Ag Guarantee. Additionally, in August
1999, PMI issued a letter of credit for $3.3 million to secure the unfunded
portion of the Back-Stop Guarantee. PMI is not a member of, and does not have an
equity interest in, Purina Ag Capital; however, PMI loaned $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 and
has written-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 direct loans to customers and are
subject to PMI's normal credit policies. Collateral (e.g., farm animals,
property or personal guarantees) usually is obtained based on management's
assessment of the specific customer's credit risk. PMI had customer loan
guarantees of approximately $5.4 million and $8.7 million at September 30, 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 these
guarantees. The maturity dates of these guarantees extend through January 2009,
with the majority of the guarantees maturing prior to 2003. As part of the Plan,
PMI will determine whether any of these guarantees will be continued.
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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 into a single proceeding. In addition, PMI has filed an action that
has been consolidated in the class action proceeding. A proposed $1.2 billion
settlement for the class action 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 or
settlements with the manufacturers. Based on the announced terms of the Vitamin
Settlement and the volume of vitamins purchased by PMI, if PMI opted into the
settlement, PMI believes its recovery would be in the range of $20 million to
$25 million. If PMI did not accept the Vitamin Settlement, the potential
recovery could be higher or lower. PMI has not determined at this time whether
it will opt into the Vitamin Settlement.
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 has made it particularly vulnerable to the
downturn in the swine market.
As of the Petition Date, the Debtors' principal prepetition financing
facilities consisted of the Old Senior Subordinated Notes and the Term Loan and
the loans under the Revolving Credit Facility. Loans under the Revolving Credit
Facility bear interest at floating rates which, at PMI's option, are based
either upon bank prime or Eurodollar rates. Rates on outstanding borrowings
averaged 8.65% at September 30, 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 Facility. The option contract
provides that PMI will pay interest on the notational amount if the base rate in
the Prepetition Credit Facility falls below 5.2% and will receive interest if
the base rate in the Prepetition Credit Facility is above 7.0%. PMI also has
entered into two other interest rate hedge swap agreements, whereby it has
"fixed" the interest rates on substantially all of its debts under the
Prepetition Credit Facility, excluding obligations under the Revolving Credit
Facility. PMI and the counterparties to the option contract and interest swap
agreements are discussing whether those arrangements will be terminated. PMI
believes that, in the event of such terminations, it would be entitled to
payments aggregating approximately $2.0 million as of December 31, 1999 from the
terminating parties.
The Prepetition Credit Facility and the Prepetition Indenture related
to the Old Senior Subordinated Notes contain restrictive covenants that, among
other things and under certain conditions, limit the ability of PMI to incur
additional indebtedness, issue preferred stock, acquire or dispose of assets or
operations (including a limitation on capital expenditures) 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 also are 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 the Prepetition Indenture also contain cross default provisions.
Subsequent to the 1998 Merger, commodity prices for hogs declined
significantly, causing a material negative impact on PMI's business. In
addition, the economic environment in the agriculture industry generally
deteriorated. As a result, on February 4, 1999, PMI amended the Prepetition
Credit Facility 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 increased the interest rates
on the Tranche B Term Loan by 1.00% for bank prime rate and Eurodollar rate
loans. The amendment also (a) 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 (b)
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. PMI's stated borrowing limit under the Revolving Credit Facility is
$100.0 million. At September 30, 1999, PMI had approximately $29.9 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 PMI's failure to
make this scheduled 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 amount was subsequently paid on October 27, 1999).
Faced with these events, an inability to service future interest
payments on the Old Senior Subordinated Notes and the failure (as described
below) to reach a consensual restructuring solution, and to preserve certain
potential preference claims against Koch Industries, the Debtors commenced the
Reorganization Cases under chapter 11 of the Bankruptcy Code on October 28,
1999.
PREPETITION RESTRUCTURING NEGOTIATIONS
During July 1999, the Debtors determined that they might lack
sufficient cash flow to meet certain debt covenants in the Prepetition Credit
Facility 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 and their 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
"Koch Industries Settlement -- Certain Recovery Actions." 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.
Accordingly, the Debtors quickly began the process of initiating
restructuring negotiations with all of their key stakeholders: (a) Koch
Industries; (b) the holders of the Old Senior Subordinated Notes (the
"Noteholders"), which comprise 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"),
which constitute the Debtors' largest secured creditors. With the Debtors'
encouragement, a committee of Noteholder representatives (the "Unofficial
Noteholders Committee") was formed and hired professionals before the end of
August 1999. The Debtors immediately initiated meetings with the Unofficial
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 "Koch Industries
Settlement -- 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 Unofficial 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 Unofficial Noteholders
Committee and the Bank Group in performing significant due diligence with
respect to all of these issues.
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Having created an open process for negotiations among the key
stakeholders, the Debtors attempted to bring the parties together for
negotiations of a restructuring agreement, including a settlement of the
Recovery Actions and a resolution of other outstanding business issues. Although
these negotiations commenced almost immediately, it appeared to the Debtors that
little progress was being made towards a consensual restructuring agreement.
Because the Debtors feared that a protracted bankruptcy proceeding could have a
detrimental impact on their businesses, the Debtors continued to encourage a
consensual restructuring agreement that could permit the chapter 11 process to
proceed expeditiously. With negotiations of a consensual agreement moving
slowly, however, the possibility of the parties agreeing on the terms of a
prepackaged or prenegotiated plan of reorganization appeared to diminish. Under
the circumstances, the Debtors determined that they could not rely on their
stakeholders to reach a consensual agreement. As a result, concurrently with the
negotiations among the Unofficial Noteholders Committee, the Bank Group and Koch
Industries, the Debtors began to develop their own restructuring proposal on a
nonconsensual basis. The Debtors devoted significant resources to preparing a
draft plan of reorganization and related documents that (a) could be Filed
promptly upon the commencement of these cases if no consensual restructuring
agreement was reached and (b) thereby could form the basis for an expedited
chapter 11 process.
Subsequent to the Petition Date, the Debtors, the Unofficial
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 and other potential claims by
and against the Koch Entities. As a result of these discussions, Koch
Industries, Koch Agriculture and the Consenting Holders entered into the
November Settlement. See "Koch Industries Settlement." Based on their analysis
of such potential claims, the uncertainty of the outcome of litigation of any
such claims and the review of the November Settlement and the subsequent
December Settlement, the Debtors determined to incorporate the relevant
provisions of those agreements into the Plan because the Debtors believe that
the terms and conditions of the settlement are fair, reasonable and appropriate
and in the best interests of the Debtors' Estates.
OPERATIONS DURING THE REORGANIZATION CASES
COMMENCEMENT OF REORGANIZATION 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. Through these efforts, the Debtors successfully obtained $20.0
million in interim credit availability, pending a final hearing on the DIP
Credit Agreement held on November 15, 1999. At the final hearing, the DIP Credit
Agreement was approved on a final basis providing up to $50.0 million in
additional credit availability. See "Operations During the Reorganization Cases
- -- Postpetition Operations and Liquidity."
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, for which Koch Industries was reimbursed by
PMI. 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
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Debtors' employees and (b) for certain related administrative costs. The Debtors
began working to establish their own employee benefit programs and to transition
the payroll function for their employees from Koch Industries to the Debtors.
See "Certain Events Preceding the Debtors' Chapter 11 Filings -- Prepetition
Events -- Transactions with Koch Industries." It was anticipated, however, that
this transition might not be fully completed until March 2000. Accordingly, to
ensure the uninterrupted payment of all employee compensation and benefits while
new programs and systems are being developed, in addition to entering into the
Transition Services Agreement immediately prior to the Petition Date, the
Debtors obtained authority, in their discretion and in accordance with their
stated policies, to (i) continue their participation in Koch Industries' payroll
system and employee benefit programs; (ii) 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; (iii) reimburse Koch
Industries for related prepetition administrative costs; (iv) reimburse
prepetition employee business expenses, which are paid directly by the Debtors;
and (v) 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. Effective January 1, 2000, the Debtors ceased participating in Koch
Industries' benefit plans and adopted new stand-alone plans, which are sponsored
and administered by PMI. See "Reorganized Purina -- Employee Benefit Matters --
Existing Benefit Plans and Agreements."
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 was 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, on November 15, 1999, motions were granted authorizing
the Debtors to (a) continue certain insurance premium financing arrangements and
(b) pay certain prepetition feed tonnage taxes and product registration and
facility fees.
APPOINTMENT OF THE CREDITORS' COMMITTEE
On November 9, 1999, the Office of the United States Trustee appointed
the Creditors' Committee, consisting of four representatives of holders of Old
Senior Subordinated Notes (all of which were Consenting Holders under the
November Settlement), the Indenture Trustee under the Prepetition Indenture and
two trade vendors. The current membership of the Creditors' Committee and its
professional advisors are as follows:
Committee Members:
------------------
Jeffrey A. Ayres
Bank One Trust Company, N.A.
100 East Broad Street, 8th Floor
Columbus, Ohio 43215
Gary Boyd
PCS Sales (USA) Inc.
3101 Glenwood Avenue
Raleigh, North Carolina 27612
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Kent Gasaway
Kornitzer Capital Management, Inc.
7715 Shawnee Mission Parkway
Overland Park, Kansas 66202
Robert Hamwee (Committee Chair)
David Robbins
GSCP, Inc.
388 Greenwich Street
New York, New York 10013
Richard Kuersteiner
Aleck Beach
Franklin Resources
777 Mariner's Island Boulevard
San Mateo, California 94404
Dale Leshaw
William E. Simon & Sons
(Special Situation Partners LP)
10990 Wilshire Boulevard
Los Angeles, California 90024
Craig Sharkey
Norbert Clifton
The Pork Group, Inc., a subsidiary of Tyson Foods,
Inc.
2210 Oaklawn Drive
Springdale, Arkansas 72762
Counsel:
--------
Daniel H. Golden, Esq.
Lisa G. Beckerman, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
M. Blake Cleary, Esq.
Young, Conaway, Stargett & Taylor, L.L.P.
1100 North Market Street
Wilmington Trust Center
11th Floor
Wilmington, Delaware 19801
Financial Advisors:
-------------------
Skip Victor
Steven Strom
Chanin Capital Partners
11100 Santa Monica Boulevard
Suite 830
Los Angeles, California 90025
The counsel and financial advisors to the Creditors' Committee previously
represented the Unofficial Noteholders Committee, an unofficial committee of
holders of the Old Senior Subordinated Notes, which was involved in the Debtors'
restructuring efforts prior to the appointment of the Creditors' Committee. See
"Certain Events Preceding the Debtors' Chapter 11 Filings -- Prepetition
Restructuring Negotiations." Bank One Trust Company, N.A.; Franklin
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<PAGE> 31
Resources; William E. Simons & Sons; and Kornitzer Capital Management, Inc. were
members of the Unofficial Noteholders Committee.
RETENTION OF FINANCIAL ADVISORS
In connection with the commencement of the Reorganization Cases, the
Debtors sought and obtained Bankruptcy Court approval of the retention of
Houlihan Lokey as their financial advisor. Subsequent to its formation, the
Creditors' Committee sought and obtained Bankruptcy Court approval of the
retention of Chanin as its financial advisor. Prior to the Petition Date,
Houlihan Lokey had acted as financial advisor for the Debtors and Chanin had
acted as Financial Advisor for the Unofficial Noteholders Committee in
connection with the prepetition restructuring negotiations. See "Certain Events
Preceding the Debtors' Chapter 11 Filings -- Prepetition Restructuring
Negotiations."
REJECTION OF CERTAIN BURDENSOME EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
On October 29, 1999 and November 18, 1999, the Debtors Filed motions,
pursuant to section 365 of the Bankruptcy Code, to reject nine burdensome
purchase contracts relating to the Debtors' swine operations, including a
contract with Tyson Foods. Among other things, these contracts obligated the
Debtors to purchase in excess of 3.3 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." By rejecting these contracts, the Debtors hope to significantly mitigate
the potential losses associated with these contracts, which will be treated as
General Unsecured Claims to the extent allowed. On November 15, 1999 and
December 9, 1999, the Debtors obtained approval of the Bankruptcy Court to
reject eight of these contracts. The Debtors' request to reject the Tyson Foods
contract remains pending; however, the Debtors have submitted a proposed order
to the Bankruptcy Court on a consensual basis with Tyson Foods approving the
rejection of the Tyson Foods contract, effective as of October 28, 1999.
Nevertheless, there can be no assurance that this requested relief will be
granted. See "Certain Events Preceding the Debtors' Chapter 11 Filings --
Prepetition Events -- Swine Operations and Market Risk."
The Debtors are continuing to review their Executory Contracts and
Unexpired Leases. Based on this review, 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. Pursuant to an order of the
Bankruptcy Court dated December 15, 1999, the time within which the Debtors may
assume, assume and assign or reject unexpired nonresidential real property
leases established by section 365(d)(4) of the Bankruptcy Code was extended
through and including the Confirmation Date.
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.
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 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. This motion
was granted by the Bankruptcy Court on November 15, 1999.
KEY EMPLOYEE RETENTION PROGRAM
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To further stabilize employee relations, the Debtors have developed the
KERP Program. The KERP Program is designed, among other things, 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.
In connection with the KERP Program, the Debtors also have implemented a
Severance Pay Plan and have entered into certain management employment
agreements. See "Reorganized Purina -- Employee Benefit Matters -- Existing
Benefit Plans and Agreements."
On November 24, 1999, the Debtors Filed a motion to approve and
continue the KERP Program and the Severance Pay Plan and to assume 26 related
management employment agreements pursuant to section 365 of the Bankruptcy Code.
This motion was granted by the Bankruptcy Court on December 15, 1999, subject to
certain modifications to the KERP Program and an adjournment of the Debtors'
request to assume the employment contracts of James M. Dumler, Timothy A.
Durkin, Richard E. Knudson, Brad J. Kerbs, Darrell D. Swank and David G. Kabbes.
In accordance with certain agreements with the Creditors' Committee and the Bank
Group, the Debtors intend to submit an order to the Bankruptcy Court under
which, among other things, (a) the employment contracts with Messrs. Kerbs and
Kabbes will be assumed; (b) the Debtors' request to assume the employment
contract with Mr. Swank will be further adjourned until February 16, 2000; and
(c) the employment contracts with Messrs. Dumler, Durkin and Knudson will be
rejected as of March 1, 2000. There can be no assurance that this order or any
remaining or future requests to assume or reject these employment contracts will
be granted. For a description of the KERP Program (as modified), the Severance
Pay Plan and the employment agreements, see "Reorganized Purina -- Employee
Benefit Matters -- Existing Benefit Plans and Agreements."
CLAIMS PROCESS AND BAR DATES
On December 20, 1999, the Debtors Filed their Schedules, identifying
the assets and liabilities of their Estates. In addition, pursuant to an order
dated December 15, 1999, the following Bar Dates for the filing of proofs of
claim have been established in the Reorganization Cases: (a) January 26, 2000 as
the general Bar Date (the "General Bar Date") for all Claims other than Claims
asserted by governmental units, Claims arising out of the rejection of Executory
Contracts and Unexpired Leases ("Rejection Damage Claims") and Claims in
response to amendments to the Schedules; (b) April 25, 2000 as the Bar Date for
all Claims asserted by governmental units (the "Government Bar Date"); (c) the
later of (i) the General Bar Date and (ii) 30 days after the date of an order
rejecting an Executory Contract or Unexpired Lease as the Bar Date for Rejection
Damage Claims relating to such Executory Contract or Unexpired Lease; and (d)
the later of (i) the General Bar Date or the Government Bar Date, as applicable,
and (ii) 30 days after the date that a notice of an amendment to the Schedules
is served on a claimant as the Bar Date for such claimant to File a proof of
Claim or to amend any previously Filed proof of Claim in respect of the amended
scheduled Claim. The Debtors and the Creditors' Committee have agreed to extend
the Bar Date for the Koch Entities to File proofs of Claim until the date that
is ten Business Days after the Debtors or the Creditors' Committee, in their
sole discretion, serve on counsel to the Koch Entities a written request to file
such Claims. An order will be presented to the Bankruptcy Court granting this
proposed extension of the Bar Date. There can be no assurance that this relief
will be granted.
PAYMENT OF OBLIGATIONS UNDER THE CAP PLAN
The CAP Plan is a combination of seven separate unfunded deferred
compensation plans that were established and maintained by the Debtors prior to
the Petition Date. See "Reorganized Purina -- Employee Benefit Matters --
Existing Benefit Plans and Agreements." Based on certain agreements in
connection with the 1998 Merger, the Debtors believe that Koch Agriculture is a
joint obligor with PM Holdings and PMI (or, alternatively, a guarantor) with
respect to paying CAP Plan benefits and funding related obligations. See "Koch
Industries Settlement -- Certain Recovery Actions -- Other Potential Claims."
Koch Agriculture has indicated that it disagrees with the Debtors' position and
disputes the imposition of liability on Koch Agriculture for obligations related
to the CAP Plan. Under the terms of the November Settlement and subsequent
agreements with the Koch Entities, disputes relating to the CAP Plan are
addressed by, among other things, (a) requiring PMI to continue to satisfy all
obligations under the CAP Plan during the Reorganization Cases, (b) providing
for the Reinstatement of the Claims of participants under the CAP Plan pursuant
to the Plan and (c) providing that the Reorganized Debtors will indemnify the
Koch Entities from any and all liabilities asserted by any participant under the
CAP Plan arising solely from the failure by the Reorganized Debtors to pay the
Reinstated Claims of such participant in accordance with the terms of the CAP
Plan. See "Koch Industries Settlement -- The Settlement -- Principal Terms of
the Settlement."
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<PAGE> 33
To assist in preserving the potential settlements contemplated by the
November Settlement, the Debtors obtained an order of the Bankruptcy Court dated
December 15, 1999 (the "CAP Order") authorizing the Debtors, in accordance with
the November Settlement and in their sole discretion, to pay all benefits and
fund all obligations under the CAP Plan (collectively, the "CAP Plan
Obligations"), either from assets of a related trust established in connection
with the CAP Plan or from the Debtors' general assets, during the pendency of
the Reorganization Cases on the same terms and conditions that such payments
were made prior to the Petition Date. Notwithstanding the foregoing, if at any
time the Debtors, Koch Industries or the Creditors' Committee determines not to
pursue or implement the settlement with the Koch Entities or if it otherwise
appears to the Debtors that this settlement will not or cannot be consummated,
the CAP Order provides that the Debtors will immediately cease paying the CAP
Plan Obligations pending further order of the Bankruptcy Court. As long as the
Debtors are seeking Confirmation of the Plan, they have no intention of
terminating payments under the CAP Plan.
PAYMENT OF CERTAIN CLAIMS SUBJECT TO REGULATIONS
In connection with the day-to-day operation of their businesses, the
Debtors purchase grain, livestock and other goods and services from various
farmers, grain elevators, coops, brokers, dealers and other vendors and
suppliers (collectively, "Producers"). Certain transactions with Producers are
completed within statutory and regulatory frameworks imposed by federal, state
or local governments. These governing statutes, rules and regulations
(collectively, the "Regulations") generally (a) require the Debtors to obtain
and maintain licenses or similar governmental grants as a prerequisite to
conducting business with Producers and operating within the jurisdiction, (b)
require the Debtors to post and maintain certain bonds or other forms of
collateral (collectively, "Bonds") for the benefit of Producers, (c) authorize
regulatory agencies to investigate and audit the Debtors' businesses to ensure
compliance with the Regulations and (d) impose a variety of civil and criminal
penalties for failing to abide by all applicable regulatory requirements. Prior
to the Petition Date and pursuant to the Transition Services Agreement, Koch
Industries caused certain Bonds to be posted on the Debtors' behalf. The
Debtors' failure to pay Producers' claims in full and/or any resulting draws on
the Bonds could form sufficient grounds for regulatory agencies to seek the
revocation of the Debtors' licenses, impose penalties on the Debtors or their
employees or take other adverse actions against the Debtors and their
businesses.
To avoid these adverse consequences, the Debtors have Filed a motion
seeking authority, in their sole discretion, to pay certain prepetition Claims
of Producers. The Debtors estimate that the amount of these Claims may aggregate
approximately $1.7 million. Pursuant to the motion, the proposed payment of
Producers' prepetition Claims may be subject to such terms and conditions as the
Debtors determine are appropriate to avoid adverse regulatory actions. In
addition, to the extent that a regulatory agency or a bonding company may have
already paid all or part of a Producer's prepetition Claim pursuant to a Bond or
otherwise, the Debtors have sought authority to pay the amount of such Claim
either (a) to the regulatory agency, subject to appropriate terms and conditions
to avoid adverse regulatory actions, or (b) to a bonding company or similar
entity to replenish an existing Bond or to obtain a replacement Bond in
accordance with applicable Regulations. This motion remains pending;
accordingly, there can be no assurance that the relief requested will be
granted. In addition, under the Plan, all outstanding bonds under the bond
program Services under paragraph A.4 of Exhibit 2.1(a)(iii) of the Transition
Services Agreement will be replaced or cash collateralized by the Reorganized
Debtors within 90 days after the Effective Date and any payments due to a Koch
Entity on account of any such bonds drawn on or prior to the Effective Date will
be deemed Allowed Administrative Claims to be paid on the Effective Date (to the
extent not previously paid) without any further action by any party.
