EXHIBIT 99.1
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United States Bankruptcy Court
Southern District of Texas
Corpus Christi Division
In re ERLY Industries, Inc. Case No. 98-21515-C-11
Debtor Chapter 11
Taxpayer Identification Number
95-2312900
In re Watch-Edge International, Inc. Case No. 98-21895-C-11
Debtor Chapter 11
Taxpayer Identification Number
86-0413425
ERLY INDUSTRIES, INC.'S; WATCH-EDGE, INC.'S; AND ERLY CREDITORS COMMITTEE'S
DISCLOSURE STATEMENT AS MODIFIED FOR
THE JOINT PLAN OF REORGANIZATION
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LAW OFFICES OF HUGHES & LUCE, JEFFERS & BANACK,
MATTHEW A. L.L.P. INCORPORATED
ROSENSTEIN William B. Finkelstein R. Glen Ayers
Matthew A. Rosenstein Howard Marc Spector 745 E. Mulberry
American Bank Plaza, Suite 1717 Main Street, Suite San Antonio, TX 78212
420 2800 210-736-6600 Phone
711 N. Carancahua Dallas, Texas 75201 210-736-6889 Fax
Corpus Christi, Texas 78475 Phone 214-939-5941
Phone 512-883-5577 Fax 214-939-5849
Fax 512-883-5590
Counsel for the Counsel for Debtor,
Counsel for Debtor, Official ERLY Watch-Edge
ERLY Industries, Inc. Statutory Creditors International, Inc.
Committee
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Date: June 2, 1999
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Table of Contents
I. INTRODUCTION...................................................................... 5
THE DEBTORS....................................................................... 5
THIS DISCLOSURE STATEMENT......................................................... 5
Why you have received this Disclosure........................................... 5
Purpose of this Disclosure Statement............................................ 6
Purpose of the Plan............................................................. 6
Bankruptcy Court Approval of the Disclosure Statement........................... 6
Sources of Information.......................................................... 6
Only Authorized Disclosure...................................................... 7
VOTING ON THE PLAN............................................................... 7
YOUR ACCEPTANCE OF THE PLAN IS IMPORTANT........................................ 7
BINDING EFFECT OF CONFIRMATION.................................................... 8
II. THE PROPONENTS' RECOMMENDATION................................................... 8
III. OVERVIEW AND SYNOPSIS OF THE PLAN............................................... 8
OVERVIEW.......................................................................... 8
OPERATIONS AFTER CONFIRMATION BY THE REORGANIZED DEBTOR AND....................... 9
LP TO PAY ALL ALLOWED CLAIMS FROM EXISTING ASSETS................................. 9
DISCHARGE OF THE DEBTORS.......................................................... 9
IV. THE CHAPTER 11 CASES............................................................. 9
BACKGROUND........................................................................ 9
ARI............................................................................... 9
WEI ("WATCH-EDGE INTERNATIONAL, INC.")............................................ 10
FINANCIAL CONDITION OF THE DEBTORS AS OF THE DATE
OF FILING OF.................................................................... 11
MANAGEMENT & EMPLOYEES............................................................ 11
ERLY............................................................................ 11
WEI............................................................................. 11
Present Relationships With ARI.................................................. 12
NET OPERATING TAX LOSS............................................................ 12
EVENTS LEADING TO THE CHAPTER 11 FILING........................................... 13
Mismanagement by Gerald and Douglas Murphy...................................... 13
The Tenzer Litigation........................................................... 13
The Sandburg Financial and Michael Coal Judgment................................ 14
Marzec MOU...................................................................... 14
Certain Settlements and Litigation Initiated During Chapter 11.................. 14
Marzec MOU Settlement......................................................... 14
The February Tenzer Settlement................................................ 15
OPERATIONS OF THE BUSINESSES OF THE DEBTORS DURING THE............................ 15
Employment of Legal Counsel and Other Professionals............................. 15
Disclosure of Compensation of Debtor's Management............................. 15
ERLY.......................................................................... 15
Joint Disclosure Statement, Page 2
WEI........................................................................... 16
Professional Fees............................................................. 16
Operations of ERLY.............................................................. 16
Operations of WEI............................................................... 16
Significant Litigation filed.................................................... 17
Sandburg Financial and Michael Coal........................................... 17
William Burgess and O'Melveny & Meyers........................................ 17
Other Litigation and Investigation............................................ 17
Other Matters................................................................ 17
Preservation of Claims and Causes for the Benefit of
Creditors......................................................................... 18
Other Significant Orders Entered in the
Proceedings.................................................................. 18
Bar Date to File Claims...................................................... 18
Use of Cash Collateral....................................................... 18
Motions to Lift Stay......................................................... 18
V. POST CONFIRMATION MANAGEMENT OF................................................... 18
POST-CONFIRMATION MANAGEMENT OF ERLY.............................................. 18
BIOGRAPHIES OF THE REORGANIZED DEBTOR'S SENIOR MANAGERS AND BOARD OF
DIRECTORS
VI. FORMATION AND OPERATION OF CREDITORS LP.......................................... 20
FORMATION OF LP................................................................... 20
OPERATION OF LP................................................................... 20
ASSETS TO BE CONTRIBUTED TO THE LP AND VALUES OF THOSE ASSETS (LIQUIDATION
ANALYSIS)
Unencumbered Real Estate Assets................................................. 22
Interests in Affiliates......................................................... 22
Cash and Cash Equivalents....................................................... 22
Notes Receivable and Claims..................................................... 22
Set-Offs by Creditors Prior to Petition Date.................................... 23
Preferences and Fraudulent Conveyances and Other Causes of Action............... 23
LIABILITIES....................................................................... 24
SUBSTANTIVE CONSOLDIATION OF ALL ENTITIES......................................... 24
SALE OF ESTATE PROPERTIES......................................................... 24
INJUNCTION........................................................................ 24
ANTICIPATED DIVIDEND TO UNSECURED CREDITORS....................................... 25
VII. THE DEBTORS' PLAN FOR SATISFACTION OF CLAIMS.................................... 25
THE PLAN OF REORGANIZATION........................................................ 25
CLAIMS AND PRE- AND POST-CONFIRMATION OBJECTIONS TO AND SUBORDINATION OF
CLAIMS
Voting.......................................................................... 25
Pre-Confirmation Objections to Claims or Interests.............................. 25
Post-Confirmation Objections to and Estimation of Claims........................ 26
CLASSIFICATION AND TREATMENT OF UNIMPAIRED CLAIMS AND PROVISIONS FOR
SATISFACTION
Classification.................................................................. 26
Joint Disclosure Statement, Page 3
Treatment of Interests in Classes 13 & 14....................................... 26
Class 13...................................................................... 26
Class 14...................................................................... 27
Treatment of Priority Claims.................................................... 27
Secured Creditors............................................................... 28
General Unsecured Creditors..................................................... 28
VIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................... 29
Generally......................................................................... 29
Claims............................................................................ 29
SPECIFIC CONTRACTS AND LEASES..................................................... 29
IX. ALTERNATIVES TO THE PLAN......................................................... 30
FUTURE BUSINESS OPERATIONS OF THE REORGANIZED DEBTOR.................................. 30
X. TAX EFFECTS....................................................................... 34
Tax Consequences to ERLY.......................................................... 34
Importance of Obtaining Professional Tax Assistance............................... 36
NO REPRESENTATION AS TO TAX EFFECTS OF THE PLAN................................... 36
TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLASS 9, 10, 11 AND 12 CREDITORS........... 36
XI. MATERIAL RISK FACTORS............................................................ 36
XII. ANTICIPATED FUTURE OF THE REORGANIZED DEBTOR................................... 37
XIII. OTHER INFORMATION.............................................................. 37
XIV. ABILITY OF THE DEBTORS TO PERFORM UNDER THE PLAN................................ 37
XV. CONFIRMATION AND CONSUMMATION PROCEDURE.......................................... 37
SOLICITATION OF VOTES............................................................. 37
CONFIRMATION HEARING.............................................................. 38
OBJECTION TO CONFIRMATION......................................................... 38
CONFIRMATION...................................................................... 38
Acceptance...................................................................... 39
Fair and Equitable Test......................................................... 39
Cramdown........................................................................ 40
XVI. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995........................................................................... 40
Joint Disclosure Statement, Page 4
United States Bankruptcy Court
Southern District of Texas
Corpus Christi Division
In re ERLY Industries, Inc. Case No. 98-21515-C-11
Debtor Chapter 11
Taxpayer Identification Number
95-2312900
In re Watch-Edge International, Inc. Case No. 98-21895-C-11
Debtor Chapter 11
Taxpayer Identification Number
86-0413425
ERLY INDUSTRIES, INC.'S; WATCH-EDGE, INC.'S AND ERLY CREDITORS
COMMITTEE'S DISCLOSURE STATEMENT FOR THE
JOINT PLAN OF REORGANIZATION
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I. INTRODUCTION
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A. THE DEBTORS
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ERLY Industries, Inc. (sometimes called "ERLY") filed a Voluntary Petition
for Reorganization under chapter 11 of the United States Bankruptcy Code, 11
U.S.C. (S) 101 et seq. (the "Bankruptcy Code") in the United States Bankruptcy
Court for the Southern District of Texas, Corpus Christi Division (the
"Bankruptcy Court") on September 28, 1998 (the "ERLY Petition Date"). ERLY's
chapter 11 case is pending before the Honorable Richard Schmidt, United States
Bankruptcy Judge, under Case No. 98-21515-C-11. ERLY has continued to operate
its business since the Petition Date as Debtor-in-Possession pursuant to (S)(S)
1107, 1108, Bankruptcy Code.
Watch-Edge International, Inc. (sometimes called "WEI") filed a Voluntary
Petition for Reorganization under chapter 11 of the Bankruptcy Code in the
Bankruptcy Court on November 30, 1998 (the " WEI Petition Date"). WEI's chapter
11 case is pending before the Honorable Richard Schmidt, United States
Bankruptcy Judge, under Case No. 98-21895-C-11. WEI has continued to operate
its business since the WEI Petition Date as Debtor-in-Possession pursuant to
(S)(S) 1107, 1108, Bankruptcy Code.
(All initially capitalized words used in this Disclosure Statement have the
same definitions provided for in Article I of the Plan.)
B. THIS DISCLOSURE STATEMENT
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1. Why You Have Received This Disclosure
Joint Disclosure Statement, Page 5.
You have received this Disclosure Statement because ERLY Industries, Inc.
and its wholly-owned subsidiary, Watch-Edge International, Inc., have, together
with the Official Statutory Creditors Committee of ERLY have filed a joint
Chapter 11 Plan of Reorganization with the Bankruptcy Court.
This Disclosure Statement, as further amended or modified ("Disclosure
Statement") is provided pursuant to (S) 1125 of the Bankruptcy Code to all of
the Debtors' known Creditors and other parties in interest whose claims are
impaired in connection with the solicitation of acceptance of the Plan proposed
by the Debtors and the Committee.
2. Purpose of this Disclosure Statement
The purpose of this Disclosure Statement is to provide such information as
will enable a hypothetical, reasonable investor typical of the holders of Claims
against the Debtors to make an informed judgment in exercising his, her or its
rights either to accept or reject the Plan. A copy of the Plan is being
provided with this Disclosure Statement and is attached as Exhibit A. The
definitions in Article I of the Plan should be referred to in reading and
analyzing the Plan and this Disclosure Statement.
3. Purpose of the Plan
The Plan was developed by the Debtors and the Committee after consulting
with their respective financial and legal advisers, certain Creditors and other
interested parties. The purpose of the Plan is to reorganize the two Debtors and
treat all of the assets, all of the Creditors, and all holders of Interests of
the Debtors. The Plan sets out in some detail how these tasks will be
accomplished. The Debtors and the Committee believe that the Plan is more
attractive than other alternatives, such as conversion or dismissal of the
Proceedings.
4. Bankruptcy Court Approval of the Disclosure Statement
After a hearing on notice, the Bankruptcy Court approved the Disclosure
Statement as containing information of a kind in sufficient detail, adequate to
enable a hypothetical, reasonable investor typical of the Classes being
solicited to make an informed judgment about the Plan. The Court, however, has
not made a determination with respect to the merits of the Plan. The Court has
not recommended that the holders of Claims or Interests vote to accept or
reject the Plan.
5. Sources of Information
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN SUBMITTED
BY THE DEBTORS, UNLESS SPECIFICALLY STATED TO BE FROM OTHER SOURCES.
THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT
BEEN SUBJECT TO AN AUDIT BY CERTIFIED PUBLIC ACCOUNTANTS. THE DEBTORS AND THE
COMMITTEE DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT IS CORRECT, ALTHOUGH GREAT EFFORT HAS BEEN MADE TO BE
ACCURATE. THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN. THE
PLAN WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT IS AN
Joint Disclosure Statement, Page 6.
INTEGRAL PART OF THIS DISCLOSURE STATEMENT, AND EACH CREDITOR IS URGED TO READ
THE PLAN PRIOR TO VOTING.
THE DEBTORS AND COMMITTEE MAKE NO REPRESENTATIONS WITH RESPECT TO THE
EFFECTS OF TAXATION (STATE OR FEDERAL) ON THE CREDITORS OR THE INTEREST HOLDERS,
AND NO SUCH REPRESENTATIONS ARE AUTHORIZED. THE DEBTORS' CREDITORS AND
INTERESTHOLDERS ARE ENCOURAGED TO SEEK THE ADVICE OF THEIR OWN PROFESSIONAL TAX
ADVISOR(S) IF THEY HAVE ANY SUCH QUESTIONS.
6. Only Authorized Disclosure
No party is authorized to give any information with respect to the Plan,
other than what is contained in this Disclosure Statement. No representations
concerning the Debtors, their future business operations or the value of their
property have been authorized by the Bankruptcy Court, other than as set forth
in this Disclosure Statement. Any information, representations or inducements
made to obtain acceptance or rejection of the Plan other than, or inconsistent
with, the information contained herein and in the Plan should not be relied upon
by any Entity in voting on the Plan.
Any representation or inducement made to you not contained in this
Disclosure Statement should be reported to the Debtors' attorneys who shall
deliver such information to the Bankruptcy Court for such action as may be
appropriate.
C. VOTING ON THE PLAN
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YOUR ACCEPTANCE OF THE PLAN IS IMPORTANT
In order for the Plan to be deemed "accepted" by Creditors and
Interestholders, at least sixty-six and two-thirds percent (66 2/3%) in amount
of Allowed Claims and fifty-one percent (51%) in number of Allowed Claims voting
in each impaired /1/ Class must accept the Plan, and at least sixty-six and two-
thirds percent (66 2/3%) in amount of impaired Allowed Interests voting in each
Class must accept the Plan. Whether or not you expect to be present at the
Confirmation Hearing, you are urged to fill in, date, sign and properly mail the
Ballot for Accepting or Rejecting Plan of Reorganization to ERLY's Counsel:
Law Offices of Matthew A. Rosenstein
Matthew A. Rosenstein
American Bank Plaza, Suite 420
711 N. Carancahua
Corpus Christi, Texas 78475
Fax 512-883-5590
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/1/Generally Section 1124 of the Bankruptcy Code provides that a class of claims
or interests is impaired under the Plan if the Plan alters the legal, equitable,
and contractual rights of the claim or interest holders. Pursuant to Section
1126(f) of the Bankruptcy Code, a class that is not impaired under the plan of
reorganization is deemed to have accepted the plan and solicitation with respect
to such class is not being made. Pursuant to Section 1126(g) of the Bankruptcy
Code, a class that is not entitled to any payment under the plan of
reorganization is deemed to have rejected the plan.
Joint Disclosure Statement, Page 7.
The solicitation period for Ballots with respect to the Plan will expire at
5:00 o'clock p.m. CDT on July 9, 1999. Except to the extent allowed by the
Bankruptcy Court, Ballots that are received after the expiration of the
solicitation may not be accepted or used by the Debtors in connection with
Debtors' request for Confirmation of the Plan or any modification thereto. A
Ballot accepting the Plan may not be revoked, except by order of the Bankruptcy
Court. A blank ballot without a vote does not count for a vote.
ANY UNIMPAIRED CLASS IS DEEMED TO HAVE ACCEPTED THE PLAN.
This Disclosure Statement and accompanying exhibits will be transmitted by
first class mail to all unsecured creditors who have either been scheduled by
the Debtors, have filed a proof of claim or properly requested notice under
Bankruptcy 2002, and to Allowed holders of Class 10 Claims of record as of April
30, 1999. Shareholders will receive an abbreviated Disclosure Statement as
approved by the Bankruptcy Court. This Disclosure Statement will also be
transmitted to Record holders of Debentures as of April 30, 1999 and Creditors.
All ballots must be returned by the entity executing the ballot. Requests for
additional solicitation packages may be made by the record holder in writing to
the Law Offices of Matthew A. Rosenstein at the above address.
D. BINDING EFFECT OF CONFIRMATION
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Confirmation makes the Plan binding upon the Reorganized Debtor, and all
Creditors, Interestholders and other parties-in-interest, regardless of whether
the holder of a Claim or Interest has accepted, rejected or abstained from
voting on the Plan. In addition, pursuant to (S) 1141(d)(1)(B), Bankruptcy
Code, Confirmation of the Plan will result in the termination of rights and
interests of Creditors of the Debtors as provided in the Plan.
II. THE PROPONENTS' RECOMMENDATION
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THE DEBTORS AND THE COMMITTEE BELIEVE THAT THE PLAN PROVIDES THE MAXIMUM
AND EARLIEST RECOVERY FOR ALL CREDITORS AND THAT APPROVAL OF THE PLAN IS
IN THE BEST INTERESTS OF IMPAIRED CREDITORS. ACCORDINGLY, THE DEBTORS AND
THE COMMITTEE RECOMMEND THAT ALL OF ERLY's AND WEI's IMPAIRED CREDITORS
VOTE TO ACCEPT THE PLAN.
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III. OVERVIEW AND SYNOPSIS OF THE PLAN
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A. OVERVIEW
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This is a chapter 11 Plan of Reorganization which provides that all of the
assets of ERLY and WEI (except the contracts and assets necessary for the
Reorganized Debtor to continue operations involving the sublease and Terminal
Service Agreement in connection with the WEI Phoenix Operations, NOLs, NOL
Carryforwards and stock of WEI) will be paid, transferred or assigned to and be
vested in a limited partnership for the benefit of the creditors and that ERLY
will continue in future business, to include the sublease and Terminal Service
Agreement in connection with the WEI Phoenix Operations and the new business
described herein. All claims and causes of action of ERLY and WEI existing as of
and subsequent to the Petition Date shall be preserved and inure to the benefit
of the Reorganized Debtor and its assigns and shall not be extinguished by the
Confirmation Order. In full and final satisfaction of all Claims against the
Debtors, the entry of the Confirmation Order shall automatically (i) vest all
Joint Disclosure Statement, Page 8.
property of the Debtors and their Estates, including the Debtors' Actions, in
the Reorganized Debtor, and (ii) transfer and/or assign to the LP for the
benefit of the Debtors' Creditors, and pursuant to (S) 1123(b)(3), Bankruptcy
Code, all property of the Debtors' Estates and their subsidiaries (including,
but not limited to, the Debtors' Actions, inventory, real and personal property,
cash, accounts receivable, and contract rights), save and except (a) the
contracts and assets necessary for the Reorganized Debtor to continue operations
involving the sublease and Terminal Service Agreement in connection with the WEI
Phoenix Operations (b) the NOLs, (c) the NOL Carryovers, and (d) ERLY's stock in
WEI and all other subsidiaries.
The LP shall pay Allowed Claims classified in Article II of the Plan in the
manner set forth in Article IV of the Plan. ERLY will survive as the
Reorganized Debtor and will have no liabilities -- it will be discharged of
debt. ERLY's Interestholders will retain whatever residual value is created by
this process.
B. OPERATIONS AFTER CONFIRMATION BY THE REORGANIZED DEBTOR AND
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THE LP
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The Reorganized Debtor reserves the right to conduct new business and new
operations subsequent to the entry of the Confirmation Order with respect to new
capital or assets contributed or raised subsequent to entry of the Confirmation
Order. The Reorganized Debtor, and all such assets and operations, shall be free
of any Claim of any of the Debtor's Creditor's existing as of the entry of the
Confirmation Order, the LP, or any other Person or Entity, other than Allowed
Interestholders. It is the intent of the Plan to provide a fresh start to the
Reorganized Debtor.
The Reorganized Debtor may continue to perform under certain Executory
Contracts and Unexpired Leases to which the Debtors were a party as of the
Petition Date. The Reorganized Debtor and/or the LP may enter into post-
Confirmation contracts and take such other actions on account of such Executory
Contracts and Unexpired Leases as it may deem appropriate consistent with
existing law. To the extent that such post-Confirmation performance or
obligations assumed and/or performed by the Reorganized Debtor, the costs
incurred by the Reorganized Debtor on account of performance or obligations
shall be borne by the Reorganized Debtor and contributed by the LP (estimated to
be approximately $50,000).
C. LP TO PAY ALL ALLOWED CLAIMS
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All Allowed Claims of the Debtors not paid as of the Confirmation Date
shall be paid solely by the LP, to the extent assets are available, in the same
manner, extent and priority as provided under (S) 507, Bankruptcy Code. The LP
shall be responsible for paying all Allowed Claims, including any Pre-Closing
Tax Claims.
D. DISCHARGE OF THE DEBTORS
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The Debtors shall receive a discharge of all of their debts; the
Reorganized Debtor, ERLY, will retain no liabilities after Confirmation.
IV. THE CHAPTER 11 CASES
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A. BACKGROUND
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Disclosure Statement, Page 9
ERLY is a publicly traded company which has had several subsidiaries over
the years. ERLY was incorporated in California in March 1964. ERLY's rice
business dates back to 1901 when the predecessor company to Comet Rice, Inc.
("Comet") was formed in Beaumont, Texas. In 1952, the predecessor company to
Comet merged with Wonder Rice Mills, Inc. of Stuttgart, Arkansas and Adolphus
Rice Mills, Inc. of Houston, Texas. Comet was purchased by ERLY in 1970. ERLY
entered the rice business in 1970 with the acquisition of Comet Rice Mills, Inc.
ERLY expanded its rice operations in 1979 with the acquisition of United Rice
Growers and Millers, and again in 1988, with the purchase of 48% of American
Rice, Inc. ("ARI").
B. ARI
---
ARI is also a public company. American Rice, Inc., a Texas agricultural
cooperative marketing association formed in 1969, was comprised primarily of
rice growers (the "ARI Cooperative"). ARI Cooperative and Comet formed a joint
venture in 1986 known as Comet American Marketing ("CAM") for the purpose of
conducting joint domestic marketing operations. In connection with the
formation of CAM, both companies contributed virtually all of their domestic
brands to CAM, and Comet transferred certain processing and packaging equipment,
packaging supplies and production responsibilities to the ARI Cooperative.
ARI was incorporated in 1987 by the ARI Cooperative and in 1988, the ARI
Cooperative contributed all of its assets to ARI in exchange for 52% of ARI's
voting capital stock, which the ARI Cooperative distributed to its members.
Comet obtained the remaining 48% of ARI's voting capital stock in exchange for
contributing cash and Comet's 50% interest in CAM. In May 1993, ERLY acquired
an additional 33% voting interest in ARI and consolidated the rice operations
into a single operating company (the "Acquisition"). On May 26, 1993, ERLY
consolidated its ownership interests in ARI and Comet through the Acquisition,
pursuant to which ERLY transferred all of the operating assets and liabilities
of Comet to ARI in exchange for shares of voting preferred stock that gave ERLY
an additional 33% of the voting power of ARI. As a result of the Acquisition,
as of the ERLY Petition Date, ERLY held 81% of the voting power of ARI,
comprised of a 32% direct common stock equity interest and an additional 49%
voting preferred stock interest.
ARI is a processor and marketer of food products, principally rice and
previously, olives. ARI is currently involved in rice processing, rice
packaging and rice marketing. ARI markets white rice, instant rice, parboiled
rice, brown rice and rice mixes under proprietary, trademarked names, and was a
leading marketer of U.S. rice in many of the world's major importing countries.
In July 1996, ARI added olives to its product lines by acquiring the
domestic and foreign olive business of Campbell Soup Company (the "Olive
Acquisition"). Assets acquired in the Olive Acquisition included olive
inventories and processing facilities in Visalia, California and Seville, Spain.
The Olive Acquisition positioned ARI among the largest of four U.S. olive
processors with the largest U.S. market share of branded sales of both ripe and
green olives. In September, 1998, ARI sold its olive division pursuant to
Bankruptcy Court order.
ARI filed a petition under Chapter 11 of the Bankruptcy Code on August 11,
1998, and remains a Debtor-in-Possession in Case, No. 98-21895, pending in
Corpus Christi before the Bankruptcy Court. ARI and its creditors have taken the
position that ARI is insolvent and has filed a Plan of Reorganization which will
provide no distribution to ERLY or ARI's other shareholders on account of their
Interests in ARI.
C. WEI ("WATCH-EDGE INTERNATIONAL, INC.")
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WEI's beginnings originate with ERLY's acquisition of Arizona Agrochemical
Corporation ('Arizona Agrochemical") in 1968. Arizona Agrochemical was
primarily engaged in a fertilizer and pesticides business, but those business
enterprises were later sold. Arizona Agrochemical was also involved in the
forest fire retardant business and an agricultural consulting and advisory
service business. Those operations were retained and transferred to a newly
incorporated company, Chemonics Industries, Inc., which is now known as WEI/2/,
one of the Debtors.
The agricultural consulting business was expanded considerably in 1975 with
the opening of an office in Washington, D.C. That business was separately
incorporated in November 1994 as Chemonics International, Inc. ("Old Chemonics")
as a wholly-owned subsidiary of WEI (then known as Chemonics Industries, Inc.).
In May 1996, the operations of the U. S. forest fire retardant business were
incorporated as a wholly-owned subsidiary of WEI under the name Chemonics Fire-
Trol, Inc. ("Chemonics Fire-Trol").
ERLY began considering selling the two subsidiaries of WEI in the Spring of
1998. The assets of Chemonics Fire-Trol were sold in August, 1998, prior to the
WEI Petition Date to Fire-Trol Holdings, LLC. There are allegations that the
real purchaser in interest of the assets of Chemonics Fire-Trol Holdings was a
former director of ERLY. If true, these allegations were not disclosed to all
members of the ERLY or WEI boards. The net proceeds of the sale of those assets
(approximately $10.8 million), were paid over to NationsBank, N.A., of McClean,
VA, to reduce the joint bank debt of Chemonics Fire-Trol and Old Chemonics. At
the time of the WEI Petition Date, WEI owned all of the stock of Chemonics
Fire-Trol -- but its assets had been sold.
WEI also owned the stock of Old Chemonics. Since before the WEI Petition
Date, Old Chemonics was in default of its credit facility with NationsBank, N.A.
In October, 1998, NationsBank, sold its interest in the Old Chemonics loan
facility to FIA, which, thereafter, proceeded to exercise its rights and
remedies under the loan documents. Old Chemonics attempted to find an
alternative source of funding for its operations, but was unsuccessful.
Thereafter, WEI filed for relief under Chapter 11 of the Bankruptcy Code.
As a result of a Bankruptcy Court ordered and supervised process, WEI sold the
assets of Old Chemonics for net cash of approximately $8.250 million after
satisfaction of the ordinary and institutional debt and obligations of Old
Chemonics/3/. As a part of the sale process, the name of the resulting shell was
changed to "Old Chem. Inter., Inc." so that FIA could continue to use the name
Chemonics International. The control group for the buyer included Old
Chemonics's President, Thurston F. Teele, and its Chief Financial Officer,
Ashraf Rizk.
The current management of ERLY and WEI have no relationship of any form
with the purchasers of Chemonics Fire-Trol or Old Chemonics.
D. FINANCIAL CONDITION OF THE DEBTORS AS OF THE DATE OF FILING OF
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THE PETITIONS
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The Summary of Schedules and Schedules filed in each of the chapter 11
cases are attached as Exhibits B-1 (ERLY) and B-2 (WEI). Those exhibits,
together with the information in this Disclosure Statement, summarize the
financial condition of the Debtors.
__________________
/2/ In November, 1998, Chemonics Industries, Inc. changed its name to Watch-
Edge International, Inc.
/3/ Some of the obligations of Old Chemonics were owed to Farmers' Rice Milling
Company, an affiliate of Nanette Kelly.
Disclosure Statement, Page 11
E. MANAGEMENT & EMPLOYEES
----------------------
1. ERLY
During early 1998, ERLY and its subsidiaries employed approximately 1,788
people full-time, 1,500 of which were in the rice and olive businesses. On the
ERLY Petition Date, ERLY, excluding its subsidiaries, had only 1 employee,
Gerald D. Murphy. He and the inside directors, Douglas Murphy and William
Burgess, resigned shortly thereafter. Since then, a new Board of Directors has
been constituted. The new Board is comprised of Nanette Kelley, Chairman,
President and Chief Executive Officer; Gene Cafiero; Pete Seale, Secretary;
Beryl Anthony; and William Blake. Mike Boudloche has been appointed Executive
Vice President for Chapter 11 Operations. ERLY has employed a limited staff to
conduct its continuing operations.
2. WEI
As of the WEI Petition Date, WEI had only two employees. Under the terms
of the sale of the assets of Chemonics Fire-Trol, WEI provides certain equipment
and services to the purchaser at the Phoenix, AZ location and has continued to
provide those services and employees to this date. At the time of the WEI
Petition Date, Thurston Teele was President of WEI and Ashraf Rizk was Chief
Financial Officer; however, their primary duties were to Old Chemonics, WEI's
only operating subsidiary. Shortly before the WEI Petition Date, the Board of
WEI and the Board of Old Chemonics were restructured so that each Board was
composed of Nanette Kelley, as Chairman; Thurston F. Teele (also the
President); Gene Cafiero; Pete Seale, Secretary; and William Blake.
Mike Boudloche, a panel chapter 7 trustee for Corpus Christi, was appointed
a responsible person to oversee the sale of Old Chemonics assets by order of the
Court. Following the sale of the assets, the Boards were again restructured, to
remove Teele, add Beryl Anthony, and make Ms. Kelley the President. Operations
are administered by persons employed at the ERLY level.
3. Present Relationships With ARI
ERLY has previously filed a consolidated income and state franchise tax
returns. Unfortunately, ERLY's present relationship with ARI has been adverse
and, since the ERLY Petition Date, communication with ARI's present management
has been limited. ARI, its creditors committee, bank lenders and bondholders
are taking the position that ARI is insolvent and that ERLY's 81% equity
interest in ARI will not receive anything under ARI's Plan of Reorganization.
ERLY has filed claims in ARI's Chapter 11 case totaling in excess of
$14,298,450.42. Approximately $2,986,773.20 of ERLY's claim is based upon an
avoidable preference pursuant to (S) 547, Bankruptcy Code. ARI has filed claims
in ERLY's case totaling $42,000,000.00. ERLY intends to object to ARI's claim
against ERLY and anticipates that ARI will object to ERLY's claims against ARI.
(S) 502(a) & (b), Bankruptcy Code, provides that a Proof of Claim is deemed
allowed, unless objected to, in which case the Bankruptcy Court must determine
the amount of the Claim as of the date of the filing of the petition. If a claim
for preference is sustained, (S) 502(d), Bankruptcy Code, requires the
Bankruptcy Court to disallow "any claim of any entity from which property is
recoverable under (S)547 of this title, unless such entity or transferee has
paid the amount for which such entity or transferee is liable." The Committee
has begun an analysis of the fraudulent transfer and preference claims against
third-parties, including ARI, as well as the ARI/ERLY intercompany account. No
determination has been made as to ERLY's defenses to any Claim, including the
ARI/ERLY intercompany Claims, and all such defenses and rights against Creditors
are specifically preserved under the Plan.
Disclosure Statement, Page 12
ARI's legal counsel has advised ERLY's attorney that his actions toward
ERLY are being directed by the unofficial committee of bondholders, who hold or
represent claims of $100 million plus interest against ARI. ARI has pledged to
the indenture trustee under its $100 million bond financing two promissory notes
of ERLY to ARI as follows: (1) That certain "Amended and Restated Promissory
Note" in the principal sum of $10,000,000.00, Amended August 24, 1995, payable
to the order of American Rice, Inc. and signed by ERLY; and (2) that certain
"15% ERLY Intercompany Note" in the principal sum of $10,500,000.00, dated
August 24, 1995, payable to the order of American Rice, Inc. ERLY's 81% stock
interest in ARI has also been pledged by ERLY to secure performance of the
amounts owed to ARI's bondholders. The Indenture Trustee contends that the total
approximate amount due under these promissory notes as of the ERLY Petition Date
exceeds $30 million.
As discussed in more detail below, WEI holds an undisputed $5.0 million
claim in the ARI case. That claim may receive no distribution unless ERLY can
satisfy certain of its obligations to ARI. For purposes of this Disclosure
Statement, WEI would represent that its claim against ARI likely has no value
except insofar as it reduces the Claims of ARI against ERLY. The WEI claim
against ARI will be assigned to the LP for liquidation and any proceeds
distributed to Creditors.
The Proponents are currently negotiating with ARI and other parties in
interest to resolve all claims between ERLY, ARI, ARI's indenture trustee and
the ARI bondholders. The terms under discussion may impact the membership of
the LP Committee, the funding of the LP and the amount of ARI's claim against
ERLY.
F. FEDERAL INCOME TAX NET OPERATING LOSS
--------------------------------------
ERLY's is not presently able to determine its NOL as of March 31, 1998;
however, its tax accountants are working diligently in an effort to determine
the NOL. It is believed to be significant on a consolidated return basis. The
NOL is subject to a certain tax sharing agreement with ARI and certain oral tax
sharing agreements with WEI and Old Chemonics. ARI proposes to reject all
Executory Contracts in its chapter 11 case and has requested ERLY to permit de-
consolidation for tax purposes. Certain of ERLY's NOLs could be lost, depending
on action by ARI.
Any NOL which remains following entry of the Confirmation Order will be
retained (except as may be lost by de-consolidation by ARI) by the Reorganized
Debtor under the terms of the Plan. The Reorganized Debtor does not know
whether the NOL will have any significant value after the adjustment of the NOL
and the reduction of the NOL by taxes incurred upon the sale of the assets of
Old Chemonics, the disposition or elimination or ERLY's interest in ARI, and
adjustment of the NOL by offset of income generated by the forgiveness of
indebtedness owed at the ERLY level.
G. EVENTS LEADING TO THE CHAPTER 11 FILING
----------------------------------------
1. Mismanagement by Gerald and Douglas Murphy
During the years in which they dominated the affairs of ERLY, the Debtors
believe that Gerald Murphy and Douglas Murphy treated ERLY and its subsidiaries
as their personal assets. As illustrated by the Tenzer Litigation described
below, it is the Debtors' position that the Murphys used ERLY, ARI and WEI as if
these assets existed solely for the Murphys' benefit. Gerald Murphy's son,
Douglas, was also installed as a senior officer of ARI. Douglas then proceeded
to cause ARI to lose significant contracts and, under his management, its
business operations deteriorated significantly.
Disclosure Statement, Page 13
In 1997, Nanette Kelley and others mounted a proxy contest to replace the
existing board. The contest was resolved when Mrs. Kelley and Eugene Cafiero
were elected to the ERLY board.
2. The Tenzer Litigation
In April 1995, a lawsuit was filed in the District Court of Harris County,
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. (the "Tenzer
Plaintiffs") against Gerald Murphy and Douglas Murphy, Chairman and President of
ERLY and ARI, respectively. ERLY and ARI were named as co-defendants in the
lawsuit by an amendment to the original petition in September 1995. This began
as a dispute between the general partner of a proposed real estate development
and Gerald Murphy and Douglas Murphy. ERLY and ARI were named as co-defendants
in the lawsuit because of their efforts to obtain restraining orders to prevent
threatened foreclosures on ERLY common stock pledged as collateral by Gerald
Murphy, on the grounds that such foreclosure threatened ARI's mortgage note
financing. A restraining order was issued preventing foreclosure on the shares
pledged by Gerald Murphy, but that restraining order was subsequently
terminated. In 1997, a verdict was obtained in the aggregate amount of
$9,657,000, rendered jointly and severally against Gerald Murphy, Douglas
Murphy, ERLY and ARI, along with separate awards of punitive damages against
Gerald Murphy of $3,000,000, Douglas Murphy of $500,000, ERLY of $100,000 and
ARI of $100,000 (together, the "Tenzer Judgment").
The Bankruptcy Court subsequently approved a settlement of the Tenzer
Plaintiffs' claims against ARI (the "August Tenzer Settlement") under which (i)
the Tenzer Plaintiffs executed a conditional covenant not to execute on the
Tenzer Judgment against ERLY; (ii) WEI signed a promissory note (the "WEI
Note") for $3,800,000 in favor of Anthony M. Frank and Tenzer Company, Inc.;
(iii) the Tenzer Plaintiffs assigned to WEI their Tenzer Judgment claim against
ARI, which was allowed in the ARI Chapter 11 case (subject to certain set off
rights by ARI); and (iv) the Tenzer Plaintiffs, ERLY, Douglas Murphy, Gerald
Murphy and ARI assigned certain claims against companies insuring ERLY's and
ARI's directors and officers. The August Tenzer Settlement contains more
detailed terms and conditions which were presented to the Bankruptcy Court.
Creditors are advised to refer to the pleadings on file in the ARI case to
review all agreements between the parties to the August Tenzer Settlement.
3. The Sandburg Financial and Michael Coal Judgment
On or about April 24, 1998, a judgment was entered in favor of Sandburg
Financial Corporation ["Sandburg"] and Michael Coal ["Coal"] against ERLY by the
Superior Court of the State of California for the County of Los Angeles in Case
No. BC 159004, in the amount $9,118,626.00 (of which $7,536,055.00 was principal
and $1,582,571.00 was pre-judgment interest) [hereinafter called the "Sandburg
Judgment"]. The debt is disputed and presently on appeal.
On June 10, 1998, ERLY and Defendants, Sandburg and Coal, acting through
their respective attorneys, entered into a written agreement which required ERLY
to pay to Sandburg and Coal the sum of $1,000,000.00 by wire transfer by 5:00
p.m., Tuesday, June 16, 1998. On June 16, 1998, ERLY, by and through its then
attorney, Edwin Marzec, paid Sandburg and Coal as follows: $500,000 to Southern
California Bank to the trust account of Marshack & Shulman LP in trust for
Michael D. Coal and Sandburg Financial formerly doing business as Barrington
Capital; and $500,000 to Marine National Bank to the trust account of Gerald M.
Shaw in trust for Michael D. Coal and Sandburg Financial formerly doing business
as Barrington Capital. The transfers were evidenced by a letter agreement on
the stationary of Gerald M. Shaw, which was signed by Sandburg Financial
Corporation, by Michael D. Coal; Marshack and Shulman, LP, by Ronald S. Hodges;
Law Offices of Gerald M. Shaw, by Gerald M. Shaw and ERLY, and by Gerald D.
Murphy, purporting to act as Chairman of the Board. The Board of
Disclosure Statement, Page 14
Directors of ERLY never approved the transfer of funds and the transfer was not
known to the entire Board.
Subsequent to the ERLY Petition Date, ERLY filed suit in the Bankruptcy
Court objecting to the Sandburg Financial and Sandburg Judgment. ERLY has also
sued Defendants, Michael Coal, Sandburg Financial, Marshack and Shulman,
Marshack Shulman and Hodges, Gerald M. Shaw and Gerald M. Shaw, a Professional
Corporation to recover the $1 million ERLY paid on June 16, 1998, as an
avoidable fraudulent transfer.
4. Marzec MOU
On or about May, 1998, Edwin K. Marzec ["Marzec"] and, purportedly, ERLY,
entered into the Marzec MOU for the sale of the assets and/or stock of Old
Chemonics. The sale did not close prior to the commencement of the WEI
Proceeding. Marzec asserted that the failure of the transaction contemplated by
the MOU to close was wrongful. He initiated litigation related to the failed
transaction as follows: (i ) Edwin Marzec, Plaintiff v. Chemonics International,
Inc., et al, Defendants, originally filed as Case No. BC198654 in the Superior
Court of the State of California for the County of Los Angeles, was removed to
the United States District Court for the Central District of California, and
(ii) Edwin Marzec, Plaintiff v. Ashraf Rizk and Thurston F. Teele, Defendants,
filed at C.A. No. 0009467-98 in the Superior Court for the District of Columbia.
All this litigation, and other claims asserted by Marzec, impaired the
ability of ERLY and WEI to sell the assets or stock of Old Chemonics.
5. Certain Settlements and Litigation Initiated During Chapter 11
a. Marzec MOU Settlement
---------------------
The Marzec MOU was rejected by ERLY pursuant to ERLY's motion in the ERLY
Proceeding. Subsequently, the Bankruptcy Court approved a settlement in the WEI
and ERLY Chapter 11 Proceedings with Marzec which provides for mutual releases
and the payment of $100,000 to Marzec out of the sale proceeds of Old Chemonics
in order to reimburse Marzec for expenses incurred in connection with Marzec's
attempted consummation of the transactions contemplated in the Marzec MOU. ERLY
and WEI's settlement with Marzec has been consummated.
b. The February Tenzer Settlement
------------------------------
On February 17, 1999, the Bankruptcy Court, in both the ERLY and WEI
Proceedings, approved a second settlement with the Tenzer Plaintiffs (the
"February Tenzer Settlement") which provided the following (i) WEI completely
released the Tenzer Plaintiffs and the directors of Tenzer Company from any and
all liability, except as arising under the February Tenzer Settlement; (ii) WEI
paid the Tenzer Plaintiffs the sum of $2,500,000.00 in cash; (iii) ERLY
completely released the Tenzer Plaintiffs and the directors of Tenzer Company
from any and all liability, except as arising under the February Tenzer
Settlement; (iv) the Claim of the Tenzer Plaintiffs presently filed against ERLY
was finally allowed as a General Unsecured Claim in the amount of $5 million;/4/
(v) the Tenzer Plaintiffs released all claims
_________________
/4/ ERLY has the right, but not the obligation, to redeem the Tenzer
Claim by paying to Tenzer $650,000 on or before June 26, 1999. Upon ERLY's
timely payment, the Tenzer claim will be deemed to be fully satisfied. ERLY
has the further right, but not the obligation to redeem the Tenzer Claim on or
before October 26, 1999 according to the following schedule:
Disclosure Statement, Page 15
against ERLY and WEI other than those arising out of the February Tenzer
Settlement; and (vi) The Tenzer Plaintiffs and the following named individuals
executed mutual releases: Nanette Kelley; Beryl Anthony; Billy Blake; Eugene
Cafiero; Robert A. Seale, Jr.; Thurston F.Teele; Ashraf Rizk; and Kurt Grey.
Creditors are advised that the February Tenzer Settlement contains additional
terms and conditions. The foregoing is only a summary. Creditors requiring
further information on the February Tenzer Settlement should refer to the
pleadings filed in the Proceedings. The February Tenzer Settlement was timely
consummated.
H. OPERATIONS OF THE BUSINESSES OF THE DEBTORS DURING THE
------------------------------------------------------
CHAPTER 11 PROCEEDINGS
----------------------
1. Employment Of Legal Counsel And Other Professionals
a. Disclosure of Compensation of Debtor's Management
-------------------------------------------------
Following the ERLY Petition, Nanette Kelley assumed the day to day
management of ERLY. Pursuant to orders of the Bankruptcy Court, Mike Boudloche
was employed as Executive Vice-President for Chapter 11 Operations. The current
board of ERLY has continued to be very active in the supervision of management.
Ms. Kelley and the board have taken steps to insure the identification and
prosecution of certain claims and have made every attempt to maximize the value
of assets. During the ERLY Proceeding, Ms. Kelley has received $10,000 per month
and reimbursement of expenses. The other members of the ERLY board have
received reimbursement of expenses and $3,000 per month. The ERLY Board agreed
shortly after the Petition Date to pay an appropriate bonus to Mrs. Kelley,
subject to later determination of such amount. That issue is presently under
consideration and if an amount is authorized by the Board, Mrs. Kelley intends
to seek appropriate payment from ERLY.
b. ERLY
----
ERLY, pursuant to Bankruptcy Court order, employed the following legal
counsel in connection with its Chapter 11 case: Matthew A. Rosenstein of the
Law Offices of Matthew A. Rosenstein of Corpus Christi, Texas as bankruptcy
counsel; Harrell Z. Browning and Diane Sanders as special counsel to assist with
litigation and the conduct of the Proceedings; and Robert G. Wheeler of the law
firm of Wallace, Wallace & Wheeler L.L.P. as special tax counsel to assist in
ERLY's corporate and tax issues. ERLY has also employed as certified public
accountants the firm of Postelwaithe & Nettleville of Baton Rouge, Louisiana.
In addition, ERLY has employed Mike Boudloche of Corpus Christi, Texas as
Executive Vice President for Chapter 11 Operations and Tom Whitlock, Los
Angeles, CA, ERLY's former controller. Applications for employment as special
counsel are pending for Steven Toscher and Gibson, Dunn & Crutcher. Mr.
Toscher's employment relates to an objection to a tax Claim exceeding $11
million filed
________________________________________________________________________________
Face Amount of Tenzer Claim Payment to Tenzer Due
Subject to Redemption
$1.0 million $ 150,000
$2.0 million $ 300,000
$3.0 million $ 500,000
$4.0 million $ 750,000
$5.0 million $1,050,000
Upon ERLY's timely payment of the specified payment amount, the redeemed portion
of the Tenzer Claim will be fully satisfied.. Any portion of the Tenzer Claim
not subject to redemption will share ratably with other general unsecured claims
as an allowed claim against ERLY. In no event and under no circumstances may
this option be exercised after October 26, 1999.
Disclosure Statement, Page 16
by the California Franchise Tax Board. Gibson, Dunn & Crutcher's retention has
been requested for certain tax and securities work. The Committee opposes
Gibson, Dunn & Crutcher's retention and supports Mr. Toscher's retention.
The Committee has retained the services of Hughes & Luce L.L.P. of Dallas,
Texas, and Mr. William Finkelstein and Mr. Howard Spector of that firm. The
Committee has also retained the services of Scott VanMeter and his firm,
Peterson Worldwide, LLC, as financial consultants.
c. WEI
---
WEI has employed the San Antonio, Texas firm of Jeffers & Banack, Inc., and
R. Glen Ayers and David S. Gragg of that firm as its bankruptcy counsel. It has
also employed Mike Boudloche of Corpus Christi to manage the sales process of
Old Chemonics's assets (as the "Responsible Person" to supervise that sale).
David Seyer and Jennings, Strouss & Salmon, PLC, both of Phoenix, AZ, have been
retained as special counsel for environmental matters. Those two professionals
were also pre-petition creditors, holding accrued legal fees. By Bankruptcy
Court order, those pre-petition fees have been paid. Finally, WEI has hired
Lloyd Aderholdt, an engineer in Phoenix, as an environmental consultant.
d. Professional Fees
-----------------
Professional fees awarded or anticipated are set forth on Exhibit C.
2. Operations of ERLY
ERLY's operations during the pendency of its Chapter 11 case have been
principally that of a holding company. ERLY has attempted to stabilize its
operations, investigate and attempt to create and preserve value, and has
investigated new lines of business. Efforts to reorganize around a new line of
business were was abandoned after the Committee moved to convert the case to
chapter 7. ERLY has also resolved the Marzec and Tenzer matters, worked out a
Court-approved procedure for the sale of Old Chemonics, and obtained a line of
credit for Old Chemonics. In addition, ERLY and its legal counsel have been
investigating causes of action against former directors and others. A suit has
been filed to recover as a fraudulent transfer $1,000,000 paid to Sandburg and
Coal and due diligence has begun and is continuing concerning potential actions,
including malpractice claims, against three of ERLY's former law firms, its
certified public accounting firm (DeLoitte Touche), officers and directors, and
others. A copy of ERLY's latest Monthly Operating Report filed with the
Bankruptcy Court is attached to this Disclosure Statement as Exhibit D.
3. Operations of WEI
During the WEI Proceeding, WEI continued to supervise the business of Old
Chemonics and the remaining obligations of WEI under the terms of its agreements
with Fire-Trol Holdings, LLC. WEI also continued to monitor certain
environmental issues involving its occupancy of certain property leased from
Union Pacific Railroad in Phoenix, AZ and Imperial, CA.
Prior to the WEI Petition Date, WEI's management made every effort to avoid
a bankruptcy proceeding by attempting to renegotiate a line of credit for its
subsidiary, Old Chemonics, with NationsBank, N.A. As a result of the sale of
the assets of Chemonics Fire-Trol and the August Tenzer Settlement described
above, NationsBank had informed WEI and Old Chemonics that Old Chemonics'
operating line of credit would be terminated. Extensions were granted up to
October 31, 1998. WEI hoped for additional extensions, but NationsBank sold its
position to FIA, an entity owned and controlled by Scott Spangler, who had been
an unsuccessful bidder Old Chemonics at the time when the Marzec
Disclosure Statement, Page 17
MOU was executed. Spangler and FIA agreed to further extensions of the line of
credit, but FIA finally posted Old Chemonics' assets and WEI's stock in Old
Chemonics for foreclosure under Article 9 of the Uniform Commercial Code (a
public auction sale), which forced WEI to seek bankruptcy protection in order to
protect its stock in Old Chemonics.
Immediately before the WEI Petition Date, WEI and FIA agreed to a "Debtor-
in-Possession Financing" facility, under the terms of which WEI had to either
immediately refinance the FIA position or agree to a sale of the Old Chemonics
assets or stock. After much negotiation with all parties, a sale procedure was
devised and approved by the Court. In the meantime, WEI, ERLY, and the
Committee made every effort to find new financing, but those efforts were
unsuccessful. Ultimately, the assets of WEI were sold to FIA, who was the high
bidder in a auction process supervised by the Bankruptcy Court and its appointed
"Responsible Person", Mike Boudloche. The sale of Old Chemonics' assets to FIA
has closed. Each of the parties to the sale assert claims against each other.
ERLY and WEI's claims will be contributed to the LP. WEI believes those claims
have value.
WEI is still responsible for certain business operations in Phoenix, AZ.
Under the terms of the sale of the assets of Chemonics Fire-Trol, WEI subleases
property to the new owner, Fire-Trol Holdings, LLC and provides services under
the a terminal services contact between the two entities. WEI also subleases a
portion of the Phoenix property to Alameda Chemical & Scientific, Inc.
4. Significant Litigation filed
a. Sandburg Financial and Michael Coal
-----------------------------------
An adversary proceeding has been filed in the Bankruptcy Court to recover
as a fraudulent transfer $1,000,000 paid to Sandburg Financial and Michael Coal.
Sandburg and Coal have asserted cross-claims against ERLY and certain
individuals.
b. William Burgess and O'Melveny & Meyers
--------------------------------------
William Burgess ("Burgess') has filed a Proof of Claim against ERLY, which
was subsequently assigned to O'Melveny & Meyers. An adversary proceeding has
been filed in the Bankruptcy Court objecting to the Claim and seeking recovery
from Burgess, as a preference and/or a fraudulent transfer, $26,500, plus
interest, for certain payments received within 1 year of the ERLY Petition Date.
O'Melveny & Meyers is also a defendant in the action.
c. Other Litigation and Investigation
----------------------------------
(1) Other Matters
Investigation has begun and is continuing concerning potential actions
(including malpractice) against three of ERLY's former law firms. Investigation
and prosecution is anticipated concerning potential causes of action against
ERLY's former certified public accounting firm, as well as ERLY's former
officers and directors. ERLY and WEI are also pursuing claims under the
contract for the sale of the assets of Old Chemonics against the purchaser, FIA,
and others.
(2) Preservation of Claims and Causes for the Benefit of Creditors
All claims and causes of action of ERLY existing as of the Petition Date
------------------------------------------------------------------------
shall be vested in the Reorganized Debtor and assigned and/or transferred to the
- --------------------------------------------------------------------------------
LP for the benefit of the Debtors'
- ----------------------------------
Disclosure Statement, Page 18
Creditors. Investigation of causes of action, claims and rights of the Debtors
- ------------------------------------------------------------------------------
is at a preliminary stage. The Debtors' failure, if any, to list specific
- -------------------------------------------------------------------------
rights, claims and causes of action herein shall not be deemed to constitute a
- ------------------------------------------------------------------------------
waiver or release of such rights, claims and causes of action. Furthermore, such
- --------------------------------------------------------------------------------
claims, rights and causes of action shall not be extinguished by the
- --------------------------------------------------------------------
Confirmation Order or otherwise.
- --------------------------------
d. Other Significant Orders Entered in the Proceedings
---------------------------------------------------
(1) Bar Date to File Claims
ERLY: THE DEADLINE TO FILE PROOFS OF CLAIM IN THE ERLY CHAPTER 11 WAS
FEBRUARY 21, 1999 FOR ENTITIES OTHER THAN GOVERNMENTAL UNITS AND MARCH 27, 1999
FOR GOVERNMENTAL UNITS.
WEI: THE DEADLINE TO FILE PROOFS OF CLAIM IN THE WEI CHAPTER 11 WAS APRIL
11, 1999 FOR ENTITIES OTHER THAN GOVERNMENTAL UNITS AND MAY 29, 1999 FOR
GOVERNMENTAL UNITS.
These bar dates do not apply to Administrative Claims and Claims arising after
the Petition Dates in the two proceedings. Bar dates for those Claims are set
out elsewhere in this Disclosure Statement and the Plan.
(2) Use of Cash Collateral
ERLY has not used any cash collateral as that term is defined by (S)
363(a), Bankruptcy Code. WEI has used cash collateral, and appropriate orders
were entered by the Court permitting use of cash collateral. All Debtor-in-
Possession financing obligations and cash collateral loans have been repaid and
all secured debt has been repaid. As of the date of this Disclosure Statement,
WEI has no secured creditors.
(3) Motions to Lift Stay
Motions to lift the automatic stay imposed by (S) 362, Bankruptcy Code,
were filed by an insurance carrier, a premium insurance finance company, and
GMAC to obtain possession of an automobile under lease that Gerald Murphy, the
former Chairman and President of ERLY, refused to relinquish. ERLY was able to
maintain certain insurance and did not oppose GMAC's motion.
V. POST CONFIRMATION MANAGEMENT OF
THE REORGANIZED DEBTOR, ERLY
----------------------------
1. POST-CONFIRMATION MANAGEMENT OF ERLY
------------------------------------
Disclosure Statement, Page 19
After confirmation, the Reorganized Debtor's management team will include
Nanette Kelley, as Chairman and Chief Executive Officer. Other members of the
management team have not yet been identified.
2. BIOGRAPHIES OF THE REORGANIZED DEBTOR'S SENIOR MANAGERS AND BOARD OF
--------------------------------------------------------------------
DIRECTORS
---------
William D. Blake (64) has served since 1961 as General Manager of Quatre Parish
- ----------------
Company and John A. Bel Estate and since 1988 as President of The Lacassane
Company, companies primarily focused in the agriculture/land holdings business.
Mr. Blake's experience extends particularly to the rice, timber, oil and gas and
real estate industries. Mr. Blake also manages a substantial block of real
estate in Louisiana. Mr. Blake has served on the Board of Directors of the Arts
and Humanities Council, the Chamber or Commerce,the Coordinating Council on Drug
Abuse, Kiwanis Club and Community Development Foundation. He has also served on
the Committee of 100 for Economic Development (Louisiana), the Louisiana
Association for Business and Industry and the Louisiana Council for Fiscal
Reform. Mr. Blake graduated from. Louisiana State University in 1955.
Robert Arthur Seale (55) was a senior partner and administrative head of the
- -------------------
Personal Tax & Estates Group of the law firm Vinson & Elkins in Houston, Texas
until his retirement in March 1997. Mr. Seale practiced law with Vinson &
Elkins since 1969. His practice focused on tax and financial structuring of
businesses involved in mining, aircraft manufacturing, thoroughbred racing and
breeding, banking and real estate development, During the last five years Mr.
Seale has been involved in the tax-free reorganizations of closely-held
businesses and "split-offs" of corporations for business purposes. Mr. Seale
currently serves as the Chair of the University of Texas Health Science Center
Planned Giving Committee, President of The Vivian L. Smith Foundation for
Neurologic Research, President of The Lyons Foundation, Director of The Margaret
and J. A. Elkins, Jr. Foundation, Chairman of Child Advocates, Inc. Endowment
and a Director of Child Advocates, Inc. Mr. Seale is a Fellow of the Texas Bar
Association and a Fellow of the Houston Bar Association. He earned both his
undergraduate and Juris Doctor degrees from Louisiana State University in 1964
and 1967, respectively,
Nanette Noland Kelley (40), Chairman, President and Chief Executive Officer of
- ---------------------
ERLY, has been the President and Chief Executive Officer of The Powell Group
since 1991, which is active in rice growing; milling and sales; radio
broadcasting; residential and commercial development and construction; and
travel management. Ms. Kelley has served on the Board of Directors of the Baton
Rouge Symphony, the Council for a Better Louisiana, the Chamber of Commerce, the
Pennington Biomedical Research Foundation and the Louisiana State University
College of Business Administration Partnership for Excellence. Ms. Kelley is the
past Chairman of St. James Place, a continuing care retirement center, the past
Vice Chairman of the Academic Distinction Fund and is currently the Chairman of
General Health Systems, an integrated health care delivery system. Ms. Kelley
also teaches at Louisiana State University, both in the undergraduate and MBA
programs.