POSTPETITION OPERATIONS AND LIQUIDITY
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. See "Operations During the Reorganization Cases --
Commencement of Reorganization Cases and Related Case Administration Activities
- -- Commencement of Reorganization Cases and First Day Relief." On October 29,
1999, the Debtors obtained preliminary Bankruptcy Court approval for borrowings
of up to $20.0 million under the DIP Credit Agreement. On November 15, 1999, the
Debtors obtained final Bankruptcy Court approval (the "Final DIP Order") for
borrowings of up to $50.0 million under the DIP Credit Agreement, of which,
until June 1, 2000, $10.0 million will be reserved and used for cure obligations
and to provide adequate assurance in respect of Executory Contracts and
Unexpired Leases that may be assumed by the Debtors, pursuant to section 365 of
the Bankruptcy Code. Up to $20.0 million of the revolving line of credit may be
utilized for letters of credit as provided under the DIP Credit Agreement.
Pursuant to the DIP Credit Agreement and the Final DIP Order, Claims for cash
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borrowings and letters of credit issued under the DIP Credit Agreement have
superpriority status over most other Administrative Claims. PMI is the borrower
under the DIP Credit Agreement, and each of the PMI Subsidiary Debtors and PM
Holdings 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 2.0% per annum or (b) at the option
of PMI, the Eurodollar Base Rate plus 3.0% 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 0.5% per
annum and a letter of credit fee on outstanding letters of credit of 3.0% per
annum. The DIP Credit Agreement contains various financial covenants related, in
part, to capital expenditures and the attainment of a certain cash flow levels
based on earnings before interest, taxes, depreciation and amortization
("EBITDA"), excluding 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,
limitations on the amount of payments on account of prepetition Claims and a
prohibition regarding cash dividends. Subject to certain thresholds, net
proceeds resulting from the sale of assets outside of the ordinary course of the
Debtors' businesses 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 $30.0 million. As
security for the Debtors' obligations under the DIP Credit Agreement, PMI and
the 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 (i) November 1, 2000, (ii) the
substantial consummation of a confirmed plan of reorganization or (iii) 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 the
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 nondefault rate specified for the Old Tranche B Notes; and
(c) to grant a replacement lien in favor of the holders of Bank Loan Claims,
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).
As of January 7, 2000, there were no borrowings under the DIP Credit
Agreement and letters of credit in the amount of $875,000 were outstanding under
the DIP Credit Agreement.
KOCH INDUSTRIES SETTLEMENT
INTRODUCTION
In connection with the 1998 Merger and the subsequent operations of PMI
and the PMI Subsidiary Debtors, a number of transactions occurred that the
Debtors believe may give rise to claims (collectively, "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. Recovery Actions means, collectively and individually: (a) preference
actions, fraudulent conveyance actions, rights of setoff and other claims or
causes of action under sections 510, 544, 547, 548, 549, 550 and 553 of the
Bankruptcy Code and other applicable bankruptcy or nonbankruptcy law; (b) claims
or causes of action arising out of illegal dividends or similar theories of
liability; (c) claims or causes of action based on piercing the corporation
veil, alter ego liability or similar legal or equitable theories of recovery
arising out of the ownership or operation of the Debtors as of and following the
Koch Purchase Transaction; (d) claims or causes of action based on unjust
enrichment; (e) claims or causes of action for breach of fiduciary duty,
mismanagement, malfeasance or, to the extent they are claims or causes of action
of any of the Debtors, fraud; (f) claims or causes of action relating to the
provision of retiree medical benefits and the provision of director and officer
liability insurance or indemnification; (g) claims or causes of action arising
out of any contracts or other agreements between or among any of the Debtors and
any of the Koch Entities; and (h) any other claims or causes of action arising
out of or related in any way to the Koch Purchase Transaction that are based on
an injury that affects or affected any of the Debtors or any of their
shareholders or creditors generally. To the Debtors' knowledge, no such claims
have been brought against any of the Koch Entities as of the date hereof. The
Debtors believe that all such claims constitute property of the Debtors' estates
and any such claims against the Koch Entities and certain related persons are
being settled and released under the Plan.
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In addition to the Recovery Actions, subsequent to the Petition Date,
certain disputes arose between the Debtors and the Koch Entities concerning the
terms of the Transition Services Agreement and the alleged failure by the
Debtors to pay for certain commodity purchases. In addition, certain issues
relating to the implementation of the November Settlement were unresolved. As a
result of the December Settlement, these disputes and issues were agreed to be
resolved as provided under the Plan.
CERTAIN RECOVERY ACTIONS
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 prior to 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 on account of
which the debtor did not make an otherwise unavoidable transfer to or for the
benefit of the creditor (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 for new value given to the debtor
(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 insider preference 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's payroll and
related costs directly, subject to being reimbursed for such payments by PMI. In
late October and November 1998, PMI paid Koch Industries approximately $53
million to reimburse Koch Industries for such advances made by Koch Industries
during the period 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. See "Certain Events Preceding the Debtors'
Chapter 11 Filings -- Prepetition Events -- Transactions with Koch Industries."
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 potentially could
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
are applicable. PMI and the Creditors' Committee believe that the determination
of solvency or insolvency as of the dates of the potentially preferential
payments will present difficult and highly contested issues of fact. The outcome
of any preference claim is uncertain and such litigation would be costly and
time-consuming.
If all or part of those payments were found to be avoidable as
preferences, upon returning all preferential payments to PMI, Koch Industries
would be entitled to assert a General Unsecured Claim against PMI for the amount
of such preference. Absent other defenses, such Claim would constitute a General
Unsecured Claim and would share in distributions to other holders of Allowed
Claims in Class 5. See "Overview of the Plan -- Summary of Classes and Treatment
of Claims and Interests."
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 (i.e., 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 (i.e., a constructive fraudulent conveyance). Two primary sources of
fraudulent conveyance law exist in a chapter 11 case.
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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 likely are 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 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 be utilized only 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 generally is not 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.
The Debtors believe that under applicable law potential causes of
action sounding in fraudulent conveyance are the exclusive property of the
Debtors' estates pursuant to section 541 of the Bankruptcy Code, and may only be
pursued or settled by the Debtors. Potential defendants of fraudulent conveyance
actions include the immediate and mediate recipients of a "transfer" of property
as part of the 1998 Merger. These parties include, among others, the former
stockholders of PM Holdings (including individuals associated with The Sterling
Group, Inc.); PM Holdings; the former creditors of PM Holdings and PMI that were
paid in full as a result of the 1998 Merger transactions (and their respective
professionals); and the lenders under the Prepetition Credit Facility that
received liens as part of the 1998 Merger transactions.
The Debtors believe that the outcome of any potential litigation
asserting fraudulent conveyance claims is uncertain, and that any such
litigation would be costly and time-consuming.
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 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 (the "DGCL") 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
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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 also may 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 stockholders who received the unlawful dividend, the DGCL suggests that a
stockholder will be liable for the amount of the unlawful dividend if the
stockholder had notice that the 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. The Debtors believe that 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. See "Certain Events Preceding the Debtors' Chapter 11 Filings --
Prepetition Events -- Changes in Board of Directors and Management."
PMI could seek to recover the amount of such dividends from either the
former directors of PMI or PM Holdings or, perhaps, the recipient stockholders
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.
Any such litigation could be costly and time-consuming.
"VEIL PIERCING" AND "ALTER EGO" CLAIMS
In general, a corporation is viewed as a legal entity separate and
distinct from its stockholders, 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. Such "veil piercing" or "alter ego" actions
typically are brought by creditors. However, the Debtors believe that under
applicable law, if a debtor is subject to chapter 11 proceedings, "veil
piercing" or "alter ego" claims constitute the exclusive property of the
debtor's estate under section 541 of the Bankruptcy Code and may only be pursued
or settled by the debtor. If a "veil piercing" or an "alter ego" claim was to
succeed in these cases, 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,
however, generally is 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" or "alter ego"
analysis is necessarily fact specific.
The Debtors have conducted a preliminary factual and legal 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" or "alter
ego" theory. Based on this preliminary analysis, the Debtors believe that there
are certain facts that would tend to support a "veil piercing" conclusion for
certain time periods following the 1998 Merger; application of other facts 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" or "alter ego"
claims.
The facts and circumstances learned to date and the governing law
potentially could lead a court to conclude that genuine issues of material fact
exist that potentially could preclude a grant of summary judgment in a "veil
piercing" or "alter ego" case. However, the outcome of "veil piercing" or "alter
ego" litigation against Koch Industries or Koch Agriculture is uncertain and
unpredictable. A court's refusal to grant summary judgment does not indicate
liability; but only 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
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piercing" cause of action, Koch Industries strongly believes no parent abuse or
fraud existed and that no basis whatsoever exits for "piercing the corporate
veil."
Any veil piercing or alter ego action would be vigorously contested by
Koch Industries and the results would be uncertain. Any such litigation would be
costly and time consuming.
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 stockholders. 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 stockholders. 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.
If the transactions relating to the 1998 Merger were challenged by PMI,
that challenge might include an action against the directors and officers of the
Debtors that served in such capacities at the relevant time for breach of their
fiduciary duties. 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 in connection with the 1998 Merger. The
results of litigating any such claims would be uncertain, and such litigation
would be costly and time-consuming.
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 PMI's contention that Koch Agriculture agreed in connection with the
1998 Merger to maintain the CAP Plan, to provide certain retiree benefits, to
fund retiree medical costs and to maintain directors' and officers' liability
insurance, as well as unjust enrichment claims against Koch Agriculture under
the commodity purchasing program and certain other matters. The Debtors'
analysis of the merits of such potential causes of action has been limited. Koch
Industries and Koch Agriculture dispute the validity of any of these potential
claims. The results of prosecution of such claims would be uncertain.
POSTPETITION DISPUTES
Subsequent to the Petition Date, Koch Industries indicated that it
believed that the Debtors (a) failed to comply with certain pre-conditions to
the Transition Services Agreement and with certain obligations under that
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agreement and (b) induced Koch Agriculture to continue to sell ingredients to
the Debtors on credit by, among other things, failing to pay for certain
commodities in accordance with past practices and by accelerating receipt of
commodity deliveries on and immediately prior to the Petition Date, resulting in
claimed damage to the Koch Entities in excess of $6.7 million. The Debtors
dispute these various allegations. In addition, the Debtors, the Creditors'
Committee and the Koch Entities identified certain significant issues affecting
the implementation of the Plan arising out of the November Settlement, including
certain tax indemnification issues. In December 1999, representatives of the
Debtors, the Creditors' Committee and Koch Industries met to discuss resolution
of all of such disputes and issues. This meeting led to the December Settlement,
the principal terms of which are incorporated into the Plan.
THE SETTLEMENT
BACKGROUND AND JUSTIFICATIONS FOR THE SETTLEMENT
The decision to incorporate the terms of the settlement with the Koch
Entities embodied in the November Settlement and the December Settlement in the
Plan reflects, among other things, (a) the analysis of the Debtors, the
Creditors' Committee and the Unofficial Noteholders Committee of the potential
Recovery Actions against the Koch Entities, including substantial issues
relating to the solvency or insolvency of the Debtors at the time of certain
transactions; (b) lengthy and intense arms' length negotiations among
representatives of the Debtors, the Creditors' Committee and the Koch Entities;
(c) the Debtors' and the Creditors' Committee's evaluation and analysis of the
risks, delays and other potentially adverse consequences to the Debtors
associated with resolution of the Recovery Actions against the Koch Entities
through litigation, including the cost and potential likelihood of success of
the various actions and the impact of such actions on the operations and
prospects of the Debtors; (d) the potential risk that the postpetition disputes
between the Debtors and the Koch Entities would lead to a failure and
termination of the agreements reached between the Koch Entities and the
Consenting Holders, as well as the Transition Services Agreement, and the loss
of the significant benefits thereunder; (e) the substantial economic benefit of
the contribution of $60 million by Koch Agriculture to the capital of PM
Holdings pursuant to the Plan; (f) the undertakings by the Koch Entities to
expedite transition of the commodity purchasing function and other functions
back to the Debtors; and (g) the other benefits and concessions to be received
by the Debtors.
The Debtors and the Creditors' Committee believe that full and
protracted litigation of the factual and legal issues inherent in resolving the
Recovery Actions against the Koch Entities would be costly and could impair a
prompt, efficient and economic reorganization of the Debtors. The ultimate
outcome of such litigation is uncertain and there could be no assurances that
the Debtors would obtain any significant recovery against any of the Koch
Entities. The facts that would need to be established likely would require
extensive, costly and time-consuming discovery and would be vigorously
contested. Many of the legal issues involved would be novel and complex. The
Debtors and the Creditors' Committee believe that, in the aggregate, the
benefits generated by the December Settlement and the Plan constitute fair and
reasonable value for the resolution of the potential claims against the Koch
Entities, including the Recovery Actions. Further, the Plan incorporates only
releases of the Koch Entities, certain persons related to the Koch Entities,
certain persons related to the Debtors and certain independent third parties
(such as accountants, financial advisors and investment bankers) to the extent
that they have claims for indemnification, contribution or reimbursement against
a Koch Entity or other released party that were retained in connection with or
involved in the 1998 Merger. The Debtors will retain and may pursue their claims
and causes of action, including Recovery Actions, against other entities,
including the pre-1998 Merger Stockholders of PM Holdings (among them,
individuals associated with The Sterling Group, Inc.); pre-1998 Merger directors
of PM Holdings and PMI (including any related claims under applicable insurance
policies); and creditors of PM Holdings and PMI who were paid in connection with
the 1998 Merger. The Debtors have not made any determination at this time as to
whether such claims will be pursued. See "General Information Concerning the
Plan -- Legal Effects of the Plan -- Preservation of Rights of Action Held by
the Debtors or the Reorganized Debtors " and "-- Releases, Indemnity and Related
Injunction." Under the Plan, however, as described in detail under "General
Information Concerning the Plan -- Legal Effects of the Plan -- Releases,
Indemnity and Related Injunctions," the Debtors will indemnify the Koch Entities
and certain related parties for, among other things, any costs, liabilities or
expenses arising out of the assertion of any claim against any of the Koch
Entities or such related parties by any third party arising out of the
initiation by any of the Debtors, the Reorganized Debtors or any other PMI
Entity of litigation against such third parties relating to a Koch Entity's
ownership or operation of the Debtors, the Koch Purchase Transaction, the Old
Subordinated Senior Notes, the Prepetition Indenture or any Claim or Interest.
This indemnity obligation may effectively limit the Debtors' ability to pursue
claims against certain of such third parties.
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PRINCIPAL TERMS OF THE SETTLEMENT
The following is a summary of the principal terms of the Plan relating
to the settlements with the Koch Entities:
(a) On the PMI Merger Date, (i) Koch Agriculture will cause $60.0
million to be paid into escrow pursuant to the PMI Merger
Escrow Agreement, which will be contributed to the capital of
PM Holdings on the Effective Date, and (ii) the PMI Merger
will be consummated. The funds paid into escrow will be
returned to Koch Agriculture if the conditions to the
Effective Date set forth in the Plan (including that the
Effective Date occurs by July 14, 2000) are not satisfied or
duly waived in accordance with the Plan. See "Overview of the
Plan-- Conditions to Confirmation, the PMI Merger and the
Effective Date of the Plan" and "Reorganized Purina-- PMI
Merger; the Warrant." In connection with the PMI Merger, Koch
Agriculture will receive an option to purchase the Warrant for
$5.0 million, which option may be exercised until the
Effective Date. If Koch Agriculture purchases the Warrant, it
will then have the right for one year following the Effective
Date to purchase shares of New Common Stock comprising up to
10% of the total amount of New Common Stock outstanding as of
the Effective Date, on a fully diluted basis, for the price of
$27.75 per share. That price equals 150% of the estimated
reorganization value of each share of the New Common Stock as
of the Effective Date. See "Reorganized Purina-- PMI Merger;
the Warrant" and "Securities to Be Issued Pursuant to the
Plan-- Reorganization Value."
(b) The Koch Entities and certain related and other parties will
be released by the Debtors and, to the fullest extent
permitted by applicable law, Claim holders from substantially
all claims related to the Debtors for the period prior to the
Effective Date, including the Recovery Actions. The
Confirmation Order will permanently enjoin the pursuit of any
released claim against any released party. See "General
Information Concerning the Plan -- Legal Effects of the Plan
-- Releases, Indemnity and Related Injunction."
(c) Except for (i) the Koch Agriculture Commodity Sale Claim in
the amount of $26.05 million, which will be treated as an
Allowed Claim in Class 5 (comprised of Allowed Claims for
commodities sold to the Debtors pursuant to the Master
Procurement Agreement on or before the Petition Date in the
agreed amount of $31.40 million, reduced by the Koch
Agriculture Transition Settlement Payment); (ii) the Koch
Agriculture Transition Settlement Payment of $5.35 million and
the Koch Supplemental Transition Agreement Claims of $1.57
million, which will be treated as Allowed Administrative
Claims; (iii) any Claims acquired, whether by subrogation or
otherwise, from third parties by a Koch Entity (which, subject
to certain limitations, will be treated for all allowance and
distribution purposes as if such Claim were being asserted by
the original holder thereof) that become Allowed Claims; and
(iv) any other claims or rights of a Koch Entity that are
specifically preserved or created under the Plan or any
Exhibit to the Plan, the Koch Entities will release the
Debtors and (subject to certain conditions) certain of the
other PMI Entities, other parties releasing the Koch Entities,
the members of the Unofficial Noteholders Committee and the
Creditors' Committee that vote in favor of the Plan and
certain other parties from substantially all claims related to
the Debtors. In connection therewith, Koch Agriculture has
agreed to waive its rights, if any, to seek treatment of any
portion of the Koch Agriculture Commodity Sale Claim as a
reclamation claim under section 546(c) of the Bankruptcy Code.
Notwithstanding the foregoing, in addition to the indemnity
described above in respect to litigation initiated by the
Debtors or Reorganized Debtors against third parties, the
Debtors will (i) indemnify the Koch Entities for any and all
liabilities asserted by any third party arising out of (A) any
services or benefits provided by any Koch Entity to or for the
benefit of any PMI Entity after the Petition Date (other than
the portions of the salaries of Messrs. Dumler, Durkin and
Knudson being paid by Koch Industries and any reimbursement
claim relating to Koch Industries' guarantee of Mr. Swank's
employment contract) and (B) any drawing of bonds under the
bond program Services within the meaning of paragraph A.4 of
Exhibit 2.1(a)(iii) of the Transition Services Agreement,
whether such bond program Services were provided before or
after the Petition Date. See "General Information Concerning
the Plan-- Legal Effects of the Plan-- Releases, Indemnity and
Related Injunction" and "Certain Events Preceding the Debtors'
Chapter 11 Filings-- Prepetition Events-- Transactions with
Koch Industries."
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(d) The Debtors agree to Reinstate their obligations to
participants in the CAP Plan as of the Effective Date, and, as
of the Effective Date, each of the Reorganized Debtors,
jointly and severally, will indemnify each of the Koch
Entities from any and all liabilities asserted by any
participant under the CAP Plan arising solely from the failure
of the Reorganized Debtors to pay the Reinstated Claims of
such participant in accordance with the terms of the CAP Plan.
See "Reorganized Purina -- Employee Benefit Matters --
Existing Benefit Plans and Agreements."
(e) Subject to the payment of the Koch Supplemental Transition
Agreement Claims of $1.57 million as Administrative Claims to
Koch Industries and/or Koch Agriculture under the Supplemental
Transition Agreement, the Koch Entities agree to cooperate in
the transition of certain employee benefit and commodity
purchasing functions to the Debtors. Among other things, the
Koch Entities have agreed to (i) continue providing certain
retiree medical benefits, (ii) transfer certain commodity
supply contracts, (iii) provide incentives to certain Koch
Agriculture employees involved in the commodity program to
return to Debtors, (iv) transfer commodity purchasing
operations to PMI and (v) transfer files and software licenses
and cooperatively install computer systems related to
commodity purchasing activities. See "Certain Events Preceding
the Debtors' Chapter 11 Filings-- Prepetition Events--
Transactions with Koch Industries."