Eugene A. Cafiero (71) has been Chairman of Voltarc Technologies, Inc., a major
- -----------------
manufacturer of specialty lamps and wiring devices for germicidal, aerospace,
reprographics, illuminated sign and other applications, since 1993. From 1986
to 1993, Mr. Cafiero served as Chairman and Chief Executive Officer of KD
Holdings, Inc. and KDI Corporation, a diversified manufacturing company. Mr.
Cafiero also served as Chief Executive Officer of Ariadne Australia, Ltd, and
President and Chief Executive Officer of Mid-American Communications. W. Cafiero
is the past president and director of Keene Corporation, a manufacturer of
bearings, lighting fixtures electronics and laminated products for printed
circuit boards and other applications; past president and chief operating
officer and vice chairman of Chrysler Corporation; principle founder of
Computerized Security Systems, maker of electronic locks for the lodging
industry. Mr. Cafiero is a graduate of Dartmouth College and holds a Master of
Science in
Disclosure Statement, Page 20
Industrial Management from the Massachusetts Institute of Technology
and an Honorary Doctorate of Science from Wittenburg University. He has served
as an overseer at the Tuck School of Business and on the Visiting Committee of
the MIT Sloan School of Business Management.
Beryl F. Anthony, Jr., (61) is currently a partner in the Washington, D.C.
- ----------------------
office of Winston & Strawn and has been since January, 1993. His clients have
included major trade associations, governmental entities, and national and
multinational corporations. Mr. Anthony is a veteran with 14 years of service in
Congress. He is a native of El Dorado, Arkansas and was first elected to the
House of Representatives in 1978. Vice President of his freshman class, Mr.
Anthony also was a founding member of the Sunbelt Coalition, a group that
monitored the legislative impact upon southern states, After just one term, Mr.
Anthony won a coveted seat on the Ways and Means Committee, a powerhouse that
shapes federal tax policy. He also served on the Oversight and Trade
Subcommittees as well as the Select Committee on Children, Youth and Families.
Prior to Mr. Anthony's congressional career, he served as Assistant Attorney
General for Arkansas and as Prosecuting Attorney for the 13th Judicial District,
He received a B.A./B.S. in 1961 and a J.D. in 1963 from the University of
Arkansas.
VI. FORMATION AND OPERATION OF CREDITORS LP
AND DISTRIBUTIONS TO CREDITORS
-------------------------------
A. FORMATION OF LP
---------------
The LP will be established for purposes of liquidating certain of the
assets of the Debtors and Old Chemonics and distributing the proceeds on account
of Allowed Claims. Certain of the assets of ERLY, WEI and Old Chemonics,
including, without limitation, Debtors' Actions, contract rights, insurance
proceeds and cash will be vested in the LP. The property vested in the LP will
be deemed to be "property of the Estates" as that term is used in the Bankruptcy
Code. The LP will also be the assignee of the Assigned Third Party Actions as
discussed herein.
The LP will be a Delaware or Texas limited partnership. The Creditors who
are holders of Units in the LP will be entitled to the net cash flow of the LP
as set forth in the LP Agreement. The LP will be solely responsible for
preparation of any tax returns, expenses of preparation, and payment of any
income or other taxes which the LP may be required to pay under any applicable
law and for Pre-Closing Tax Claims.
B. OPERATION OF LP
---------------
Scott Van Meter of Peterson Worldwide LLC will serve as the initial Manager
to be compensated under the standards and limitations applicable to Chapter 7
trustees pursuant to 11 U.S.C. (S) 326. The Manager shall be the disbursing
agent under this Plan; however, the Debtors' officers shall execute all
documents and funds transfers requisite to effect the required transfer of
assets under this Plan to the LP. The Manager shall execute and be covered by a
Fidelity Bond with an approved corporate surety licensed to issue surety bonds
within the State of Texas to insure the faithful performance of all of his
duties in accordance with same requirements as that of a Chapter 7 Trustee as
required under the Bankruptcy Code and by the United States Trustee for the
Southern District of Texas.
The Manager, together with the LP Committee, shall establish the amounts of
cash distributions to be made on account of LP Units. Distributions to holders
of LP Units of the same class shall be made on a pro-rata basis. The Manager,
together with the LP Committee, shall have the power to expend funds otherwise
available for distribution on account of LP Units in order to fund prosecution
of the Debtors' Actions, Assigned Third Party Actions, fees and expenses of the
LP, or liquidation or realization of other assets of the LP.
Disclosure Statement, Page 21
Pursuant to the terms and provisions of the Plan Documents, the Manager
shall be empowered to (i) take all steps and execute all instruments and
documents necessary to effectuate the Plan; (ii) make distributions contemplated
by the Plan; (iii) comply with the Plan and the obligations thereunder; (iv)
employ, retain, or replace professionals to represent it with respect to its
responsibilities; and (v) exercise such other powers as may be vested in the
Manager pursuant to order of the Bankruptcy Court or pursuant to the Plan, or as
the Manager deems to be necessary and proper to carry out the provisions of the
Plan.
Pursuant to and subject to the terms and provisions of (and except as may
otherwise be provided in) the Plan Documents, the Manager shall have the duties
of: (i) carrying out the provisions of the Plan, which shall include taking or
not taking any action which the Manager deems to be in furtherance of the Plan,
including, from the date of the Manager's appointment, making payments and
conveyances and effecting other transfers necessary in furtherance of the Plan;
(ii) managing property to be distributed in a manner designed to effectuate the
Plan; and (iii) making quarterly and other periodic reports regarding the
distributions to be made to the holders of LP Units.
Subject to the terms and provisions of the LP Agreement, the LP, by and
through the Manager, shall have the duty and authority to take all other actions
which be necessary to maximize the value of the property vested in the LP for
the benefit of the Debtors' Creditors, including, but not limited to: (i)
retaining professionals deemed to be necessary or appropriate to carry out the
functions of the LP; (ii) liquidating and pursuing the Claims assigned to the
LP, whether by litigation, settlement or otherwise; (iii) asserting all rights
to Debtors' Actions (including modification of the automatic stay or injunctions
to the extent necessary); (iv) prosecuting the Assigned Third Party Actions
(including modification of the automatic stay or injunctions to the extent
necessary); (v) making distributions of LP Units to holders of Allowed Claims in
consideration for the assignment to the LP of such holders' Claims; (vii)
perform under any Executory Contract or Unexpired Lease assumed by the Debtors
and assigned to the LP at the Manager's request; and (viii) intervening, filing
cross-claims or third-party claims, or otherwise participating in claims
objections or estimation proceedings brought by the Debtors' Claims Agent. In
discharging its powers and duties, the LP will be deemed to be the duly
appointed, authorized representative of the Estates to pursue the assigned
rights, claims, causes of action and other property interests for the benefit of
the Creditors of the Debtors pursuant to 1123(b)(3), Bankruptcy Code.
The LP shall allocate the net proceeds of Assigned Third Party Recoveries
to the holders of Partnership B Units. All other net proceeds of property vested
in the LP (including, but not limited to proceeds of Debtors' Actions
Recoveries) shall be allocated by the LP to the holders of Partnership A Units.
All proceeds attributable both to Debtors' Actions Recoveries and Assigned Third
Party Recoveries shall be allocated between the holders of Partnership A Units
and Partnership B Units in a manner determined by the LP Committee, in their
reasonable discretion; the LP shall provide notice of all allocations to the
holders of LP Units by means of a "Notice of Allocation" to be filed with the
Bankruptcy Court and shall provide the holders of LP Units with a 20-day
"negative notice" period to object to any such allocation. Failure of any holder
to object to the allocation shall constitute ratification of the allocation by
the LP. The LP shall allocate the expenses attributable to prosecution of
Assigned Third Party Actions to the holders of Partnership B Units and shall
deduct such expenses from distributions, if any, to the holders of Partnership B
Units. This allocation shall be included in the "Notice of Allocation"
previously described.
The LP will also receive assignments of Creditors' causes of actions,
Claims and rights as follows:
Disclosure Statement, Page 22
(i) On the Effective Date, the Indenture Trustee, unless it has made a
Non-Assignment Election, shall be deemed to have assigned to the LP any claims
or causes of action the Indenture Trustee may hold on its own behalf, including
all rights to enforce the provisions of such indentures and all claims and
causes of action that are vested in the Indenture Trustee pursuant to the terms
of the Indenture (other than claims for fees and expenses and claims for
indemnity held by Indenture Trustee, against a predecessor Indenture Trustee)
against any Persons or Entities, including, but not limited to, the Debtors,
their current or former directors, officers, and professionals, or other third
parties, including, but not limited to, financial institutions and third party
professionals relating to the Indenture Trustee's activities pursuant to the
Indenture. Notwithstanding the foregoing, the Indenture Trustee shall not have
been deemed to have assigned to the LP its right or power to determine the
subordination or priority of the Claim of holders of securities under the
Indenture vis-a-vis Senior Indebtedness (as defined in the Indenture).
(ii) On the Effective Date, unless it has made a Non-Assignment Election,
holders of Class 9, 10, 11 and 12 Claims shall be deemed to have assigned to the
LP any Assigned Third Party Actions.
(iii) On the later of the (i) Effective Date or (ii) the date on which the
holder of a Disputed Claim in Class 9, 10, 11 or 12 becomes the holder of an
Allowed Claim in such Class, such holder shall be deemed to have assigned any
claim against the Debtors or their Estates to the LP in consideration of such
holder's receipt of its Pro Rata share of the LP Units as provided under this
Plan. The LP shall succeed to the rights of the holder of such Claim upon such
assignment, including the right (but not the obligation) to object to Claims.
Notwithstanding the foregoing, subject to making a Non-Assignment Election,
holders of Debt Securities Laws Claims against the Debtor shall be deemed to
have assigned any and all such Claims to the LP on the Effective Date.
(iv) Holders of Class 9, 10, 11 and 12 Claims may elect not to have such
causes of action assigned to the LP (such election being referred to as the
"Non-Assignment Election") by written notice filed with the Bankruptcy Court and
served on the Proponents on or before the Voting Deadline. A Non-Assignment
Election shall apply to all classes of Claims applicable to such holder.
Holders making a Non-Assignment Election shall waive all right to receive any
their Pro-Rata portion of the Assigned Third Party Recoveries and will,
therefore, receive no Partnership B Units on account of their Allowed Claims.
The Confirmation Order shall constitute and provide upon the Effective Date for
an injunction against the Indenture Trustee and the holders of Class 9, 10, 11
and 12 Claims who have not made the Non-Assignment Election from prosecuting
causes of action in their own behalf.
C. ASSETS TO BE CONTRIBUTED TO THE LP AND VALUES OF THOSE ASSETS (LIQUIDATION
ANALYSIS
All values set forth in this Disclosure Statement are fair market values as
estimated by the Debtors, except as otherwise indicated. Except as specifically
described below, the Proponents are unable to ascribe a value to any of ERLY's
and WEI's assets.
1. Unencumbered Real Estate Assets
The Debtors do not own any real estate. As is discussed in more detail
herein, WEI is the sub-lessor and lessee of certain real property. The
Proponents believe that WEI's interest in such property has no substantial
economic value.
2. Interests in Affiliates
Disclosure Statement, Page 23
ERLY owns a direct 100% interest in WEI and approximately an 81% interest
in ARI. As noted above, ARI has asserted that it is insolvent and that,
following its reorganization, there will be no distribution to stock interests,
including the interests held by ERLY. ERLY also held a 100% interest in the
stock of the following entities, none of which are believed to have any assets
or value, which are listed on Exhibit E. Finally, as of the WEI Petition Date,
WEI owned 100% of the stock of Chemonics Fire-Trol, Inc. and Old Chemonics, both
of which are being dissolved pursuant to applicable state law. These stock
interests shall remain with ERLY.
3. Cash and Cash Equivalents
The Debtors have cash and checking accounts on hand on May 26, 1999, of
approximately $5,207,507.22. This sum includes the WEI cash and checking
accounts of $5,084,151.22 and $123,356.13 in ERLY.
4. Notes Receivable and Claims
ERLY owns non-recourse notes receivable from its former Chief Financial
Officer, Richard McCombs, secured by the stock of ERLY.
WEI holds an undisputed, unsecured, liquidated claim of $5 million against
ARI. WEI's claim is subject to offset against that certain sums due ARI from
ERLY. WEI's Claim was created in the August Tenzer Settlement, as described
above.
5. Set-Offs by Creditors Prior to Petition Date
Debtors are unaware of any set-offs by creditors prior to the respective
Petition Dates, save and except certain actions taken by ARI with respect to
intercompany accounts.
6. Preferences and Fraudulent Conveyances and Other Causes of Action
The LP will be established for purposes of liquidating the assets of the
Debtors and Old Chemonics and distributing the proceeds on account of Allowed
Claims and LP Units. All assets of ERLY, WEI and Old Chemonics, including
Debtors' Actions, contract rights, insurance proceeds and cash (save and except
(a) NOLS, (b) NOL Carryovers, (c) ERLY's stock in WEI and other subsidiaries,
and (d) those assets necessary to perform under the sub-lease and Terminal
Service Agreement with respect to the Phoenix, AZ properties) will be vested in
the LP.
The Manager of the LP will conduct an investigation as to whether there are
any preference and fraudulent transfer claims or other claims and causes of
action (including but not limited to the Debtors' Actions). The LP reserves the
right to file suit subsequent to the entry of the Confirmation Order to recover
any preferences and/or fraudulent transfers or to pursue any other causes of
action arising prior to or subsequent to the Petition Date. Again,
investigation of causes of action, claims and rights of the Debtors is at a
preliminary stage. The Debtors' failure, if any, to list specific rights,
claims and causes of action herein shall not be deemed to constitute a waiver or
release of such rights, claims and causes of action. Furthermore, such claims,
rights and causes of action shall not be extinguished by the Confirmation Order
or otherwise. All claims and causes of action of the Debtors existing as of the
Effective Date are hereby preserved and shall survive entry of the Confirmation
Order and shall be assigned to and may be prosecuted by the LP. The Debtors
are also assigning all rights under Insurance Policies to the LP.
At the time that the Plan is being filed, the Debtors and/or the Committee
have made demand on
Disclosure Statement, Page 24
the following former or current officers and directors of the Debtors: (i) Kurt
Grey; (ii) Ashraf Riszk; (iii) Douglas A. Murphy; (iv) Thurston Teele; (v)
Richard N. McCombs; (vi) Alan M. Wiener; (vi) Haphal Randawa; (vii) William H.
Burgess; (viii) Richard Nevins; and (ix) Gerald D. Murphy. These claims arise
from, inter alia (a) approval of the August Tenzer Settlement, (b) negligent
----- ----
mismanagement, (c) waste of corporate assets, (d) violations of duties owed to
ERLY Industries and its creditors, and (e) other wrongful actions more fully
included in Debtors' Actions and Assigned Third Party Actions. The Debtors may
have further claims against the aforementioned parties as well as against
parties not included therein, including, but not limited to, the Debtors' former
or current officers or directors.
The Debtors are further aware of claims against, and in some cases have
made demand on, their former professionals including, but not limited to,
Deloitte & Touche, L.L.P., Vial Hamilton Koch & Knox, L.L.P., Epman Dwyer & De
La Housaye, LLP, and Latham & Watkins (or their respective predecessors or
successors in interest). Additionally, the Debtors allege that they have valid
claims against Insurance Policies issued to the Debtors prior to the Effective
Date.
ERLY has filed the following proofs of claim in the ARI chapter 11 case:
(1) a claim of preferential payments and fraudulent transfers in the amount of
$2,986,733.20, including $718,460.61 as a fraudulent transfer for the amount of
the Delano Plant; (2) a claim for an unknown amount based on a pledge of the
stock of American Rice, Inc. owned by ERLY in favor of U.S. Trust Company of
Texas, N.A., Trustee under a certain indenture for the holders of Pledgor's 13%
Mortgage Notes due 2002 with Contingent Interest of American Rice, Inc.; and (3)
a protective contingent proof of claim based on the California Franchise Tax
Board Claim in the amount of $11,311,677.22. The Proponents anticipate that ARI
will dispute each of these claims.
The Debtors may also hold claims against Fire-Trol Holdings LLC, their
officers, directors or other agents, based on their attempt to improperly
collusively chill the bidding for the sale of the assets of Chemonics
International, Inc. The amount of such claim has not yet been determined.
The foregoing constitutes a partial list of claims which the Debtors' Estates
may hold against non-Affiliates based upon the Debtors' preliminary
investigation of their claims during the Proceedings. All claims of the
Debtors' Estates, including those not listed above, are specifically preserved
under the Plan to be prosecuted by the LP for the benefit of the Debtors'
Creditors.
D. LIABILITIES
-----------
The estimated administrative expense liabilities are listed in Exhibit C to
this Disclosure Statement. The California Franchise Tax Board has filed a
priority claim in the amount of $11,311,677.22. The Class 9 & 11 Unsecured
Claims as scheduled and as filed are listed in Exhibit F to this Disclosure
Statement. The Class 10 Claim has been filed by the ERLY Indenture Trustee in
the aggregate amount of $4,834,002.62. The ERLY Indenture Trustee for the
Debentures included within the Class 10 Claims asserts that the contractual
subordination in the Indenture does not apply to, among other things: (a) Claims
against WEI, (b) assets of WEI (after the substantive consolidation contemplated
in the Plan) and (c) recoveries upon causes of action created by the Bankruptcy
Code. The Debtors are working with the Indenture Trustee to resolve this issue
by settlement and compromise and, if successful, anticipate filing a motion with
the Bankruptcy Court to settle and compromise this issue on the allocation of
the Debentures between subordinated and General (non-subordinated) Unsecured
Claims. The allocation will be identical for each Debenture.
E. SUBSTANTIVE CONSOLDIATION OF ALL ENTITIES
-----------------------------------------
Disclosure Statement, Page 25
On the Effective Date (i) all intercompany Claims by and among the Debtors
or Old Chemonics will be eliminated, (ii) all guaranties executed by the Debtors
or Old Chemonics will be deemed to have been one obligation of ERLY payable
solely by the LP in accordance with this Plan, (iii) any Claim filed or to be
filed against the Debtors will be deemed one Claim against ERLY, payable solely
by the LP, (iv) for purposes of determining the availability of the right of
offset under (S) 553, Bankruptcy Code, the Debtors and Old Chemonics shall be
treated as one entity so that, subject to the other provisions of (S) 553,
Bankruptcy Code, debts due to any of the Debtors may be offset against the debts
of any of the Debtors, (v) all remaining assets of Old Chemonics shall be either
assigned to, paid by way of dividend to, or otherwise vested in the Reorganized
Debtor and assigned to the LP, and (vi) the Debtors will be substantively
consolidated for all purposes pursuant to (S) 302, Bankruptcy Code with the
Reorganized Debtor as the sole surviving legal entity.
F. SALE OF ESTATE PROPERTIES
-------------------------
The LP may sell one or more of its properties or causes of action pursuant
to the Plan and has as part of this Plan the right to sell any or all of
Debtors' properties, free and clear of any and all liens, claims, security
interests and encumbrances, with any such liens, claims, security interests and
encumbrances to attach to the proceeds thereof to be applied to the indebtedness
for which the property may serve as security as may be necessary in order to
perform under the terms of this Plan.
F. INJUNCTION
----------
Except as otherwise expressly provided or permitted in the Plan, the
Confirmation Order will provide that all entities who have held, hold or may
hold a Claim are permanently enjoined on or after the Confirmation Date from:
(1) making demand on, commencing, or continuing in any manner any action or
other proceeding of any kind with respect to any such Claim against the Debtors,
the Reorganized Debtor or the LP; (2) the enforcement, attachment, collection or
recovery by any manner or means of any judgment, award, decree or order against
the Debtors, the Reorganized Debtor or the LP with respect to such Claim; (3)
creating, perfecting or enforcing any Lien, Security Interest or encumbrance of
any kind against the Debtors, the Reorganized Debtor or the LP with respect to
such Claim; (4) asserting any setoff, right of subrogation or recoupment of any
kind against any obligation due Debtors, the Reorganized Debtor, any entity
which has issued an Insurance Policy to the Debtors, or against the property of
the Debtors with respect to such Claim; (5) any act, in any manner, that does
not conform to or comply with the provisions of this Plan or the Plan Documents;
and (6) making demand on, commencing, enforcing, or continuing in any manner any
action or proceeding against any Entity, including but not limited to the
Debtors' officers, directors, Affiliates, or companies which have issued an
Insurance Policy to the Debtors, with respect to any claim or cause of action
which is property of one or more of the Estates (as defined under (S) 541,
Bankruptcy Code). The Confirmation Order will further provide that all Entities
who have not made the Non-Assignment Election are permanently enjoined on or
after the Confirmation Date from making demand on, commencing, or continuing in
any manner any action or proceeding against any party, including but not limited
to the Debtors' officers, directors, Affiliates, or companies which have issued
an Insurance Policy to the Debtors, with respect to any Assigned Third Party
Action. Provided, however, that such injunction shall not impair the rights of
the LP to prosecute any Debtors Action or any Assigned Third Party Action.
G. ANTICIPATED DIVIDEND TO UNSECURED CREDITORS
The Proponents are unable to estimate a dividend to unsecured creditors
because the amount of disputed priority tax claim filed by the California
Franchise Tax Board (CFTB) has not been determined. If the CFTB is successful,
there will be no dividend. If ERLY is successful on its objection to the CFTB
Disclosure Statement, Page 26
priority claim, unsecured creditors can expect a dividend of between 5%-30% on
their claims, depending upon all of the contingencies described in this
Disclosure Statement.
VII. THE DEBTORS' PLAN FOR SATISFACTION OF CLAIMS
--------------------------------------------
A. THE PLAN OF REORGANIZATION
The Plan attached to this Disclosure Statement as Exhibit A and made a part
hereof. This Disclosure Statement, to the extent not inconsistent with the
Plan, is also incorporated in the Plan and made a part thereof. Article II of
the Plan describes the Classification of Claims. Article IV of the Plan
describes the Provisions for Satisfaction of Claims. Please refer to these
Articles to determine how your claim is classified and the provisions for
payment.
B. CLAIMS AND PRE- AND POST-CONFIRMATION OBJECTIONS TO AND SUBORDINATION OF
CLAIMS
1. Voting
Holders of Allowed Claims and holders of Allowed Interests who are impaired
will vote on the Plan. Claims and Interests have been placed into the Classes
described below. Allowed Claims or Interests include those claims scheduled by
the Debtors but not those Claims or Interests which are either contingent,
unliquidated, or disputed. The amount of any Interest or Claim set forth in the
Schedules is the amount of the Claim for voting purposes unless a holder has
filed a Proof of Claim setting forth a different amount. If a holder of a Claim
or Interest has filed a Proof of Claim, unless one of the Debtors has objected
to the Proof of Claim, the Claim or Interest is allowed to vote the Claim or
Interest as filed.
2. Pre-Confirmation Objections to Claims or Interests
If either Debtor wishes to object to a Proof of Claim in order to prevent
the holder from voting on the Plan, then the Debtor in the case in which the
Proof of Claim has been filed must file an objection on notice and hearing, with
an opportunity for hearing prior to the date upon which Ballots must be
submitted.
3. Post-Confirmation Objections to and Estimation of Claims
As to objections to Claims following Confirmation, or motions to
subordinate Claims, the Debtors' Claims Agent will review all Claims of
Creditors and may object to or move to subordinate any Claim -- except those
Claims previously Allowed by the Court or previously paid under orders of the
Court. The previous language notwithstanding, all Fee Claims of Professional
Persons are subject to review by the Court until an order allowing a final
application for fees and expenses is entered.
The Debtors' Claims Agent shall succeed to the rights and duties of the
Debtors to determine the amount of Allowed Claims by (i) filing and prosecuting
objections thereto, (ii) seeking subordination of Claims, (iii) estimating
Disputed Claims, unliquidated Claims, or portions of Claims which are
unliquidated. The Debtors' Claims Agent shall have the power and authority to
take whatever actions are deemed necessary and proper in carrying out the
functions granted pursuant to this Plan. The fees and expenses of the Debtors'
Claims Agent shall be paid from the LP as an expense of administration and shall
not exceed $30,000, exclusive of legal counsel and other professionals retained
thereby. Effective
Disclosure Statement, Page 27
upon the entry of the Confirmation Order, the Reorganized Debtor shall have no
responsibility for objecting to Claims, same having been assigned to the
Debtors' Claims Agent.
The Debtors' Claims Agent shall, on or before 120 days following the
Effective Date (unless an extension of such period is requested by the Claim
Agent), file separate motions to estimate the amounts of Debt Securities Laws
Claims and Equity Securities Laws Claims against the Debtors for all purposes,
including, but not limited to, distribution pursuant to (S) 502(c), Bankruptcy
Code. The Debtors' Claims Agent will provide notice of the estimation
proceeding to parties holding a Debt Securities Laws Claim or Equity Securities
Laws Claim (as the case may be) or their assigns, the Manager, and any Entity
who has issued an Insurance Policy to the Debtors pertaining to such Claim. Any
determination by the Bankruptcy Court in connection with this estimation
proceeding shall be binding on all parties who have received notice thereof. The
Bankruptcy Court will hold a final hearing within 45 days of the filing of any
such motion.
C. CLASSIFICATION AND TREATMENT OF UNIMPAIRED CLAIMS AND PROVISIONS FOR
SATISFACTION
1. Classification
All Claims and Interests have been classified for treatment in the Plan and
for voting. Claims and Interests which are similar in nature are classified
together. For example, all of the General Unsecured Creditors of each Debtor
are placed in separate classes -- Class 9 for ERLY and Class 11 for WEI. Claims
with different rights or having different natures, such as secured claims, are
separately classified.
All parties in interest are referred to the Plan for specific treatment of
claims. All Allowed Claims, whether pre- or post-Petition, which have not been
paid as of the Confirmation Date, will be paid by the LP.
2. Treatment of Interests in Classes 13 & 14
Class 13, composed of the Allowed Interestholders in ERLY, will retain
their Interests in the Reorganized Debtor. Proponents believe that this Class is
unimpaired and is deemed to have accepted the Plan and will accordingly receive
a separate limited Disclosure Statement approved by the Bankruptcy Court and a
provisional ballot. In the event that holders of Allowed Interests retain their
Interests, Farmers Rice Milling Co. and, possibly, Gerald and Douglas Murphy,
jointly, will continue to own over 5% of the outstanding voting Interests, all
purchased prior to the ERLY Petition Date. Officers and directors collectively
own in excess of 5%, all purchased prior to the ERLY Petition Date. The Chairman
of the Reorganized Debtor also controls Farmers Rice Milling Co. ERLY is not
aware of any significant stock transactions occurring subsequent to the ERLY
Petition Date. If the Plan is not accepted, and the Plan Proponents seek
Confirmation under 11 U.S.C. (S) 1129(b), please refer to the discussion in the
following paragraphs.
Class 14 is composed of the Interestholders in WEI; the sole
Interestholder, ERLY, has agreed to the substantive consolidation of the assets
of WEI and ERLY. This Class is impaired, but has agreed to this treatment.
The Proponents believe that Allowed Interestholders are unimpaired under
the Bankruptcy Code since they are retaining their Interests in the Reorganized
Debtor upon Confirmation after satisfaction of Allowed Claims in accordance with
the priorities required under the Bankruptcy Code.
In the event that an objection to the treatment of Interestholders is sustained,
the Proponents reserve the
Disclosure Statement, Page 28
right to modify the Plan at the Confirmation Hearing to eliminate the Interests
of present Interestholders, issue 1,000 shares of non-par voting common stock of
ERLY, and auction those shares to any holder of an Allowed Claim, Allowed
Administrative Claim, or Allowed Interestholder, in exchange for Claims,
Interests or cash, as appropriate. ERLY believes that such a sale process
satisfies the requirements of (S)1145 of the Bankruptcy Code and that such a
sale is a "public offering" exempt from the registration requirements of the
Securities Act of 1933. The staff of the Securities & Exchange Commission
questions the applicability of the Section 1145 exemption from registration and
reserves the Commission's right to object at Confirmation. The Commission has no
right of appeal on such issue, but may join in any appeal if any such objection
is overruled.
3. Treatment of Priority Claims
Classes 1, 2, 3, 4 and 5 consist of Allowed Unsecured Claims entitled to
priority under 11 U.S.C. (S)507 (a) of the Bankruptcy Code.
Class 1: Unpaid Allowed Administrative Claims, which include the Fee Claims
of Professional Persons and other costs associated with the post-Petition
operation of the Debtors, including fees due the United States Trustee system,
will be paid Cash in full on the Confirmation Date, or as soon thereafter as
Allowed by the Bankruptcy Court, payable by the LP. Class 1 is unimpaired and
will not vote on the Plan.
Fees due the United States Trustee pre-Confirmation by ERLY and WEI will be
paid in cash in full on the Confirmation Date by each of the Debtors, or the LP.