(f) Pursuant to the Koch Tax Sharing Agreement, (i) Koch
Industries will waive any and all claims, matured or
unmatured, that it might have under the Parent Tax Sharing
Agreement and the Parent Tax Sharing Agreement will be of no
further force or effect; (ii) Koch Industries and PM Holdings
will agree on the method for allocating the Koch Industries
affiliated group tax liability for periods during which the
PMI Entities were part of that group; (iii) Koch Industries
will agree to indemnify the PMI Entities for any "Merger
Taxes," as defined in the Koch Tax Sharing Agreement; (iv) PM
Holdings will remain potentially liable to Koch for taxes
(calculated on a stand-alone basis) arising during the period
that the PMI Entities were members of the Koch affiliated
group (other than Merger Taxes), but PM Holdings will have no
tax sharing liability to Koch Industries until such time as
the aggregate taxable income attributable to the PMI Entities
during the period that they were members of the Koch
Industries affiliated group exceeds the aggregate taxable
losses previously generated by the PMI Entities during that
same period; and (v) Koch Industries and PM Holdings will
agree to indemnify each other for any taxes attributable to
the other that arise in periods during which the PMI Entities
were not part of the Koch Industries affiliated group.
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REORGANIZED PURINA
PMI MERGER; THE WARRANT
The Plan provides that, pursuant to the Plan of Merger, the PMI Merger
will be consummated on the PMI Merger Date, and pursuant thereto: (a) PMI will
be merged with and into PM Holdings, with PM Holdings being the corporation
surviving such merger; (b) PM Holdings will acquire all of the assets and will
assume all of the liabilities of PMI; (c) the Old PMI Common Stock will be
canceled; and (d) PM Holdings will change its name to "Purina Mills, Inc."
Thereafter, PM Holdings or Reorganized Purina will conduct the business of PMI.
Also on the PMI Merger Date, pursuant to the PMI Merger Escrow Agreement, Koch
Agriculture will deposit $60.0 million into escrow, which will be contributed to
the capital of PM Holdings on the Effective Date, immediately prior to the
cancellation of the Old Common Stock of PM Holdings. If the conditions to the
Effective Date are not satisfied or duly waived in accordance with Article IX of
the Plan, the funds in escrow will be returned to Koch Agriculture. The PMI
Merger will occur following Confirmation on the PMI Merger Date, which shall be
at least 20 days prior to the Effective Date. In connection with the PMI Merger,
PM Holdings and Koch Industries will enter into the Koch Tax Sharing Agreement,
the terms of which are summarized above. See "Koch Industries Settlement -- The
Settlement -- Principal Terms of the Settlement."
Also, on the PMI Merger Date, pursuant to the Warrant Purchase
Agreement, Koch Agriculture will be granted an option, exercisable through the
Effective Date, to purchase the Warrant for $5.0 million. Pursuant to the
Warrant and Warrant Agreement, Koch Agriculture will have the right to purchase
up to the amount of shares of New Common Stock equal to 10% of total New Common
Stock outstanding as of the Effective Date, on a fully diluted basis. Koch
Agriculture will have the right to purchase such shares for a period of one year
after the Effective Date. The purchase price will be $27.75 per share, which is
150% of the estimated $18.50 per share reorganization value of the New Common
Stock as of the Effective Date. See "Securities to Be Issued Pursuant to the
Plan -- Reorganization Value." The Warrant will be non-transferrable, have no
voting rights, will not be entitled to receive dividends or other distributions
declared on the New Common Stock and will not be entitled to share in any assets
of Reorganized Purina upon any liquidation, dissolution or winding-up of
Reorganized Purina. The number of shares of New Common Stock for which the
Warrant will be exercisable and the exercise price will be subject to adjustment
upon the occurrence of certain events, including (a) stock dividends,
subdivisions and combinations effecting the New Common Stock and (b)
reorganization, reclassifications, consolidations and mergers involving
Reorganized Purina.
Unless otherwise agreed by the Debtors and the DIP Lenders, any
borrowings under the DIP Credit Agreement will be repaid in full on or prior to
the PMI Merger Date.
RESTRUCTURING TRANSACTIONS
In addition to the PMI Merger, pursuant to the Plan, on or after the
Confirmation Date, the Debtors or Reorganized Debtors may, at their option,
cause one or more of the Debtors or Reorganized Debtors to merge or consolidate
with other Debtors or Reorganized Debtors or to take certain other actions to
simplify their corporate structure. The only shares of capital stock of
Reorganized Purina to be outstanding immediately following the Effective Date
will be the New Common Stock. Thereafter, Reorganized Purina may issue
additional shares of capital stock in accordance with the Amended Certificate,
the Amended By-laws and applicable law.
BUSINESS AND PROPERTIES OF REORGANIZED PURINA
BUSINESS
As the successor to PMI, Reorganized Purina will continue to operate
the existing business of the Debtors following the Effective Date. Reorganized
Purina 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 Purina expects to
operate a production network of 49 or fewer feed mills located in 25 states and
a nationwide distribution system consisting of over 4,500 dealers and
approximately 4,500 direct consumers. Certain aspects of the Debtors' businesses
to be operated by Reorganized Purina are described below:
Seasonality. The Debtors' businesses are 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
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conditions affecting the Debtors' beef 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, thereby reducing the demand
for independently produced feed products. This trend is expected to continue.
Generally, the feed industry is highly fragmented, with the bulk of the feed
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 nine months ended September 30, 1999
were $15.9 million.
Employees. The Debtors had approximately 2,500 full-time employees as
of December 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. These properties will be held by
Reorganized Purina as of the Effective Date.
As of the Effective Date, Reorganized Purina expects 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 certain owned or leased warehouses that are anticipated
to be maintained by Reorganized Purina.
ADDITIONAL INFORMATION
For additional information concerning the business and property of the
Debtors (to be maintained by Reorganized Purina) and their historical financial
information, see PMI's Form 10-K for the reporting period ending December 31,
1998 and PMI's Form 10-Q for the reporting period ending September 30, 1999,
which are attached hereto collectively as Exhibit III.
BUSINESS PLAN AND STRATEGY FOR REORGANIZED PURINA
Prior to the Petition Date, the Debtors conducted a comprehensive
strategic business review, including the development of a business plan that
addresses both short-term and longer-term issues required to stabilize and
revitalize the Debtors' businesses (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 Purina. 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:
(a) mitigate the Debtors' swine ownership positions and implement
strategic alliances/joint ventures in livestock production
systems (with an initial focus on the swine business segment).
The Debtors have rejected or are seeking to reject certain
burdensome swine related contracts under section 365 of the
Bankruptcy Code. See "Operations During the Reorganization
Cases -- Commencement to Reorganization Cases and Related Case
Administration Activities -- Rejection of Certain Burdensome
Executory Contracts and Unexpired Leases;"
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(b) increase plant utilization and reduce manufacturing costs
through plant rationalization and focus;
(c) 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;
(d) build an industry-leading purchasing and logistics (supply
chain) capability; and
(e) build PMI's brands through dealer initiatives, direct sales
and full execution of the America's Country Store ("ACS") and
Premier dealer programs. See "Reorganized Purina -- Business
and Properties of Reorganized Purina -- Dealer Business Group
Strategy."
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 that both market segments are important to
the future success of Reorganized Purina 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 Purina 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.
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 programs); 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 Purina intends to grow its
market share of dealer feed sales by expanding its existing incentive programs
and 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 Purina intends to
continue to build its brands by: (a) event dominance -- i.e., 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 -- i.e., 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 -- i.e., 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 Purina 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 ACS
initiative features a "turn-key" package that provides investors with a
standardized model that Reorganized Purina believes offers lifestyle animal
owners a unique shopping experience. Reorganized Purina 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 Purina, other than normal trade credit terms on feed
products.
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Upgrade Distribution, Logistics and Transaction Processing Systems.
Reorganized Purina 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 BUSINESS GROUP STRATEGY
The Livestock Production Systems Business Group includes the following
businesses: Swine, Beef-Feedlot, Poultry, Dairy Systems and Producer Dealer
Development. Reorganized Purina will continue to adapt its Livestock Production
Systems Business 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 Business 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 Purina will
aggressively pursue strategic alliances in the Livestock Production System
Business, with an initial focus on the swine business. Reorganized Purina
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 Purina 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.
MANUFACTURING STRATEGY
Reorganized Purina 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 Purina 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 Purina 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 to preserve responsiveness to local customer
needs. Through the implementation of SAP enterprise resource planning software,
PMI recently has 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 Purina 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 to
retain and incentivize their employees. See "Operations During the
Reorganization Cases -- Commencement of Reorganization Cases and Related Case
Administration Activities -- Key Employee Retention Program" and "Reorganized
Purina -- Employee Benefit Matters -- Existing Benefit Plans and Agreements."
Reorganized Purina intends to implement a compensation and incentive program to
attract, retain and provide appropriate incentives for its employees focused on
execution of the Business Plan. See "Reorganized Purina -- Employee Benefit
Matters -- New Benefit Programs; Continuation or Termination of Existing Plans
and Agreements." PMI historically has been known for its industry- leading
workforce. Reorganized Purina will strive to continue this tradition by seeking
out employees with
39
<PAGE> 46
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 nine month periods ended September 30,
1998 and September 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.
40
<PAGE> 47
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER PRE-MERGER
PRE-MERGER POST-MERGER NINE MONTHS FISCAL YEAR FISCAL YEAR POST-MERGER
JANUARY 1 TO MARCH 13 TO ENDED ENDED ENDED MARCH 13 TO
MARCH 12, 1998 SEPT. 30, 1998 SEPT. 30, 1999 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998
(AUDITED) (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
(Dollars in thousands)
CONSOLIDATED STATEMENTS
OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
REVENUES
NET SALES............................. $214,272 $521,749 $641,246 $1,212,197 $1,128,390 $784,408
Costs and expenses:
Cost of products sold................. 171,233 413,716 514,404 1,009,714 912,984 640,359
Marketing, distribution and
advertising....................... 17,543 47,703 68,499 84,751 87,333 73,064
General and administrative............ 27,573 32,388 54,265 57,532 55,697 59,880
Amortization of intangibles........... 3,838 10,683 11,348 19,487 20,572 14,491
Research and development.............. 1,376 3,247 4,457 6,982 7,166 5,429
Provision for plant closings and
asset impairments................. -- -- 19,665 14,042 4,402 --
Provision for loss on guarantees...... -- -- -- -- -- 14,175
Other income (expense) net............ 109 1,646 (335) (10,575) (4,523) 4,470
------------ ----------- ---------- ----------- ----------- -----------
221,672 509,383 672,303 1,181,933 1,083,631 811,868
OPERATING INCOME...................... (7,400) 12,366 (31,057) 30,264 44,759 (27,460)
Interest expense...................... 6,144 26,457 39,931 35,703 32,632 39,467
----------- -------- --------- ------------ ---------- -----------
Income (loss) before income taxes..... (13,544) (14,091) (70,988) (5,439) 12,127 (66,927)
Provision (benefit) for income taxes.. (5,050) (4,031) (20,947) (646) 5,193 (23,776)
----------- --------- --------- ------------- ----------- -----------
NET INCOME (LOSS)..................... $ (8,494) $(10,060) $(50,041) $ (4,793) $ 6,934 $ (43,151)
========= ========= ========= =========== ========== ==========
</TABLE>
41
<PAGE> 48
<TABLE>
<CAPTION>
POST-MERGER POST-MERGER PRE-MERGER PRE-MERGER POST-MERGER
SEPT. 30,1998 SEPT. 30, 1999 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEETS
CURRENT ASSETS:
Cash and cash equivalents............. $28,539 $29,900 $ 25,462 $ 27,620 $ 41,446
Accounts receivable-trade, net ....... 40,502 34,293 55,816 51,208 44,105
Inventories........................... 69,687 54,172 61,364 66,800 61,862
Prepaid expenses, deferred and
other assets....................... 13,586 1,825 12,859 14,692 3,785
Deferred income taxes................. 8,746 18,233 8,563 8,746 16,428
------- --------- ---------- ---------- ----------
TOTAL CURRENT ASSETS.................. 161,060 138,423 164,064 169,066 167,626
Property, plant and equipment, net.... 264,096 238,852 250,600 243,718 262,791
Intangible assets, net................ 336,769 320,112 138,129 122,403 333,633
Deferred income taxes................. -- 29,641 7,340 7,881 10,499
Notes receivable...................... 11,083 7,023 10,957 10,775 4,258
Deferred financing costs, net......... 11,710 10,414 12,693 9,813 11,456
Other assets.......................... 24,456 28,595 22,292 19,942 25,445
---------- --------- ---------- ---------- ----------
TOTAL ASSETS.......................... $809,174 $773,060 $606,075 $583,598 $815,708
======== ======== ======== ======== ========
</TABLE>
42
<PAGE> 49
<TABLE>
<CAPTION>
POST-MERGER POST-MERGER PRE-MERGER PRE-MERGER POST-MERGER
SEPT. 30,1998 SEPT. 30, 1999 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - other.............. $ 42,681 $ 28,431 $ 70,913 $ 76,078 $ 50,559
Accounts payable - affiliate.......... 61,896 20,691 -- -- 42,321
Customer advance payments............. 2,575 2,874 17,474 16,503 16,870
Accrued expenses...................... 17,855 23,629 23,400 21,756 24,881
Interest payable...................... 3,345 17,686 8,038 6,771 9,861
Current portion of long-term debt..... 6,800 630,106 23,136 19,170 7,550
TOTAL CURRENT LIABILITIES............ 135,152 723,418 142,961 140,278 152,042
Retirement obligations................ 26.196 26,611 26,457 28,768 26,061
Accrued post retirement
benefit costs...................... 2,012 527 36,643 37,470 458
Long-term debt........................ 540,693 -- 295,956 263,119 558,547
Deferred income taxes................. 5,043 -- -- -- --
Other liabilities..................... 848 6,407 641 831 12,461
Common stock held by ESOP............. -- -- 36,895 62,736 --
Less unearned ESOP compensation -- -- (2,141) -- --
Stockholders' equity:
Common stock, $0.01 par value;
1,000 shares authorized, issued and
outstanding....................... -- -- -- -- --
Additional paid-in capital............ 109,290 109,290 79,439 79,687 --
Retained deficit...................... (10,060) (93,192) (9,535) (27,192) 109,290
Accumulated other
comprehensive income............... -- -- (1,241) (2,099) (43,151)
---------- ---------- ---------
Total Stockholders' Equity............ 99,230 16,098 68,663 50,396 66,139
-------- -------- ---------- ---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $809,174 $773,060 $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.
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 standard, 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.
43
<PAGE> 50
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.
BASED UPON THE DEBTORS' RECENT RESULTS OF OPERATIONS AND FINANCIAL
POSITION THROUGH DECEMBER 31, 1999, THE DEBTORS' MANAGEMENT AND FINANCIAL
ADVISORS ARE IN THE PROCESS OF REVIEWING THE ASSUMPTIONS UNDERLYING THE BUSINESS
PLAN AND REEVALUATING THE PROJECTIONS. BASED ON THIS ANALYSIS, THE DEBTORS MAY
AMEND THE PROJECTIONS PRIOR TO THE BANKRUPTCY COURT'S HEARING ON THE DEBTORS'
REQUEST TO APPROVE THE 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 STOCKHOLDERS
AFTER THE EFFECTIVE DATE OR TO INCLUDE SUCH INFORMATION IN DOCUMENTS REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR OTHERWISE
MAKE SUCH INFORMATION PUBLICLY AVAILABLE.
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.
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 Purina, 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 Purina 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 Purina 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."
The Projections, including the fiscal 2000 forecast, reflect the
assumption that the Debtors' commencement of the Reorganization Cases would
materially disrupt the operations and financial performance of the Debtors.
However, to date, the commencement of the Reorganization Cases has not resulted
in a material disruption of the Debtors' operations or financial performance. In
addition, the Projections reflect the assumption that swine feed tons sold by
the Debtors would decline precipitously over the Projection Period due, in part,
to (a) the Debtors' lack of a joint venture or strategic alliance linking the
Debtors' swine business segment with an integrated food production system and
(b) the continued depressed market conditions in the swine industry. However, to
date, the Debtors' swine business segment's actual performance has exceeded the
performance assumed in the Projections even though there is no assurance that it
will in the future.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below:
(a) General Economic Conditions. The Projections were prepared
based on assumptions that current economic conditions last throughout
the Projection Period and that the general economic climate in
44
<PAGE> 51
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 4.3
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-Feedlot and losses of feed
volume in swine and poultry. The Debtors believe that potential joint
ventures and alliances are possible in the Livestock Productions
Systems Business and, if consummated, would provide 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 principally 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 $276 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, $92 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 $92 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 employee headcount reductions
related to productivity gains and volume loss.
(f) G&A Expense. The Projections assume that general and
administrative expense declines from approximately $61 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 are 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 reintegrated into Reorganized Purina from Koch Agriculture. The
one-time cost and associated working capital requirement in late fiscal
1999 and fiscal 2000 are estimated at $20 million, which includes
deposits and/or letter of credit requirements. 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.
45
<PAGE> 52
(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.
(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 March 31, 2000. The
principal effects of the application of these fresh-start reporting
principles are summarized below:
Under the Reorganization SOP, Reorganized Purina 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 $185 million. The
Projections also assume that, after giving effect to certain
eliminations in connection with the reorganization, the fair
value of Reorganized Purina's fixed assets and other
non-current assets will be 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
Purina as of the Effective Date would exceed the assumed fair
value of Reorganized Purina's tangible assets by approximately
$158 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 5-year
period.
The foregoing assumptions and resulting computations
were made solely for purposes of preparing the Projections.
Reorganized Purina 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, among other things, a different
methodology with respect to the valuation of Reorganized
Purina's reorganization value. In all events, such valuation,
as well as the determination of the fair value of Reorganized
Purina'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.
(n) Warrant. The Projections do not include the $5.0 million
that Reorganized Purina will receive if Koch Agriculture exercises its
rights under the Warrant Purchase Agreement. If the Warrant is
purchased by Koch Agriculture, Reorganized Purina's net cash assets
would increase by $5.0 million.
PROJECTIONS
The projected consolidated financial statements of the Reorganized
Debtors set forth below have been prepared based on the assumption that the
Effective Date is March 31, 2000. Although the Debtors presently intend to seek
to cause the Effective Date to occur as soon as practicable, there can be no
assurance as to when the Effective Date actually will occur.
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<PAGE> 53
The Reorganized Purina and Subsidiaries Projected Consolidated Balance
Sheet as of March 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 March 31, 2000. The Balance Sheet Adjustments set forth in
the columns captioned "Debt Discharge" and "Fresh Start and Other 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, 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 Purina 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 Debtors and Reorganized Purina 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 March 31, 2000 and for each fiscal year included
in the Projection Period.
47
<PAGE> 54
THE DEBTORS AND REORGANIZED PURINA AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEET
March 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Confirmation Adjustments Projected
------------------------ ---------
Projected Fresh Start Post-
Preconfirmation Debt and Other Confirmation
Balances Discharge Adjustments Balances Notes
-------- --------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $70,589 ($54,705) ($5,884) $10,000 (1)(2)(7)
Accounts Receivable 32,546 -- -- 32,546
Inventories - Animals 10,553 -- -- 10,553
Inventories - Other 42,602 -- -- 42,602 (3)
Deferred Tax Asset 8,220 -- (8,220) -- (1)(2)
Other Current Assets 23,768 (7,500) 16,268
------------ ---------- ------------ -----------
TOTAL CURRENT ASSETS 188,277 (62,205) (14,104) 111,968
Net PP&E 211,373 211,373
Reorg. Value in Excess of Identifiable Assets -- -- 158,609 158,609 (4)
Intangible Assets (Net) 316,597 -- (316,597) -- (4)
Other Assets 46,323 (10,500) 35,823 (5)
---------- ------------ --------------- -----------
TOTAL ASSETS $762,570 ($72,705) ($172,092) $517,773
========= ========== ========== =========
LIABILITIES
Accounts Payable (Post petition) 20,000 -- -- 20,000
Customer Advance Payments 6,758 -- -- 6,758
Other Current Liabilities 26,334 -- (5,884) 20,450 (1)
----------- ------------- -------------- -----------
TOTAL CURRENT LIABILITIES 53,092 -- (5,884) 47,208
Deferred Tax Liability -- 34,125 (8,220) 25,905 (3)
Other Liabilities 33,251 -- -- 33,251
LONG TERM DEBT
Exit Financing Facility -- -- -- -- (6)
DIP Financing 742 (742) -- -- (1)
Senior Debt (Inc. Revolver) 278,021 (51,613) -- 226,409 (1)
------- -------- -------------- -------
TOTAL LONG TERM DEBT 278,763 (52,355) -- 226,409
TOTAL LONG TERM LIABILITIES 312,014 (18,230) (8,220) 285,565
LIABILITIES SUBJECT TO COMPROMISE
Accounts Payable (Pre-petition) 47,765 (47,765) -- -- (7)
Interest Payable on Sr. Sub.-Debt 22,398 (22,398) -- -- (8)
Sr. Subordinated Debt 350,000 (350,000) -- -- (8)
------- --------- ------------ ------------
420,163 (420,163) -- --
TOTAL LIABILITIES $785,269 ($438,393) (14,104) $332,773
Common Stock/Paid in Capital 169,290 -- 15,710 185,000 (4)
Retained Earnings (Deficit) (191,989) 365,688 (173,699) - (4)
--------- -------- --------- -------------
Total Stockholders Equity (22,700) 365,688 (157,988) 185,000 (4)
TOTAL LIABILITIES AND EQUITY $762,570 ($72,705) ( $172,092) $517,773
========= ========= =========== =========
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized Purina
- -- Projected Financial Information" and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement. Refer to the
Notes to Reorganized Purina and Subsidiaries Projected Consolidated Balance
Sheet set forth below for additional information with respect to certain numbers
identified above.
- --------------
48
<PAGE> 55
NOTES TO REORGANIZED PURINA AND SUBSIDIARIES PROJECTED CONSOLIDATED BALANCE
SHEET:
(1) The proceeds of Koch Agriculture's capital contribution to PM Holdings
of $60.0 million will be applied to repay the projected outstanding
balance of the DIP Credit Agreement, fund emergence payments of
approximately $5.9 million (relating to Fee Claims of bankruptcy
professionals, KERP Program payments and commitment fees on the Exit
Financing Facility) and, assuming a Class 4 Approval of the Plan, make
a payment of approximately $51 million on the New Prepetition Credit
Facility Notes 15 days after the Effective Date. If there is no Class 4
Approval of the Plan, cash would increase by approximately $51 million.
(2) Other Current Assets are assumed to decline by $7.5 million from a
return of deposits with vendors expected to be replaced with letters of
credit issued under the Exit Financing Facility, assuming a Class 4
Approval of the Plan occurs. Cash deposits returned to the Debtors are
expected to be used as general working capital available at the
Effective Date.
(3) In connection with the deconsolidation of PM Holdings, the Deferred Tax
Asset is expected to be materially reduced prior to Confirmation. As a
result of debt discharge income, a $34 million Deferred Tax Liability
is expected to be created, with the remaining Deferred Tax Asset of
approximately $8 million reclassified to offset the Deferred Tax
Liability account.
(4) Estimated "fresh start" accounting adjustments reflect a leveraged
equity value of $185.0 million. For illustrative purposes, all of the
book intangible asset value is eliminated and reflected in
Reorganization Value in Excess of Identifiable Assets.
(5) Approximately $10.5 million of deferred financing costs presently
reflected in Other Assets is expected to be eliminated in connection
with the Plan and the discharge of debts thereunder.
(6) This item reflects the Exit Financing Facility of $50.0 million,
assuming a Class 4 Approval of the Plan. No borrowings are projected on
the Effective Date; however, letter of credit balances of approximately
$20.0 million are projected.
(7) Estimated prepetition trade payables are assumed to be converted to
equity in Reorganized Purina in connection with the Plan. Approximately
$9.85 million of prepetition payables are assumed to be paid in cash,
based on the estimated participation in the convenience class (i.e.,
Class 2 under the Plan) and estimated reclamation claims.
(8) The principal and accrued interest on the Old Senior Subordinated Notes
will be exchanged for equity in Reorganized Purina in connection with
the Plan.
49
<PAGE> 56
THE DEBTORS AND REORGANIZED PURINA AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
2000 2001 2002 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
Cash $67,362 $66,774 $64,085 $66,176
Accounts Receivable 32,074 30,821 30,626 30,771
Total Inventories 42,114 40,965 41,324 42,195
Deferred Tax Asset -- -- -- --
Other Current Assets 16,303 16,303 16,303 16,303
-------- -------- -------- --------
Total Current Assets 157,853 154,862 152,337 155,445
Net PP&E 201,396 189,326 177,127 164,684
Reorg. Value in Excess of Identifiable Assets 134,818 103,096 71,374 39,652
Intangible Assets (Net) -- -- -- --
Other Assets 35,823 35,823 35,823 35,823
-------- -------- -------- --------
TOTAL ASSETS $529,889 $483,107 $436,661 $395,604
======= ======= ======= =======
LIABILITIES
Accounts Payable 53,556 51,206 51,655 52,743
Customer Advance Payments 12,500 12,500 12,500 12,500
Current Portion of LTD -- -- -- --
Interest Payable on Sr. Sub. -- -- -- --
Other Current Liabilities 21,550 21,550 19,800 19,800
------- -------- -------- --------
Total Current Liabilities 87,605 85,255 83,954 85,043
Deferred Tax Liability 27,685 24,911 19,905 15,235
Other Liabilities 33,251 33,251 33,251 33,251
LONG TERM DEBT
Exit Financing Facility -- -- -- --
DIP Financing -- -- -- --
Senior Debt (Inc. Revolver) 213,584 200,034 180,612 157,619
Sr. Subordinated Debt -- -- -- --
---------- ---------- ---------- ----------
Total Long Term Debt 213,584 200,034 180,612 157,619
TOTAL LIABILITIES $362,125 $343,451 $317,723 $291,148
Common Stock/Paid in Capital 185,000 185,000 185,000 185,000
Retained Earnings (Deficit) (17,236) (45,344) (66,061) (80,544)
---------- ---------- ---------- ---------
Total Stockholders' Equity 167,764 139,656 118,939 104,456
TOTAL LIABILITIES AND EQUITY $ 529,889 $ 483,107 $ 436,661 $ 395,604
======= ======== ======== ========
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized Purina
- -- Projected Financial Information" and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement.
50
<PAGE> 57
THE DEBTORS AND REORGANIZED PURINA AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pre-Effective Date, Debtors Reorganized PMI Reorganized PMI
--------------------------- --------------- ---------------
Fiscal Jan.1, 2000- April 1, 2000- Fiscal Fiscal Fiscal Fiscal
1999 March 31, 2000 Dec. 31, 2000 2000 2001 2002 2003
---- -------------- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Tons Sold 4,293.5 973.8 2,719.8 3,693.6 3,496.1 3,520.8 3,594.6
IOIC/Ton $64.39 $65.62 $66.10 $65.98 $67.27 $68.33 $69.27
Feed IOIC $276,464 $63,903 $179,788 $243,691 $235,186 $240,572 $249,010
Non Feed Income 23,838 4,446 13,199 17,645 16,887 16,828 16,874
-------- ------- --------- -------- -------- -------- --------
Total IOIC 300,302 68,349 192,987 261,336 252,074 257,400 265,884
Manufacturing Costs 113,548 26,624 74,206 100,830 96,647 96,890 97,685
------- -------- ---------- ------- ------- -------- --------
Gross Margin $186,754 $41,725 $118,781 $160,506 $155,427 $160,509 $168,199
Operating Costs
Marketing, Distribution and
Advertising 91,812 22,187 62,362 84,549 84,716 86,327 86,628
General and Administrative 60,502 13,750 40,989 54,738 50,042 48,154 48,058
Research and Development 5,992 1,632 4,397 6,029 5,530 5,530 5,530
Other (Income) Expense (7,138) (1,755) (5,002) (6,758) (10,503) (14,192) (18,395)
Amortization Expense 15,096 -- -- -- -- -- --
-------- ----------- ------------ ----------- --------- -------- --------
Total Operating Costs 166,264 35,814 102,745 138,559 129,785 125,819 121,821
Operating Income Before Swine Market
Losses & Restructuring Costs $20,490 $5,911 $16,036 $21,947 $25,641 $34,690 $46,378
Swine Market (Losses) Income (16,221) (625) (1,875) (2,500) 2,792 298 (2,266)
Restructuring/One Time Costs (44,343) (76,667) 12,162 (64,505) (3,610) (232) (232)
Debt Discharge -- 365,688 -- 365,688 -- -- --
Fresh Start Valuation Change -- (157,988) -- (157,988) -- -- --
Interest Expense 51,285 6,775 15,999 22,774 18,186 16,576 15,142
Reorganization Goodwill Amortization -- -- 23,791 23,791 31,722 31,722 31,722
Income Tax Expense (Benefit) (20,947) -- 3,769 3,769 2,992 7,175 11,499
--------- ---------- -------- -------- --------- ------- -------
Net Income ($70,413) $129,544 ($17,236) $112,308 ($28,108) ($20,717) ($14,483)
========= ======== ========= ======== ========= ========= =========
</TABLE>
The Projections should be read only in conjunction with the assumptions,
qualifications and explanations set forth under "Reorganized Purina -- Projected
Financial Information" and the consolidated historical financial information
included in Exhibit III of this Disclosure Statement.
51
<PAGE> 58
THE DEBTORS AND REORGANIZED PURINA AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pre-Effective Date, Debtors Reorganized PMI Reorganized PMI
--------------------------- --------------- ---------------
Fiscal Jan.1, 2000- April 1, 2000- Fiscal Fiscal Fiscal Fiscal
1999 March 31, 2000 Dec. 31, 2000 2000 2001 2002 2003
---- -------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ($70,413) $129,544 ($17,236) $112,308 ($28,108) ($20,717) ($14,483)
Fresh Start Valuation Change -- 157,988 -- 157,988 -- -- --
Debt Discharge Income -- (365,688) -- (365,688) -- -- --
Adjustments to Net Income
Depreciation/Amortization 47,431 7,967 23,901 31,868 31,254 32,589 30,828
Loss (Gain) on Sale of
Invest./Write-Offs 19,462 22,917 -- 22,917 -- -- --
Changes in Accounts Receivable 7,491 4,068 472 4,540 1,253 195 (146)
Change in Inventories (1,434) 10,141 11,040 21,182 1,150 (359) (871)
Change in Deferred Tax Assets (19,383) 39,654 39,654 -- -- --
Change in Other Current Assets (7,483) (5,000) (35) (5,035) -- -- --
Changes in Other Assets & Intan. (5,905) -- -- -- -- -- --
Amort.
Change in Accounts Payable (14,135) (20,830) 33,556 12,726 (2,350) 449 1,088
Change in Customer Advance Payments (4,370) (5,742) 5,742 -- -- -- --
Change in Sr. Sub. Notes (Interest &
Eliminations) 12,537 -- -- -- -- -- --
Change in Other Current Liabilities (3,881) (550) 1,099 550 -- (1,750) --
Change in Deferred Tax Liability -- 1,780 1,780 (2,774) (5,006) (4,670)
Change in Other Liabilities (5,729) -- -- -- -- -- --
Other/Reorganization Goodwill
Amortization (2,355) -- 23,791 23,791 31,722 31,722 31,722
---------- ------------- --------- ---------- --------- ---------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ($48,167) ($25,531) $84,111 $58,580 $32,147 $37,123 $43,469
INVESTING ACTIVITIES
Purchase of Property, Plant &
Equipment (20,605) (7,141) (21,424) (28,565) (19,185) (20,390) (18,385)
Proceeds from Sale of Property,
Plant & Equipment 1,448 -- 7,500 7,500 -- -- --
---------- ------------- --------- ---------- --------- ---------- ---------
NET CASH USED IN INVESTING
ACTIVITIES ($19,157) ($7,141) ($13,924) ($21,065) ($19,185) ($20,390) ($18,385)
FINANCING ACTIVITIES
Proceeds from Revolving Credit 67,471 (16,238) -- (16,238) -- -- --
Facility
Proceeds (Repayment) of Sr. Term (5,250) (16,893) (12,250) (29,143) (13,250) (17,970) (21,192)
Loan - Tranche A
Proceeds (Repayment) of Sr. Term (225) (18,481) (575) (19,056) (300) (1,451) (1,801)
Loan - Tranche B
Proceeds (Repayment) of Sub. Debt -- -- -- -- -- -- --
Other (72) 60,000 -- 60,000 -- -- --
---------- ------------- --------- ---------- --------- ---------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $61,924 $8,387 ($12,825) ($4,438) ($13,550) ($19,422) ($22,993)
NET CASH PROVIDED (USED) ($5,400) ($24,285) $57,362 $33,077 ($588) ($2,689) $2,091
</TABLE>
The Projections should be read only in conjunction with the
assumptions, qualifications and explanations set forth under "Reorganized Purina
- -- Projected Financial Information" and the consolidated historical financial
information included in Exhibit III of this Disclosure Statement.
52
<PAGE> 59
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 December 31, 1999. Except as identified below,
it is contemplated that such directors and executive officers shall serve in
such capacities with PM Holdings after the PMI Merger. As of the Effective Date,
Reorganized Purina's Board of Directors will be comprised of individuals to be
identified prior to the Confirmation Hearing. See "Reorganized Purina --
Management -- Reorganized Purina Board of Directors."
<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
Delbert 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 W. Shields 47 Vice President, Companion Animals/Livestock
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>
- ------------------
* Currently, Messrs. Dumler, Durkin and Knudson jointly serve in the Office of
the Chief Executive Officer. As of March 1, 2000, it is anticipated that the
three-member office of the Chief Executive Officer will be eliminated. It is
anticipated that Messrs. Dumler, Durkin and Knudson will no longer be employees
of PMI, but will continue to serve as members of PMI's Board of Directors
through the Effective Date. See "Reorganized Purina -- Employee Benefit Matters
Existing Benefit Plans and Agreement."
Mr. Dumler has been a Board Member of PMI 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 various 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 PMI 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 PMI since March 1999. He is also the sole
director and President of PM Holdings. 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 of PMI since August
1999. Previously, he was Executive Vice President of PMI 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 of PMI
since August 1999. He joined PMI in 1979 and has served in various positions,
including District Manager, Division Sales Manager, Regional Director
53
<PAGE> 60
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 at PMI 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.
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.C.
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 General 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 at PMI 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 employed by 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 Animals/Livestock at PMI since
September 1999. He joined PMI in July 1974 and has served in various positions
in manufacturing, sales management, general management, distribution and
marketing in connection with the dairy, swine and poultry business, including,
most recently, Vice President, Swine & Poultry Nutrition.
Mr. Chenoweth has been Vice President, ACS since August 1998. He joined PMI in
1987 and has served in various positions, including Branded Meats Marketing
Manager, Retail Specialty Marketing Manager and Director, Retail Business
Development for the ACS initiative.
Mr. Wiesbrock has been Vice President, Dealer Logistics and Corporate
Development at PMI since September 1999. He joined PMI in 1998. Before joining
PMI, worked for four years as a management consultant with Deloitte Consulting,
L.L.C. and was employed in engineer project management with Frito-Lay, Inc.
Mr. Fisher has been Vice President, Public Relations at PMI since June 1999. He
has been employed by PMI since 1978.
Ms. Riola has been Assistant Treasurer of PMI since January 1999. She joined PMI
in 1991. Prior to joining PMI, she was employed at Deloitte & Touche, L.L.P.
Mr. Fendler has been Assistant Controller of PMI since May 1999. He joined PMI
in 1997. Before joining PMI, he was employed at Deloitte & Touche, L.L.P.
Mr. Timm has been Assistant Secretary of PMI since June 1999, when he joined
PMI. He previously was employed as Assistant General Counsel and Assistant
Secretary at Angelica Corporation.
There are no family relationships between any of the above-named executive
officers and directors
54
<PAGE> 61
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 other four most highly compensated executive officers
of PMI as of December 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
Richard 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) Currently, Messrs. Dumler, Durkin and Knudson jointly serve in the
Office of the Chief Executive Officer. As of March 1, 2000, it is
anticipated that the three-member office of the Chief Executive Officer
will be eliminated. It is anticipated that Messrs. Dumler, Durkin and
Knudson will no longer be employees of PMI, but will continue to serve
as members of PMI's Board of Directors through the Effective Date
without additional compensation. See "Reorganized Purina -- Employee
Benefit Matters Existing Benefit Plans and Agreement."
(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) 100% has been earned by each individual listed.
REORGANIZED PURINA BOARD OF DIRECTORS
Under the DGCL, the business and affairs of Reorganized Purina will be
managed under the direction of the Board of Directors of Reorganized Purina.
As of the Effective Date, the initial Board of Directors of Reorganized
Purina will consist of five members. The identity of the initial directors will
be disclosed in a Filing with the Bankruptcy Court 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 By-Laws 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
Reorganized Purina would have if there were no vacancies on the Board of
Directors or (b) by the affirmative vote of the holders of a majority 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 stockholders or directors.
Except as provided otherwise in any Preferred Stock Designation,
directors may be elected by the stockholders (a) at an annual meeting of
stockholders 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 stockholders called for
that purpose. Neither the holding of a special meeting of stockholders nor the
election of directors at a special meeting of stockholders 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
55
<PAGE> 62
sole remaining director or (b) by the affirmative vote of the stockholders 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 such incumbent directors.
Pursuant to the Amended By-Laws, no annual meeting of stockholders will
be held in 2000. The first annual meeting of the stockholders of Reorganized
Purina following the Effective Date will be held in 2001, within 120 days
following the completion of Reorganized Purina's first fiscal year, at such time
and on such Business Day as Reorganized Purina's Board of Directors determines.
BOARD COMMITTEES
The Amended By-Laws provide that Reorganized Purina's 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 the Audit Committee and the Compensation
Committee will be non-employee directors. Under the Amended By-Laws, 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 Reorganized Purina's 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 Purina,
regardless of whether such powers are specifically conferred by the Amended
By-Laws; provided, however, that the Executive Committee will have no right to
(a) approve a merger or consolidation of Reorganized Purina with or into any
other entity or any other material business combination transaction involving
Reorganized Purina or any of its significant subsidiaries, (b) authorize the
sale of all or substantially all of the assets of Reorganized Purina or (c) fill
any vacancies on the Executive Committee or the Board of Directors.
The Audit Committee is expected to review: (a) the professional
services to be provided by Reorganized Purina's independent auditors and the
independence of such firm from management of Reorganized Purina; (b) the scope
of the audit by Reorganized Purina's independent auditors; (c) the annual
financial statements of Reorganized Purina; (d) Reorganized Purina'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 Purina 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 Purina and (c) approve the salaries and other benefits of
the executive officers of Reorganized Purina. See "Reorganized Purina --
Employee Benefit Matters -- Existing Benefit Programs and Agreements" and " --
New Benefit Programs; Continuation or Termination of Existing Plans and
Agreements." In addition, the Compensation Committee is expected to advise and
consult with Reorganized Purina's management regarding pension and other benefit
plans and compensation policies and practices of Reorganized Purina.
DIRECTOR NOMINATION PROCEDURES
The Amended By-Laws provide that nominations for election of directors,
except as may be otherwise provided in any Preferred Stock Designation, will be
made at an annual meeting of stockholders by or at the direction of the Board of
Directors of Reorganized Purina, or any committee thereof, or by any stockholder
entitled to vote in the election of directors at such meeting. The Amended
By-Laws require that a stockholder'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 Purina not less than 60 days, nor
more than 90 days, prior to the annual meeting of stockholders; 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 stockholder 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 By-Laws
further require that the notice by the stockholder set forth certain information
concerning such stockholder and the stockholder's nominees, including their
names and addresses; proof that such stockholder is entitled to vote at such
annual meeting; the class and number of shares of Reorganized Purina owned or
beneficially owned by such stockholder and the stockholder'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
56
<PAGE> 63
proxies for the election of the nominees of such stockholder; and the consent of
each nominee to serve as a director of Reorganized Purina, 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 Purina will be paid such compensation as is determined by the
Debtors and the Creditor's Committee, which compensation will be disclosed in a
Filing with the Bankruptcy Court no later than ten days prior to the
Confirmation Hearing.
All directors also will be entitled to participate in the Equity
Incentive Plan. See "Reorganized Purina -- Employee Benefit Matters -- New
Benefit Programs; Continuation or Termination of Existing Plans and Agreements."