The Reorganized Debtor will be held jointly and severally liable for such pre-
Confirmation United States Trustee quarterly fees. Quarterly fees due post-
Confirmation to the United States Trustee will be calculated based upon the
disbursements of the LP and will be assessed against the LP until the
substantively consolidated bankruptcy case is closed by the Bankruptcy Court.
The LP will be required to declare its disbursements monthly to the United
States Trustee in a report designated by the United States Trustee. If reports
are not received by the United States Trustee from the LP, the United States
Trustee will calculate outstanding fees based upon disbursements by the LP
during the prior three (3) quarters, or, if disbursements have not been reported
for more than three (3) months, then based upon disbursements during the prior
twelve month period.
Classes 2, 3 & 4: The Debtors do not believe that there are significant
priority claims for employee wages (Class 2) or employee benefits (Class 3).
Class 4 is a "catch-all" for all other possible Priority Non-Tax Claims. These
classes are unimpaired, and will be paid cash in full on the Effective Date.
Class 5: Class 5 consists of Priority Tax Claims. The State of California
has filed a substantial Claim (in the amount of $11,311,677.22) in this Class
which the Debtors' Claims Agent will attempt to resolve or will contest before
the Court. The Debtors expect the Debtor's Claims Agent will be able to resolve
that claim for substantially less than the face amount. On the Effective Date,
each holder of an Allowed Priority Tax Claim against the Debtors shall receive
from the LP in full satisfaction of such holder's Allowed Priority Tax Claim (1)
the amount of such holder's Allowed Priority Tax Claim, with interest accruing
after the Effective Date at the annual rate of eight percent (8%), divided into
six equal annual Cash payments on each anniversary of the Distribution Date
until the sixth such anniversary of the date of assessment of such Claim; (2) a
lesser amount in one Cash payment as may be agreed upon in writing; or (3) such
other treatment as may be agreed upon in writing.
4. Secured Creditors
Disclosure Statement, Page 29
Classes 6 & 7: Classes 6 and 7 consist of Creditors holding debts secured
by Liens on the Debtors' stock and warrants in ARI. ERLY believes that the
collateral is worth little or nothing, based upon the plan and disclosure
statement filed by American Rice, Inc. in its chapter 11 case. Secured Creditors
in these Classes are unimpaired under the Plan and will receive the collateral
pledged to secure the indebtedness due. These two classes of Secured Creditors
will not vote on the Plan.
Class 8: The Class 8 Creditor is the landlord at ERLY's prior offices in Los
Angeles, California. If the Landlord holds a deposit or other collateral, it
will receive its collateral in full satisfaction of its secured claim, and it is
unimpaired and will not vote on the Plan.
5. General Unsecured Creditors
Classes 9, 10 & 11: Holders of Allowed Unsecured Claims in both Proceedings
will receive in full satisfaction of their Claims against the Debtors their Pro
Rata share of Partnership A Units and Partnership B Units in the LP and will
then receive a ratable distribution from the LP as provided under the terms of
the Plan and other documents creating the LP, including the LP Agreement. These
classes are impaired and are entitled to vote on the Plan.
Provided however, that calculation of the Pro Rata shares of Partnership A
Units allocable to holders of Allowed Class 10 Claims shall be subject to all of
the contractual provisions, including those contained in the Indenture, which
require subordination to and priority of Senior Indebtedness (as defined in the
Indenture). Any Partnership A Units which would otherwise be allocated to
holders of Allowed Class 10 Claims but for the contractual provisions of the
Indenture requiring subordination to and priority of Senior Indebtedness shall
be reallocated and distributed to holders of Senior Indebtedness.
The precise allocation of Partnership A Units among holders of Allowed
Class 9, 10 and 11 Claims is unknown at this time because of certain areas of
dispute regarding the effect of the subordination provisions in the Indenture,
and the allowed amount of certain sizeable Claims in Classes 9 and 11. ERLY and
the Indenture Trustee are currently to structure a compromise and settlement of
the nature and extent of the subordination provision contained in the Indenture,
and if successful, will file appropriate pleadings with the Bankruptcy Court and
provide an appropriate notice and opportunity for a hearing.
Class 12: Holders of Allowed Unsecured Claims in Class 12 will receive in
full satisfaction of their Claims against the Debtors their Pro Rata share of
Partnership C Units. Partnership C Units will not receive any distribution from
the LP unless and until the holders of Class 9, 10, and 11 Claims have received
payment in full of the Allowed amount of their Claims, with interest at the
Federal Judgement rate in effect on the Effective Date. The Debtors do not know
of any claimants in this Class, but the Plan reserves the right of the Debtors'
Claims Agent to seek subordination of any Claim against the Debtors. This class
is impaired and is entitled to vote on the Plan.
The Debtors' Claims Agent will succeed to the rights of the Debtors to seek
subordination of any Claim pursuant to (S)(S) 509, 510 or the Bankruptcy Code or
pursuant to the Indenture. The Debtors have not concluded their investigation
as to whether subordination of any Claim is warranted. However, the Debtors are
reviewing (and the Debtors' Claim Agent will continue the review of) whether the
allegations against former officers and directors or ARI justify partial or
complete subordination of ARI's claim against the Debtors.
VIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
Disclosure Statement, Page 30
A. GENERALLY
---------
The Bankruptcy Code gives the Debtors the power in their chapter 11 cases,
subject to the approval of the Bankruptcy Court, to assume or reject Executory
Contracts and Unexpired Leases. If an Executory Contract or Unexpired Lease is
rejected by a Debtor, rejection will be treated as if the particular Debtor
breached the contract or lease on the date immediately preceding the Petition
Date, and the other party to the agreement may file an Unsecured Claim for
damages incurred as a result of the rejection. In the case of rejection of
employment agreements and leases of real property, such Unsecured Claims are
subject to certain limitations imposed by the Bankruptcy Code.
B. CLAIMS ARISING FROM REJECTION
-----------------------------
ANY CLAIMS ARISING AS A RESULT OF THE REJECTION OR BREACH OF ANY UNEXPIRED
LEASE OR EXECUTORY CONTRACT REJECTED PURSUANT TO THE PLAN OF REORGANIZATION MUST
BE FILED WITHIN TWENTY (20) CALENDAR DAYS AFTER THE CONFIRMATION DATE. UNEXPIRED
LEASES OR EXECUTORY CONTRACTS REJECTED PRIOR TO THE CONFIRMATION DATE BUT AFTER
THE BAR DATE, IF ANY, MUST ALSO BE FILED WITHIN THE TWENTY-DAY PERIOD SET OUT
ABOVE.
CLAIMS ARISING FROM THE REJECTION OR BREACH OF ANY UNEXPIRED LEASE OR
EXECUTORY CONTRACT PRIOR TO THE BAR DATE FOR CLAIMS IN THE APPLICABLE CASE, AND
WHETHER BY OPERATION OF LAW OR BY THE ENTRY OF AN ORDER BY THE BANKRUPTCY COURT,
ARE SUBJECT TO THE BAR DATE IN THE APPLICABLE CASE.
C. SPECIFIC CONTRACTS AND LEASES
-----------------------------
The Debtors are not aware of any Executory Contracts or Unexpired Leases
which have been rejected by operation of law or by order of the Bankruptcy Court
except: (1) in the ERLY case, the Bankruptcy Court entered an order rejecting
the Marzec MOU and the lease of its former headquarters in Los Angeles, CA, and
(2) in the WEI case, the Debtor did not act to assume or reject any non-
residential real estate lease and all such leases as to which the Debtor was a
party as lessee have been rejected as a matter of law under (S)365(d),
Bankruptcy Code.
ERLY is a party to a written tax sharing agreement with ARI. ERLY has
neither accepted or rejected the tax sharing agreement prior to Confirmation.
ERLY is informed that ARI may reject the tax sharing agreement, and if ARI
rejects, ERLY and the LP may be entitled to damages for ARI's rejection. This
Claim will be assigned to the LP.
As of the WEI Petition Date, WEI leased from Union Pacific Railroad a
parcel of property in Imperial, CA under a term of years and another parcel in
Phoenix, AZ under a quarter to quarter tenancy. The Imperial, CA property was
unoccupied for some time prior to the WEI Petition Date. WEI subleased the
Phoenix location to two different entities, Fire-Trol Holdings, LLC and Alameda
Chemical & Scientific Co. Neither of the subleases have been assumed or rejected
prior to Confirmation, but WEI
Disclosure Statement, Page 31
has continued to pay the quarterly sub-lease payments to Union Pacific Railroad
for the Phoenix, AZ property. The sub-leases of the Arizona property to Fire-
Trol and Alameda Chemical are dealt with in Schedule 1 of the Plan.
In addition, WEI is a party to an Executory Contract between the Debtor and
Fire-Trol Holdings, LLC called the Terminal Services Contract. Under the terms
of this Contract, WEI provides certain equipment and services to Fire-Trol
Holdings, LLC at the Phoenix location. This agreement was not assumed or
rejected prior to Confirmation and is dealt with in Schedule 1 of the Plan.
The Proponents are unaware of any other executory contracts.
All executory contracts which are assumed are dealt with in Schedule 1 of
the Plan.
IX. ALTERNATIVES TO THE PLAN
------------------------
This is a chapter 11 Plan of Reorganization which provides that all of the
assets of ERLY and WEI (except NOL's, NOL Carryforwards and stock of WEI and
those assets necessary to carry on the contractual obligations under the
sublease and Terminal Service Agreement with Fire-Trol) will be paid to a
limited partnership for the benefit of the creditors and that ERLY will continue
in future business. The Debtors and the Committee have agreed that the Debtors
should not attempt to reorganize their existing businesses, except for the
continued operations involving the sublease and Terminal Service Agreement in
connection with the WEI Phoenix Operations since the businesses have been almost
completely liquidated during the course of the two Proceedings. Given that the
Debtors expect little or no recovery on ERLY's interests in ARI, and the
liquidation of the operating entities owned by WEI has been concluded, ERLY can
no longer function as only a holding company.
The only alternative to the Plan would appear to be (i) conversion of the
two cases to cases under chapter 7 or (ii) utilization of the funds in the
Estates to acquire or enter into a new line of business. The Committee has
reviewed proposals submitted by the Debtors regarding potential new lines of
business and has declined to vote in favor of any of the new ventures proposed.
The Proponents further believe that the proposed Plan preserves the significant
expertise and knowledge of the Debtors' affairs garnered by the professionals
retained to date, thus avoiding additional administrative overhead that would be
incurred if the cases were converted, a trustee appointed for each, and the
appointment of new professionals to investigate and prosecute causes of actions
of the Debtors. The Proponents further believe that the LP structure provides
unsecured creditors with control over the collection and disposition of assets
and prosecution of lawsuits that would otherwise be unavailable to unsecured
creditors if a chapter 7 trustee were to be appointed.
While a chapter 7 trustee might not allow the Reorganized Debtor to retain
the NOLs, if any, and thus generate some potential value for the Allowed
Interestholders in ERLY, the Proponents do not believe that the assets which the
Reorganized Debtor and its Interestholders will receive is of any significance
in a chapter 11 case.
The only other alternative to the Plan would be the dismissal of the
Proceedings. Dismissal would lead to a race to the court house to see who could
first seize the Debtors' assets. The Proponents believe that dismissal is not
an acceptable alternative.
X. FUTURE BUSINESS OPERATIONS OF THE REORGANIZED DEBTOR
Disclosure Statement, Page 32
The Reorganized Debtor intends to conduct future business operations by
entering into the financial services industry in the specialized market as an
Alternative Financial Services Provider ["AFSP"] to provide one-stop convenience
financial centers, utilizing attractive stores centrally located to market
financial services to blue collar workers and their families. These stores are
commonly referred to by consumers as "Check Cashing Stores".
Nanette Kelley, the current ERLY President, has committed to invest at
least $500,000 in the future business operations of the Reorganized Debtor,
conditioned upon the Reorganized Debtor's ability to raise sufficient new equity
capital and loans after the Confirmation Date to enable the Reorganized Debtor
to conduct this business. The Reorganized Debtor intends to fully comply with
all applicable federal and state securities and other laws in connection with
raising the necessary funds. The Reorganized Debtor will begin to seek to
purchase existing "check cashing stores" immediately following the Effective
Date.
Financial products to be marketed at the Reorganized Debtor's Convenience
ASFP stores may include check cashing; money orders; money wires; payday loans;
lottery ticket sales; tax preparation; fax, copies and notary services; utility
and other bill payments; and prepaid telephone cards.
Income is generated through a fee charged per transaction, as well as a new
customer fee for particular services. The fees per transaction are highest on
payday loans, lowest on money orders.
The Industry and the Opportunity
OVERVIEW
--------
The United States has dramatically changed since 1900 or 1950 - or even
1970. As the U.S. has changed, the financial institutions have changed, too,
While banks have begun to focus on selling insurance and investments, the check
cashing industry has grown and thrived by serving certain customers for which
banks have chosen to omit from their marketing programs. As a result, the
Alternative Financial Service Provider industry has thrived, grown and prospered
in this continually changing world because it delivers services that are clearly
needed, but not otherwise provided in many communities throughout America.
Major retailers and even nearby banks frequently refer those individuals
they can't or choose not to accommodate to one of AFSP's.
A simple yet sophisticated, but user-friendly approach is reflected in
operating systems as well. Yet, the business can be a low overhead, easy-to-
operate business with as few as two employees per store. And the inventory -
cash - isn't likely to go out of style.
Check cashing by an AFSP fills a growing niche in the economic sector. As
banks nationwide continue to merge and phase out their basic services, the check
cashing industry is increasingly being viewed as a desirable alternative. With
the credit crunch forcing banking institutions to raise fees, and with workers
increasingly living from paycheck to paycheck, it is a growing industry. A
attractively appointed and furnished a store lends an additional appeal to
suburban community, middle-income consumers, whose time is valuable. As a money
center, this concept goes beyond mere check cashing in serving all its
customer's cash needs.
Disclosure Statement, Page 33
The Industry
The one-stop convenience financial center business has recently become a
significant financial service in the United States. Over 30 million people
transact business within the industry each year, and each year the number is
growing. Almost 200 million checks were cashed in this industry in 1996. Those
checks had over $60 billion dollars of face value, or an average of $300 per
check.
Between the check cashing and other services offered, it is estimated that
over $800 million in fees were generated.
Products offered in the industry at a store may include: Check Cashing,
Money Orders, Money Wires, Payday Loans, Lottery Ticket Sales, Tax Preparation,
Fax, Copies and Notary, Utility (and other) bill payments and Prepaid Phone
Cards.
Income is generated through a fee charged per transaction, as well as a new
customer fee. The fees per transaction are highest on payday loans, lowest on
money orders.
The Customer
Many of the anticipated customers have no existing banking relationship.
They're part of a pattern that is reflected by recent estimates that as many as
27-30% of this country's population have no formal banking relationship. And the
number continues to rise. Additionally, a growing percentage of the check
cashing customers do have bank accounts and are check cashing "regulars". The
reason is because this business is designed to deliver valued services that many
banks cannot or will not provide. The payday advance loans, for example, are the
type of revolutionary new service drawing an enthusiastic response from
customers.
An alternative financial services provider provides both of these segments
the additional services of money orders, fund wire transfers, payday advance
loans, as well as such convenient business support services as notary public,
mailbox rentals, copying and faxing. The outlets may also sell prepaid phone
cards, lottery tickets and offer seasonal tax preparation.
Location, Location, Location
Just as in real estate, the site selection is critical to the success of
the operation. A typical storefront is freestanding or in-line, end cap or pad
space in open-air centers of at least 1,000 square feet, featuring a traffic
count of 20,000 cars in a 24 hour period. Demographics entail a population of
15,000 within 1 mile, 30,000 within 3 miles. Ideally, approximately 40% of the
immediate surrounding population should be apartment or home renters. The median
family income should be $50,000 or less. The site should be frequented by blue
collar workers, as opposed to welfare or food stamps recipients.
One interesting possible opportunity with one franchiser is to enter
discount stores, such as by way of illustration or example, stores comparable to
Wal-Mart Superstores. Further investigation will need to be done about traffic
count as well as the financial integrity of the particular target location and
company before a decision point is reached.
Disclosure Statement, Page 34
The Reorganized Debtor intends to totally avoid facilities in pawn shops
and tiny, dingy storefronts with iron bars on the windows. This is not the
Reorganized Debtor's idea of how the business should work and we will pursue a
franchise opportunity with one or more high quality franchisers to provide
services in a tasteful, attractive, safe retail environment that has proven to
be very appealing to customers across the socioeconomic spectrum, clearly
sending the message that we value and respect our customers as human beings.
The Reorganized Debtor's management believes this kind of mutual respect is also
good business.
OPPORTUNITIES
Management has found three viable franchisors within this industry and is
prepared to negotiate with each to a logical conclusion within a short time
frame.
Plans call for sensitivity examinations to be concluded in the Southeastern
United States for market entry.
Management plans to attempt to raise sufficient capital to initially open
as many as 40 stores in a 2-4 year period. Market studies will determine site
selection. Initial thinking places many stores in the state of Mississippi,
where the law was recently changed to allow payday loans. Mississippi also
offers an opportunity because of the median income for the people living there.
In addition, expenses are lower than the median.
The Reorganized Debtor estimates that an average store will annually cash
checks totally approximately $5,500,000. Systems from the franchiser will allow
write-offs to be limited as well as gear decision-making for an average employee
simplified to reduce error.
The Reorganized Debtor believes there is also the opportunity to purchase
existing operations, as opposed to de novo or start-up openings, Any likely
candidates will be explored from a strategic point of view.
In terms of an eventual exit, one of the franchisers being considered has
acquired 131 stores in the past 3 years and paid an average of $352,063.49 per
store. This same company projects an initial investment of $138,600 to open a
store and profitability within 1 year. Bare- bone annual expenses are projected
to be in the $80,000 range.
Management projects the following income and expense for store(s) in
operation after initial start-up costs:
PRO FORMA FINANCIAL INFORMATION
Projected & Estimated Earnings---Check Cashing Stores
[Not Including Franchise Fees & Start-up Costs]
Average store 20 stores 40 stores 100 stores
---------------------------------------------------------------------------
Projected Estimated Revenues:
Check Fees $125,954.40 $2,519,088.00 $5,038,176.00 $12,595,440.00
Filing Fees $ 697.00 $ 13.940.00 $ 27.880.00 $ 69,700.00
Loan Fees $ 20,000.00 $ 400.000.00 $ 800,000.00 $ 2,000,000.00
Disclosure Statement, Page 35
Money Orders $ 6,527.30 $ 130,546.00 $ 261,092.00 $ 652,730.00
Money Transfer $ 8,479.90 $ 169,598.00 $ 339,196.00 $ 847,990.00
New Customer $ 3,625.00 $ 72,500.00 S 145,000.00 $ 362,500.00
Tax Check Fees $ 19,058.00 $ 381,160.00 $ 762.320.00 $ 1,905,800.00
Other $ 10,963.00 $ 219,260.00 $ 438,520.00 $ 1,096,300.00
Projected Estimated Total $195,304.60 $3,906,092.00 $7,812,184.00 $19,530,460.00
Revenue
Projected Operating Expenses:
Accounting/administration $ 2,250.00 $ 50,000.00 $ 90,000.00 $ 200,000.00
Armored & Security $ 5,921.00 $ 118,420.00 $ 224,998.00 $ 562,495.00
Cash Shorts $ 33,154.00 $ 63,080.00 $ 126,160.00 $ 315,400.00
Corporate Overhead $ 10,244.63 $ 290,539.00 $ 409,785,00 $ 606,513.00
Other $ 10,086.00 $ 201,720.00 $ 363,096.00 $ 907,740.00
Other Occupancy $ 6,525.00 $ 130,500.00 $ 234,900.00 $ 587,250.00
Rent $ 16,000.00 $ 320,000.00 $ 640,000.00 $ 1,600,000.00
Returns, Net of Collections $ 9,070.00 $ 181,400.00 $ 362,800.00 $ 907,000.00
Royalty $ 7,812.18 $ 156,243.68 $ 312,487.36 $ 781,218.40
Salaries & Benefits $ 42,923.00 $ 858,460.00 $1,545,228.00 $ 3,863,070.00
SEC Compliance $ 1,875.00 $ 50,100.00 $ 75,000.00 $ 150,000.00
PROJECTED $113,610.81 $2,420,362.68 $4,384,454.36 $10,480,686.40
---------
ESTIMATED TOTAL
---------------
EXPENSES
--------
Projected Estimated EBITDA: $ 81,693.79 $1,485,729.32 $3,427,729.64 $ 9,049,773.60
========================== =========== ============= ============= ==============
MANAGEMENT AND LEADERSHIP
Each member of the Board of Directors of ERLY Industries either has
experience in the financial industry directly, or has experience running multi-
million dollar companies successfully, or both.
Note: The Committee has had no input into the preparation of this Article
X and makes no representations regarding any statements contained in Article X.
XI. TAX EFFECTS
-----------
THE FOLLOWING DISCUSSION IS A SUMMARY OF SOME OF THE MAJOR FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN TO THE DEBTORS. SOME CONSEQUENCES OF THE PLAN ARE
DIFFICULT TO EVALUATE BECAUSE OF THE LACK OF INFORMATION, LACK OF CONTROLLING
LEGAL PRECEDENT AND THE POSSIBILITY OF CHANGES IN LAW. THE DEBTORS HAVE NOT
APPLIED FOR RULINGS FROM THE IRS ON ANY OF THE TAX ASPECTS OF THE PLAN AND NO
OPINIONS OF COUNSEL HAVE BEEN OBTAINED. EACH HOLDER OF A CLAIM OR INTEREST
SHOULD CONSULT WITH SUCH HOLDER'S TAX ADVISOR REGARDING THE FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES OF THE PLANS.
Disclosure Statement, Page 36
A. TAX CONSEQUENCES TO ERLY
1. Background
Currently, the Debtors, along with other subsidiaries of ERLY, constitute
an affiliated group (the "ERLY Group") of which ERLY is the common parent for
purposes of filing a consolidated federal income tax return. The existence of
the ERLY Group means, in general, that the determination of taxable income for
federal income tax purposes is made for the ERLY Group as a whole through the
filling of consolidated tax returns, rather than on a company-by-company basis.
The ERLY Group has a taxable year ending on March 31. The last consolidated tax
return for the ERLY Group which was filed was for the fiscal year ending March
31, 1997.
As part of the Plan, a Delaware limited partnership (the "LP") will be
created and all the assets of Debtors except (a) NOL's, (b) NOL Carryovers and
(c) ERLY's stock in WEI and all other subsidiaries will be transferred to the
L.P. ERLY will continue to exist and its Shareholders will continue to own
their respective interests in ERLY. There will be no ownership change of ERLY
Shareholders. As part of the Plan, ERLY will cease to own any interest in
American Rice, Inc. ("ARI"); ARI and its subsidiaries (the "ARI Group") will
cease to be members of the ERLY Group.
2. Alternative Minimum Tax
For purposes of computing a taxpayer's regular federal income tax
liability, all of the income recognized in a taxable year may be offset by
available NOLs. However, for purposes of the alternative minimum tax ("AMT"),
only 90% of a taxpayer's alternative minimum taxable income ("AMTI") may be
offset by available NOLs. Therefore, any AMTI recognized by the ERLY Group will
be taxable at a rate of at least 2% (10% of the 20% AMT tax rate).
3. Tax Attributes of the Debtors
ERLY believes that its consolidated NOL carryover to FYE 3/31/2000 is
substantial but is unable to quantify the amount of such carryover at this time.
ERLY also believes that a substantial portion of such consolidated NOL carryover
is properly attributable to the ARI Group, but is not able to quantify such
portion at this time. ERLY is unable to estimate the portion, if any, of the
ARI Group's share of the ERLY consolidated NOL carryover, which will remain with
ERLY upon ARI's deconsolidation from the ERLY Group. ERLY is unable to estimate
the amount of or predict, with any certainty whatsoever, the amount of NOL
carryover, if any, which might survive or remain with ERLY following the
consummation of the Plan.
Subject to the limits discussed below in "Federal Income Tax Consequences
of the Plan - Tax Consequences to the Debtors -Potential Limitations on
Utilization of NOLs" and "Federal Income Tax Consequences of the Plans - Tax
Consequences to the Debtors - Reduction of NOLs for Discharge of Indebtedness,"
NOLs and other tax attributes surviving after the Effective Date of the Plan may
be available to offset the future taxable income of the ERLY Group. However, the
use of any NOL or other tax attribute is dependent on the future taxable income
of the ERLY Group. Moreover, NOLs and other tax attributes are subject to review
and possible disallowance by the IRS on the audit of any year to which they are
carried forward.
4. Potential Limitations on Utilizations of NOLs
Disclosure Statement, Page 37
a. "Ownership Change" under Tax Code Section 382. Section 382 of the Tax
--------------------------------------------
Code provides in general that, following an "ownership change" with respect to
the stock of a corporation, the corporation's ability to utilize its existing
NOLs and other tax attributes is subject to limitations unless the so-called
"Bankruptcy Exception" under Section 382 (1)(5) (discussed below) is available.
The Plan contemplates no ownership change.
--
5. Reduction of NOLs for Discharge of Indebtedness
Under the Tax Code, a debtor generally must include in gross income the
amount of any indebtedness cancelled without consideration (such income being
referred to as "C.O.D. income"). However, Section 108 of the Tax Code provides
that, where indebtedness is discharged pursuant to a Chapter 11 reorganization
plan, no C.O.D. income is recognized. Instead, the amount that otherwise would
have been includable as C.O.D. income is applied to reduce, among other things,
the corporation's NOLs and other tax attributes. Debtors anticipate that a
substantial portion of ERLY's indebtedness will be discharged under the Plan
with a corresponding substantial reduction in ERLY's NOL carryover.
6. Reduction of NOLs Due to ARI Group Deconsolidation
As a general rule, a deconsolidating member of an affiliated group takes
with it it's share of consolidated NOL carryovers attributed to that member.
Although Debtors are unable to quantify the portion of the ERLY consolidated NOL
carryover attributable to the ARI Group, Debtors believe such portion to be
substantial. Accordingly, a significant portion of ERLY's consolidated NOL will
go with the ARI Group upon the ARI Group's deconsolidation. ERLY is unable to
compute its basis in ARI stock at this time. To the extent of any loss realized
by ERLY on the disposition of ARI stock pursuant to the Plan, ERLY may make an
election to attribute an amount of ARI Group NOL carryovers to ERLY equal to
such realized loss.
7. Possible loss of NOL Carryover
For the reasons described above it is possible that no NOL carryover will
survive after consummation of the Plan.
B. Importance of Obtaining Professional Tax Assistance
The foregoing is intended to be a summary of some of the more important
federal income tax consequences of the Plan to Debtors. The federal, state and
local tax consequences of the Plan is complex and, in some cases, uncertain.
Each holder of a Claim or Interest is strongly urged to consult with such
holder's tax advisor regarding the federal, state, local and foreign tax (if
any) consequences of the Plan.
C. NO REPRESENTATION AS TO TAX EFFECTS OF THE PLAN
No representation is made with respect to the tax effects of the Plan
upon any creditor or interest holder. Preservation of the NOL is not assured and
attendant risks might ensue. The Debtors believe that NOL will be reduced by
discharge of indebtedness under this Plan and that a large portion of the NOL
may vanish as a result of events concerning ARI.
D. TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLASS 9, 10, 11 AND 12
Disclosure Statement, Page 38
CREDITORS
Holders of Allowed Class 9, 10, 11 and 12 Claims who receive LP Units will
be treated for federal income tax purposes as having received an amount equal to
the fair market value of the LP Units in exchange for their Allowed Claim. To
the extent that the portion of such fair market value which is allocable to
principal (and not to interest) is less than the Claimant's adjusted tax basis
in his Allowed Claim, such Claimant will recognize a loss for tax purposes at
the time of such exchange. The Proponents may request that the Court establish
the fair market value of the LP Units in connection with Confirmation.
E. ERLY is required to file a consolidated tax return for the ERLY Group and
will seek appropriate reimbursement, as an administrative expense, from ARI for
any such cost.
XII. MATERIAL RISK FACTORS
---------------------
Unlike most Chapter 11 cases, there are not material risk factors for the
holders of Allowed Claims (creditors) under this Plan. The unliquidated claims
assigned to the LP by the Debtors and Creditors to be prosecuted by the LP may
result in value, and the LP will have expended some administrative expense
pursuing those claims. Otherwise, the assets will be liquidated and the proceeds
distributed ratably in order of priority.