EMPLOYEE BENEFIT MATTERS
EXISTING BENEFIT PLANS AND AGREEMENTS
On the Petition Date, the Debtors' employees participated in various
retirement and welfare plans administered by Koch Industries, subject to
reimbursement to Koch Industries by the Debtors for the cost of such
participation. Effective January 1, 2000, the Debtors ceased participating in
all of the Koch Industries' benefit plans and adopted new stand-alone plans,
which are sponsored and administered by PMI. The following discussion summarizes
the principal terms of the old Koch Industries plans and current plans effective
January 1, 2000. With certain limited exceptions, PMI is providing and
Reorganized Purina will continue to provide after the Effective Date
substantially similar benefit plans to those previously provided by Koch
Industries. See "Reorganized Purina -- Employee Benefit Matters -- New Benefit
Programs; Continuation or Termination of Existing Plans and Agreements" 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. Prior to January 1, 2000, the Debtors' employees were
eligible to make before-tax and after-tax contributions to a 401(k) plan
sponsored by Koch Industries. The Debtors' employees received matching
contributions (up to 3% of pay) on these contributions. The Debtors reimbursed
Koch Industries for the matching contributions. Employees who were employed by
PMI prior to the 1998 Merger also maintained 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 in this pre-1998 Merger plan continue to be credited with
earnings and losses based on selected plan investments.
The Debtors ceased participating in these plans on December 31, 1999.
The Debtors established a new 401(k) plan effective January 1, 2000 under which
their employees will be eligible to make before-tax contributions. The Debtors
will make matching contributions to the new plan. The new plan will accept
transfers of assets and liabilities from Koch Industries' savings plans.
Pension Plans. Prior to January 1, 2000, the Debtors' non-union
employees participated in a qualified defined benefit pension plan sponsored by
Koch Industries. The plan provided benefits based on a formula that takes into
account service and final average pay. The Debtors reimbursed Koch Industries
for the cost of these benefits. The Debtors ceased participating in this plan on
December 31, 1999.
Certain executives whose benefits under the qualified pension plan are
limited due to limitations imposed by the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") also participated in non-qualified
supplemental retirement plan sponsored by Koch Industries. These benefits were
paid by Koch Industries. The Debtors reimbursed Koch Industries for these
payments. The Debtors ceased participating in this plan on December 31, 1999.
Certain union employees of the 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 or
Reorganized Purina will continue this plan from and after January 1, 2000.
Finally, other union employees of the Debtors participate in a
multi-employer pension plan. Prior to January 1, 2000, Koch Industries made
contributions to this plan on behalf of the covered employees. PMI reimbursed
Koch Industries for these contributions. PMI began making these contributions
directly to the multi-employer pension plan on January 1, 2000.
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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. Prior to the Petition
Date, benefits under these plans were paid by Koch Industries and PMI reimbursed
Koch Industries for the costs of these benefits. The projected benefit
obligations under the supplemental defined benefit plan as of December 31, 1998
was $3.2 million and the amount owed to current and former employees under the
non-qualified deferred compensation was $30,000. The Debtors intend to terminate
these plans, which may give rise to General Unsecured Claims against the Debtors
by the participants in these plans, subject to treatment in Class 5 under the
Plan.
The CAP Plan. Prior to 1994, certain executives of the Debtors elected
to defer certain bonuses under the CAP Plan. Executives who made such deferrals
are entitled to receive retirement and death benefits under the CAP Plan. Prior
to the Petition Date, benefits under the CAP Plan were paid by Koch Industries,
and PMI reimbursed Koch Industries for the cost of these benefits. As of
December 31, 1998, the projected benefit obligations under the CAP Plan was
$22.3 million. As of September 30, 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 30, 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 30, 1999 was
approximately $14.0 million.
In connection with the 1998 Merger, PMI believes that Koch Agriculture
agreed to maintain the CAP Plan and pay benefits thereunder following the 1998
Merger and to pay the premiums on the COLI policies. Koch Agriculture disputes
PMI's contention with respect to these issues. The Plan provides that the
Debtors will Reinstate their obligations to pay benefits to participants under
the CAP Plan after the Effective Date. Further, consistent with the terms of the
November Settlement, the Debtors have obtained authority to continue to pay
benefits under the CAP Plan prior to the Effective Date, either from the assets
of the COLI trust or from the Debtors' general assets. See "Operations During
the Reorganization Cases -- Commencement of Reorganization Cases and Related
Case Administration Activities -- Payment of Obligations Under the CAP Plan."
Health and Welfare Benefits. Prior to January 1, 2000, the Debtors'
employees participated in health and welfare plans sponsored by Koch Industries.
The Debtors reimbursed Koch Industries for the cost of these benefits. The
Debtors ceased participating in these plans on December 31, 1999 and established
similar stand-alone plans effective January 1, 2000.
In addition, PMI sponsors two "voluntary welfare benefits
administration" ("VEBA") trusts, which are used to pay the claims under a
self-insured medical plan and a self-insured long-term disability plan, both of
which were frozen effective May 31, 1998. As of September 30, 1999, the VEBA
trusts contained assets of approximately $760,000. PMI is exploring all options
with respect to the VEBA trusts and reserves the right to continue, amend or
terminate the trusts.
Retiree Medical Benefits. PMI retirees meeting certain age and service
requirements are eligible for retiree medical benefits. In connection with the
November Settlement and as incorporated into the Plan, Koch Industries agreed to
continue to provide retiree medical benefits for pre-2000 retirees through the
completion of three-year transition period under the 1998 Merger, subject to
reimbursement by PMI of up to $150,000. Post-1999 retirees will be offered
retiree medical benefits, at the retirees' expense, under the stand-alone PMI
medical plan.
Key Employee Retention Program. PMI adopted the KERP Program in
September 1999. The KERP Program was designed to attract, retain and provide
incentives to directors and key employees during PMI's financial and business
restructuring. The KERP Program has been essential to the Debtors' ability to
meet these goals during the Reorganization Cases. The Debtors believe that the
KERP Program will continue to be critical to the ability of Reorganized Purina
to attract and retain key employees following the Effective Date. The Debtors
have obtained authority to continue and implement the KERP Program, subject to
certain modifications. See "Operations During the Reorganization Cases --
Commencement of Reorganization Cases and Related Case Administration Activities
- -- Key Employees Retention Program." The KERP Program, as modified, includes the
following four principle components:
(a) RETENTION/STAY BONUSES. The KERP Program authorizes the
payment of retention bonuses to approximately 190 key
employees. Executive level employees are not eligible for this
bonus. The
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amount of each bonus generally 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 four 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) to receive payment of a retention bonus. Retention
bonuses are projected not to exceed $4.4 million in the
aggregate.
(b) ANNUAL INCENTIVE PAYMENTS. The KERP Program revised the
financial forecasts and targets of PMI's annual incentive
program for 1999. Approximately 250 employees are eligible for
annual incentive payments in 1999. As revised, employees are
eligible for target incentive payments depending on the
attainment of specified revised company and individual goals.
These goals were modified to reflect the impact of PMI's
reorganization. For example, under the revised program, (i)
employees are eligible to earn the individual component of the
their annual incentive payments whether or not PMI's goals are
met and (ii) PMI's target adjusted EBITDA was lowered for
1999. The Debtors estimate that the amount of such payments
will not exceed $3.6 million. Reorganized Purina's annual
incentive plan for fiscal year 2000 will be developed by the
Debtors in consultation with the Creditors' Committee.
(c) EMERGENCE BONUS. Under the KERP Program, 47 key employees in
top management positions are eligible to receive emergence
bonuses based primarily upon PMI's successful reorganization.
- Of this group, 17 members of senior management,
including the members of the Office of the Chief
Executive Officer (collectively, the "Tier 1
Employees"), will be paid a bonus upon the Effective
Date equal to each employee's designated pro rata
share of $1.6 million in cash and 90,000 shares of
New Common Stock. The New Common Stock issued as
emergence bonuses to Tier 1 Employees will be subject
to a lock-up agreement under which the Tier 1
Employees will be prevented in most cases from
selling their shares of New Common Stock for a
six-month period following the Effective Date.
- The emergence bonus for each of the remaining
employees will be paid in cash based on a percentage
of base salary, ranging from 10% to 31%. Half of this
amount will be paid on March 31, 2000 and half will
be paid on the date that is six months after the
Effective Date. The Debtors estimate that, if all of
these employees earn and receive their emergence
payments, the aggregate amount of such payments would
be approximately $900,000.
(d) SPECIAL PROJECT BONUS. The KERP Program incorporates PMI's
previously-adopted 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 the maximum amount to be paid under the
special project bonus program, if all special project bonuses
are earned, is approximately $670,000 (including approximately
$114,000 in long-term incentive payments to employees
implementing the SAP enterprise resource planning software
system).
Severance Pay Plan. PMI adopted a formal Severance Pay Plan, which
became effective on November 1, 1999. The formal plan implemented PMI's
unwritten prepetition 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 Purina to attract and retain employees following
the Effective Date. The Severance Pay Plan covers all employees of PMI and
Reorganized Purina. Under the Severance Pay Plan, Reorganized Purina 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 week's pay for each year of service, plus an additional $1,000. PMI and
Reorganized Purina retain the right to increase or decrease the amount of these
payments. The Debtors paid approximately $2.6 million in severance pay for the
period from July 1, 1999 through December 31, 1999. The Debtors have obtained
authority to continue the Severance Pay Plan and to pay severance benefits under
the Severance Pay Plan to all employees terminated from and after the Petition
Date. See "Operations During the Reorganization Cases -- Commencement of
Reorganization Cases and Related Case Administration Activities -- Key Employee
Retention Program."
Employment Agreements. PMI has entered into employment agreements with
26 senior executives and has sought authority from the Bankruptcy Court to
assume each of these agreements. See "Operations During the Reorganization Cases
- -- Commencement of Reorganization Cases and Related Case Administration
Activities -- Key Employee Retention Program."
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The employment agreements for 21 of these senior executives
are substantially identical (collectively, the "Senior Executive Agreements").
These executives will serve Reorganized Purina under their respective Senior
Executive 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 Senior Executive 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 good
cause and (c) the executive's right to receive severance payments if the
agreement is terminated. For purposes of the Senior Executive Agreements,
triggering events include a change in control or the insolvency of PMI. The
Debtors' chapter 11 Filings constitute a triggering event under the Senior
Executive Agreements. If an executive is terminated by PMI without good cause
and not in connection with a triggering event, the executive will receive a
severance payment in the amount of the executive's annual base salary. If an
executive is terminated by PMI without good cause or terminates his 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 either one or two
times the executive's annual base salary (depending on the position of the
executive), plus either one or two times the amount of the executive's larger
annual incentive bonus for the past two years. However, severance payments under
the Senior Executive Agreements will not exceed the limits contained in section
280G of 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 applicable Senior Executive Agreement, PMI
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 or two years from the date of termination (depending on the position of the
executive) or (ii) the date such coverage is replaced by new coverage obtained
by the executive or the executive's spouse. PMI has obtained approval for the
assumption of 19 of the 21 Senior Executive Agreements. See "Operations During
the Reorganization Cases -- Commencement of Reorganization Cases and Related
Case Administration Activities -- Key Employee Retention Program." PMI's request
for authority to assume the Senior Executive Agreements with Mr. Kerbs and Mr.
Kabbes remains pending; however, in accordance with certain agreements with the
Creditors' Committee and the Bank Group, the Debtors intend to submit an order
to the Bankruptcy Court under which, among other things, the Senior Executive
Agreements with Mr. Kerbs and Mr. Kabbes will be assumed. Currently, there can
be no assurance that such relief will be granted. If either Mr. Kerbs or Mr.
Kabbes leave PMI's employment and the applicable Senior Executive Agreement has
not been assumed, such executive will receive a minimum cash severance payment
equal to one year's base salary, plus earned 1999 bonuses.
The employment agreement with Mr. Swank, Chief Financial Officer of PMI
(the "Swank Agreement"), was entered into on July 1, 1999 and contains terms
substantially similar to those described above, except as follows: (a) the
original term of the agreement is for three years; (b) Mr. Swank agreed that he
will not voluntarily terminate his employment during the original term of the
agreement without good reason (or for certain other specified reasons); (c) the
agreement provides for specified bonus payments, which will be paid if Mr. Swank
remains employed, if he terminates employment for good reason or if he is
terminated without good cause; (d) Mr. Swank may terminate his employment and
receive severance pay if there is a change in the composition 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 (subject to the
limitation imposed by section 280G of the Internal Revenue Code); and (f) the
non-compete provision only applies for one year. Koch Industries has guaranteed
PMI's obligations under the Swank Agreement. PMI's request for authority to
assume the Swank Agreement remains pending, and there can be no assurance that
such request will be granted. See "Operations During the Reorganization Cases --
Commencement of Reorganization Cases and Related Case Administration Activities
- -- Key Employee Retention Program." If Mr. Swank leaves PMI's employment and the
Swank Agreement has not been assumed, he will receive a minimum cash severance
payment equal to one year's base salary, plus earned 1999 bonuses.
A separate agreement has been executed with respect to PMI's employment
of Dr. Danny Williams as Director of Beef Research (the "Williams Agreement").
The term of the Williams Agreement commenced on October 25, 1999 and will
continue for a period of 15 months or until the earlier termination of Dr.
Williams' employment with PMI. The Williams Agreement provides that, during the
term of the Williams Agreement and for one year following the termination
thereof, Dr. Williams is prohibited from (a) competing with PMI in the United
States, (b) attempting to induce any employee of PMI to leave the employment of
PMI or (c) hiring any PMI employee. In addition, if Dr. Williams voluntarily
terminates his employment with PMI or is terminated without cause, PMI will pay
Dr. Williams a severance payment equal to 1.25 times the sum of his annual base
salary, plus his established bonus. PMI has obtained approval for the assumption
of the Williams Agreement. See "Operations During the Reorganization Cases --
Commencement of Reorganization Cases and Related Case Administration Activities
- -- Key Employee Retention Program."
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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 (collectively, the "OCEO Agreements"). The OCEO
Agreements provide that these executives will receive an annual salary of
$250,000, of which $100,000 currently is being paid by PMI and the remainder is
being paid by Koch Industries, and will be eligible for annual incentive
payments and emergence bonuses under the KERP Program. The OCEO Agreements also
set forth each executive's right to receive severance pay in the amount of
$350,000, if (a) the executive's employment with PMI is terminated without cause
and the executive is not offered a position with the Koch Entities that is
equivalent to or better than the position previously held by the executive prior
to his assuming responsibilities at PMI or (b) the executive terminates his
employment with PMI and accepts a position with the Koch Entities that is
equivalent to or better than the position previously held by the executive prior
to assuming responsibilities at PMI and, within two years thereafter, the
executive's employment is terminated either (i) by the Koch Entities without
cause or (ii) voluntarily by the executive as a result of a reduction in his
role with or compensation from the Koch Entities.
PMI has determined not to pursue its pending request for authority to
assume the OCEO Agreements. Instead, in accordance with certain agreements with
the Creditors' Committee and the Bank Group, the Debtors intend to submit an
order to the Bankruptcy Court under which, among other things, (a) the OCEO
Agreements will be rejected as of March 1, 2000 (the "OCEO Rejection Date"); (b)
as of the OCEO Rejection Date, Messrs. Dumler, Durkin and Knudson will each be
entitled to (i) a cash severance payment equal to $250,000 and (ii) an Allowed
General Unsecured Claim of $100,000; (c) Messrs. Dumler, Durkin and Knudson will
continue to serve as members of PMI's Board of Directors through the Effective
Date without additional compensation and may perform additional services for the
Debtors on a consulting basis; and (d) notwithstanding the rejection of the OCEO
Agreements prior to Confirmation, Messrs. Dumler, Durkin and Knudson will be
entitled to their emergence bonuses and other payments under the KERP Program on
the terms described above. Currently, there can be no assurance with respect to
the ultimate treatment of the OCEO Agreements. See "Operations During the
Reorganization Cases -- Commencement of Reorganization Cases and Related Case
Administration Activities -- Key Employee Retention Program."
Shadow Stock Plan. Certain key employees of the 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. The participation of PMI's
employees in the shadow stock plan was terminated on January 1, 2000. Koch
Industries will pay the employees of PMI the value of their vested units in
accordance with the terms of the plan, plus an additional year vesting credit.
As of September 1999, the estimated value of these vested units was
approximately $[140,000]. Koch Industries has agreed to vest participating PMI
employees in the shadow stock plan and pay the vested amounts (inclusive of 1999
earnings of Koch Industries).
NEW BENEFIT PROGRAMS; CONTINUATION OR TERMINATION OF EXISTING PLANS AND
AGREEMENTS
General. One of the key elements of Reorganized Purina's Business Plan
is a compensation and benefit program designed to attract, retain and provide
incentives to directors, officers and key employees for Reorganized Purina and
to provide such persons appropriate incentives and rewards for superior
performance. Except as described below, Reorganized Purina expects to continue
all of its current employee benefit plans or replace such plans with similar
plans.
Frozen Non-Qualified Retirement Plans. As described above, the Debtors
have determined to terminate their supplemental executive retirement plan and
the other frozen, non-qualified deferred compensation plan as of the Effective
Date. The termination of these plans may give rise to General Unsecured Claims
against the Debtors by the participants in these plans, which will be treated in
Class 5 under the Plan. These terminations have no effect on the CAP Plan.
In addition, the following new benefit plan will be implemented on the
Effective Date:
Equity Incentive Plan. As of the Effective Date, Reorganized Purina
will implement the Equity Incentive Plan to attract, retain and motivate key
employees following the Effective Date. The Equity Incentive Plan in many
respects will replace certain elements of the KERP Program as Reorganized
Purina's long-term incentive and retention arrangement. It currently is
anticipated that other elements of the KERP Program, such as the annual
incentive program and the special project bonus plan would continue after the
Effective Date. Reorganized Purina'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 options, restricted
stock, deferred shares and other typical equity incentive awards to the
employees and members of the Board of Directors of Reorganized Purina. A total
of [______] shares of New Common
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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 the initial option
awards under the Equity Incentive Plan to be made as of the Effective Date.
CERTAIN CORPORATE GOVERNANCE MATTERS
In addition to the provisions relating to Reorganized Purina's Board of
Directors described above (see "Reorganized Purina -- Management -- Reorganized
Purina Board of Directors"), the Amended Certificate and Amended By-Laws will
provide, in general, that: (a) stockholder action can be taken by written
consent or 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 25% 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 30 days, any previously scheduled annual or
special meeting of stockholders. The Amended By-Laws also will require that a
stockholder desiring to bring any business before any annual meeting of
stockholders must deliver written notice thereof to the Secretary of Reorganized
Purina not less than 60 days nor more than 90 days, prior to the meeting of
stockholders; provided, however, that, if the date of the annual meeting is not
publicly announced by Reorganized Purina more than 105 calendar days prior to
the meeting, notice by the stockholder to be timely must be delivered to the
Secretary of Reorganized Purina 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 By-Laws 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, the reasons for conducting
such business at the annual meeting, certain information concerning the
stockholder proposing such business and the beneficial owners, if any, on whose
behalf the proposal is made, including their names and addresses, the class and
number of shares of Reorganized Purina that are owned beneficially and of record
by each of them and any material interest of any of them in the business
proposed to be brought before the annual meeting. Upon the written request of
the holders of not less than 25% of Reorganized Purina'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 By-Laws provide that the provisions relating to the time
and place of stockholder meetings (including the postponement of any such
meeting); who may call a special meeting of stockholders; the order of business
at stockholder meetings; the number, nomination, election and term of directors
on the Board of Directors; the authority of directors to fill vacancies on the
Board of Directors; the removal of directors by stockholders; the ability of
Reorganized Purina to reacquire its capital stock; and the prohibition of
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 a majority of the voting stock of Reorganized
Purina, voting together as a single class; provided, however, that these
provisions will 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 By-Laws.
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 Purina. 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.
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 Purina. 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:
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(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 662/3% 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 By-Laws relating to advance notice of stockholder nominations and
the provisions of the Share Purchase Rights Agreement described under
"Securities to Be Issued Pursuant to the Plan -- Share Purchase Rights
Agreement," together with applicable Delaware state law, may discourage or make
more difficult the acquisition of control of Reorganized Purina 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 Purina first to
negotiate with Reorganized Purina. The management of the Debtors believes that
the foregoing measures, many of which are substantially similar to the
takeover-related measures in effect for numerous other publicly-held companies,
provide benefits by enhancing Reorganized Purina's potential ability to
negotiate with the proponent of an unsolicited proposal to acquire or
restructure Reorganized Purina, 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 stockholders 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 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 Purina'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
The DGCL 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. 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.
The DGCL 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, the DGCL 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.
The DGCL provides that the indemnification provisions contained in the
DGCL are not exclusive of any other right that a person seeking indemnification
may have or later acquire under any provision of the corporation's by-laws, by
any agreement, by any vote of stockholders or disinterested directors or
otherwise. In addition, the DGCL 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 the DGCL.
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PMI's existing by-laws provide for indemnification of its officers,
directors, employees and agents to the fullest extent permitted by the DGCL.
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 indemnitees 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
PMI's 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
Under the Plan and subject to the provisions described below and in
Section V.E.1.c 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 in such a capacity or as a director, officer or employee of
another corporation, partnership or other legal entity to the extent provided in
the applicable certificates of incorporation, by-laws or similar constituent
documents, by statutory law or by written agreement, policies or procedures 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, 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, by statutory law or by 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 for actions by such person solely in their capacity as a
director, officer or employee of any of the Koch Entities will be treated as
provided in the preceding sentence. In all other respects, the Debtors'
indemnity obligations to such person will be as specified in the first two
sentences of this paragraph.
NEW INDEMNIFICATION ARRANGEMENTS
The Amended By-Laws provide for the indemnification of any present or
former director, officer, other employee or agent of Reorganized Purina 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
ultimately is not entitled to be indemnified.
If a claim for indemnification is not paid in full by Reorganized
Purina within 60 days after a written claim has been received by Reorganized
Purina, except in the case of a claim for an advancement of expenses, in which
case the applicable period will be 20 days, the director, officer, other
employee or agent seeking indemnification may, at any time thereafter, bring
suit against Reorganized Purina 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
Purina to recover an advancement of expenses, the director, officer, other
employee or agent also will be entitled to be reimbursed for the expense of
prosecuting or defending such suit.
The Amended By-Laws provide that Reorganized Purina may maintain
insurance, at its expense, to protect itself and any director, officer, other
employee or agent of Reorganized Purina or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or loss,
whether or not Reorganized Purina would have the power to indemnify such person
against such expense, liability or loss under Delaware law.
Reorganized Purina 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
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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 indemnitees by Reorganized Purina
for conduct in the capacities described above; (b) the advancement of attorneys'
fees and other expenses; and (c) the establishment, upon approval by Reorganized
Purina's Board of Directors at its option, of trusts or other funding mechanisms
to fund Reorganized Purina's indemnification obligations thereunder.
SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
REORGANIZATION VALUE
The Debtors have been advised by Houlihan Lokey with respect to the
reorganization equity value of the Reorganized Debtors. The reorganization
equity value, which includes the Debtors' operating businesses, the $60.0
million contribution to the capital of PM Holdings on the Effective Date by Koch
Agriculture, 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 $185 million as of an assumed Effective Date
of March 31, 2000. Because it is unknown whether Koch Agriculture will exercise
the Warrant, this value assumes that the Warrant is not purchased or exercised
by Koch Agriculture. If the Warrant is purchased by Koch Agriculture,
Reorganized Purina's net cash assets would increase by $5.0 million. 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. In addition, the reorganization equity value
reflects the payment by Reorganized Purina of the Koch Industries Transition
Settlement Payment, the Koch Supplemental Transition Agreement Claims and the
Reinstatement by Reorganized Purina of all obligations under the CAP Plan.
Based on the assumed reorganization equity value set forth above,
assuming the Warrant is not exercised, the value of the 9,910,000 shares of New
Common Stock to be issued to the holders of Allowed Claims in Class 5 under the
Plan and 90,000 shares of New Common Stock to be issued to certain Reorganized
Purina employees, if earned, pursuant to the KERP Program is estimated to be
approximately $18.50 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 operating
data of the Debtors and assisted in developing financial projections relating to
their 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 businesses; (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; (i) financial and other information furnished
to it by the Debtors and by other firms retained by the Debtors and (ii)
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
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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 analysis 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 also may 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's 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 and/or Koch Agriculture purchases the Warrant, 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 Purina will be authorized to
issue 20,000,000 shares, par value $0.01, of New Common Stock, of which (a)
9,910,000 shares will be distributed to holders of Allowed Unsecured Claims in
Class 5, including Koch Agriculture; (b) up to 90,000 shares will be issued
under the KERP Program; and (c) [_____] shares will be reserved for issuance
under the Equity Incentive Plan, of which options for [_____] shares will be
issued on the Effective Date. If the Warrant is exercised, shares constituting
up to 10% of total shares of New Common Stock outstanding as of the Effective
Date, on a fully diluted basis, would be purchased by Koch Agriculture. In
addition, in connection with their retention as financial advisors to the
Debtors and the Creditors' Committee, respectively, Houlihan Lokey and Chanin
may convert the Financial Advisor Notes they will receive as compensation in a
maximum aggregate amount of approximately $1.96 million (which includes accrued
interest) into up to approximately 100,000 shares of New Common Stock, depending
upon the value ascribed to the shares of New Common Stock by the Bankruptcy
Court at Confirmation. Such amounts will be reduced to the extent that
commencement of the Confirmation Hearing is delayed beyond March 16, 2000. See
"Operations During the Reorganization Cases -- Retention of Financial and Other
Advisors."
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 Unsecured Claims Reserve. Holders of New Common Stock will be
entitled to receive ratably such dividends as may be declared by Reorganized
Purina's Board of Directors out of funds legally available for payment of
dividends. However, Reorganized Purina does not presently anticipate that
dividends will be paid on New Common Stock in the foreseeable future, other than
the issuance of Share Purchase Rights described below. See "Risk Factors --
Dividend Policies; Restrictions on Payment of Dividends." In the event of a
liquidation, dissolution or winding up of Reorganized Purina, 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 Purina. 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 be, upon such issuance, validly issued, fully paid and
nonassessable. Subject to the terms and conditions set forth in Reorganized
Purina's Share Purchase Rights Agreement, each share of New Common Stock issued
pursuant to the plan will be accompanied by a Share Purchase Right. See
"Securities to Be Issued Pursuant to the Plan -- Share Purchase Rights
Agreement." It is a condition to the PMI Merger that the New Common Stock be
authorized for listing on a National Securities Exchange. See "Overview of the
Plan -- Conditions to Confirmation, PMI Merger and Effective Date of the Plan --
Conditions to the PMI Merger."
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NEW PREFERRED STOCK
GENERAL
As of the Effective Date, Reorganized Purina will be authorized to
issue 5,000,000 shares of new preferred stock, par value $0.01 (the "New
Preferred Stock"). The Board of Directors will 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 of 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 Purina's stockholders. 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 New Preferred Stock will be identical except for such
variations as may be permitted by law. Without limiting the foregoing,
Reorganized Purina is authorized to issue two initial classes of New Preferred
Stock that will be designated New Class A Preferred Stock and New Class B
Preferred Stock, with voting rights as set forth below.
NEW CLASS A PREFERRED STOCK
Each holder of New Class A Preferred Stock will be entitled to 100
votes per share and, except as otherwise required by law, will vote together
with the New Common Stock as a single class on all matters properly submitted to
a vote at a meeting of the stockholders. The New Class A Preferred Stock may be
issued only in connection with the exercise of Share Purchase Rights under the
Share Purchase Rights Agreement described below.
NEW CLASS B PREFERRED STOCK
Each holder of New Class B Preferred Stock will be entitled to one vote
per share and, except as otherwise required by law, shall vote together with the
New Common Stock as a single class on all matters properly submitted to a vote
at a meeting of stockholders.
FUTURE ISSUANCES OF STOCK
In addition to the New Common Stock to be issued pursuant to the Plan,
the KERP Program, the Equity Incentive Program, the potential conversion of the
Financial Advisor Notes and the potential purchase and exercise of the Warrant
by Koch Agriculture, Reorganized Purina 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 By-Laws, the Plan
and applicable law.
SHARE PURCHASE RIGHTS AGREEMENT
As of the Effective Date, Reorganized Purina will enter into the Share
Purchase Rights Agreement with a "Rights Agent," which agreement will be
approved by the Bankruptcy Court pursuant to the Confirmation Order. Under the
Share Purchase Rights Agreement, the Board of Directors will declare a dividend
on the New Common Stock of one Share Purchase Right, which provides the holder
with the right to purchase one one-hundredth of a share of New Class A Preferred
Stock of Reorganized Purina (the "Preferred Shares") at a price per one
one-hundredth of a Preferred Share, subject to adjustment (the "Purchase Price")
that will be approved by the Bankruptcy Court pursuant to the Confirmation
Order. Under the Share Purchase Rights Agreement, the Share Purchase Rights will
be evidenced by the New Common Stock share certificates until the earlier of the
following (the "Distribution Date"): (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
Purina, a subsidiary or employee benefit or stock ownership plan of Reorganized
Purina 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 Purina, a subsidiary or employee benefit or stock ownership plan of
Reorganized Purina, 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.
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Share Purchase 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 Share Purchase 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 Share Purchase Rights being
exercisable to purchase New Common Stock or other securities as described below.
Under the Share Purchase 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 Purina
and Reorganized Purina is the surviving corporation; (c) any Acquiring Person or
any affiliate or associate thereof effects certain other transactions with
Reorganized Purina; or (d) during such time as there is an Acquiring Person,
Reorganized Purina effects certain transactions, in each case as described in
the Share Purchase 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 Share Purchase
Right, other than Share Purchase 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 Share Purchase Right, that number of shares of New Common
Stock (or, under certain circumstances, an economically equivalent security or
securities of Reorganized Purina) that at the time of such Flip-in Event have a
market value of two times the exercise price of the Share Purchase Right.
In the event (a "Flip-over Event") that, at any time after a person has
become an Acquiring Person, (a) Reorganized Purina merges with or into any
person and Reorganized Purina is not the surviving corporation; (b) any person
merges with or into Reorganized Purina and Reorganized Purina 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 Purina's assets or earning power, including
securities creating obligations of Reorganized Purina, are sold, in each case as
described in the Share Purchase Rights Agreement, then, in each such case,
proper provision will be made so that each holder of a Share Purchase Right,
other than Share Purchase Rights that have become void, will thereafter have the
right to receive, upon the exercise thereof at the then-current exercise price
of the Share Purchase 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 Share Purchase Right.
From and after the later of the Share Acquisition Date and the
Distribution Date, Share Purchase Rights (other than any Share Purchase 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 Purina may exchange the Share Purchase Rights (other
than any Share Purchase Rights that have become void), in whole or in part, at
an exchange ratio of one share of New Common Stock per Share Purchase Right
(subject to adjustment).
For all purposes of the Share Purchase 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 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 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 Common Stock
thereafter becomes an affiliate or associate of such person.
Reorganized Purina may, at its option, redeem the Share Purchase Rights
in whole, but not in part, at a price of $0.01 per Share Purchase 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 Share Purchase Rights, the right
to exercise the Share Purchase Rights will terminate and the only right of the
holders of Share Purchase Rights will be to receive the Redemption Price.
The Share Purchase Rights Agreement may be amended by Reorganized
Purina without the approval of any holders of Share Purchase Rights, including
amendments that (a) increase or decrease the Purchase Price, (b) add other
events requiring adjustment to the Purchase Price payable and the number of the
Preferred Shares or other securities
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issuable upon the exercise of the Share Purchase Rights or (c) modify procedures
relating to the redemption of the Share Purchase Rights, except that no
amendment may be made that decreases the stated Redemption Price to an amount
less than $0.01 per Share Purchase Right. The Share Purchase Rights Agreement
will expire on (i) the first anniversary of the Effective Date or (ii) 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 (A) will have the right to reconsider any of the terms of the Share
Purchase Rights Agreement at any time and (B) may take such action with respect
to the Share Purchase 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 or New Term Notes
in satisfaction of their respective Claims under the Prepetition Credit
Facility. As set forth on Exhibit III.C.2 to the Plan, the terms of the New
Tranche A Notes, the New Tranche B Notes and the New Term Notes to be received
by holders of Allowed Bank Loan Claims will depend upon whether or not there is
a Class 4 Approval of the Plan As more fully described on Exhibit III.C.2 to the
Plan, the New Prepetition Credit Facility Notes will be secured by a lien on
substantially all of the assets of the Reorganized Debtors and certain other
subsidiaries of Reorganized Purina. If there is a Class 4 Approval of the Plan,
such lien will be junior to the lien to be granted in respect of the Exit
Financing Facility. The principal amount of the New Prepetition Credit Facility
Notes will equal the amount of Allowed Bank Loan 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 the New Prepetition
Credit Facility Notes will be as set forth on Exhibit III.C.2 to the Plan.
EXIT FINANCING FACILITY
On the Effective Date, if there is a Class 4 Approval of the Plan, the
Debtors, the Exit Financing Facility Bank Agent and each of the Participating
Bank Loan Claim Holders will enter into the Exit Financing Facility. See
"Overview of the Plan -- Exit Financing Facility; Participating Bank Loan Claim
Holders."
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," "Overview of the Plan -- Conditions to
Confirmation, the PMI Merger 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 entitled to vote 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 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 assumptions contained therein. The 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 Purina -- Projected Financial
Information."
BASED UPON THE DEBTORS' RECENT RESULTS OF OPERATIONS AND FINANCIAL
POSITION THROUGH DECEMBER 31, 1999, THE DEBTORS' MANAGEMENT AND FINANCIAL
ADVISORS ARE IN THE PROCESS OF REVIEWING THE ASSUMPTIONS UNDERLYING THE BUSINESS
PLAN AND REEVALUATING THE PROJECTIONS. BASED ON THIS ANALYSIS, THE DEBTORS MAY
AMEND THE PROJECTIONS PRIOR
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TO THE BANKRUPTCY COURTS HEARING ON THE DEBTORS' REQUEST TO APPROVE THE
DISCLOSURE STATEMENT.
FEDERAL INCOME TAX
According to regulations issued by the United States Treasury
Department, each subsidiary of a corporation 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 Purina will 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 PM Holdings leaves
the Koch Industries consolidated group pursuant to the Plan. Pursuant to the
Koch Tax Sharing Agreement to be entered into in connection with the PMI Merger
and effective on the PMI Merger Date, Koch Industries will agree to indemnify PM
Holdings with respect to any such liability under most, but not all,
circumstances.
In addition, the IRS may conduct an audit of PMI's separate federal
income tax returns for all open years for which PMI was not an affiliate of Koch
Industries. If such an audit is undertaken, it probably will not be completed
before deadline for the occurrence of the Effective Date contained in the Plan
(i.e., July 14, 2000), and could eventually result in a material Priority Tax
Claim being asserted against PMI, although the Debtors do not believe there is a
basis for such a Claim. Moreover, pursuant to section 502(b)(9) of the
Bankruptcy Code and in accordance with the Bar Date Order, the Government Bar
Date for the IRS and other governmental units to File Proofs of Claim will not
occur until April 25, 2000. See "Operations During the Reorganization Cases --
Commencement of Reorganization Cases and Related Case Administration Activities
- -- Claims Process and Bar Dates." Depending on the size of any Claim asserted by
the IRS, the feasibility of the Plan might be questioned by the IRS or some
other interested party. As a result, the Effective Date might have to be
postponed beyond the deadline of July 14, 2000 established in the Plan to allow
time for all material Priority Tax Claims to be asserted and then either allowed
or estimated at levels that do not raise feasibility issues. If this were to
occur, the Creditors' Committee or Koch Industries could assert that a condition
to the Effective Date has not been satisfied and obtain an order vacating the
Confirmation Order (if any) in accordance with Section IX.E of the Plan. By
contrast, if the feasibility of the Plan is not questioned by the IRS or other
interested parties and the Effective Date occurs prior to the assertion by and
settlement with the IRS of any material Priority Tax Claims, Reorganized Purina
would be subject to a potential material tax liability. Any such liability could
have a material adverse effect on Reorganized Purina subsequent to the Effective
Date.
COMPETITIVE INDUSTRY CONDITIONS
The commercial feed industry is highly competitive, and there has been
substantial excess capacity in the industry for over ten years. The excess
capacity in the industry has created 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. PMI (or Reorganized Purina) 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 vertically 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. See "Certain
Events Preceding the Debtors' Chapter 11 Filings -- Prepetition Events --
Agricultural Industry Market Conditions." As the consolidation of animal
producers continues, the available market for commercial feeds may shrink if
producers integrate their operations, which could lead to decreased market
demand for feed products and increased competition among feed producers. In
addition, should these market conditions result in business failures of major
PMI customers, such failures could result in lost sales by the Debtors and a
reduction in the utilization levels of the Debtors' manufacturing plants.
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-
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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 expose PMI to limited risks associated
with the prices of those end products. In addition, PMI historically has offered
various financing programs to its dealers and direct customers. See "Certain
Events Preceding the Debtors' Chapter 11 Filings -- Prepetition Events -- Credit
Risk Including Loan Guarantees." As of September 30, 1999, PMI's promissory
notes from and guaranties for the benefit of its customers totaled approximately
$5.4 million. There can be no assurance that Reorganized Purina 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 System 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 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 Debtors' management expects to achieve cost savings, operating
efficiencies, revenue enhancement and other synergies from integrating and
transitioning into Reorganized Purina the commodity purchasing function
previously performed for PMI by Koch Agriculture's Nutrient Services Division.
See "Certain Events Preceding the Debtors' Chapter 11 Filings -- Prepetition
Events -- Transactions with Koch Industries" and "Koch Industries Settlement --
The Settlement -- Principal Terms of the Settlement." 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' or
the Reorganized Debtors' management. The diversion of the attention of the
Debtors' or the Reorganized Debtors' management 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 and the
Reorganized 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. See "Certain Events Preceding the
Debtors' Chapter 11 Filings -- Prepetition Events -- Transaction with Koch
Industries." Subsequent to the expiration of the Transition Services Agreement
and the Supplement Transition Agreement, the Debtors or the Reorganized Debtors
will provide these programs, benefits and services. There can be no assurance
that the transition to the Debtors or the Reorganized Debtors of responsibility
for administering or providing these programs, benefits and services subsequent
to the expiration of the Transition Services Agreement and the Supplemental
Transition Agreement will be effected in a timely manner, will be completed
without disruption to the Debtors' or the Reorganized Debtors' businesses or
will not result in added costs to the Debtors and the Reorganized Debtors.
BUSINESS STRATEGY RISKS
The Debtors' business strategy as embodied in the Business Plan
includes adapting their businesses 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
Purina 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
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Purina's business. There also can be no assurance that the Debtors' other
business strategies, such as broadening Reorganized Purina'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 Purina -- Business and Properties of Reorganized Purina -- Business
Plan and Strategy for Reorganized Purina."
SUBSTANTIAL LEVERAGE
After giving pro forma effect to the Confirmation of the Plan on the
Effective Date the Reorganized Debtors' long term debt is expected to be
approximately $226.0 million. While the Debtors believe that future operating
cash flow, together with financing arrangements, will be sufficient to finance
operating requirements under their Business Plan, the Reorganized Debtors'
leverage and debt service requirements could make them more vulnerable to
economic downturns in the agricultural markets the Reorganized Debtors intend to
serve or in the economy generally. The Reorganized Debtors' indebtedness could
restrict their ability to obtain additional financing in the future and, because
the Reorganized Debtors may be more leveraged than certain of their competitors,
could place the Reorganized Debtors at a competitive disadvantage. In addition,
the Exit Financing Facility and the New Prepetition Credit Facility Notes
contain covenants that impose operating and financial restrictions on the
Reorganized Debtors. These covenants could adversely affect the Reorganized
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.
TREATMENT OF CLAIMS
This Disclosure Statement has been based on a preliminary review of the
Claims Filed on or before the January 26, 2000 General Bar Date, and the
Debtors' books and records; upon the passage of the General Bar Date (and, where
applicable, the other Bar Dates) and the completion of a detailed analysis of
the proofs of Claim, the actual amount of Claims Filed may differ from the
Debtors' current 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 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 Unsecured 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 Unsecured 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
The Debtors' results of operations are seasonal, with a higher
percentage of their volume and earnings being generated during the fourth and
first quarters of the year. This seasonality is driven largely by weather
conditions affecting the Debtors' 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 the Debtors' overall quarter-by-quarter results of operations.
The seasonality of the Debtors' businesses may impact the results of operation
achieved by Reorganized Purina.
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
Purina 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 could recognize a date ending in "00" as the year 1900 rather than
the year 2000, causing many computer applications to
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fail or create erroneous results. Year 2000 problems could affect many of PMI's
processes, including production, distribution, research and development and
financial and administrative 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 also is 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, and, to date, the Debtors have not
encountered any significant operational difficulties as a result of the
occurrence of January 1, 2000. 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 or
Reorganized Purina's results of operations, liquidity or financial condition.