Likewise, holders of Allowed Interests in ERLY face no risk factors since
they will retain their stock interests, unless an objection to the treatment of
Interestholders in ERLY is sustained. In that event, the Proponents may elect
to modify the Plan to eliminate Interestholders and to provide for the issuance
of new stock as provided herein. There is some possibility that the Reorganized
Debtor will be able to use its NOLs to offset profits generated from a new
business, provided that capital is subsequently raised or invested. However, the
Debtors and the Committee make no representation regarding the nature,
likelihood or success of any such venture. Mrs. Nanette Kelley has committed
to invest at least $500,000 in the Reorganized Debtor, conditioned_upon the
Reorganized Debtor's ability to raise sufficient new equity capital and loans
after the Confirmation Date to enable the Reorganized Debtor to conduct the
business as an Alternative Financial Services Provider. The Reorganized Debtor
intends to fully comply with all applicable federal and state securities and
other laws in connection with raising the necessary funds. There is no
assurance that the Reorganized Debtor will be able to raise any new equity
capital and loans after the Confirmation Date.
ERLY has been unable to file current documents with the Securities &
Exchange Commission, including the annual form 10-K, because of the conduct of
prior management and a lack of funds. ERLY must file appropriate documents or
the SEC may take action adverse to the Reorganized Debtor.
XIII. ANTICIPATED FUTURE OF THE REORGANIZED DEBTOR
--------------------------------------------
The Reorganized Debtor intends to continue providing services under the
sublease and Terminal Service Agreement in connection with the WEI Phoenix
Operations. Mrs. Kelley intends that the Reorganized Debtor will also enter into
the future business as an Alternative Financial Services Provider; however,
material risks exist as disclosed above. The Debtors, Mrs. Kelley and the
Committee make no representation regarding the nature, likelihood or success of
any such venture.
XIV. OTHER INFORMATION
-----------------
Disclosure Statement, Page 39
The following financial information is on file at the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi Division,
Corpus Christi, Texas:
1. Statement of Financial Affairs for a Debtor Engaged in Business.
2. Bankruptcy Schedules.
3. Monthly Reports of Operations of Debtors-in-Possession.
XV. ABILITY OF THE DEBTORS TO PERFORM UNDER THE PLAN
------------------------------------------------
The Debtors and Committee believe that Debtors and the LP will be able to
perform under the Plan.
XVI. CONFIRMATION AND CONSUMMATION PROCEDURE
---------------------------------------------
Under the Bankruptcy Code, the following steps must be taken to confirm the
Plan:
A. SOLICITATION OF VOTES
---------------------
The Creditors and any Interestholders whose Claims or Interest which are
impaired may vote to accept or reject the Plan.
Under the Bankruptcy Code, in order for the Plan to be deemed "accepted" by
Creditors, at least sixty-six and two-thirds percent (66 2/3%) in amount of
Allowed Claims timely voting and fifty-one percent (51%) in number of Allowed
Claims timely voting in each Class must accept the Plan. At least sixty-six and
two-thirds percent (66 2/3%) in amount of Allowed Interests timely voting must
accept the Plan. A vote may be disregarded if the Bankruptcy Court determines,
after notice and a hearing, that a Creditor's or Interestholder's acceptance or
rejection was not solicited or procured in good faith or in accordance with the
provisions of the Bankruptcy Code.
B. CONFIRMATION HEARING
--------------------
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold
the Confirmation hearing.
The Confirmation hearing in respect of the Plan has been scheduled for
10:00 o'clock a.m., July 28, 1999. The Confirmation hearing will be held the
Bankruptcy Court, 615 Leopard, Corpus Christi, Texas. 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.
C. OBJECTION TO CONFIRMATION
-------------------------
Any objection to Confirmation must be made in writing and specify in detail
the name and address of the objector, all grounds for the objection and the
amount of the Claim held by the objector. Any such objection must be filed with
the Bankruptcy Clerk at 615 Leopard Street, Corpus Christi, TX 78476, and served
upon the Debtors' and Committee's respective counsel and the SEC on or before
5:00 o'clock p.m., July 9, 1999:
LAW OFFICES OF HUGHES & LUCE, L.L.P. JEFFERS & BANACK,
Disclosure Statement, Page 40
MATTHEW A. ROSENSTEIN William B. Finkelstein INCORPORATED
Matthew A. Rosenstein Howard Marc Spector R. Glen Ayers
American Bank Plaza, Suite 420 1717 Main Street, Suite 2800 745 E. Mulberry
711 N. Carancahua Dallas, Texas 75201 San Antonio, TX 78212
Corpus Christi, Texas 78475 Phone 214-939-5941 Phone 210-736-6600
Phone 512-883-5577 Fax 214-939-5849 Fax 210-736-6889
Fax 512-883-5590
Counsel for Debtor, ERLY Industries, Counsel for the Official Statutory Counsel for Debtor, Watch-
Inc. Creditors Committee of ERLY Edge International, Inc.
Securities & Exchange Commission
Attn: Jolene M. Wise
Suite 1400
500 West Madison Street
Chicago, Ill 60661
Objections to Confirmation of the Plan are governed by Bankruptcy Rules 9011
and 9014.
D. CONFIRMATION
------------
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if
all the requirements of (S) 1129, Bankruptcy Code are met. Among the
requirements for confirmation of a Plan are that the Plan is: (a) accepted by
all impaired classes of Claims and Interests, or if rejected by an impaired
Class, that the Plan "does not discriminate unfairly" and is "fair and
equitable" as to such class; (b) feasible; and (c) in the "best interests" of
Creditors and Interestholders impaired under the Plan.
1. Acceptance
The impaired Classes of Creditors and Interests must accept the Plan in
order for it to be confirmed without application of the "fair and equitable"
test described below. Such classes will have accepted the Plan if the Plan has
been accepted by Creditors and Interestholders in each class that hold, at least
sixty-six and two-thirds percent (66 2/3%) in amount of Allowed Claims timely
voting and fifty-one percent (51%) in number of Allowed Claims timely voting in
each Class to accept or reject the Plan, and at least sixty-six and two-thirds
percent (66 2/3%) in amount of Allowed Interests timely voting in each Class to
accept or reject the Plan.
ANY UNIMPAIRED CLASS IS DEEMED TO HAVE ACCEPTED THE PLAN.
2. Fair and Equitable Test
If each of the impaired Classes of Creditors and Interestholders do not
accept the Plan, the Proponents nevertheless may seek Confirmation of the Plan.
To obtain such Confirmation, it must be demonstrated to the Bankruptcy Court
that the Plan "does not discriminate unfairly" and is "fair and equitable" as to
such Class. A Plan does not discriminate unfairly if the legal rights of a
dissenting Class are treated in a manner consistent with the treatment of other
classes whose legal rights are intertwined with those of the dissenting Class.
With respect to impaired classes of Secured Claims, (S) 1129(b)(2)(A),
Bankruptcy Code provides that a Plan is "fair and equitable" if the Plan
provides:
Disclosure Statment, Page 41
(1) that the holders of such claims retain the liens securing such claims,
whether the property subject to such liens is retained by the debtor or
transferred to another entity, to the extent of the allowed amount of such
claims; and
(a) that each holder of a claim of such class receives on account of such
claim deferred cash payments totaling at least the allowed amount of such claim,
of a value, as of the effective date of the Plan, of at least the value of such
holder's interest in the estate's interest in such property; or
--
(b) for the sale, subject to section 363(k), Bankruptcy Code, of any
property that is subject to the liens securing such claims, free and clear of
such liens, with such liens to attach to proceeds of such sale, and the
treatment of such liens on proceeds consistent with 1(a) & (b), above or 3,
below; or
(2) for the realization by such holders of the indubitable equivalent of
such claims.
With respect to an impaired class of unsecured claims, (S) 1129(b)(2)(B),
Bankruptcy Code provides that a Plan is "fair and equitable" if:
1. the Plan provides that each holder of a claim of such class receive or
retain on account of such claim property of a value, as of the effective date of
the Plan, equal to the allowed amount of such claim; or
--
2. the holder of any claim or interest that is junior to the claims of
such class will not receive or retain under the Plan on account of such junior
claim or interest any property.
With respect to impaired classes of interests, (S) 1129(b)(2)(C),
Bankruptcy Code provides that a Plan is "fair and equitable" if it provides that
(a) each interestholder receives or retains on account of its interest, property
of a value equal to the value of such interest, or (b) the holder of any
interest that is junior to the interest of such class will not receive or retain
any property under the Plan.
3. Cramdown
--------
In the event that any of the Creditors in impaired Classes fail to accept
the Plan by the requisite majorities, the Debtors and the Committee jointly
reserve the right to invoke the "Cram-Down" Provisions of the Bankruptcy Code,
(S) 1129 (b)(2)(A) for Secured Creditors and (S) 1129(b)(2)(B), Bankruptcy Code
for Unsecured Creditors, to confirm the Plan, notwithstanding the non-acceptance
of any particular Class.
XVII. SAFE HARBOR STATEMENT UNDER THE PRIVATE
----------------------------------------------
SECURITIES LITIGATION REFORM ACT OF 1995
----------------------------------------
ANY STATEMENTS SET FORTH ABOVE THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. POTENTIAL
RISKS AND UNCERTAINTIES INCLUDE BUT ARE NOT LIMITED TO SUCH FACTORS AS THE
PRIORITY AND TOTAL DOLLAR AMOUNT OF ALLOWED CLAIMS, THE ABILITY OF THE LP TO
SUCCESSFULLY PURSUE THE dEBTORS' CAUSES OF ACTION, THE ABILITY OF THE
REORGANIZED DEBTOR TO RAISE NEW EQUITY CAPITAL AND LOANS, THE RISKS
INHERENT IN CONDUCTING NEW BUSINESS OPERATIONS AND OTHER INFORMATION DETAILED
FROM TIME TO TIME IN ERLY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
Dated as of June 1, 1999.
LAW OFFICES OF MATTHEW A.
ERLY INDUSTRIES, INC. ROSENSTEIN
- --------------------
By: /s/ Matthew A. rosenstein
-----------------------------
Matthew A. Rosenstein
By: /s/ Nanette Kelley Texas Bar No. 17280000
-------------------------- S.D. Id No. 291
Nanette Kelley, Chairman & American Bank Plaza, Suite 420
President 711 N. Carancahua
Corpus Christi, Texas 78475
Phone 512-883-5577
Fax 512-883-5590
ATTORNEY FOR ERLY INDUSTRIES, INC.
WATCH-EDGE INTERNATIONAL, INC. JEFFERS & BANACK, INCORPORATED
By: /s/ Nanette Kelley By: /s/ R. Glen Ayers
-------------------------- ------------------------------
Nanette Kelley, Chairman & R. Glen Ayers
President State Bar No. 01467500
745 E. Mulberry
San Antonio, TX 78212
210-736-6600 Phone
210-736-6889 Fax
ATTORNEYS FOR WATCH-EDGE
INTERNATIONAL, INC.
ERLY INDUSTRIES, INC. STATUTORY
CREDITORS COMMITTEE HUGHES & LUCE, L.L.P
By: /s/ Michael Coal
--------------------------
Its Chairman By: /s/ William B. Finkelstein
-----------------------------
William B. Finkelstein
State Bar No. 07016300
S.D. Tex. No. 13910
Howard Marc Spector
State Bar No. 00785023
S.D. Tex. No. 23274
1717 Main Street, Suite 2800
Dallas, Texas 75201
214-939-5500 Phone
214-939-6100 Fax
ATTORNEYS FOR THE ERLY STATUTORY
CREDITORS COMMITTEE
CERTIFICATE OF SERVICE
----------------------
The undersigned attorney hereby certifies that on the below date he did
cause a true and correct copy of the foregoing pleading to be served by placing
a copy in the U.S. Mail, postage prepaid, or by hand delivery, upon the
following named parties or counsel at the addresses stated:
Date: June 2, 1999.
United States Trustee Securities & Exchange
Attn: Nancy Holley Commission
515 Rusk Avenue Attn: Bankruptcy Division
Houston, Texas 77002 500 West Madison, Suite 1400
Chicago, Illinois 60661
/s/ Matthew A. Rosenstein
-----------------------
Matthew A. Rosenstein
Exhibit 2 to Joint Plan
=======
United States Bankruptcy Court
Southern District of Texas
Corpus Christi Division
In re ERLY Industries, Inc. Case No. 98-21515-C-11
Debtor
Chapter 11
TAXPAYER IDENTIFICATION
-----------------------
NUMBER
------
95-2312900
In re Watch-Edge International, Inc. Case No. 98-21895-C-11
Debtor
Chapter 11
TAXPAYER IDENTIFICATION
------------------------------
NUMBER
------
86-0413425
DEBTORS' AND ERLY CREDITORS' COMMITTEE
JOINT PLAN OF REORGANIZATION AS MODIFIED
----------------------------------------
ERLY Industries, Inc., Debtor and Debtor-in-Possession ["ERLY"] in Chapter
11 Case No. 98-21515-C-11; the Official Statutory Unsecured Creditors' Committee
of ERLY [the "Committee"]; and Watch-Edge International, Inc., Debtor and
Debtor-in-Possession in Chapter 11 Case No. 98-21895-C-11 ["WEI"] together
propose this Joint Plan of Reorganization [the "Plan"] pursuant to (S) 1121,
Bankruptcy Code.
Table of Contents
ARTICLE I.................................................................................................... 53
DEFINITIONS................................................................................................. 53
ARTICLE II................................................................................................... 65
CLASSIFICATION OF CLAIMS.................................................................................... 65
Class 1 --- (S) 507(a)(1) Administrative Claims........................................................... 65
Class 2 --- (S) 507(a)(3) Wage Claims..................................................................... 65
Class 3 --- (S) 507(a)(4) Employee Benefit Claims......................................................... 65
Class 4 --- Other (S) 507(a) Priority Claims Not Separately Classified.................................... 66
Class 5 --- (S) 507(a)(8) Certain Unsecured Claims of Governmental Units.................................. 66
Class 6 --- Allowed Secured Claims of Creditors Holding a Lien on ERLY's Series B Preferred Stock in
Exhibit 2 to Joint Plan
========
American Rice, Inc. and all other Allowed Secured Claims, save and except those Claims of U.S. Trust
Company of Texas, N.A., as Trustee and Collateral Agent under that certain $100,000,000 Indenture
(13% Mortgage Notes due 2002 With Contingent Interest) by and among American Rice, Inc. and U.S.
Trust Company of Texas, N.A. as Trustee and that certain ERLY Pledge Agreement as of August 24,
1995..................................................................................................... 66
Class 7 --- Allowed Secured Claim of U.S. Trust Company of Texas, N.A., as Trustee and Collateral
Agent under that certain $100,000,000 Indenture (13% Mortgage Notes due 2002 With Contingent
Interest) by and among American Rice, Inc. and U.S. Trust Company of Texas, N.A. as Trustee and
that certain ERLY Pledge Agreement as of August 24, 1995................................................. 66
Class 8 --- Allowed Secured Claim of Landlords............................................................ 67
Class 9 --- All Allowed General Unsecured Claims of ERLY.................................................. 67
Class 10 --- All Allowed Unsecured Claims of Debenture Holders under that certain $8,880,000
Indenture dated as of February 1, 1993 between ERLY Industries, Inc. and Trust Company of Texas,
Trustee and Debt Securities Laws Claims.................................................................. 67
Class 11 --- All Allowed General Unsecured Claims of Creditors of Watch-Edge International, Inc........... 67
Class 12 --- All Subordinated Claims and Penalty Claims................................................... 67
Class 13 --- Holders of ERLY Interests and Allowed Equity Securities Laws Claims.......................... 67
Class 14 --- Holders of WEI Interests..................................................................... 68
ARTICLE III.................................................................................................. 68
IMPAIRMENT OF CLAIMS & INTERESTS, FAIR AND EQUITABLE........................................................ 68
Impaired Classes.......................................................................................... 68
Unimpaired Classes........................................................................................ 68
Impairment Controversies.................................................................................. 68
Reservation of Right to Modify Plan....................................................................... 68
ARTICLE IV................................................................................................... 68
PROVISIONS FOR SATISFACTION OF CLAIMS....................................................................... 68
Overview.................................................................................................. 68
Class 1 --- (S) 507(a)(1) Allowed Administrative Expense Claims........................................... 69
Class 2 --- (S) 507(a)(3) Allowed Unsecured Wage Claims................................................... 69
Class 3 --- ((S) 507(a)(4) Employee Benefit Claims) & Class 4 (Other (S) 507(a) Priority Claims Not
Separately Classified)................................................................................... 69
Class 5 --- (S) 507(a)(8) Certain Unsecured Claims of Governmental Units.................................. 70
Class 6 --- Allowed Secured Claims of Creditors Holding a Lien on ERLY's Series B Preferred Stock in
American Rice, Inc. and All Other Allowed Secured Claims, save and except those Claims of U.S. Trust
Company of Texas, N.A., as Trustee and Collateral Agent under that certain $100,000,000 Indenture
(13% Mortgage Notes due 2002 With Contingent Interest) by and among American Rice, Inc. and U.S.
Trust Company of Texas, N.A. as Trustee and that certain ERLY Pledge Agreement as of August 24,
1995..................................................................................................... 70
Class 7 --- Allowed Secured Claim of U.S. Trust Company of Texas, N.A., as Trustee and Collateral
Agent under that certain $100,000,000 Indenture (13% Mortgage Notes due 2002 With Contingent
Interest) by and among American Rice, Inc. and U.S. Trust Company of Texas, N.A. as Trustee and
that certain ERLY Pledge Agreement as of August 24, 1995................................................. 70
Class 8 --- Allowed Secured Claim of Landlords............................................................ 71
Class 9 --- All Allowed General Unsecured Claims of Creditors of ERLY; Class 10 --- All Allowed
Unsecured Claims of Debenture Holders under that certain $8,880,000 Indenture dated as of February
1, 1993 between ERLY Industries, Inc. and Trust Company of Texas, Trustee and Debt Securities
Laws Claims; and Class 11 --- All Allowed General Unsecured Claims of Creditors of WEI................... 71
Class 12 --- All Subordinated Claims and Penalty Claims................................................... 72
Class 13 --- Holders of Interests of ERLY................................................................. 72
Class 14 --- Holders of Interests of WEI.................................................................. 72
Exhibit 2 to Joint Plan
========
ARTICLE V.................................................................................................... 72
VOTING AND CRAMDOWN......................................................................................... 72
Classes Entitled to Vote.................................................................................. 72
Class Acceptance Requirement.............................................................................. 72
Cramdown.................................................................................................. 72
ARTICLE VI................................................................................................... 73
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................................... 73
Applicability of Bar Date to Pre-Confirmation Rejection Claims............................................ 73
ERLY Executory Contracts.................................................................................. 73
WEI Executory Contracts................................................................................... 73
Procedures for Amendment of Schedule 1.................................................................... 73
Damages Upon Rejection.................................................................................... 73
ARTICLE VII.................................................................................................. 74
MEANS FOR EXECUTION OF THIS PLAN............................................................................ 74
Post-Confirmation Acts and Actions of Reorganized Debtor.................................................. 74
Surviving Legal Entity.................................................................................... 74
The Reorganized Debtor's Business Plan for the Future..................................................... 75
Reorganized Debtor's Directors and Management............................................................. 75
LP........................................................................................................ 75
Debtors' Claims Agent..................................................................................... 78
Sale of Certain Collateral................................................................................ 78
Transfer of Certain Property.............................................................................. 79
Closing68
Disputed Claims........................................................................................... 79
Estimated Claims.......................................................................................... 80
Unclaimed Property........................................................................................ 81
Exoneration and Reliance.................................................................................. 81
Form of Payments.......................................................................................... 81
Manager Exculpation....................................................................................... 81
Further Authorizations.................................................................................... 82
Assignment of Causes of Action by Creditors............................................................... 82
Corporate Action.......................................................................................... 83
Effectiveness of Securities, Instruments and Agreement.................................................... 83
Distributions to Unsecured Creditors Pursuant to the Plan................................................. 83
Distributions to Allowed Class 10 Claims.................................................................. 84
ARTICLE VIII................................................................................................. 86
EFFECT OF CONFIRMATION...................................................................................... 86
Binding Effect............................................................................................ 86
Vesting of Property....................................................................................... 86
Debtors' Property Subsequent to Confirmation.............................................................. 86
Discharge and Release of Claims........................................................................... 86
No Liability for Tax Claims............................................................................... 86
Injunction................................................................................................ 87
Term of Injunctions or Continuation of Automatic Stay..................................................... 87
Cancellation of Indenture................................................................................. 87
Discharge of Indenture Trustee............................................................................ 87
Exhibit 2 to Joint Plan
========
ARTICLE IX................................................................................................... 88
RETENTION OF JURISDICTION................................................................................... 88
Jurisdiction.............................................................................................. 88
General Retention......................................................................................... 88
Specific Purposes......................................................................................... 88
Failure of the Bankruptcy Court to Exercise Jurisdiction.................................................. 90
ARTICLE X.................................................................................................... 91
CONDITIONS PRECEDENT TO CONFIRMATION AND EFFECTIVENESS...................................................... 91
Conditions to Confirmation................................................................................ 91
Confirmation Order........................................................................................ 91
U.S. Trustee's Fees....................................................................................... 91
ARTICLE XI................................................................................................... 91
MISCELLANEOUS PROVISIONS.................................................................................... 91
Revocation of Plan........................................................................................ 91
Headings.................................................................................................. 91
Due Authorization by Claimants............................................................................ 91
Payment or Distribution Dates............................................................................. 91
Modification of Payment Terms............................................................................. 92
Entire Agreement.......................................................................................... 92
Administrative Claims Bar Date............................................................................ 92
Preservation of Insurance Claims.......................................................................... 92
Preservation of Claims and Causes of Action............................................................... 92
Confirmation Order........................................................................................ 92
Dissolution of the Official Committee..................................................................... 92
Discharge of Professionals................................................................................ 93
Fees and Expenses of Professionals of the Debtors Incurred Subsequent to Confirmation Date................ 93
Governing Law............................................................................................. 93
Incorporation by Reference................................................................................ 93
Severability.............................................................................................. 93
Time...................................................................................................... 93
No Penalty or Interest.................................................................................... 94
No Attorneys' Fees........................................................................................ 94
Promissory Notes.......................................................................................... 94
Addresses for Distributions to Claimants Holding Allowed Claims........................................... 94
Consent to Jurisdiction................................................................................... 94
Prosecution of Objections................................................................................. 94
Claims Objection Deadline................................................................................. 95
Time Bar to Cash Payments................................................................................. 95
Setoffs................................................................................................... 95
Successors and Assigns.................................................................................... 95
Allocation of Consideration Between Interest and Principal................................................ 95
ARTICLE XII.................................................................................................. 95
MODIFICATION OF PLAN........................................................................................ 95
ARTICLE XIII................................................................................................. 96
NOTICES..................................................................................................... 96
Exhibit 2 to Joint Plan
========
ARTICLE I
---------
DEFINITIONS
-----------
The following terms shall have the respective meanings for purposes of this
Plan:
"Administrative Claim" means any Claim for the payment of any
administrative cost or expenses of a kind specified in (S) 503(b), Bankruptcy
Code that is entitled to priority in payment under (S) 507(a)(1), Bankruptcy
Code.
"Affiliate" means, with respect to the Debtors, any person who meets the
definition provided in (S)101(2), Bankruptcy Code; provided, however, that where
the context so requires, the term "debtor", when used in (S)101(2), Bankruptcy
Code, may mean an entity to which the defined term "Affiliate" refers.
"Affiliate" shall also mean and include an "affiliate" as defined in Rule 12b-2
of the Securities Exchange Act of 1934, as amended. A person or entity
"affiliated" with a specified person or entity means a person or entity that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the person or entity specified.
For purpose of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
the ownership of securities, by contract or otherwise.
"Allowed Amount" means the dollar amount of any Allowed Claim.
"Allowed Claim" shall mean a Claim against a Debtor that is: (1) allowed
and ordered paid by a Final Order; (2) scheduled as liquidated, undisputed and
non-contingent by the Debtors in their respective Schedules filed with the
Bankruptcy Court, as they may be from time to time amended or supplemented; (3)
a Claim for payment for compensation as provided for under (S) 507 (a),
Bankruptcy Code, which is allowed and ordered paid by the Bankruptcy Court; (4)
a Claim for an expense of administration for which a Claimant asserts and is
determined by Final Order of the Bankruptcy Court to be entitled to priority
pursuant to (S) 503, Bankruptcy Code; (5) entitled to priority pursuant to (S)
507, Bankruptcy Code and is allowed and ordered paid by a Final Order; or (6)
timely filed by the Bar Date applicable to such claim with the Clerk of the
Bankruptcy Court and no objection has been made within 180 days after the
Effective Date to the allowance thereof. An Allowed Claim may refer to a
Secured Claim, Unsecured Claim or (S) 503 or (S) 507, Bankruptcy Code Claim as
the context provides. Unless otherwise specified in this Plan, an Allowed Claim
shall not include any amount for punitive damages or penalties or any amount of
interest which may have accrued from and after the Petition Date on any such
Claim. Nothing contained herein shall in any way limit the right of the Debtors
to request the Bankruptcy Court to designate, pursuant to (S) 1126(e),
Bankruptcy Code, any Claimant as an entity whose acceptance or rejection of this
Plan was not in good faith or was not solicited or procured in good faith or in
accordance with the provisions of chapter 11 of the Bankruptcy Code.
Exhibit 2 to Joint Plan
========
"Allowed Secured Claim" shall mean the amount of any Secured Claim which is
allowed by the Court pursuant to (S) 506(a), Bankruptcy Code.
"Allowed Unsecured Claim" shall mean the amount of any Unsecured Claim
which is allowed by the Court against the Debtors incurred prior to the Petition
Date (or deemed by law to have been incurred prior to the Petition Date) for
which the Claimant has not asserted or is determined by a Final Order not hold a
valid, perfected and enforceable Lien, Security Interest or other interest in or
encumbrance against the property of the Debtors or right to setoff to secure the
payment of such Claim.
"Assigned Third Party Actions" shall mean any and all claims, defenses,
rights, or causes of action other than those reduced to judgment prior to the
ERLY Petition Date of (i) the Indenture Trustee, (ii) any holder of an Allowed
Class 9 Claim, (iii) any holder of an Allowed Class 10 Claim, (iv) any holder of
an Allowed Class 11 Claim, or (v) any holder of an Allowed Class 12 Claim, of
whatever kind or nature, whether arising under state or federal laws, whether
legal, equitable or sui generis, which are related directly or indirectly to
their status as holders of claims against a Debtor, and which accrued or arose
on or prior to the Effective Date. Without limiting the foregoing, Assigned
Third Party Actions shall specifically include claims against the Debtors'
officers or directors arising from errors, misstatements, misleading statements,
acts, omissions, neglect or breaches of duty relating to: (i) approval that
certain Compromise and Settlement by and between ERLY, the Tenzer Company,
Anthony Frank, Gerald Murphy, Douglas Murphy, and others; (ii) violations of
obligations and duties owed to ERLY and to its Creditors, at a time when ERLY
was insolvent; (iii) participation in a process to aid and abet a scheme to
divert value from the insolvent estate of ERLY for the direct benefit of
insiders of ERLY; (iv) negligent mismanagement; and (v) waste of corporate
assets; (vi) conduct asserted in that certain shareholder derivative lawsuit
styled KENNETH BLAU, MICHAEL PORTNOY, WENDELL STRAHAN, AND DEAN HARVEY,
individually, and on behalf of a class of others similarly situated, Plaintiffs,
vs. DOUGLAS MURPHY, WILLIAM J. MCFARLAND, WILLIAM H. BURGESS, THOMAS A.
WHITLOCK, and DELOITTE & TOUCHE LLP, Defendants, filed in the United States
District Court for the Southern District of Texas, Houston Division, under Civil
Action No. H 99-0535; (vii) material misrepresentations concerning litigation
against the Company by Sandburg Financial and Michael Coal; (viii) material
misrepresentations concerning the effect of the cessation of the agreement with
RMTI; (ix) conduct which violated any federal or state securities laws which
give rise to claim or causes of action of the holders of securities issued
pursuant to the Indenture (defined herein); (x) material misrepresentations
concerning the amount of the judgment in the Tenzer suit; (xi) failure to
disclose related party transactions with Douglas and Gerald Murphy (the
"Murphys"); (xii) misstatements, omissions, and misleading statements, including
negligent misrepresentations, about the financial status and condition of the
Debtors and the Murphys' undisclosed scheme to profit themselves at the expense
of the Debtors; (xiii) other violations of the Securities Exchange Act of 1934;
(xiv) conduct asserted in that certain lawsuit styled CHRISTOPHER J. CORRIGAN,
et al., v. GERALD D. MURPHY, DOUGLAS A. MURPHY, WILLIAM H. BURGESS, RICHARD N.
MCCOMBS, AND DOES 1 TO 100 INCLUSIVE, Defendants, and ERLY INDUSTRIES, INC., et
al., Nominal Defendants, filed in the Superior Court of the State of California
for the County of Los Angeles; (xv) allowing the Company to breach its agreement
Exhibit 2 to Joint Plan
========
with HFI when same would trigger large contingent liabilities against the
Company; (xvi) failing to establish a reserve fund to cover the Debtors'
contingent liabilities regarding the HFI/Barrington transaction when there was
an opportunity to do so; (xvii) self-dealing involving personal loan repayments
to the Creditors' detriment; (xviii) failing to respond to reasonable settlement
demands regarding the Sandburg Financial lawsuit; (xix) usurpation of corporate
opportunities, including personal purchases of corporate assets at largely
deflated prices; (xx) authorizing settlement of the Tenzer lawsuit under terms
which personally benefited Directors and/or Officers to the detriment of the
Creditors; (xxi) directing the Debtors to engage in meritless litigation
designed to protect personal assets and fortunes of Directors and/or Officers to
the detriment of the Creditors; (xxii) negligence in regard to all of the above;
(xxiii) misleading statements and omissions, fraud, and deceit regarding all of
the above; (xxiv) suppression and concealment regarding all of the above; (xxv)
misleading statements and omissions, fraud, deceit, and misrepresentations
regarding the financial position of the Debtors; (xxvi) misleading statements
and omissions, fraud, deceit, and misrepresentations regarding the interlocking
relationships between the companies owned and/or managed by Directors and/or
Officers; (xxvii) conduct which resulted in the rendition of a final judgment
against ERLY in favor of the Tenzer Group in the amount of $6,500,882.16, plus
interests and costs associated therewith; (xxviii) conduct which resulted in
that certain Proof of Claim being filed by Sandburg Financial, Inc., and Michael
Coal, in the United States Bankruptcy Court for the Southern District of Texas,
Corpus Christi Division, in Case No. 98-21515-C-11; (xxix) conduct which
resulted in the final judgment made the basis thereof in the amount of
$9,118,626.00 plus interests and costs associated therewith; and conduct alleged
in Defendants' cross-claim in Adversary No. 99-2029, regarding inducements by
promises, misstatements, omissions, misleading statements, and
misrepresentations to delay and stay enforcement of such final judgment, without
providing a supersedeas bond or undertaking, and to sign certain agreements and
warranties, all to the damage of Creditors; (xxx) the insider trading acts and
conduct more fully asserted in the shareholder derivative lawsuits referenced
above; (xxxi) usurpation of opportunities of the Debtors, waste of corporate
assets, diversion of assets from the Debtors, conspiracy to divert assets from
the Company, unjust enrichment through diversion of the Debtors' assets, insider
transactions to the detriment of Creditors, and breaches of fiduciary duties
owed to Creditors, during the time the Debtors was insolvent or rendered
insolvent by such breaches; and (xxxii) misstatements, omissions, and misleading
statements to Creditors regarding the conduct as described above.
"Assigned Third Party Recoveries" shall mean any cash recoveries or non-
cash recoveries against third parties and any and all proceeds or other relief
arising from or on account of : (a) any award, judgment, relief, or other
determination rendered or made as to any Assigned Third Party Action or (b) any
compromise or settlement of any Assigned Third Party Action.
"Ballot" shall mean the Ballot to be used by creditors to cast their votes
to accept or reject the Plan.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, title 11 of the
United States Code, 11 U.S.C. (S) 101 et seq., as it has been and may be amended
from time to time.
Exhibit 2 to Joint Plan
========
"Bankruptcy Court" shall mean the United States Bankruptcy Court for the
Southern District of Texas, Corpus Christi Division.
"Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy Procedure as
prescribed by the United States Supreme Court pursuant to 28 U.S.C. (S) 2075, as
amended from time to time; and the Local Rules and General Orders of the
Bankruptcy Court as applicable to chapter 11 reorganization cases, as amended
from time to time.
"Bar Date" is the deadline to be established by the Bankruptcy Court and
its Clerk as the Bar Date with respect to each of the Debtors as is set out in
this Plan or in the Disclosure Statement, and is the date after which any claims
that are filed will be void and disallowed for purposes of distribution and
voting on this Plan. Provided, however, that the Bar Date shall not operate to
prevent a non-Insider Claimant from alleging a new theory of recovery on the
amounts set forth in a Proof of Claim filed on or before the Bar Date applicable
to such claim.
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday, as that term is defined in Bankruptcy Rule 9006(a).
"Cash" means lawful currency of the United States of America and its
equivalents.
"Chemonics Fire-Trol, Inc." means a subsidiary of WEI, formerly engaged in
the production of fire retardent chemicals for use in fighting forest fires.
"Chemonics Industries, Inc." means the former name of WEI.
"Claim" shall have the meaning set forth in (S) 101(5), Bankruptcy Code.
"Claimant" shall mean the holder of a Claim against one or more Debtors.
"Closing" refers to a scheduled meeting of authorized representatives of
the Debtors, and the Committee for the purpose of executing any documents
required to be signed pursuant to the provisions of this Plan.
"Closing Date" shall mean the date of the Closing, which shall be held
within 60 days after the Confirmation Date, or on such other date as determined
by the Court upon motion of the Manager or Debtors.
"Confirmation Date" shall mean the date the Confirmation Order is entered.
"Confirmation" or "Confirmation of the Plan" shall mean the entry by the
Bankruptcy Clerk of the Confirmation Order.
"Confirmation Hearing" means the hearing which will be held before the
Bankruptcy Court in which Debtors and the Committee will seek Confirmation of
this Plan, as it may be amended.
Exhibit 2 to Joint Plan
========
"Confirmation Order" means the Order of the Bankruptcy Court confirming
this Plan pursuant to (S) 1129, Bankruptcy Code.
"Consummation of the Plan" shall occur upon the filing with the Bankruptcy
Court by the Manager of the "Notice of Consummation"; provided however that
noting contained herein shall alter the provisions of (S) 1127(b), Bankruptcy
Code.
"Creditors" shall mean holders of Allowed Claims against one or more of the
Debtors.
"Debenture Holders" shall mean the holders of debenture securities issued
pursuant to that certain $8,880,000 Indenture dated as of February 1, 1993
between ERLY and U.S. Trust Company of Texas,
N.A., Trustee.
"Debt Securities Laws Claim" shall mean a Claim (1) arising from rescission
of a purchase or sale of a debt security issued under the Indenture; (2) for
damages arising from the purchase or sale (or offer for purchase or sale) of
such a debt security; or (3) for reimbursement, indemnification or contribution
allowed under (S) 502, Bankruptcy Code on account of a Claim for damages or
rescission arising out of a purchase or sale of a debt security issued under the
Indenture.
"Debtor" means ERLY INDUSTRIES, INC., ERLY, Watch-Edge International, Inc.,
Watch-Edge or WEI, in the appropriate context as the case may be.
"Debtors" shall mean collectively ERLY Industries, Inc. and/or Watch-Edge
International, Inc., respective debtors-in-possession in the above-captioned
Chapter 11 cases.
"Debtors' Actions" means any and all claims, causes of action and
enforceable rights of Debtors against third parties, or assertable by the
Debtors on behalf of their Creditors, their Estates or themselves, whether
brought in the Bankruptcy Court or any other forum:
(a) for recovery or avoidance, as the case may be, of ---
(1) obligations, transfers of property or interests in property,
offsets, debt forgiveness, Cash, and other types or kinds of property
or interests in property (or the value thereof), recoverable or
avoidable pursuant to (S)(S) 544, 545, 547, 548, 549, 550 and 553,
Bankruptcy Code or any applicable law;
(2) damages, general or exemplary (or both) or other relief, relating
to or based upon --
(A) indebtedness owing to Debtors, (B) fraud, negligence, gross
negligence, willful misconduct, or any other tort actions, (C)
breaches of contract, (D) violations of federal or state
securities laws, (E) violations of applicable corporate laws, (F)
breaches of fiduciary or agency duties,
Exhibit 2 to Joint Plan
========
(G) causes of action based on disregard of the corporate form or
piercing the corporate veil or other liability theories, or (H)
any theory of recovery against a lending institution for any
action causing harm to Debtors;
(3) damages or other relief against any Entities based on such or
Entities' fiduciary, employment or agency relationship with the
Debtors, including but not limited to claims or malpractice and claims
arising out of such Entities' actions or inactions in their capacity
as an officer, director, advisor, professional, attorney, accountant,
consultant or auditor to, of, or for the Debtors;
(4) Insurance Rights; and/or
(5) damages or other relief based upon any other claim of Debtors to
the extent not specifically compromised or released pursuant to this
Plan or an agreement referred to, or incorporated into, this Plan.
"Debtors Action Recoveries" shall mean the any cash recoveries or non-cash
recoveries against third parties and any and all proceeds or other relief
arising from or on account of: (a) any award, judgment, relief, or other
determination rendered or made as to any Debtors Action or (b) any compromise or
settlement of any Debtors Action.
"Debtors' Claims Agent" shall mean Mark Ian Agee, Texas State Bar No.
00931900, or his successor in interest as may be appointed by the Bankruptcy
Court, who shall succeed to the rights and powers of the Debtors to (i) object
to Claims; (ii) file a motion requesting that the Court estimate the amount of
any Disputed Claim, or any portion or part of a Disputed Claim; (iii) determine
any objection to a Claim through entry of a Final Order; or (iv) seek
subordination of any Claims under (S)(S) 509 and 510, Bankruptcy Code or under
other applicable laws.
"Debtor-in-Possession" means a Debtor, as debtor-in-possession pursuant to
(S)(S)1106, 1107, and 1108, Bankruptcy Code.
"Disclosure Statement" means the disclosure statement, including all
exhibits, schedules, annexes and attachments, filed by the Debtors in connection
with this Plan, as the same may be amended or supplemented.
"Disputed Claim" means any Claim against Debtors: (a) that is listed in
the Debtors' Schedules as disputed, contingent or unliquidated and for which a
proof of claim has been timely filed on or before the Bar Date; (b) that exceeds
the amount for such Claim listed in ERLY's and/or WEI's Schedules as undisputed,
liquidated and not contingent; (c) that is not listed in Debtors' Schedules, but
as to which a Proof of Claim has been filed with the Bankruptcy Court; or (d) as
to which an objection has been filed; provided, however, the Bankruptcy Court
may estimate a Disputed Claim for purposes of allowance, voting or feasibility
pursuant to (S)502(c), Bankruptcy Code and the applicable Bankruptcy Rules. If
there is a dispute as to the classification of a Claim, such Claim shall be
considered a Disputed Claim in its entirety for purposes of this Plan.
Exhibit 2 to Joint Plan
========
"Disputed Claim Reserve" shall mean the reserve accounts established
pursuant to this Plan for funding Disputed Claims if such Claims are ultimately
allowed by Final Order and which are to be held pending resolution of Disputed
Claims by the entry of a Final Order allowing or disallowing such Disputed
Claim(s).
"District Court" means the United States District Court for the Southern
District of Texas, or the unit thereof having jurisdiction over the matter in
dispute.
"Distribution Date" means the date Creditors with Allowed Claims are to
receive their limited partnership interests in the LP.
"Effective Date" means the eleventh calendar day after Confirmation, unless
the Confirmation Order is stayed in connection with an appeal, in which case the
Effective Date shall mean the date one calendar day after the date on which an
order is entered dissolving a stay of the Confirmation Order.
"Environmental Laws" means (a) the Comprehensive Environmental Response
Compensation ands Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. (S) 9601 et seq.; (b) the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendment of 1984, 42 U.S.C. (S) 6901 et seq. (c) the Clean Air Act, 42 U.S.C.A.
(S) 7401 et seq. (d) the Clean Water Act of 1977, 33 U.S.C.A. (S) 1251 et seq.;
(e) the Toxic Substances Control Act, 15 U.S.C.A. (S) 2601 et seq.; (f) all
other laws by any Governmental Units relating to air pollution, water pollution,
noise control and/or the handling, discharge, existence, disposal or recovery of
on-site or off-site hazardous, toxic or dangerous waste, substances or
materials, as each of the foregoing may be amended from time to time; (g) the
ordinances, rules, regulations, orders, notices of violation, requests, demands
and requirements issued or promulgated by such Governmental Units in connection
with such statutes and laws; and (h) the common law of any Governmental Unit.
"Equity Securities Laws Claim" shall mean a Claim (1) arising from
rescission of a purchase or sale of an Interest of the Debtors or an Affiliate
of the Debtors; (2) for damages arising from the purchase or sale (or offer for
purchase or sale) of such an Interest; or (3) for reimbursement, indemnification
or contribution allowed under (S) 502, Bankruptcy Code on account of a Claim for
damages or rescission arising out of a purchase or sale of an Interest of the
Debtors or an Affiliate of the Debtors.
"ERLY" means the Debtor, ERLY Industries, Inc.
"Estate" means the estate created by (S) 541, Bankruptcy Code upon the
commencement of each respective Debtor's case under chapter 11.
"Estates" means the estates created by (S) 541, Bankruptcy Code upon the
commencement of Debtors' cases under chapter 11.
Exhibit 2 to Joint Plan
========
"Estimated Amount" means the maximum amount at which the Bankruptcy Court
or, where required by applicable law, the District Court, estimates any Claim
(or Class of Claims) against Debtors which is contingent, unliquidated or
disputed, including, for the purpose of: (a) distribution under (S) 502(c),
Bankruptcy Code; (b) determining the feasibility of this Plan pursuant to (S)
1129(a)(11), Bankruptcy Code for purposes of its Confirmation; or (c) voting to
accept or reject this Plan pursuant to Bankruptcy Rule 3018(a).
"Estimation Order" means an Order of the Bankruptcy Court or, where
required by applicable law, the District Court, that determines the Estimated
Amount of any Claim (or Class of Claims), against Debtors for any of the
purposes as provided in this Plan.
"Executory Contract" means a contractual relationship existing pre-petition
between a Debtor and one or more third-parties which is governed by the
provisions of (S) 365, Bankruptcy Code.
"Fee Claim" means a Claim by a Professional Person under (S)(S) 330 & 503,
Bankruptcy Code for allowance of compensation and reimbursement of expenses in
the Chapter 11 Proceedings.
"FIA" means FIA Investments, LLC, an Arizona LLC formed by Spangler. FIA
initially acquired a line of credit originally extended by NationsBank to WEI;
subsequently, FIA extended Debtor-in-Possession financing to WEI during the WEI
Proceeding; FIA, in conjunction with Spangler, Teele and Rizk, then purchased
the assets of Old Chemonics in a Bankruptcy Court authorized proceeding. The
Debtors hold claims against FIA.
"Fire-Trol Holdings, LLC" means the purchaser of the assets of Chemonics
FIre-Trol, Inc. in August 1998.
"Filed" means filed with the Clerk of the Bankruptcy Court.
"Final Allowance" means the time an Order of the Bankruptcy Court allowing
a particular claim becomes a Final Order.
"Final Order" means an Order or Judgment of a court, the implementation or
operation or effect of which has not been stayed and as to which order or
judgment (or any revision, modification or amendment thereof) the time to appeal
or seek review or rehearing or writ of certiorari has expired and as to which no
appeal or petition for review or hearing or certiorari has been taken or is
pending; provided, however that, pursuant to this Plan, any order or judgment
allowing, disallowing or estimating a Claim which is not a Final Order as of the
Effective Date solely because of an Entity's right to move for reconsideration
of such order or judgment pursuant to (S)(S) 502(e)(2) and/or 502(j), Bankruptcy
Code and Bankruptcy Rule 3008 shall nevertheless become (and be deemed to be) a
Final Order on the Effective Date.
"General Unsecured Claim" means any Unsecured Claim against the Debtors not
entitled to priority under (S) 507, Bankruptcy Code.
Exhibit 2 to Joint Plan
========
"Governmental Unit" shall have the meaning set forth in (S) 101(27),
Bankruptcy Code.
"Impaired" with respect to a class of Claims or Interests means shall have
the meaning set forth in (S)1124, Bankruptcy Code. The consequences of being an
impaired class shall determined by (S)1126, Bankruptcy Code.
"Indenture" means that certain $8,880,000 Indenture dated as of February 1,
1993 between ERLY and
U.S. Trust Company of Texas, N.A., Trustee.
"Indenture Trustee" means the Trustee acting pursuant to the Indenture,
and any predecessor or successor trustee thereunder.
"Insurance Policy" shall mean any instrument under which an Entity has
engaged to indemnify, defend, reimburse or hold harmless a Debtor against a
contingent loss including, but not limited to the costs of defending a suit or
damages awarded in a suit against a Debtor.
"Insurance Rights" shall mean the rights, powers and privileges of a Debtor
under an Insurance Policy.
"Interest" means any equity interest in the Debtor represented by an
"equity security" as defined in (S) 101(16), Bankruptcy Code.
"Interestholder" means the holder of an Interest in ERLY.
"IRS" means the Internal Revenue Service of the United States.
"Lien" shall have the meaning provided by (S) 101(37), Bankruptcy Code.
"LP" shall mean the Delaware or Texas limited partnership established for
the benefit of the Creditors to carry out the means for the execution of this
Plan, and to be owned by Creditors holding Allowed Class 9, 10, 11, and 12
Claims.
"LP Agreement" shall mean the agreement of limited partnership of the LP
which shall be in the form attached hereto as "The Agreement of Limited
Partnership of ERLY and WEI Creditors, L.P." (See Exhibit 2).
"LP Committee" means the LP Committee appointed by the Bankruptcy Court
pursuant to the LP Agreement for the LP to oversee the litigation of the causes
of action and lawsuits assigned to the LP, the distributions to holders of LP
Units and the amounts to be reserved by the LP in order to effectuate the LP's
purpose.
"LP Units" shall mean the Partnership A Units, Partnership B Units and
Partnership C Units.
Exhibit 2 to Joint Plan
========
"Manager" shall mean the Manager designated in this Plan.
"MOU" or "Marzec MOU" means that certain Memorandum of Understanding by and
between Edwin Marzec and ERLY under the terms of which, ERLY purported to agree
to convey the assets of Old Chemonics to Edwin Marzec.
"New Chemonics" means Chemonics International of Delaware, Inc., a Delaware
corporation formed by FIA, Spangler, Teele and Rizk to hold the assets of Old
Chem Inter, Inc. New Chemonics remains an operating business but is now totally
unaffiliated with either of the Debtors. WEI holds claims against New
Chemonics.
"NOL" means the "net operating loss" deduction allowed by Section 172 of
the Internal Revenue Code of 1986, as amended.
"NOL Carryover" means the net operating loss carryover provided in Section
172 of the Internal Revenue Code of 1986, as amended.
"Old Chemonics" means Chemonics International, Inc. of California, a wholly
owned subsidiary of "WEI". The assets of Old Chemonics were sold to FIA, Teele
and Rizk; prior to dissolution, its name was formally changed to Old Chem-Inter,
Inc. so that New Chemonics, as defined above, could register the name Chemonics
International.
"Order" means an order or judgment of the Bankruptcy Court, the District
Court, U.S. Court of Appeals, the Supreme Court of the United States or other
court of competent jurisdiction.
"Partnership A Units", "Partnership B Units" and "Partnership C Units"
shall have the meaning ascribed to such terms in the LP Agreement.
"Penalty Claims" shall mean Claims for penalties or punitive damages,
including but not limited to Claims for interest claimed to be due on debt which
the Bankruptcy Court determines to be punitive in nature.
"Petition Date" for ERLY means September 28, 1998; and for Watch-Edge,
November 30, 1998; the respective dates on which the petition for relief under
chapter 11 of the Bankruptcy Code was filed in the Bankruptcy Court.
"Plan" means this Plan of Reorganization under Chapter 11 of the Bankruptcy
Code, including all exhibits hereto, as it may be amended, modified and/or
supplemented from time to time.
"Pre-Closing Tax Claim" means any tax claims which become due or arise from
income or events which accrue or occur prior to the Confirmation Date or are
otherwise allocable to tax years ending before the Confirmation Date or to the
period beginning on April 1, 1999 and ending on the Confirmation Date.
Exhibit 2 to Joint Plan
========
"Priority Non-Tax Claim" shall mean any Claim accorded priority in right of
payment under (S)(S) 507(a) (1), (2), (3), (4), (5), (6), (7) or (9), Bankruptcy
Code.
"Priority Tax Claim" shall mean a Claim of a Governmental Unit of the kind
specified in (S) 507(a)(8), Bankruptcy Code.
"Proceedings" means these chapter 11 cases for reorganization pending in
the Bankruptcy Court.
"Professional Person" shall mean a person retained or to be compensated
pursuant to (S)(S) 327, 328, 330, 503(b) or 1103, Bankruptcy Code.
"Proof of Claim" means a written claim filed with the Bankruptcy Court
which complies in form and substance with the requirements of the Federal Rules
of Bankruptcy Procedure and Official Form 10.
"Proponents" shall mean ERLY, WEI and the Committee.
"Pro Rata" means (i) with respect to Classes 9, 10 and 11 Claims, the
proportion an Allowed Claim bears to the aggregate amount of all Allowed Claims
in such classes including Disputed Claims in such classes so long as such
Disputed Claims have not been disallowed by Final Order; and (ii) with respect
to Class 12 Claims, the proportion an Allowed Claim bears to the aggregate
amount of all Allowed Claims in such class including Disputed Claims in such
class so long as such Disputed Claims have not been disallowed by Final Order.
"Reorganized Debtor" means the Debtor or Company which survives this
Chapter 11 case subsequent to Confirmation.
"Record Date" means April 30, 1999.
"Rizk", means Ashraf Rizk, a principal of New Chemonics and formerly an
officer and director of Old Chemonics and an officer of WEI. Rizk, in
conjunction with FIA, Teele and Spangler, purchased the assets of Old Chemonics.
The Debtors hold claims against Rizk. Rizk is a resident of the Northern
District of Virginia.
"Schedules" means the schedules, statements and lists filed by Debtors with
the Bankruptcy Court pursuant to (S)521, Bankruptcy Code and Bankruptcy Rule
1007, as they may be amended or supplemented from time to time, pursuant to
Bankruptcy Rule 1009.
"Secured Claim" means a Claim against the Debtors incurred prior to the
Petition Date (or deemed by law to have been incurred prior to the Petition
Date) secured by a valid, perfected and non-avoidable Lien or Security Interest
in property of an Estate entitled to allowance pursuant to (S) 506(a),
Bankruptcy Code, but only to the extent of the value of the property securing
such Claim.
Exhibit 2 to Joint Plan
========
"Security Interest" shall have the meaning provided by (S) 101(51),
Bankruptcy Code.
"Spangler", means Scott Spangler, a principal of FIA. Spangler, FIA, Teele,
and Rizk purchased the assets of Old Chemonics and created New Chemonics.
Spangler is a resident of Phoenix, Arizona.
"Subordinated Claim" shall mean any Claim (1) subordinated by contract
other than the Indenture or by order of the Bankruptcy Court to the right of
payment of General Unsecured Claims, or (2) which would be paid pursuant to
(S)(S) 726(a)(2)(C), (a)(3), (a)(4) or (a)(5), Bankruptcy Code.
"Tax Liens" shall mean any statutory Liens securing any Allowed Secured
Claims of any ad valorem taxing authority, which, upon confirmation of the Plan,
shall be junior in priority to Allowed Claims which would be paid pursuant to
(S) 724(b)(1) and (b)(2), Bankruptcy Code if the Chapter 11 cases were converted
to chapter 7 on the day prior to the Confirmation Date.
"Teele", means Thurston F. ("Tony") Teele, a principal of New Chemonics and
formerly an officer and director of Old Chemonics and WEI. Teele, in
conjunction with FIA, Rizk and Spangler, purchased the assets of Old Chemonics.
The Debtors hold claims against Teele. He is a resident of the District of
Columbia.
"Tenzer Litigation" means the litigation between ERLY, ARI, and others as
defendants and The Tenzer Company, Anthony M. Frank and others as Plaintiffs
which is fully described in the Disclosure Statement filed in these Proceedings.
"Unexpired Lease" means an unexpired lease of real or personal property as
to which a Debtor is a party and which is governed by (S) 365, Bankruptcy Code.
"Unsecured Claim" means a Claim against the Debtors incurred prior to the
Petition Date (or deemed by law to have been incurred prior to the Petition
Date) for which the Claimant has not asserted or is determined by a Final Order
to not hold a valid, perfected and enforceable lien, security interest or other
interest in or encumbrance against the property of the Debtors or right to
setoff to secure the payment of such Claim.
"Voting Deadline" shall mean the date set by the Bankruptcy Court by which
Ballots for accepting or rejecting the Plan must be received by the Entity
appointed in the Chapter 11 Proceedings for tabulating such Ballots.
"Watch-Edge" or "WEI" means Watch-Edge International, Inc., a wholly owned
subsidiary of ERLY Industries, Inc. WEI was formerly known as Chemonics
Industries, Inc.
Other Terms: Any term that is used in this Plan and not defined in this
-----------
Plan, but that is defined in the Bankruptcy Code, shall have the meaning set
forth in the Bankruptcy Code. The words "herein", "hereof", "hereto",
"hereunder", and any other words of similar import refer to
Exhibit 2 to Joint Plan
========
this Plan as a whole and not to any particular section, subsection, or clause
contained in this Plan.
Interpretation: Unless otherwise specified, all section, article, and
--------------
exhibit references in the Plan are to the respective section in, article of, or
exhibit to, the Plan, as the same may be amended, waived, or modified from time
to time. The headings in the Plan are for convenience of reference only and
shall not limit or otherwise affect the provisions of the Plan. Words denoting
the singular number shall include the plural number and vice versa, and words
denoting one gender shall include the other gender.
Plan Documents: The Plan Documents attached hereto as Exhibits 1 to 2 are
--------------
incorporated into and are a part of the Plan as if set forth in full herein.
The Proponents may file additional Plan Documents with the Bankruptcy Court on
or before the Confirmation Date.
ARTICLE II
----------
CLASSIFICATION OF CLAIMS
------------------------
The Plan provides for the division of Claims and Interests into 14 classes.
All Claims and Interests of whatever nature, whether or not scheduled,
liquidated or unliquidated, absolute or contingent, including all Claims arising
from transactions of the Debtors or rejection of executory contracts and/or
unexpired leases and all Interests arising from ownership of the Debtors,
whether resulting in an Allowed Claim, or not, shall be bound by the provisions
of this Plan. The Claims and Interests are classified as follows:
Class 1 --- (S) 507(a)(1) Administrative Claims: Class 1 is comprised of
-----------------------------------------------
the unpaid Allowed Administrative Claims under (S) 503(b) of title 11, including
the fees for services rendered and expenses incurred by Professional Persons and
any fees and charges assessed against the Estates under chapter 123 of title 28.
This Class shall also include: (i) any fees and expenses allowed by the
Bankruptcy Court of Professional Persons arising subsequent to Confirmation
which are required to and incident to winding-up and closing the Debtors'
Estates; and (ii) claims for indemnification against the Debtors by officers and
directors who have served in such capacity during the Proceedings provided that
(i) the acts giving rise to the claim for indemnification result from such
officers' or directors' actions in such capacity during the Proceedings, and
(ii) such claims are subject to indemnification by the Debtors under applicable
law, including but not limited to the Debtors' bylaws or articles of
incorporation.
Class 2 --- (S) 507(a)(3) Wage Claims: Class 2 is comprised of unpaid
-------------------------------------
Allowed Unsecured Claims of Creditors for wages, salaries, or commissions,
including vacation, severance, and sick leave pay, if any, to the extent such
items were earned within 90 days prior to the Petition Date, up to a maximum of
$4,000 earned per individual employee.
Class 3 --- (S) 507(a)(4) Employee Benefit Claims: Class 3 is comprised of
-------------------------------------------------
unpaid Allowed Unsecured Claims of Creditors for contributions to employee
benefit plans---(A) arising from services rendered within 180 days before the
date of the filing of the Petition; but only (B)
Exhibit 2 to Joint Plan
========
for each such plan, to the extent of---(i) the number of employees covered by
each such plan multiplied by $4,000.00, less (ii) the aggregate amount paid to
such employees under Class 2, above, plus the aggregate amount paid by the
Debtors' estates on behalf of such employees to any other employee benefit plan.
The Debtors are not aware of any such Claims.
Class 4 --- Other (S) 507(a) Priority Claims Not Separately Classified:
----------------------------------------------------------------------
Class 4 is comprised of all unpaid Allowed Unsecured Priority Non-Tax Claims of
Creditors which are not separately classified in classes 1, 2 or 3 of this Plan.
The Debtors are not aware of any such Claims.
Class 5 --- (S) 507(a)(8) Certain Unsecured Claims of Governmental Units:
------------------------------------------------------------------------
Class 5 is comprised of unpaid Allowed Priority Tax Claims of Governmental Units
which are entitled to priority pursuant to (S) 507(a)(8), Bankruptcy Code.