REGULATORY COMPLIANCE
PMI's operations are subject to regulation by federal, state and local
agencies that administer laws governing health, safety and the protection of the
environment, including the United States Food and Drug Administration and the
United States Department of Agriculture. PMI believes that the procedures
currently in effect at its facilities are consistent with industry practice and
are in general compliance with such laws and regulations to the extent that
compliance is not prohibited by the commencement of the Reorganization Cases;
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 Purina'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 either PMI or Reorganized Purina will not in the future
(a) incur liability for the investigation and remediation of spills and other
releases of hazardous substances or (b) incur significant costs in connection
with compliance with environmental laws and regulations at its facilities. In
addition, as described above, the Debtors have Filed a motion seeking authority
to pay certain prepetition Claims necessary to comply with regulatory
requirements. See "Operations During the Reorganization Cases -- Commencement of
Reorganization Cases and Related Cases Administration Activities -- Payment of
Certain Claims Subject to Regulations." There can be no assurance that the
relief sought in this motion will be granted.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Amended Certificate and Amended By-Laws, as
well as Delaware statutes, may have the effect of delaying, deferring or
preventing a change in control of Reorganized Purina. Such provisions, including
those providing for the possible issuance of preferred stock and the nomination
of directors, together with Reorganized Purina's adoption of the Share Purchase
Rights Agreement, may make it more difficult for other persons, without the
approval of Reorganized Purina'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 Purina -- Certain Corporate Governance Matters," and "Securities to
Be Issued Pursuant to the Plan -- Share Purchase Rights Agreement."
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 PMI Merger (subject to waiver) 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, the PMI Merger and the Effective Date of the Plan --
Conditions to the 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
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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 which holders 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, although the Plan was developed based upon an assumed
reorganization value of $18.50 per share of the New Common Stock (assuming the
Warrant is not exercised), 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 Purina's annual or quarterly financial results or those of its
competitors, changes by financial analysts in their estimates of the future
earnings of Reorganized Purina, conditions in the economy in general or in the
animal nutrition industry in particular or unfavorable publicity. The stock
market also has, from time to time, experienced significant price and volume
fluctuations that have been unrelated to the operating performance of companies
with publicly-traded securities. See "Securities to Be Issued Pursuant to the
Plan -- Reorganization Value." No assurance can be given as to the market prices
for New Common Stock that will prevail following the Effective Date.
SECURITY INTERESTS
Substantially all cash, receivables, inventory and other assets of
Reorganized Purina 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; Participating Bank Loan Claim Holders." 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 accordingly would be
unavailable to Reorganized Purina or the subsidiary owning the collateral and to
other creditors of Reorganized Purina 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 Purina does not anticipate paying any dividends on the New
Common Stock in the foreseeable future, other than the issuance of Share
Purchase Rights described above. See "Securities to Be Issued Pursuant to the
Plan -- Share Purchase Rights Agreement." In addition, covenants in certain debt
instruments to which Reorganized Purina will be a party will restrict the
ability of Reorganized Purina 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, if any, will include a customary
covenant prohibiting Reorganized Purina from paying any dividends or making any
other distributions to stockholders. 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 Purina will operate the existing business of
PMI under a new capital structure. In addition, Reorganized Purina will be
subject to the fresh start accounting rules. See "Reorganized Purina --
Restructuring Transactions," "-- Business and Properties of Reorganized Purina"
and "-- Projected Financial Information." Accordingly, the financial condition
and results of operations of Reorganized Purina 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 distributions of New Common Stock that
ultimately will be received by any particular holder of an Allowed 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
Allowed 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
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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 not specifically released pursuant to the Plan,
which released parties include the Koch Entities and certain related parties.
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 and immediately after the cancellation of the Old PM Holdings
Common Stock: (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.
Except as provided in the Plan or the Confirmation Order, the
Confirmation Order will be a judicial determination, as of the Effective Date
and immediately after the cancellation of the Old Common Stock of PM Holdings
and the issuance of the New Common Stock, of a discharge of all such Claims and
other debts and liabilities against the Debtors and a 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.
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
will 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 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.
As of the Effective Date, all entities that have held, currently hold
or may hold any claims, obligations, suits, judgments, damages, demands, debts,
rights, causes of action or liabilities that are released pursuant to the Plan
will be permanently enjoined from taking any of the following actions against
any released entity or its property on account of such released claims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
or liabilities: (a) commencing or continuing in any manner any action or other
proceeding; (b) enforcing, attaching, collecting or recovering in any manner any
judgment, award, decree or order; (c) creating, perfecting or enforcing any lien
or encumbrance; (d) asserting a setoff, right of subrogation or recoupment of
any kind against any debt, liability or obligation due to any released entity;
and (e) commencing or continuing any action, in any manner, in any place that
does not comply with or is inconsistent with the provisions of the Plan.
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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, 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.
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 THE REORGANIZED
DEBTORS
Except as provided in the Plan or in any contract, instrument, release
or other agreement entered into or delivered 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 against any person or entity to the extent not released under Section
IV.E.2.b.i of the Plan. 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 (other than any of the Koch
Entities, except as provided in Section III.F of the Plan with respect to
acquired Claims) related to debit balances or deposits owed to any Debtor.
Notwithstanding the foregoing, on the Effective Date, the Reorganized Debtors
will be deemed to waive and release any claims, rights or causes of action
arising under section 547 of the Bankruptcy Code relating to preferential
transfers held by any Reorganized Debtor against any entity.
RELEASES, INDEMNITY AND RELATED INJUNCTION
As of the Effective Date, 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, agreements or documents to be entered into or delivered in connection
with the Plan (a) each holder of a Claim or Interest that votes in favor of the
Plan and (b) to the fullest extent permissible under applicable law, as such law
may be extended or interpreted subsequent to the Effective Date, each entity
that has held, holds or may hold a Claim or Interest or at any time was a
creditor or stockholder of any of the Debtors and that does not vote on the Plan
or votes against the Plan will be deemed to forever release, waive and discharge
all claims (including Derivative Claims), obligations, suits, judgments,
damages, demands, debts, rights, causes of action and 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 in law, equity or otherwise, that are based in whole or in
part on any act, omission, transaction 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 or
other PMI Entity, the members of the Unofficial Noteholders Committee, the
members of the Creditors' Committee and each of their respective present or
former directors, officers, employees, attorneys, accountants, underwriters,
investment bankers, financial advisors and agents, acting in such capacity
(which release will be in addition to the discharge of Claims and termination of
Interests provided in the Plan and under the Confirmation Order and the
Bankruptcy Code).
As of the Effective Date, for good and valuable consideration,
including the consideration provided by the Koch Entities to the Reorganized
Debtors pursuant to the terms and conditions of the Plan, each of the Debtors in
their
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individual capacities and as a debtor in possession and, pursuant to a written
agreement that the Debtors shall cause to be executed and delivered on the
Effective Date, each other PMI Entity listed on Exhibit IV.E.2.b.i to the Plan,
will be deemed to forever release, waive and discharge (a) each of the Koch
Entities and their respective stockholders; (b) the respective present or former
officers, directors, employees, attorneys, accountants, financial advisors,
investment bankers and agents of any of the Koch Entities, acting in such
capacity, and, to the extent not otherwise included in this clause (b), CS First
Boston Corp.; Lehman Brothers Inc.; Cleary, Gottlieb, Steen & Hamilton; Olsson,
Frank & Weeda; Shook, Hardy & Bacon; Foulston & Siefkin; and Smith, Lewis,
Beckett, Powell, Roark & Durley; (c) any officer or director of any of the
Debtors from and after March 12, 1998; and (d) any employee, attorney,
accountant, financial advisor, investment banker or agent of any of the Debtors
involved in the Koch Purchase Transaction, any officer or director of any of the
Debtors prior to March 12, 1998 that is not released in clause (b) or (c) above
and any other person or entity involved in the Koch Purchase Transaction, in
each case under this clause (d) solely to the extent that any such person or
entity, if not so released, would hold a claim for indemnification, contribution
or reimbursement against any entity or person released in clauses (a), (b) or
(c) above, for and from any and all claims (including Derivative Claims),
obligations, suits, judgments, damages, demands, debts, rights, rights of setoff
(except as otherwise expressly provided in Section VI.I of the Plan), causes of
action and liabilities, whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing or
thereafter arising in law, equity or otherwise, that are based in whole or in
part on any act, omission, transaction, event or other occurrence taking place
on or prior to the Effective Date, including the Recovery Actions (excluding the
right to enforce the terms of the Transition Services Agreement, the
Supplemental Transition Agreement and the Plan and the contracts, instruments,
releases, agreements and documents delivered thereunder). The entities
specifically named in clause (b) above were involved as advisors or in other
capacities in the Koch Purchase Transaction.
As of the Effective Date, for good and valuable consideration,
including the consideration provided by the Koch Entities to the Reorganized
Debtors pursuant to the terms and conditions of the Plan, (a) each holder of a
Claim or Interest that votes in favor of the Plan and (b) to the fullest extent
permissible under applicable law, as such law may be extended or interpreted
subsequent to the Effective Date, each entity that has held, holds or may hold a
Claim or Interest or at any time was a creditor or stockholder of any of the
Debtors that does not vote on the Plan or votes against the Plan will be deemed
to forever release, waive and discharge (i) each of the Koch Entities and their
respective stockholders and (ii) the respective present or former officers,
directors, employees, attorneys, accountants, financial advisors, investment
bankers and agents of any of the Koch Entities, acting in such capacity, for and
from any and all claims, obligations, suits, judgments, damages, demands, debts,
rights, causes of action and liabilities, whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter existing, in law, equity or otherwise,
that are not Derivative Claims and that are based in whole or in part on any
act, omission, transaction, event or other occurrence taking place on or prior
to the Effective Date in any way relating to the Debtors, the Koch Purchase
Transaction, the Old Senior Subordinated Notes, the Prepetition Indenture, any
Claim or Interest that is treated in the Plan or the Reorganization Cases.
As of the Effective Date, for good and valuable consideration, each of
the Koch Entities will be deemed to forever release, waive and discharge (a)
each of the Debtors and, subject to their execution of a written agreement
contemplated by Section IV.E.2.b.i of the Plan, the other PMI Entities listed on
Exhibit IV.E.2.b.i to the Plan; (b) any stockholder or present officer, director
or employee of any of the Debtors or any of the other PMI Entities released
under clause (a) above; (c) the members of the Unofficial Noteholders Committee
and the members of the Creditors' Committee that vote in favor of the Plan; (d)
any creditor of the Debtors that has voted in favor of the Plan or that is
determined by a Final Order to have granted a binding and enforceable release in
favor of the Koch Entities; and (e) the respective attorneys, accountants,
financial advisors and agents, acting in such capacity, for and from any and all
claims, obligations, suits, judgments, damages, demands, debts, rights, rights
of setoff, causes of action and liabilities, whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter existing, in law, equity or otherwise,
that are based in whole or in part on any act, omission, transaction, event or
other occurrence taking place on or prior to the Effective Date in any way
relating to the Debtors, the Koch Purchase Transaction, the Old Senior
Subordinated Notes, the Prepetition Indenture, any Claim or Interest that is
treated in the Plan or the Reorganization Cases (excluding the right to receive
a full distribution on account of the Koch Agriculture Commodity Sale Claim as a
Class 5 Claim, the Administrative Claims held by any Koch Entity Allowed under
the Plan or any Exhibit to the Plan and any Claim acquired by a Koch Entity from
a third party that becomes an Allowed Claim and to enforce the terms of the
Transition Services Agreement, the Supplemental Transition Agreement and the
Plan and the contracts, instruments, releases, agreements and documents
delivered thereunder). Pursuant to the Koch Indemnity Agreement, the Koch
Entities will agree not to initiate litigation against any former officer,
director or employee of any PMI Entity.
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As of the Effective Date, in accordance with the Koch Indemnity
Agreement, each of the Reorganized Debtors, jointly and severally will fully
indemnify each of the Koch Entities and their respective stockholders and
present and former officers, directors, employees, accountants, attorneys,
investment bankers, financial advisors and agents, from any and all liabilities,
costs or expenses (including reasonable attorneys' fees paid as invoiced by such
indemnified party to the Reorganized Debtors within five Business Days after
receipt by a Reorganized Debtor of such invoice) related to any claims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
and liabilities asserted by any third party against any of the Koch Entities or
their respective stockholders or present or former officers, directors,
employees, accountants, attorneys, investment bankers, financial advisors or
agents, arising out of (a) the initiation by any of the Debtors, the Reorganized
Debtors or any other PMI Entity of litigation against such third party in any
way relating to a Koch Entity's ownership or operation of the Debtors, the Koch
Purchase Transaction, the Old Senior Subordinated Notes, the Prepetition
Indenture or any Claim or Interest; (b) any Services (as defined under the
Transition Services Agreement), any Additional Transition Items (as defined in
the Supplemental Transition Agreement) or any other services or benefits
provided by any Koch Entity to or for the benefit of any PMI Entity after the
Petition Date; and (c) with respect to a drawing of bonds under the bond program
Services within the meaning of paragraph A.4 of Exhibit 2.1(a)(iii) of the
Transition Services Agreement, whether such bond program Services were provided
before or after the Petition Date. Except as provided in clause (c) above and
Section IV.F.4 of the Plan, and in respect of the Koch Agriculture Commodity
Sale Claim and the Koch Agriculture Transition Settlement Payment, no Koch
Entity will have any Claim against any PMI Entity (and, as of the Effective
Date, any such Claim will be deemed to have been released) relating to any
services or benefits provided by any Koch Entity to or for the benefit of any
PMI Entity prior to the Petition Date, whether arising from a liability asserted
by any third party against any of the Koch Entities or otherwise.
Notwithstanding the foregoing, the Koch Entities will not be indemnified for (i)
any portion of the compensation of the directors of PMI paid by any Koch Entity
prior to the Effective Date or (ii) any claims in respect of any guarantee by
any Koch Entity of any employment contract of a PMI employee.
At any time prior to 30 days before the Confirmation Hearing, Koch
Industries may request that the Debtors and the Creditors' Committee join with
Koch Industries in Filing appropriate pleadings requesting a determination of
the Bankruptcy Court that under applicable law the releases contained in Section
IV.E.2.b.ii of the Plan are valid and binding on each entity that has held,
holds or may hold a Claim or Interest or at any time was a creditor or
stockholder of any of the Debtors and that either does not vote on the Plan or
votes against the Plan. If Koch Industries makes such request, the Debtors and
the Creditors' Committee, in cooperation with Koch Industries, will use their
best efforts in good faith to obtain such a ruling from the Bankruptcy Court in
connection with Confirmation.
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 claims, obligations, suits,
judgments, damages, demands, debts, rights, causes of action or liabilities
released pursuant to the Plan.
CONTINUATION OF CERTAIN EMPLOYEE AND RETIREE BENEFITS
Except as modified or replaced by the agreements, plans and programs
described in "Reorganized Purina -- Employee Benefit Matters," from and after
the Effective Date, the Reorganized Debtors intend to continue (or continue as
modified or replaced) their existing employee benefit policies, plans and
agreements, including the KERP Program, as described in "Reorganized Purina --
Employee Benefit Matters -- Existing Benefit Plans and Agreements." In
connection with the foregoing, the Claims of Participants in the CAP Plan will
be Reinstated as of the Effective Date. Pursuant to the Koch Indemnity
Agreement, as of the Effective Date, each of the Reorganized Debtors, jointly
and severally, will indemnify each of the Koch Entities from any and all
liabilities asserted by any participant under the CAP Plan arising solely from
the failure of the Reorganized Debtors to pay the Reinstated Claims of such
participant in accordance with the terms of the CAP Plan.
From and after the Effective Date, except to the extent that such
obligations are satisfied by Koch Industries as set forth in the Supplemental
Transition Agreement, the Reorganized Debtors will continue to 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.
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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 applicable Debtor or Debtors will assume, or assume and assign, as
indicated, each of the other Executory Contracts and Unexpired Leases listed on
Exhibit V.A.1 to the Plan; provided, however, that the 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 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 counsel to 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 as described in Sections 1.A.103 or
V.A.2 of the Plan) is an Executory Contract or Unexpired Lease or that a Debtor
or Reorganized Debtor has any liability thereunder.
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.6 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 Sections V.A and V.E of
the Plan, pursuant to section 365 of the Bankruptcy Code, as of the Effective
Date. An 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 or assumption and
assignment of the applicable contract or lease or the 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 or assumption and assignment of such contract or lease, the
payment of any Cure Amount Claim 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 (A) by treating such amount as either a direct or indirect
contribution to capital or distribution (as appropriate) or (B) 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 agreements assumed pursuant to Sections 1.A.103 and V.A.2
of the Plan), 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
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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 as described in Section 1.A.103 of the Plan)
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 and not previously assumed, assumed and
assigned or rejected by an order of the Bankruptcy Court 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.
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 the purpose of implementing the Plan, including
for purposes of voting, Confirmation and distributions to be made under the
Plan. Pursuant to the Confirmation Order: (a) all assets and liabilities of PM
Holdings, PMI and the PMI Subsidiary Debtors will be deemed merged; (b) all
guarantees by one Debtor of the obligations of any other Debtor will 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 will 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 will be deemed Filed against the consolidated Debtors and will be
deemed to be one Claim against and a single obligation of the consolidated
Debtors. Such substantive consolidation (other than for the purposes of
implementing the Plan) will not affect (i) the legal and corporate structures of
the Reorganized Debtors, subject to the PMI Merger and 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 guarantees 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 relied upon 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 support a substantive
consolidation of the Debtors under the current circumstances. No assurance can
be given however that the Bankruptcy Court will approve the proposed substantive
consolidation of the Debtors.
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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) 45
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.
DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS AND INTERESTS
Reorganized Purina, or such Third Party Disbursing Agents as
Reorganized Purina 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.
Reorganized Purina may, at its option, employ the Indenture Trustee to act as
the Third Party Disbursing Agent in respect of Class 5 Claims.
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 Purina, 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
Purina 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
Except as provided below for Old Senior Subordinated Note Claims,
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 Filed by
holders of such Claims; (b) at the addresses set forth in any written
certification of address change delivered to the Disbursing Agent (including
pursuant to a letter of transmittal delivered to a Disbursing Agent) 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.
SPECIAL PROVISIONS FOR DISTRIBUTIONS TO HOLDERS OF OLD SENIOR
SUBORDINATED NOTE CLAIMS
Subject to the requirements of Section VI.J of the Plan, distributions
to holders of Allowed Old Senior Subordinated Note Claims will be made by a
Disbursing Agent to the record holders of the Old Senior Subordinated Notes as
of the Distribution Record Date, as identified on a record holder register to be
provided to the Disbursing Agent by the Indenture Trustee within five Business
Days after the Distribution Record Date. This record holder register will
provide the name, address and holdings of each respective registered holder of
Old Senior Subordinated Notes as of the Distribution Record Date.
UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
If any distribution to a holder of an Allowed Claim 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
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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
account of 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. Subject to Section IV.E.2.c of the Plan,
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 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 Purina, (b) voted in any election of the
directors of Reorganized Purina for the nominees recommended by the Board of
Directors of Reorganized Purina and (c) voted with respect to any other matter
as recommended by the Board of Directors of Reorganized Purina.
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: (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, (i) unclaimed cash and New
Common Stock will be retained in the Unsecured Claims Reserve for Pro Rata
distribution to holders of Allowed Claims in such Class, pursuant to Section
VI.H.2.b of the Plan, and (ii) 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 Purina, free of
any restrictions thereon, and any such cash held by a Third Party Disbursing
Agent will be returned to Reorganized Purina. 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 under the Plan to recognize and make distributions only to
those holders of Allowed Bank Loan Claims that 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 Claims that occurs after the close of
business on the Distribution Record Date and will be entitled for all purposes
under the Plan to recognize and make distributions only to those holders of Old
Senior Subordinated 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. currency by checks drawn on a domestic bank selected
by the applicable Debtor or Reorganized Debtor or, at the option of the
applicable Debtor or Reorganized Debtor, by wire transfer from a domestic bank;
provided, however, that cash payments
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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.
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 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 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 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 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 also will be calculated pursuant to the provisions set forth in
Section VI.H.2.a of the Plan.
On the fourth Quarterly Distribution Date and annually thereafter, 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: (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 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 or 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.
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 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 Claims 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 that are
rounded down.
Each share of New Common Stock distributed pursuant to the Plan will be
accompanied by one Share Purchase Right.
DE MINIMIS DISTRIBUTIONS
No Disbursing Agent will 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
Claims in a Class other than Class 5 will be the property of Reorganized Purina,
free of any restrictions thereon, and any such cash held by a Third Party
Disbursing Agent will be returned to Reorganized Purina. Any cash not
distributed pursuant to Section VI.H.4 of the Plan 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 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 such distribution discharged and will be
forever barred from asserting any such claim against the Unsecured Claims
Reserve or otherwise.