Class 6 --- Allowed Secured Claims of Creditors Holding a Lien on ERLY's
------------------------------------------------------------------------
Series B Preferred Stock in American Rice, Inc. and all other Allowed Secured
- -----------------------------------------------------------------------------
Claims, save and except those Claims of U.S. Trust Company of Texas, N.A., as
- -----------------------------------------------------------------------------
Trustee and Collateral Agent under that certain $100,000,000 Indenture (13%
- ---------------------------------------------------------------------------
Mortgage Notes due 2002 With Contingent Interest) by and among American Rice,
- -----------------------------------------------------------------------------
Inc. and U.S. Trust Company of Texas, N.A. as Trustee and that certain ERLY
- ---------------------------------------------------------------------------
Pledge Agreement as of August 24, 1995: Class 6 is comprised of any unpaid
- --------------------------------------
Allowed Secured Claims of any Creditors holding a valid, perfected, non-
avoidable Lien on ERLY's Series B Preferred Stock of American Rice, Inc. or any
other property of the Estates, other than those claims of U.S. Trust Company of
Texas, N.A., as Trustee and Collateral Agent under that certain $100,000,000
Indenture (13% Mortgage Notes due 2002 With Contingent Interest) by and among
American Rice, Inc. and U.S. Trust Company of Texas, N.A. as Trustee and that
certain ERLY Pledge Agreement as of August 24, 1995. Upon information and
belief, the only creditors in this class are Nationwide Life Insurance Company;
Nationwide Mutual Life Insurance Company; Southland Life Insurance Company;
SunAmerica Life Insurance Company and Texas Commerce Bank.
Class 7 --- Allowed Secured Claim of U.S. Trust Company of Texas, N.A., as
--------------------------------------------------------------------------
Trustee and Collateral Agent under that certain $100,000,000 Indenture (13%
- ---------------------------------------------------------------------------
Mortgage Notes due 2002 With Contingent Interest) by and among American Rice,
- -----------------------------------------------------------------------------
Inc. and U.S. Trust Company of Texas, N.A. as Trustee and that certain ERLY
- ---------------------------------------------------------------------------
Pledge Agreement as of August 24, 1995: Class 7 is comprised of the unpaid
- --------------------------------------
Allowed Secured Claim of U.S. Trust Company of Texas, N.A., as Trustee and
Collateral Agent under that certain $100,000,000 Indenture (13% Mortgage Notes
due 2002 With Contingent Interest) which is secured by that certain ERLY Pledge
Agreement as of August 24, 1995, by and among American Rice, Inc. and U.S. Trust
Company of Texas, N.A. as Trustee, secured by common stock and warrants of
American Rice, Inc. This Class does not include any claim of the Trustee or the
holders of such instruments as assignee or pledgee of the following: (1) that
certain "Amended and Restated Promissory Note" in the principal sum of
$10,000,000.00, Amended August 24, 1995, payable to the order of American Rice,
Inc. and signed by ERLY; and (2) that certain "15% ERLY Intercompany Note" in
the principal sum of $10,000,000.00, dated August 24, 1995, payable to the order
of American Rice, Inc.
Exhibit 2 to Joint Plan
========
Class 8 --- Allowed Secured Claim of Landlords: Class 8 is comprised of
----------------------------------------------
any unpaid Allowed Secured Claims of landlords. La Salle/One Westwood Limited
Partnership ("La Salle") may hold a rental security deposit of either cash or a
letter of credit.
Class 9 --- All Allowed General Unsecured Claims of ERLY: Class 9 is
--------------------------------------------------------
comprised of holders of any unpaid Allowed General Unsecured Claims of Creditors
of ERLY including any unsecured deficiency Claims of holders of Allowed Secured
Claims in Classes 6 and 8.
Class 10 --- All Allowed Unsecured Claims of Debenture Holders under that
certain $8,880,000 Indenture dated as of February 1, 1993 between ERLY
Industries, Inc. and Trust Company of Texas, Trustee and Debt Securities Laws
Claims: Class 10 is comprised of all unpaid Allowed Unsecured Claims of
Debenture Holders under that certain $8,880,000 Indenture dated as of
February 1, 1993 between ERLY and Trust Company of Texas, Trustee and all
Creditors holding Allowed Debt
Securities Laws Claims.
Class 11 --- All Allowed General Unsecured Claims of Creditors of Watch-
-----------------------------------------------------------------------
Edge International, Inc: Class 11 is comprised of all Allowed General Unsecured
- -----------------------
Claims of Creditors of WEI.
Class 12 --- All Subordinated Claims and Penalty Claims: Class 12 is
-------------------------------------------------------
comprised of all holders of unpaid Allowed Subordinated Claims and Penalty
Claims.
Class 13 --- Holders of ERLY Interests and Allowed Equity Securities Laws
-------------------------------------------------------------------------
Claims: Class 13 is comprised of all holders of Interests of ERLY and all
- ------
holders of Allowed Equity Securities Laws Claims.
Class 14 --- Holders of WEI Interests: Class 14 is comprised of all
-------------------------------------
holders of Interests of WEI. ERLY is the only holder of Class 14 Interests.
ARTICLE III
-----------
IMPAIRMENT OF CLAIMS & INTERESTS, FAIR AND EQUITABLE
----------------------------------------------------
Impaired Classes: The following Classes, for which ERLY Debtor is seeking
----------------
acceptances, are impaired under this Plan: Classes 9, 10, 11, 12 & 14.
Unimpaired Classes: The following Classes are unimpaired under this Plan,
------------------
shall be deemed to have accepted this Plan under the provisions of (S) 1126(f),
Bankruptcy Code and their acceptances will not be solicited: Classes 1, 2, 3,
4, 5, 6, 7, & 8. Class 13 is being provisionally solicited because of the
assertion of the Securities & Exchange Commission that Class 13 is impaired.
Impairment Controversies: In the event of a controversy over whether any
------------------------
Claim is
Exhibit 2 to Joint Plan
========
impaired under this Plan, the Bankruptcy Court, after notice and hearing, shall
resolve such controversy pursuant to objection made by a Claimant prior to the
Confirmation Hearing.
Reservation of Right to Modify Plan: In the event that an objection to
------------------------------------
the treatment of Interestholders is sustained, the Proponents reserve the right
to modify the Plan at the Confirmation Hearing to eliminate the Interests of
present Interestholders, issue 1,000 shares of non-par voting common stock of
ERLY, and auction those shares to any holder of an Allowed Claim, Allowed
Administrative Claim, or Allowed Interestholder, in exchange for Claims,
Interests or cash, as appropriate.
ARTICLE IV
----------
PROVISIONS FOR SATISFACTION OF CLAIMS
-------------------------------------
Overview: This is a chapter 11 Plan of Reorganization which provides that
--------
all of the assets of ERLY and WEI (except the contracts and assets necessary for
the Reorganized Debtor to continue operations involving the sublease and
Terminal Service Agreement in connection with the WEI Phoenix Operations, NOLs,
NOL Carryforwards and stock of WEI) will be paid, transferred and assigned to a
limited partnership for the benefit of the creditors and that ERLY will continue
in future business, to include the (i) operation of the Phoenix, Arizona
sublease and Terminal Services Agreement; and (ii) to enter into a new business
as described in the Disclosure Statement. All claims and causes of action of
ERLY and WEI existing as of and subsequent to the Petition Date shall be
preserved and inure to the benefit of the Reorganized Debtor and its assigns and
shall not be extinguished by the Confirmation Order. In full and final
satisfaction of all Claims against the Debtors, the entry of the Confirmation
Order shall automatically (i) vest all property of the Debtors and their
Estates, including the Debtors' Actions, in the Reorganized Debtor, and (ii)
transfer and/or assign to the LP for the benefit of the Debtors' Creditors, and
pursuant to (S) 1123(b)(3), Bankruptcy Code, all property of the Debtors'
Estates and their subsidiaries (including, but not limited to, the Debtors'
Actions, inventory, real and personal property, cash, accounts receivable, and
contract rights), save and except (a) the contracts and assets necessary for the
Reorganized Debtor to continue operations involving the sublease and Terminal
Service Agreement in connection with the WEI Phoenix Operations (b) the NOLs,
(c) the NOL Carryovers, and (d) ERLY's stock in WEI and all other subsidiaries.
The Allowed Claims classified in Article II of this Plan shall be satisfied in
the manner set forth in this Article IV.
Class 1 --- (S) 507(a)(1) Allowed Administrative Expense Claims: Class 1
---------------------------------------------------------------
Claims to the extent allowed, if any, and which are not previously paid during
the chapter 11 Proceedings, shall be paid by the LP in full and final
satisfaction of all Claims against the LP in Cash on the Effective Date if such
Claimant's Claim has matured or been approved or allowed by the Court, if such
approval or allowance is required. Each such Claim requiring approval or
allowance by the Court shall be paid in Cash upon approval or allowance by the
Court, unless each such
Exhibit 2 to Joint Plan
========
Creditor agrees in writing to a different treatment. In the event any such Claim
becomes a Disputed Claim it shall be provided for by escrow payment until Final
Order. Any current trade or other accounts payable incurred after the Petition
Date in the ordinary course of business shall be paid by or on behalf of Debtors
in full, in Cash, in the ordinary course of business. All Fee Claims incurred
for professional services and expenses after the Confirmation Date shall be paid
by the Debtors or the LP, as the case may be, pursuant to approval or allowance
of the Court.
Class 2 --- (S) 507(a)(3) Allowed Unsecured Wage Claims: Class 2 Claims,
-------------------------------------------------------
to the extent allowed, if any, shall be paid by the LP, in full and final
satisfaction of all such Claims against the LP, in Cash on the Effective Date if
such Creditor's Claim has matured or been approved or allowed by the Court, if
such approval or allowance is required. Each such Claim requiring approval or
allowance by the Court shall be paid in cash upon approval or allowance by the
Court, unless each such Creditor agrees in writing to a different treatment.
Class 3 --- ((S) 507(a)(4) Employee Benefit Claims) & Class 4 (Other (S)
------------------------------------------------------------------------
507(a) Priority Claims Not Separately Classified: Class 3 and Class 4 Claims,
- ------------------------------------------------
to the extent allowed, shall be paid by the LP, in full and final satisfaction
of all such Claims against the LP, in Cash on the Effective Date if such
Claimant's Claim has matured or been approved or allowed by the Court, if such
approval or allowance is required. Each such Claim requiring approval or
allowance by the Court shall be paid in cash upon approval or allowance by the
Court, unless each such Creditor agrees in writing to a different treatment.
Class 5 --- (S) 507(a)(8) Certain Unsecured Claims of Governmental Units:
------------------------------------------------------------------------
On the Effective Date, each holder of an Allowed Priority Tax Claim against the
Debtors shall receive from the LP in full satisfaction of such holder's Allowed
Priority Tax Claim against the LP (1) the amount of such holder's Allowed
Priority Tax Claim, with interest accruing after the Effective Date at the
annual rate of eight percent (8%), divided into six equal annual Cash payments
on each anniversary of the Distribution Date until the sixth such anniversary of
the date of assessment of such Claim; (2) a lesser amount in one Cash payment as
may be agreed upon in writing; or (3) such other treatment as may be agreed upon
in writing.
Class 6 --- Allowed Secured Claims of Creditors Holding a Lien on ERLY's
------------------------------------------------------------------------
Series B Preferred Stock in American Rice, Inc. and All Other Allowed Secured
- -----------------------------------------------------------------------------
Claims, save and except those Claims of U.S. Trust Company of Texas, N.A., as
- -----------------------------------------------------------------------------
Trustee and Collateral Agent under that certain $100,000,000 Indenture (13%
- ---------------------------------------------------------------------------
Mortgage Notes due 2002 With Contingent Interest) by and among American Rice,
- -----------------------------------------------------------------------------
Inc. and U.S. Trust Company of Texas, N.A. as Trustee and that certain ERLY
- ---------------------------------------------------------------------------
Pledge Agreement as of August 24, 1995: On the Effective Date, the Class 6
- --------------------------------------
Claims, to the extent allowed, shall be paid in full and final satisfaction of
all such Claims against the LP, by surrender by ERLY to the Creditor of all
collateral securing such Allowed Secured claim, if any, in accordance with In re
Sandy Ridge Development Corp; 881 F.2d 1346 (5/th/ Cir. 1989). At such
Creditor's request, ERLY will execute and deliver to such Creditor a conveyance
in form and substance satisfactory to ERLY's counsel either abandoning or
transferring all of ERLY's right, title and interest in and to all collateral
validly securing each such Allowed Secured Claim. In other words, the Class 6
Creditor's collateral is to be transferred to the Class 6 Creditor in
consideration for and in full and
Exhibit 2 to Joint Plan
========
final satisfaction of the Creditor's Class 6 Allowed Secured Claim. Unsecured
deficiency Claims of holders of Class 6 Claims, to the extent allowed, shall be
treated in Class 9.
Class 7 --- Allowed Secured Claim of U.S. Trust Company of Texas, N.A., as
--------------------------------------------------------------------------
Trustee and Collateral Agent under that certain $100,000,000 Indenture (13%
- ---------------------------------------------------------------------------
Mortgage Notes due 2002 With Contingent Interest) by and among American Rice,
- -----------------------------------------------------------------------------
Inc. and U.S. Trust Company of Texas, N.A. as Trustee and that certain ERLY
- ---------------------------------------------------------------------------
Pledge Agreement as of August 24, 1995: On the Effective Date, the Allowed
- --------------------------------------
Class 7 Claim shall be paid in full and final satisfaction of such Claim against
the LP, by surrender by ERLY of all collateral securing such Allowed Secured
Claim, if any, in accordance with In re Sandy Ridge Development Corp; 881 F.2d
1346 (5/th/ Cir. 1989). At such Creditor's request, ERLY will execute and
deliver to such Creditor a conveyance in form and substance satisfactory to
ERLY's counsel either abandoning or transferring all of ERLY's right, title and
interest in and to all collateral validly securing each such Allowed Secured
Claim. In other words, each Class 7 Creditor's collateral is to be transferred
to such Class 7 Creditor in consideration for and in full and final satisfaction
of such Class 7 Allowed Secured Claim.
Class 8 --- Allowed Secured Claim of Landlords: On the Effective Date,
----------------------------------------------
Class 8 Secured Claims to the extent allowed shall be paid in full and final
satisfaction of all such Claims against the LP, by surrender by ERLY of all
collateral securing such Allowed Secured Claim, if any, in accordance with In re
Sandy Ridge Development Corp; 881 F.2d 1346 (5/th/ Cir. 1989). To the extent
the Creditor holds a letter of credit, it shall be entitled to draw under such
letter of credit. In other words, each Class 8 Creditor's collateral is to be
transferred to such Class 8 Creditor in consideration for and in full and final
satisfaction of such Class 8 Allowed Secured Claim. Unsecured deficiency Claims
of holders of Class 8 Claims, to the extent allowed, shall be included and paid
in accordance with Class 9.
Class 9 --- All Allowed General Unsecured Claims of Creditors of ERLY;
----------------------------------------------------------------------
Class 10 --- All Allowed Unsecured Claims of Debenture Holders under that
- -------------------------------------------------------------------------
certain $8,880,000 Indenture dated as of February 1, 1993 between ERLY
- ----------------------------------------------------------------------
Industries, Inc. and Trust Company of Texas, Trustee and Debt Securities Laws
- -----------------------------------------------------------------------------
Claims; and Class 11 --- All Allowed General Unsecured Claims of Creditors of
- -----------------------------------------------------------------------------
WEI: On the Effective Date, each holder of an Allowed Class 9, 10 or 11 Claim
- ---
shall receive its Pro Rata share of:
i) 1,000,000 Partnership A Units in the LP; and
ii) provided that such holder has not made the Non-Assignment Election
(defined herein), 1,000,000 Partnership B Units in the LP.
Provided however, that calculation of the Pro Rata shares of Partnership A Units
allocable to holders of Allowed Class 10 Claims shall be subject to all of the
contractual provisions, including those contained in the Indenture, which
require subordination and priority of Senior Indebtedness (as defined in the
Indenture). Any LP Units which would otherwise be allocated to holders of
Allowed Class 10 Claims but for the contractual provisions of the Indenture
requiring subordination to and priority of Senior Indebtedness shall be
reallocated and distributed to holders of Senior Indebtedness.
Exhibit 2 to Joint Plan
========
Class 12 --- All Subordinated Claims and Penalty Claims: All holders of
-------------------------------------------------------
Allowed Class 12 Claims shall receive their Pro Rata distribution of 1,000,000
Partnership C Units. Partnership C Units shall be paid distributions from the
LP only after the LP has paid the holders of Partnership A Units and Partnership
B Units the amount of their Allowed Claims, in full, with interest at the
Federal Judgment Rate in effect on the Effective Date.
Class 13 --- Holders of Interests of ERLY: Class 13 Interestholders of
-----------------------------------------
ERLY are unimpaired and shall retain their respective Interests in the
Reorganized Debtor. In the event that an objection to the treatment of this
Class is sustained, the Proponents have reserved the right to modify this
treatment to eliminate the Interests of Class 13, issue 1,000 of new voting non
par common stock of the Reorganized Debtor, and to auction such new stock at the
Confirmation hearing.
Class 14 --- Holders of Interests of WEI: ERLY's Class 14 Interest in WEI
----------------------------------------
is impaired, which shall substantively consolidate all assets and liabilities of
WEI into ERLY.
ARTICLE V
---------
VOTING AND CRAMDOWN
-------------------
Classes Entitled to Vote: Each impaired class of Claims shall be entitled
------------------------
to vote separately to accept or reject the Plan as provided in the order entered
by the Bankruptcy Court governing the voting and balloting procedures applicable
to the Plan. Any unimpaired class of Claims or Interests shall be deemed to
have accepted the Plan. Any class of Claims that will not receive or retain any
property on account of such Claims shall be deemed to have rejected the Plan.
ERLY, by proposing this Plan, accepts the treatment of Class 14.
Class Acceptance Requirement: A class of Claims shall have accepted the
----------------------------
Plan if it is accepted by at least two-thirds in amount and more than one-half
in number of the Allowed Claims in such class that have voted on the Plan. If a
class does not vote, it is deemed to have accepted this Plan.
Cramdown: In the event that any class rejects the Plan, the Debtors and
--------
the Committee jointly reserve the right to modify this Plan and may seek to
invoke the provisions of (S) 1129(b), Bankruptcy Code and confirm the Plan
notwithstanding the rejection of the Plan by any class of Claims or Interests.
In the event that confirmation is requested under (S) 1129(b), Bankruptcy Code,
the Proponents reserve the right to amend or otherwise modify the Plan to
eliminate distributions to holders of any Claims or Interests junior to any
class of Claims or Interests that is impaired under, and has not accepted, the
Plan in accordance with (S) 1129(b)(2), Bankruptcy Code.
Exhibit 2 to Joint Plan
========
ARTICLE VI
----------
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
-----------------------------------------------------
Applicability of Bar Date to Pre-Confirmation Rejection Claims: All Claims
--------------------------------------------------------------
arising from or related to the rejection of Unexpired Leases or Executory
Contracts prior to Confirmation are subject to the Bar Date, including Claims
arising from the deemed rejection of Unexpired Leases or Executory Contracts by
operation of law because the Debtors, or either or them, failed to act pursuant
to (S) 365(d), Bankruptcy Code. Failure to file such Claims prior to the
applicable bar date resulted in the dissallowance of such Claims.
ERLY Executory Contracts: ERLY hereby assumes the Executory Contracts and
------------------------
Unexpired Leases listed on Exhibit 1, attached hereto and herein incorporated by
reference for all purposes. To the extent not otherwise previously rejected by
operation of law or Bankruptcy Court Order, all other such ERLY Executory
Contracts or Unexpired Leases are hereby rejected.
WEI Executory Contracts: WEI hereby assumes the executory contracts and
-----------------------
unexpired leases listed on Exhibit 1, attached hereto and herein incorporated by
reference for all purposes. To the extent not otherwise previously rejected by
operation of law or Bankruptcy Court Order, all other such WEI Executory
Contracts or Unexpired Leases are hereby rejected. As to the sublease of
premises in Phoenix, AZ, to Alameda Chemical & Scientific of Arizona, Inc., WEI
has prepaid all sums due the Union Pacific, its landlord, for the calendar
quarter ending September 30, 1999. The subtentant may remain in possession
until September 30, 1999, at which time the sublease shall be terminated and not
renewed. Accordingly, Alameda Chemical & Scientific of Arizona, Inc. has no
claim against the Debtors or the LP in these Proceedings.
Procedures for Amendment of Exhibit 1: The Debtors may amend or supplement
-------------------------------------
Exhibit 1 at any time prior to Confirmation; provided, however, that in the
event that an amendment is filed to Exhibit 1 on or after five (5) days before
the Confirmation Date, parties wishing to object to the assumption and/or
assignment of an Unexpired Lease or Executory Contract, or the Debtors, may
request that such matter be adjourned and severed from the Confirmation of this
Plan. Any such amendments shall not affect the Confirmation of the Plan, but
shall instead be reserved for final hearing upon motion and notice.
Damages Upon Rejection: The Bankruptcy Court shall determine the dollar
----------------------
amount, if any, of the Claim of any Claimant seeking damages by reason of the
rejection of any such Executory Contract or Unexpired Lease under this Plan;
provided such Claimant files a Proof of Claim in the Bankruptcy Court before
- --------
twenty (20) calendar days following the Confirmation Date. To the extent such
claims become Allowed Claims, such Claimants shall thereafter become Creditors
holding General Unsecured Claims in Class 9 or 11, as the case may be, and shall
receive distributions as Creditors holding Allowed Claims in such Class pursuant
to this Plan. This Plan shall constitute notice to Entities who may assert a
Claim for damages for the rejection of an Executory Contract or Unexpired Lease
resulting from Confirmation of this Plan of the bar date for filing a Proof of
Claim in connection therewith; provided, however, that neither the Debtors nor
-------- -------
the Committee shall have any obligation to notify such Entities that the
Exhibit 2 to Joint Plan
========
Confirmation Date has occurred.
ARTICLE VII
-----------
MEANS FOR EXECUTION OF THIS PLAN
--------------------------------
Post-Confirmation Acts and Actions of Reorganized Debtor: All claims and
--------------------------------------------------------
causes of action of ERLY and WEI existing as of and subsequent to the Petition
Date shall be preserved and inure to the benefit of the Reorganized Debtor and
its assigns (including, without limitation, the LP) and shall not be
extinguished by the Confirmation Order. In full and final satisfaction of all
Claims against the Debtors, the entry of the Confirmation Order shall
automatically (i) vest all property of the Debtors and their Estates, including,
without limitation, the Debtors' Actions, in the Reorganized Debtor, and (ii)
transfer and/or assign to the LP for the benefit of the Debtors' Creditors, and
pursuant to (S) 1123(b)(3), Bankruptcy Code, all property of the Debtors'
Estates and their subsidiaries (including, but not limited to, the Debtors'
Actions, inventory, real and personal property, cash, accounts receivable, and
contract rights), save and except (a) the NOLs, (b) the NOL Carryovers, (c)
ERLY's stock in WEI and all other subsidiaries; and (d) the contracts and assets
necessary for the Reorganized Debtor to continue operations involving the
sublease and Terminal Service Agreement in connection with the WEI Phoenix
Operations The Reorganized Debtor reserves the right to conduct new business and
new operations subsequent to the entry of the Confirmation Order with respect to
new capital or assets contributed or raised subsequent to entry of the
Confirmation Order. The Reorganized Debtor, and all such new assets and new
operations, shall be free of any Claim of any of the Debtor's creditors existing
as of the entry of the Confirmation Order; or of the LP or any other Person or
Entity, other than Allowed Interestholders. Likewise, the LP and its assets
shall be released from any Claims or causes of action of the Reorganized Debtor
upon Confirmation. It is the intent of this Plan of Reorganization to provide a
fresh start to the Reorganized Debtor.
Surviving Legal Entity: On the Effective Date (i) all intercompany Claims
----------------------
by and among the Debtors or Old Chemonics will be eliminated, (ii) all
guaranties executed by the Debtors or Old Chemonics will be deemed to have been
one obligation of ERLY payable solely by the LP in accordance with this Plan,
(iii) any Claim filed or to be filed against any or all of the Debtors will be
deemed one Claim against ERLY, payable solely by the LP, (iv) for purposes of
determining the availability of the right of offset under (S) 553, Bankruptcy
Code, the Debtors and Old Chemonics shall be treated as one entity so that,
subject to the other provisions of (S) 553, Bankruptcy Code, debts due to any of
the Debtors may be offset against the debts of any of the Debtors, (v) all
remaining assets of Old Chemonics shall be either assigned to, paid by way of
dividend to, or otherwise vested in the Reorganized Debtor and assigned to the
LP, and (vi) the Debtors will be substantively consolidated for all purposes
pursuant to (S) 302, Bankruptcy Code with the Reorganized Debtor as the sole
surviving legal entity.
The Reorganized Debtor's Business Plan for the Future: In addition to
-------------------------------------------------------
performing under the Terminal Service Agreement and the sublease to Fire-Trol,
The Reorganized Debtor intends to conduct future business operations by entering
into the financial services industry in the specialized market as an
Exhibit 2 to Joint Plan
========
Alternative Financial Services Provider ["AFSP"] to provide one-stop convenience
financial centers, utilizing attractive stores centrally located to market
financial services to blue collar workers and their families. These stores are
commonly referred to by consumers as "Check Cashing Stores". Nanette Kelley, the
current ERLY President, has committed to invest at least $500,000 in the future
business operations of the Reorganized Debtor, conditioned upon the Reorganized
Debtor's ability to raise sufficient new equity capital and loans after the
Confirmation Date to enable the Reorganized Debtor to conduct this business. The
Reorganized Debtor intends to fully comply with all applicable federal and state
securities and other laws in connection with raising the necessary funds.
Financial products to be marketed at the Company's Convenience ASFP stores
may include check cashing; money orders; money wires; payday loans; lottery
ticket sales; tax preparation; fax, copies and notary services; utility and
other bill payments; and prepaid telephone cards.
Interestholders should refer to the Disclosure Statement for more details
concerning the Reorganized Debtor's Business Plan for the future.
Reorganized Debtor's Directors and Management: The initial board of
---------------------------------------------
directors of the Reorganized Debtor shall consist of 5 directors, who will be
selected prior to the commencement of the Confirmation Hearing by the directors
of ERLY existing as of the date on which this Plan is proposed. Ms. Nanette N.
Kelley, Baton Rouge, LA, will continue to serve as the Chairman and Chief
Executive Officer of the Reorganized Debtor and will serve as an initial
director on the Effective Date. Such initial board of directors shall be
appointed pursuant to the Confirmation Order, such appointment shall be deemed
ratified by the holders of Allowed Interests in the Reorganized Debtor, and the
board of directors shall be authorized to take such actions as may be necessary
to fully consummate the Plan. The initial board of directors for the
Reorganized Debtor shall call the first meeting of stockholders within 12 months
after the Effective Date or such earlier date as may be required by law. The
subsequent tenure and manner of selection of directors shall be as provided in
the charter and bylaws of the Reorganized Debtor.
LP: The LP will be established for purposes of liquidating certain of the
---
assets of the Debtors and Old Chemonics and distributing the proceeds on account
of Allowed Claims and LP Units. All assets of ERLY, WEI and Old Chemonics,
including, without limitation, Debtors' Actions, contract rights, insurance
proceeds and cash (save and except (a) NOLs, (b), NOL Carryovers, and (c) ERLY's
stock in WEI and other subsidiaries, and (d) those contracts needed to continue
operations involving the sublease and Terminal Service Agreement in connection
with WEI's Phoenix, AZ operations) will be vested in the LP. The property
vested in the LP will be deemed to be "property of the Estates" as that term is
used in the Bankruptcy Code. The LP will also be the assignee of the Assigned
Third Party Actions.
(a) The LP will be a Delaware or Texas limited partnership. The
Creditors who are holders of Units in the LP will be entitled to the net
cash flow of the LP as set forth in the LP Agreement. The LP will be
solely responsible for preparation of any tax returns, expenses of
preparation, and payment of any income or other taxes which the LP may be
required to pay under any applicable law and for Pre-Closing Tax Claims.
The LP will assume and be
Exhibit 2 to Joint Plan
========
responsible for the full and complete performance of all executory
contracts assumed by the Debtors at the Manager's request pursuant to this
Plan. The entry of the Confirmation Order shall constitute an Order
authorizing the assignment to and assumption by the LP of such executory
contracts.
(b) Scott Van Meter of Peterson Worldwide LLC will serve as the
initial Manager to be compensated under the standards and limitations
applicable to Chapter 7 trustees pursuant to 11 U.S.C. (S) 326. The Manager
shall be the disbursing agent under this Plan; however, the Debtors'
officers shall execute all documents and funds transfers requisite to
effect the required transfer of assets under this Plan to the LP. The
Manager shall execute and be covered by a Fidelity Bond with an approved
corporate surety licensed to issue surety bonds within the State of Texas
to insure the faithful performance of all of his duties in accordance with
same requirements as that of a Chapter 7 Trustee as required under the
Bankruptcy Code and by the United States Trustee for the Southern District
of Texas.