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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 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, New
Common Stock or New Prepetition Credit Facility Notes 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 must 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. Pending such surrender, any
distributions pursuant to the Plan on account of any such Claim will 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
Old Senior Subordinated Note Claim must tender the applicable Old Senior
Subordinated 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 the applicable Old Senior Subordinated Notes 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.
Any holder of an Allowed Old Senior Subordinated Note Claim with
respect to which the underlying Old Senior Subordinated Note has been lost,
stolen, mutilated or destroyed must, 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 the foregoing procedures (as contained in Section VI.J.2 of the Plan) by a
holder of an Allowed Old Senior Subordinated Note Claim, such holder will, for
all purposes under the Plan, be deemed to have surrendered the applicable Old
Senior Subordinated Note.
Any holder of an Allowed Old Senior Subordinated Note Claim that fails
to surrender or be deemed to have surrendered the applicable Old Senior
Subordinated Notes within two years after the Effective Date will have its right
to a distribution pursuant to the Plan on account of such Old Senior
Subordinated Note Claim discharged and will be forever barred from asserting any
such Claim against the Reorganized Debtors or their respective property. In such
case, any cash or New Common Stock held for distribution on account of such
Claim will be treated 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 tender any Old
Prepetition Credit Facility Notes or, if not evidenced by a note, any other
instrument evidencing their respective Allowed Claims to the applicable
Disbursing Agent as and when such entities receive New Prepetition Credit
Facility Notes. If any such entity's notes or other 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 deliver to
the applicable Disbursing Agent evidence satisfactory to the Disbursing Agent of
the loss, theft, 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 entered into or delivered in connection with the Plan or
as otherwise provided in Section III.F of the Plan, the Reorganized Debtors or,
as instructed by the applicable Reorganized Debtor, a Third Party Disbursing
Agent may, pursuant to section 553 of the Bankruptcy Code or applicable
nonbankruptcy law, set
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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 that the Debtors will not have any rights of setoff
against any Claim held by a Koch Entity Allowed under or created by the Plan or
any Exhibit to the Plan or against any Claim held by a Koch Entity acquired from
a third party, other than any rights of setoff such Debtor has against the
original holder of such Claim; provided, further, that neither the failure to
effect a setoff nor the allowance of any Claim under the Plan will constitute a
waiver or release by the applicable Debtor or Reorganized Debtor of any claims,
rights and causes of action that the Debtor or Reorganized Debtor may possess
against such a Claim 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 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
Purina will fund the Unsecured Claims Reserve with New Common Stock, as
described in Section VI.D.1 of the Plan.
FUNDING OF 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.
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 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.
Cash held in the Unsecured Claims Reserve (including as a result of dividends
and other distributions on New Common Stock held in the Unsecured Claims
Reserve) (a) will be deposited in a segregated bank account in the name of the
applicable Disbursing Agent and held in trust pending distribution by the
Disbursing Agent for the benefit of holders of Class 5 Claims, (b) will be
accounted for separately and (c) 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 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.
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.
PAYMENT OF POST-EFFECTIVE 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 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
Dividend and Interest Income Earned by the Unsecured Claims Reserve" and "--
Receipt of Pre-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 will 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 will 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
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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 Tort Claim will remain a
Disputed Claim until it becomes an Allowed Claim in accordance with Section
I.A.4 of the Plan.
After the Confirmation Date, only the Debtors or the Reorganized
Debtors will have the authority to File, 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
will 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
will 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 20 days of the service of the settlement notice. If
no such objection is Filed, the applicable settlement or compromise will be
deemed 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 (including the exercise of the Claims Resolution
Committee's rights pursuant to Section VII.A.2 of the Plan) and (b) making
distributions on account of such Claims once resolved (including the exercise of
the Claims Resolution Committee's rights pursuant to Section I.A.47.b of the
Plan). 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' EXPENSES
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 Claims Resolution 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 Purina'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.
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DISSOLUTION OF THE CLAIMS RESOLUTION COMMITTEE
Subject to further order of the Bankruptcy Court, the Claims Resolution
Committee will dissolve upon distribution (other than on account of
undeliverable distributions pursuant to Section VI.E.2 of the Plan) of 95% or
more of the 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.
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 Debtors, as proponents of the Plan, have proposed the Plan in good faith and
not by any means forbidden by law; (e) the disclosure 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 not likely be
followed by the liquidation or the need for further financial reorganization of
the Debtors or the Reorganized 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. ss. 1930, as determined by the Bankruptcy Court
at the Confirmation Hearing, 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 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 Debtors have been made.
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, IF YOU HOLD
OLD SENIOR SUBORDINATED NOTE CLAIMS AS WELL AS OTHER CLAIMS IN CLASS 5 OR UNDER
CERTAIN OTHER CIRCUMSTANCES, YOU MAY RECEIVE MORE THAN ONE BALLOT. YOU SHOULD
COMPLETE, SIGN AND RETURN EACH BALLOT YOU RECEIVE.
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PLEASE CAREFULLY FOLLOW ALL OF THE INSTRUCTIONS CONTAINED ON THE BALLOT
PROVIDED TO YOU. ALL BALLOTS MUST BE COMPLETED AND RETURNED IN ACCORDANCE WITH
THE INSTRUCTIONS PROVIDED.
TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED BY 5:00 P.M.,
EASTERN TIME, ON ____, 2000 (OR SUCH OTHER TIME AND DATE IDENTIFIED ON YOUR
BALLOT) AT THE ADDRESS SET FORTH ON THE PREADDRESSED ENVELOPE PROVIDED TO YOU.
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, PLEASE CALL THE DEBTORS' VOTING AGENT,
LOGAN & COMPANY, INC., AT (973) 509-3190.
Holders of Unsecured Claims aggregating more than $2,500 that wish to be treated
in Class 2 (Convenience Class) must indicate that election on the Ballot. See
"Overview of the Plan -- Summary of Classes and Treatment of Claims and
Interests." Holders of Bank Loan Claims that wish to be treated as Participating
Bank Loan Claim Holders must indicate that election on the Ballot. See "Overview
of the Plan -- Summary of Classes and Treatment of Claims and Interests" and
"Overview of the Plan -- Exit Financing Facility; Participating Bank Loan Claim
Holders."
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 ____________, 2000 at _____ __.m. before the Honorable
Sue L. Robinson, United States District Judge for the District of Delaware, in
the Judge's usual courtroom at the United States District Court for the District
of Delaware, 844 King Street, 6th Floor, Wilmington, Delaware 19801. 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, in the manner and by the deadline described
therein.
CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if all of the applicable 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
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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 Class of Unsecured 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. If there is no Class 4 Approval of the Plan, the Debtors believe that
the Plan is feasible and can be confirmed under the applicable provisions of the
Bankruptcy Code.
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.
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 under chapter 7 of the Bankruptcy
Code, 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 each of 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 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 and Priority Tax Claims. The Debtors' costs of
liquidation in chapter 7 cases 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 and Priority Tax Claims
that would otherwise be payable in the ordinary course of business. These
Priority Claims and Priority Tax 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
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respect of Interests. The Debtors believe that the liquidation also would
generate a significant increase in Unsecured Claims, such as Rejection Damage
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. It is assumed that in
a liquidation there would be no settlement of any kind with the Koch Entities.
No amounts have been included in the liquidation analysis in respect of any
potential recovery by the Debtors in respect of the Recovery Actions. 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 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 Unsecured Claims. The hypothetical chapter 7 liquidations
of the Debtors are assumed to commence on March 1, 2000 and to be completed
within 12 months thereafter. The Liquidation Analysis, which is presented on a
consolidated basis for the Debtors resulting in the elimination of certain
intercompany claims, assumes that distributions are made by the chapter 7
trustee beginning six months following commencement of the liquidation and
completed within 18 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 the 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 Executory Contracts and Unexpired Leases 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.
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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 and solicit
acceptances of 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 of the Bankruptcy Code, 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 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 PROVIDED BELOW 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 THE 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
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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 NOL's 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 OF CLAIMS
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 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 generally have 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 Unsecured Claims in respect of
other liabilities will not be considered tax securities for this purpose.
HOLDERS OF CLAIMS CONSTITUTING TAX SECURITIES
Under the terms of the Plan, holders of Allowed Claims constituting tax
securities will receive New Common Stock in satisfaction of their Claims under
the Plan. Holders of Claims constituting tax securities generally will not
recognize gain on the exchange.
Holders of Claims constituting tax securities who receive New Common
Stock under the Plan in either partial or full satisfaction of their Claims
generally will 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 amounts
allocable to interest -- generally will equal the holder's basis in the Claim,
decreased by the amount of any cash received by the holder and increased by the
amount of any gain recognized by the holder in connection with the exchange. The
holding period for any New Common Stock received in the exchange generally will
include the holding period of the Claim surrendered.
HOLDERS OF CLAIMS NOT CONSTITUTING TAX SECURITIES
Holders of Claims not constituting tax securities likely will 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 generally will equal the sum of the cash and the fair market value
of any other consideration received under the Plan, including any New Common
Stock.
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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 generally will
equal the amount realized. The holding period for any consideration received
under the Plan generally will begin on the day following the receipt of that
consideration.
DIVIDEND AND INTEREST INCOME EARNED BY THE 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. Therefore, it is possible that the Unsecured Claims Reserve will
receive cash dividends or other distributions from Reorganized Purina on account
of the shares of New Common Stock held in the Unsecured Claims Reserve. 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.
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, in turn,
would have the consequence of causing income earned by those accounts to be
subject to a separate entity-level tax. The proposed Treasury Regulation is not
currently in effect and will only become effective once it is promulgated in
final form. In the interim, the proposed Treasury 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 Debtors have determined to treat the
Unsecured Claims Reserve as a grantor trust of which Reorganized Debtor is the
grantor, and therefore will treat income earned by the Unsecured Claims Reserve
as income of the Reorganized Debtor. To assure that this income is fully subject
to tax, the Reorganized Debtor will waive whatever right it might otherwise have
to claim a dividend 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 account of 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 THE UNSECURED CLAIMS
RESERVE
As described above (see "Federal Income Tax Consequences of
Consummation of the Plan -- Federal Income Tax Consequences to Holders of Claims
- -- 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.
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REINSTATEMENT OF CLAIMS
Holders generally should not recognize gain, loss or other taxable
income upon the Reinstatement of their Claims under the Plan. Taxable income,
however, may 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 the holders' adjusted basis in the original Claims,
provided that the new notes contain terms that significantly modify the terms
contained in the instruments giving rise to the original Claims. Further,
holders of Bank Loan 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
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 therefore are 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, as amended, 15 U.S.C. ss.ss. 77a-77aa (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. The
offer and distribution of the option to purchase the Warrant, the Warrant and
the New Common Stock issuable upon exercise of the Warrant, however, are not
exempt from registration under section 1145(a)(1), but the Debtors believe other
applicable exemptions from the Securities Act are available for such offers and
distributions.
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
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of the New Common Stock under the Plan satisfies the requirements of section
1145(a)(1) of the Bankruptcy Code and, therefore, are 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.
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 such person's 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 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."
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 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) either (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 arms' 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 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 persons intending to rely on
such exemption are urged to consult their own counsel as to the applicability
thereof to any particular 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
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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 the owner's own account and subsequent transfers to institutional or
accredited investors. Such exemptions generally are expected to be available for
subsequent transfers of the New Common Stock.
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 Purina 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 this matter, however,
have not 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.
REGISTRATION RIGHTS
Pursuant to the Plan, on the Effective Date, Reorganized Purina will
agree to enter into agreements (collectively, the "New Registration Rights
Agreement") with Koch Industries and Koch Agriculture, if requested, and with
certain other entities providing for the registration of New Common Stock under
the Securities Act. Only entities entitled to receive distributions pursuant to
the Plan of New Common Stock representing at least 10% of the aggregate New
Common Stock issuable pursuant to the Plan (collectively, "Eligible Holders")
will be entitled to enter into the New Registration Rights Agreements.
Reorganized Purina has agreed to use good faith, reasonable commercial efforts
to cause to become effective within 90 days after the Effective Date a shelf
registration on Form S-3 or other applicable form covering resales of New Common
Stock owned by Eligible Holders. Under the New Registration Rights Agreement,
during the period commencing on the 91st day after the Effective Date and ending
on the second anniversary of the Effective Date, Reorganized Purina will be
required, for each Eligible Holder that owns at least 10% of the outstanding
shares of New Common Stock or that certifies to Reorganized Purina that such
holder may be deemed to be an "affiliate" of Reorganized Purina, to effect the
registration under the Securities Act of resales by such Eligible Holder of New
Common Stock (which registration may be effected by such shelf registration);
provided, however, that in no event will Reorganized Purina be required to so
register such New Common Stock at any time prior to the 91st day after the
Effective Date or pursuant to a registration statement other than a shelf
registration statement at any time when a shelf registration statement covering
such New Common Stock is effective under the Securities Act. Eligible Holders
also will be entitled to customary "piggyback" registration rights.
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
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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 (once Filed with the Bankruptcy Court) and this Disclosure Statement
are available for inspection during regular business hours at the Document
Reviewing Center located at the office of Jones, Day, Reavis & Pogue, 901
Lakeside Avenue, Cleveland, Ohio 44114 or at any other location designated by
the Debtors, and may be obtained from the copy services identified in the notice
of the Confirmation Hearing.
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
in voting Classes 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 the Voting Deadline.
<TABLE>
<S> <C>
Dated: January 18, 2000 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:
PM HOLDINGS CORPORATION
- ---------------------------------------
THOMAS L. AMBRO (DE377)
DANIEL J. DEFRANCESCHI (DE2732)
RICHARDS, LAYTON & FINGER By:________________________________________________
One Rodney Square Name: David G. Kabbes
P.O. Box 551 Title: Secretary
Wilmington, Delaware 19899
(302) 658-6541
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
ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
</TABLE>
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EXHIBIT I
PMI DEBTOR SUBSIDIARIES
Carolina Agri-Products, Inc.
Coastal Ag-Development, Inc.
Cole Grain Company, Inc.
Dairy Management Services, L.L.P.
PM Nutrition Company, Inc.
PMI Agriculture L.L.C.
PMI Nutrition, Inc.
PMI Nutrition International, Inc.
Purina Livestock Management Services, Inc.
<PAGE> 105
EXHIBIT II
JOINT PLAN OF REORGANIZATION OF PURINA MILLS, INC.,
ITS PARENT CORPORATION AND ITS DEBTOR SUBSIDIARIES
<PAGE> 106
EXHIBIT III
PMI FORMS 10-K AND 10-Q
<PAGE> 107
EXHIBIT IV
LIQUIDATION ANALYSIS
<PAGE> 108
Purina Mills, Inc. and Affiliated Debtors
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) $ 7,943 $ 7,943
Receivables(3) 22,245 29,089
Inventories(4) 23,443 36,094
Other Current Assets(5) 595 595
Property, Plant and Equipment(6) 36,726 80,453
Other Assets(7) 42,033 45,134
----------- -----------
Gross Proceeds $ 132,987 $ 199,311
Wind Down Costs (8) 18,000 18,000
----------- -----------
Net Proceeds $ 114,987 $ 181,311
</TABLE>
<TABLE>
<CAPTION>
Priority and General
Secured Claims(9) Administrative Claims(10) Unsecured Claims(11)
----------------- ------------------------- --------------------
Lower Higher Lower Higher Lower Higher
Recovery Recovery Recovery Recovery Recovery Recovery
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Estimated Proceeds $114,987 $181,311 $20,000 $25,000 $ 7,156 $ 12,156
Available for Distribution*
Estimated Claim Amount 293,154 293,154 12,843 12,843 661,534 595,210
Estimated Recovery $114,987 $181,311 $12,843 $12,843 $ 7,156 $ 12,156
Amount
Percent Recovered 39% 62% 100% 100% 1% 2%
</TABLE>
*Estimated proceeds available for distribution to Secured Claims represents
proceeds from the liquidation of secured assets. Proceeds available for
distribution to Priority and Administrative Claims and General Unsecured Claims
represent proceeds from litigation not subject to security interests (such as
anticipated minimum proceeds from the Vitamin Settlement or related litigation;
see "Koch Industries Settlement" and "Certain Events Preceding the Debtors'
Chapter 11 Filings -- Prepetition Events -- Vitamin Litigation and Proposed
Settlement.")
- -------------
(1) The Liquidation Analysis presented herein reflects a hypothetical
liquidation of the Debtors under chapter 7 of the Bankruptcy Code to
determine whether the Plan satisfies the "best interests" 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 March 1, 2000. 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 September 30, 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 necessarily would differ on an entity-by-entity basis. As
such, the
<PAGE> 109
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 "Koch
Industries Settlement -- Certain Recovery Actions." 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 March 1,
2000 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 six months after commencement and ending 18 months thereafter.
Administration of the chapter 7 is assumed to be complete in 12 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 calculated net of outstanding checks
($7.2 million), postpetition trade payables ($17.5 million) and
postpetition payables to Koch Industries ($3.3 million) as of November
30, 1999. The Debtors believe that this amount is a reasonable estimate
to utilize for estimated cash and cash equivalents as of March 1, 2000.
(3) "Receivables" 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. 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 and livestock)
and finished goods as of November 30, 1999. The Debtors believe that this
amount is a reasonable estimate to utilize for estimated inventories as
of March 1, 2000. "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. This realization
percentage reflects management's estimate of the difficulty of selling
raw materials. Management's 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 70% to 85% and is based on livestock market values as determined by
specie and by local spot market prices as of January 1, 2000. The
Liquidation Analysis assumes that 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 in a 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 in a liquidation. Other material
amounts included in the calculation of other current assets are fees and
defaulted notes receivable from Purina Ag Capital, which are reserved at
100% on PMI's books.
(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
2
<PAGE> 110
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 offices. Buildings includes all
plants, mills and corporate offices. 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 comprised primarily of office furniture
and personal computers held at corporate office locations. Office
machines and equipment includes plant and mill machinery, mainframe
computers at corporate locations and other office machines employed in
office spaces at plants, mills and corporate locations. Cafeteria
equipment includes all equipment used in the employee cafeteria at the
Debtors' main 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 PMI-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 $16.7 million, of which $8.5 million is reserved.
Notes receivable are assumed to realize between 65% and 85% of net book
value based on management's experience. Other assets are comprised
primarily of cash surrender value of life insurance policies in respect
to the CAP Plan (valued at $14.2 million) and $7.9 million of co-op and
joint venture investments. The cash surrender value of life insurance is
100% realizable based on its current value. In total, 12 joint ventures
are included in the Debtors' 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 severance and
the administration of the chapter 7 asset liquidation and are based on
PMI's estimated quarterly general and administrative ("G&A") cost run
rate ($18 million). It is assumed that a complete liquidation of company
assets occurs over a 12 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 progresses. 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 of 2000 and 12.5% in the third
and fourth quarters of 2000, plus approximately $5 million for retention
bonuses and severance payments.
(9) "Secured Claims" include claims under the Prepetition Credit Facility,
which is comprised of the Revolving Credit Facility ($99.9 million,
including letters of credit of $12.5 million, which are assumed to be
drawn in the event of the Debtors' liquidation), Tranche A Term Loans
($91.0 million) and Tranche B Term Loans ($99.5 million). Also included
as Secured Claims are accrued real estate taxes and other property taxes
of $2.6 million.
(10) "Priority and Administrative Claims" of $12.8 million represent Priority
Claims, Priority Tax Claims and 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 in the hypothetical chapter 7 liquidation (based on 1% of
average gross asset recoveries), including legal, consulting and
investment banking fees and expenses; employee claims ($4.5 million
accrued vacation and $1.3 million salary and wages); and $1.7 million of
Priority Tax Claims.
(11) "Unsecured Claims" primarily consists of Old Senior Subordinated Notes
($350 million principal amount and $19 million of accrued interest),
Claims of holder of Secured Claims not paid from the proceeds of the
secured assets ($178 million in the lower scenario and $112 million in
the higher scenario). Also included as Unsecured Claims
3
<PAGE> 111
are $19.4 million in prepetition trade payables (November 30, 1999
value), $28.2 million in accounts payable to Koch Agriculture (November
30, 1999 value) for ingredient purchases 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: $2.3 million in commitments to PMI customers under the
commodity payment program, $1.8 million in litigation contingency
reserves, $1.8 million in projected divestment costs, $1.7 million in
accrued pension and post-retirement benefits, $2.9 million in customer
advance payments and approximately $15 million in estimated contract and
lease rejection damages. An estimated $10.8 million in other Unsecured
Claims is included and comprised of $2.2 million in accrued employee
benefits, $3.6 million in other miscellaneous accrued expenses, $1.4
million in Purina Ag Capital unsecured guarantees for working capital
loans and $3.6 million in unsecured non-funded participations and
guarantees.
4