(c) The LP, and the Debtors' Claims Agent as to Claim objections, will
succeed to the rights of the Debtors with respect to all claims of legal
privilege, including attorney work product and attorney-client confidences.
To the extent that the Reorganized Debtor has continued operations, such
privileges will be joint as between the LP and the Reorganized Debtor.
(d) The Manager, together with the LP Committee, shall establish the
amounts of cash distributions to be made on account of LP Units.
Distributions to holders of LP Units of the same class shall be made on a
pro-rata basis. The Manager, together with the LP Committee, shall have
the power to expend funds otherwise available for distribution on account
of LP Units in order to fund prosecution of the Debtors' Actions, Assigned
Third Party Actions, fees and expenses of the LP, or liquidation or
realization of other assets of the LP.
(e) Pursuant to the terms and provisions of the Plan Documents, the
Manager shall be empowered to (i) take all steps and execute all
instruments and documents necessary to effectuate the Plan; (ii) make
distributions contemplated by the Plan; (iii) comply with the Plan and the
obligations thereunder; (iv) employ, retain, or replace professionals to
represent it with respect to its responsibilities; and (v) exercise such
other powers as may be vested in the Manager pursuant to order of the
Bankruptcy Court or pursuant to the Plan, or as the Manager deems to be
necessary and proper to carry out the provisions of the Plan.
(f) Pursuant to and subject to the terms and provisions of (and except
as may otherwise be provided in) the Plan Documents, the Manager shall have
the duties of: (i) carrying out the provisions of the Plan, which shall
include taking or not taking any action which the Manager deems to be in
furtherance of the Plan, including, from the date of the Manager's
appointment, making payments and conveyances and effecting other transfers
necessary in furtherance of the Plan; (ii) managing property to be
distributed in
Exhibit 2 to Joint Plan
========
a manner designed to effectuate the Plan; and (iii) making quarterly and
other periodic reports regarding the distributions to be made to the
holders of LP Units.
(g) Subject to the terms and provisions of the LP Agreement, the LP,
by and through the Manager, shall have the duty and authority to take all
actions take which are necessary to maximize the value of the property
vested in the LP for the benefit of the Debtors' Creditors, including, but
not limited to: (i) retaining professionals deemed to be necessary or
appropriate to carry out the functions of the LP; (ii) liquidating and
pursuing the Claims assigned to the LP, whether by litigation, settlement
or otherwise; (iii) asserting all rights to Debtors' Actions (including
modification of the automatic stay or injunctions to the extent necessary);
(iv) prosecuting the Assigned Third Party Actions (including modification
of the automatic stay or injunctions to the extent necessary); (v) making
distributions of LP Units to holders of Allowed Claims in consideration for
the assignment to the LP of such holders' Claims; (vii) perform under any
Executory Contract or Unexpired Lease assumed by the Debtors and assigned
to the LP at the Manager's request; and (viii) intervening, filing cross-
claims or third-party claims, or otherwise participating in claims
objections or estimation proceedings brought by the Debtors' Claims Agent.
In discharging its powers and duties, the LP will be deemed to be the duly
appointed, authorized representative of the Estates to pursue the assigned
rights, claims, causes of action and other property interests for the
benefit of the Creditors of the Debtors pursuant to 1123(b)(3), Bankruptcy
Code.
(h) The LP shall allocate the net proceeds of Assigned Third Party
Recoveries to the holders of Partnership B Units. All other net proceeds
of property vested in the LP (including but not limited to proceeds of
Debtors' Actions Recoveries) shall be allocated by the LP to the holders of
Partnership A Units. All proceeds attributable both to Debtors' Actions
Recoveries and Assigned Third Party Recoveries shall be allocated between
the holders of Partnership A Units and Partnership B Units in a manner
determined by the LP Committee, in their reasonable discretion. The LP
shall file a "Notice of Allocation" to be filed with the Bankruptcy Court,
and shall provide the holders of the LP Units with a 20-day "negative
notice" period to object to any such allocation. The failure of any holder
of an LP Unit to timely file an objection to the allocation shall
constitute ratification of the allocation by the LP.
(i) The LP shall allocate the expenses attributable to prosecution of
Assigned Third Party Actions to the holders of Partnership B Units and
shall deduct such expenses from distributions, if any, to the holders of
Partnership B Units. This allocation shall be included in the "Notice of
Allocation" described in the preceding paragraph.
Debtors' Claims Agent: The Debtors' Claims Agent shall succeed to the
---------------------
rights and duties of the Debtors to determine the amount of Allowed Claims by
(i) filing and prosecuting objections thereto, (ii) seeking subordination of
Claims, (iii) estimating Disputed Claims, unliquidated Claims, or portions of
Claims which are unliquidated. The Debtors' Claims Agent shall have the power
and authority to take whatever actions are deemed necessary and proper in
carrying out the functions granted pursuant to this Plan. The fees and expenses
of the Debtors'
Exhibit 2 to Joint Plan
========
Claims Agent shall be paid from the LP as an expense of administration and shall
not exceed $30,000, exclusive of legal counsel and other professionals retained
thereby. Effective upon the entry of the Confirmation Order, the Reorganized
Debtor shall have no responsibility for objecting to Claims, same having been
assigned to the Debtors' Claims Agent.
Sale of Certain Collateral: Unless the Court orders otherwise as is
--------------------------
provided in this paragraph, or unless the Collateral is surrendered to the
holders of Allowed Secured Claims in full and final satisfaction as provided
herein above, the Manager shall have the right to sell property which is
collateral for an Allowed Secured Claim at or subsequent to Confirmation, free
and clear of all liens, claims and encumbrances, with the net proceeds to be
paid to the Secured Creditors to the extent their respective interests may
appear. In order to effect such sale, the Manager shall deliver a copy of the
executed written agreement of sale at least 7 business days prior to the closing
of such sale only to the Secured Creditor(s) whose collateral is to be sold. In
the event such Creditor opposes the sale the Creditor shall, within 7 business
days of receipt of such written agreement, file with the Bankruptcy Court and
deliver to both the Manager and the Committee's Counsel a written objection
thereto. In the event that the Creditor timely complies with the requirement to
file and deliver such objection, the Bankruptcy Court shall hold a hearing on
such objection and the sole issue to be determined will be whether terms of sale
and amount to be paid are fair and reasonable under the circumstances. Failure
to so timely comply with the requirement to file and deliver such objection
shall constitute a bar to any relief to such Creditor, and the Bankruptcy Court
shall deny such objection and Order the sale to be had, free and clear of liens,
claims and encumbrances, with such liens, claims and encumbrances to attach to
the net proceeds of Sale. In the event the Bankruptcy Court determines the
proposed sale is fair and reasonable under the circumstances, the Bankruptcy
Court shall cause an Order to be entered ordering the property to be sold free
and clear of liens, claims and encumbrances, with any such liens claims and
encumbrances (including those disputed) to attach to the net proceeds. Upon
sale of such property, payment of the net proceeds to such Creditor or paid in
trust pending resolution of the Disputed Claim as provided herein, the unpaid
principal balance of the amount paid to such Creditor or in trust shall be
reduced by the amount of the net proceeds the unpaid principal balance shall be
reamortized to reflect such credit and the payments shall be reduced
accordingly. In such event, the Manager shall deliver to Creditor a modified
promissory note and Creditor shall return to Manager any promissory note
previously delivered to such Creditor pursuant to the terms of this Plan.
Transfer of Certain Property: To the extent applicable, the Manager may
----------------------------
request, under separate motion, that the Court determine the value of the
Allowed Secured and Unsecured Claims of certain lienholders pursuant to (S)
506(a), Bankruptcy Code and Bankruptcy Rule 3012. After such determination, on
the Closing Date or Final Order of such determination, which ever shall be the
last to occur, the Estates may transfer so much of the collateral to respective
lienholders as in the sole discretion of the Manager may be required to satisfy
Secured Claims or restructure lienholder indebtedness as is provided above in
"Provisions for Satisfactions of Claims". Nothing contained in this paragraph
shall constitute a waiver of the Manager's right to designate such property as
payment of a Disputed Claim to be held in trust as provided herein. Upon
transfer of such property, whether in trust pending resolution of the Disputed
Claim, or otherwise, the unpaid principal balance of the amount to be paid to
such Creditor shall be
Exhibit 2 to Joint Plan
========
reduced by the value of the property to be transferred, and the unpaid principal
balance shall be reamortized to reflect such credit, and the payments shall be
reduced accordingly. In such event, the Manager shall deliver to Creditor a
modified promissory note and Creditor shall return to Manager any promissory
note previously delivered to such Creditor pursuant to the terms of this Plan.
Closing: The Debtors, the Manager and all Creditors and parties in interest
-------
required to execute releases, termination statements, assignments, deeds, bills
of sale or other documents required for the Closing shall be ordered and
directed to effect the Closing on the Closing Date. The ownership interests in
the LP shall be allocated to Class 9, 10, 11 and 12 Claimants without the
necessity of the execution of any document by any such Claimant. Failure of any
party to execute a required document necessary for the closing shall constitute
a contempt of the Court's Confirmation Order, which shall require such documents
to be executed in accordance with the terms of the Plan and the Confirmation
Order. If parties cannot agree on the form of a particular document required by
the Plan, then such matter shall be brought to the attention of the Court for
its consideration.
Disputed Claims:
---------------
(a) Establishment of Disputed Claims Reserve. Notwithstanding any
----------------------------------------
other provision of this Plan, no assets or property shall be distributed
under this Plan on account of any Disputed Claim. For all Disputed Claims,
the Manager shall establish and hold, in trust, reserves (each such reserve
being herein called a "Disputed Claims Reserve") with respect to each Class
-----------------------
1, 2, 3, 4 or 5 Claim for which there exists a Disputed Claim, and the
Manager shall place in each Disputed Claims Reserve the assets and property
to be distributed on account of such Disputed Claims pursuant to this Plan,
pending Allowance or Disallowance of such Claim. Pending Final Order
concerning a Disputed Claim, the Manager shall pay into the Disputed Claims
Reserve all payments provided for under this Plan pursuant to any Allowed
Claim which would have been required to be delivered to the Claimant absent
a Disputed Claim. Cash held in any Disputed Claims Reserve shall be held
in a segregated interest-bearing trust account. To the extent practicable,
the Manager may invest the Cash in any Disputed Claims Reserve in a manner
that will yield a reasonable net return, taking into account the safety of
the investment.
(b) Determination of Disputed Claims Reserve. The Bankruptcy Court
----------------------------------------
may, before Confirmation, determine for each Class 1, 2, 3, 4 or 5 Claim
the amount of assets and property sufficient to fund each Disputed Claims
Reserve established with respect to any such class. The Bankruptcy Court
may estimate and determine by an Estimation Order the Estimated Amount of
Claims in each Class for which a Disputed Claims Reserve has been
established. Any Claimant holding a Disputed Claim so estimated will have
recourse only to undistributed assets and property in the Disputed Claims
Reserve for the Class in which such Disputed Claim has been placed and not
to the Manager or any other LP assets or property, should the Allowed Claim
of such Claimant, as finally determined by a Final Order, exceed such
Estimated Amount.
Exhibit 2 to Joint Plan
========
(c) Return of Assets. Except as otherwise provided herein, all assets
----------------
and properties (and all interest payments and dividends previously paid in
connection therewith) in any Disputed Claims Reserve for any Class of
Claims remaining after the resolution of all disputes relating thereto
shall be returned to the LP for distribution in accordance with this Plan.
(d) Withholding of Taxes. The Manager as the disbursing agent shall
--------------------
withhold from any assets and property distributed under this Plan any
assets and or property which must be withheld for federal, state and local
taxes payable by the Entity entitled to such property to the extent
required by applicable law.
Estimated Claims:
----------------
(a) Except as otherwise provided herein, upon motion of the Debtors'
Claims Agent, the Court may estimate for purposes of allowance pursuant to
(S) 502(c), Bankruptcy Code, (i) any Disputed Claim or unliquidated Claim,
or (ii) any portion or part of an Claim that is, itself, unliquidated.
(b) The Debtors' Claims Agent shall, on or before 120 days following
the Effective Date (unless an extension of such period is requested by the
Claim Agent), file separate motions to estimate the amounts of Debt
Securities Laws Claims and Equity Securities Laws Claims against the
Debtors for all purposes, including, but not limited to, distribution
pursuant to (S) 502(c), Bankruptcy Code. The Debtors' Claims Agent will
provide notice of the estimation proceeding to parties holding a Debt
Securities Laws Claim or Equity Securities Laws Claim (as the case may be)
or their assigns, the Manager, and any Entity who has issued an Insurance
Policy to the Debtors pertaining to such Claim. Any determination by the
Bankruptcy Court in connection with this estimation proceeding shall be
binding on all parties who have received notice thereof. The Bankruptcy
Court will hold a final hearing within 45 days of the filing of any motion
pursuant to this paragraph.
Unclaimed Property: Any LP Units, cash, or other assets and property to be
------------------
distributed under this Plan, which remain unclaimed or otherwise not deliverable
to the Entity entitled thereto before the later of: (i) two (2) years after the
----- --
Confirmation Date or (ii) sixty (60) calendar days after an Order allowing such
Person's Claim becomes a Final Order, shall become vested in, and shall become
the property of the LP. In such event, such Person's Claim shall no longer be
deemed to be "Allowed" and such Entity shall be deemed to have no further Claim
-------
in respect of such distribution and shall not participate in any further
distributions under this Plan.
Exoneration and Reliance: Provided that the Debtors and the Committee and
------------------------
their respective attorneys, accountants and other Professional Persons employed
in the Proceedings act in good faith, they shall not be liable to any Claimant
or other party with respect to any action, forbearance from action, decision, or
exercise of discretion taken during the period from the Petition Date to the
Effective Date in connection with: (1) the operation of Debtors; (2) the
Exhibit 2 to Joint Plan
========
implementation of any of the transactions or actions provided for, or
contemplated in, this Plan or the Plan Documents; or (3) the administration of
this Plan or the assets and property to be distributed pursuant to this Plan and
the Plan Documents other than for willful misconduct or gross negligence.
Debtors and the Committee, and their respective affiliates, officers, directors,
shareholders, members, representatives, attorneys, financial advisors, and
agents may rely upon the opinions of counsel, independent public accountants,
appraisers and other experts or professionals employed by Debtors and the
Committee, if any, respectively, and such reliance shall conclusively establish
good faith. In any action, suit or proceeding by any Claimant or other party in
interest contesting any action by, or non-action of, Debtors and/or the
Committee, or their respective affiliates, officers, directors, shareholders,
members, representatives, attorneys, financial advisors, independent public
accountants, appraisers, and agents as not being in good faith, the reasonable
attorneys' fees and costs of the prevailing party shall be paid by the losing
party, and as a condition to going forward with such action, suit, or proceeding
at the outset thereof, all plaintiffs thereto shall be required to provide
appropriate proof and assurances of their capacity to make such payments of
reasonable attorneys' fees and costs in the event they fail to prevail.
Form of Payments: Cash Payment(s) to be made by the Manager pursuant to
----------------
this Plan shall be made in Cash or by check drawn on a domestic bank or by wire
transfer from a domestic bank.
Manager Exculpation: The Debtors' Claims Agent, the Manager, the LP, and
-------------------
the members of the LP Committee, and all professionals retained thereby, from
and after the Effective Date, are hereby exculpated by all Entities, holders of
Claims and Interests, and parties in interest receiving distributions under the
Plan, from any and all claims, causes of action, and other assertions of
liability (including breach of fiduciary duty) arising out of their discharge of
the powers and duties conferred upon them by the Plan or any order of the
Bankruptcy Court entered pursuant to or in furtherance of the Plan, or
applicable law, except solely for actions or omissions arising out of their
gross negligence or willful misconduct. No current holder of a Claim or an
Interest, or representative thereof, shall have or pursue any claim or cause of
action (1) against the Manager or such professional for making payments in
accordance with the Plan, or in furtherance of the LP Agreement or for
implementing the provisions of the Plan or the LP Agreement; or (2) against any
holder of a Claim for receiving or retaining payments or other distributions as
provided for by the Plan.
Further Authorizations: Debtors, or the Manager, as the case may be, if and
----------------------
to the extent necessary, shall seek such orders, judgments, injunctions, and
rulings that may be required to carry out further the intentions and purposes,
and give full effect to the provisions of this Plan.
Assignment of Causes of Action by Creditors:
-------------------------------------------
(a) On the Effective Date, the Indenture Trustee, unless it has made
the Non-Assignment Election (defined herein) shall be deemed to have
assigned to the LP any claims or causes of action the Indenture Trustee may
hold on its own behalf, including all rights to enforce the provisions of
such indentures and all claims and causes of action that are vested in the
Exhibit 2 to Joint Plan
========
Indenture Trustee pursuant to the terms of the Indenture (other than claims
for fees and expenses and claims for indemnity held by Indenture Trustee,
against a predecessor Indenture Trustee) against any Persons or Entities,
including, but not limited to, the Debtors, their current or former
directors, officers, and professionals, or other third parties, including,
but not limited to, financial institutions and third party professionals
relating to the Indenture Trustee's activities pursuant to the Indenture.
Notwithstanding the foregoing, the Indenture Trustee shall not have been
deemed to have assigned to the LP its right or power to determine the
subordination or priority of the Claim of holders of securities under the
Indenture vis-a-vis Senior Indebtedness (as defined in the Indenture).
(b) On the Effective Date, unless they have made a Non-Assignment
Election (defined herein), as specified in section (c) below, holders of
Class 9, 10, 11 and 12 Claims shall be deemed to have assigned to the LP
the Assigned Third Party Actions.
(c) On the later of the (i) Effective Date or (ii) the date on which
the holder of a Disputed Claim in Class 9, 10, 11 or 12 becomes the holder
of an Allowed Claim in such Class, such holder shall be deemed to have
assigned any claim against the Debtors or their Estates to the LP in
consideration of such holder's receipt of its Pro Rata share of the LP
Units as provided under this Plan. The LP shall succeed to the rights of
the holder of such Claim upon such assignment, including the right (but not
the obligation) to object to Claims. Notwithstanding the foregoing,
subject to making a Non-Assignment Election, holders of Debt Securities
Laws Claims against the Debtor shall be deemed to have assigned any and all
such Claims to the LP on the Effective Date.
(d) Holders of Class 9, 10, 11 and 12 Claims may elect not to have
such causes of action assigned to the LP (such election being referred to
as the "Non-Assignment Election") by written notice contained in the Ballot
and served on the Proponents on or before the Voting Deadline. A Non-
Assignment Election shall apply to all classes of Claims applicable to such
holder. Holders making a Non-Assignment Election shall waive all right to
receive any their Pro-Rata portion of the Assigned Third Party Recoveries
and will, therefore, receive no Partnership B Units on account of their
Allowed Claims.
Corporate Action: On the Effective Date, all actions contemplated hereby
----------------
are deemed to be authorized and approved in all respects (subject to the
provisions of this Plan). All matters provided for herein involving the
structure of the LP or the Reorganized Debtor in connection with this Plan shall
be deemed to have occurred and shall be in effect, without any requirement of
further action by the Interestholders, officers or directors of the Debtors or
the Reorganized Debtor. On or as soon as practicable after the Effective Date,
the appropriate officers of Reorganized Debtor and the Manager are authorized to
issue, execute and deliver the agreements, documents, securities and instruments
contemplated hereby in the name and on behalf of the Reorganized Debtor.
Effectiveness of Securities, Instruments and Agreement: On the Effective
------------------------------------------------------
Date, all securities, instruments, assignments, documents and agreements
authorized, issued or entered
Exhibit 2 to Joint Plan
========
into pursuant to this Plan, including, without limitation, the LP Units, shall
become effective, legally binding and enforceable on the parties thereto in
accordance with their respective terms and conditions without the requirement of
any further action by the Interestholders, holders of Claims, officers or
directors of the Debtor or the Reorganized Debtor, and shall be deemed to become
effective simultaneously.
Distributions to Unsecured Creditors Pursuant to the Plan:
---------------------------------------------------------
(a) Holders of Claims which were reduced to judgment as of the ERLY
Petition Date shall receive their LP Units in consideration for (i) the
distributions set forth in the Plan; and (ii) the assignment and/or
transfer of the Debtors' property to the LP. All other Allowed Unsecured
Claims shall be transferred to the LP in consideration of (i) the
distributions set forth in this Plan, and (ii) the assignment and/or
transfer of the Debtors' property to the LP. Distributions under the Plan
shall incorporate and implement any orders, compromises, and settlements
with respect to, or between and among, the holders of Allowed Claims,
including the allocation of distributions in respect of Allowed Claims
(such as the distribution of any amount otherwise due to a holder of an
Allowed Claims to another holder of an Allowed Claim which has a right to
benefit from a subordination agreement).
(b) Initial Distributions: On or as soon as practicable after the
Effective Date, the LP, subject to the conditions set forth in this Plan,
shall make the distributions provided under this Plan to holders of Allowed
Priority Tax Claims and Allowed Non-Priority Tax Claims, subject to
establishment of a Disputed Claims Reserve as to Disputed Claims in such
classes. The LP shall further allocate on the records of the LP Units to
holders of Allowed Class 9, 10, 11 and 12 Claims; provided that, for
--------
purposes of distributions in respect of Allowed Class 9, 10, 11 and 12
Claims, it shall be presumed that Disputed Claims will be Allowed at their
face amount, with the result that a portion of the LP Units available for
distribution will be held in escrow by the Transitional Limited Partner (as
defined in the LP Agreement) until the allowance of Disputed Claims are
determined by Final Order.
(c) Subsequent Distributions: All LP Units that are not distributed
by the LP on or promptly after the Effective Date shall be held in escrow
by the Transitional Limited Partner (as defined in the LP Agreement)
pending distribution pursuant to the provisions of this Plan. Promptly
after any Disputed Claim in Class 9, 10, 11 or 12 becomes an Allowed Claim,
the LP shall cause to be distributed to the holder of such Allowed Claim
the LP Units that such holder would have been entitled to receive under the
Plan if such Claim had been an Allowed Claim on the Effective Date.
Promptly after any Disputed Claims in Class 9, 10, 11 or 12 become
disallowed pursuant to Final Order, the LP shall cause to be distributed to
the holders of Allowed Claims the LP Units (in excess of those already
distributed) that such holders would have been entitled to receive under
the Plan if such Claim had been disallowed on the Effective Date.
(d) Distribution of Fractional LP Units: The distribution of shares
of LP
Exhibit 2 to Joint Plan
========
Units as provided herein, may mathematically entitle the holder of an
Allowed Class 9, 10, 11 or 12 Claim to a fractional Unit. Fractional
distributions shall be rounded to the nearest fifth decimal (i.e. X.XXXXX
Units).
(e) Distributions of Partnership B Units: No holder of an Allowed
Class 9, 10 or 11 Claim shall be entitled to receive a distribution of the
Partnership B Units unless such holder (i) is a holder of an Allowed Claim
on the Record Date, (ii) has not made the Non-Assignment Election, (iii) as
of the Record Date, has not transferred or otherwise hypothecated those
claims to be assigned to the LP, and (iv) has executed and returned to the
Indenture Trustee or Manager, if applicable, an affirmation or, if such
holder is a holder of a Allowed Class 10 Claim, a letter of transmittal
verifying that such holder has not transferred or otherwise hypothecated
those claims to be assigned to the LP.
Distributions to Allowed Class 10 Claims:
----------------------------------------
(a) Service of Indenture Trustee: For convenience in administration
of distributions under the Plan, the Manager may designate the Indenture
Trustee to make distributions, or, with the consent of the Indenture
Trustee, designate a third party to serve in lieu of the Indenture Trustee
for purposes of effecting distributions to holders of Allowed Class 10
Claims and in any such event (except where the context otherwise requires),
any reference in this Plan to "Indenture Trustee" in respect of Allowed
Class 10 Claims shall instead be deemed to refer to such third party so
designated. To the extent any disbursing agent is not so designated with
respect to Allowed Class 10 Claims, the Indenture Trustee shall enter into
a Disbursing Agreement specifying the terms and conditions under which such
Indenture Trustee is to make distributions on account of Allowed Class 10
Claims under the Plan.
(b) Record Date for Holders of Allowed Class 10 Claims: The Record
Date shall be the date for determining the holders of Allowed Class 10
Claims entitled to receive the distributions provided under the Plan. As
of the close of business on the Record Date for purposes of distribution,
the transfer ledgers in respect of the securities issued pursuant to the
Indenture shall be closed. The Manager and the Indenture Trustee, or their
agents, shall have no obligation to recognize any transfer of an Allowed
Class 10 Claim occurring after the Record Date. The Manager and the
Indenture Trustee, and their agents, shall be entitled instead to recognize
and deal for all purposes herein with only those holders of record stated
on the transfer ledgers maintained by the Indenture Trustee or their agents
for the securities issued pursuant to the Indenture as of the close of
business on the Record Date.
(c) Condition to Distribution to Holders of Allowed Class 10 Claims:
As a condition to receiving distributions provided for by the Plan in
respect of Allowed Class 10 Claims, any holder of an Allowed Class 10 Claim
shall be required to surrender such securities to the Indenture Trustee.
All instruments surrendered to the Indenture Trustee shall be marked
"Compromised and Settled Only as provided in the Plan of Reorganization for
ERLY Industries, Inc." and delivered to the Manager. Unless waived
Exhibit 2 to Joint Plan
========
by the Indenture Trustee, any Entity seeking the benefits of being a holder
of an Allowed Class 10 Claim who is unable to surrender the actual
instrument to the Indenture Trustee, if the Indenture Trustee shall so
require, shall supply to the Indenture Trustee an appropriate indemnity
bond acceptable to the Indenture Trustee holding harmless the Manager and
the Indenture Trustee from any damages, liabilities, or costs incurred in
treating such Entity as a holder of such Allowed Class 10 Claim, together
with appropriate evidence satisfactory to the Indenture Trustee of the
destruction, loss, or theft of such security. Thereafter, such Entity shall
be treated as the holder of an Allowed Class 10 Claim for all purposes of
the Plan. On the Confirmation Date, all outstanding securities issued
pursuant to the Indenture shall be canceled on the books of the Reorganized
Debtor and become settled and compromised solely as provided herein in
consideration for the right to participate in distributions provided by the
Plan.
(d) Indenture Trustee Expenses: Except as otherwise agreed to by the
LP, the amount of any reasonable fees and expenses incurred by the
Indenture Trustee on or after the Effective Date (including, but not
limited to, taxes) and any expense reimbursement claims made by the
Indenture Trustee for expenses incurred on or after the Effective Date, may
be paid by the Indenture Trustee from funds distributed by the LP to the
Indenture Trustee, if any, in respect of distributions to holders of
Allowed Class 10 Claims.
ARTICLE VIII
------------
EFFECT OF CONFIRMATION
----------------------
Binding Effect: Except as provided in subsections (S)(S)1141(d)(2) and
--------------
(d)(3), Bankruptcy Code, the provisions of this Confirmed Plan bind the Debtors,
the Committee, the Manager, any entity acquiring property under the Plan, and
any Creditor; Interestholder, or Affiliate of the Debtors, whether or not the
Claim or Interest of such Creditor, or Interestholder is impaired under the Plan
and whether or not such Creditor, Affiliate or Interestholder has accepted the
Plan.
Vesting of Property: Except as otherwise provided in the Plan (and
-------------------
specifically subject to the assignment and transfer of property to the LP as
provided in this Plan), effective upon entry of the Confirmation Order, the
Reorganized Debtor shall be vested with all of its assets and property and may
operate its business free of any restrictions imposed by the Bankruptcy Code or
by any Claimant, Creditor or the LP, save and except the Allowed Interestholders
of ERLY.
Debtors' Property Subsequent to Confirmation: Except as provided in
--------------------------------------------
subsections (S)(S)1141(d)(2) and (d)(3), Bankruptcy Code, or in this Plan, after
Confirmation of the Plan, the property dealt with by the Plan is free and clear
of all claims and interests of Creditors, Interestholders, and of any Affiliate
of the Debtors.
Discharge and Release of Claims: Except as otherwise provided in this Plan,
-------------------------------
the entry of the Confirmation Order will act as a full and complete discharge of
all Claims against Debtors
Exhibit 2 to Joint Plan
========
of any nature whatsoever, including, without limitation, any liability of a kind
specified in (S)(S) 502(g), 502(h) or 502(i), Bankruptcy Code, that arose, or
has been asserted against, Debtors at any time before the entry of the
Confirmation Order or that arises from any pre-Confirmation conduct of Debtors
whether or not the Claim is known to or knowable by the Claimant. The discharge
of Debtors will become effective as to each Claim, whether or not a proof of
claim was filed on account of such Claim, whether or not the Claim constituted
an Allowed Claim and whether or not the holder of the Claim voted to accept this
Plan. In addition, the entry of the Confirmation Order will operate as a general
resolution with prejudice, as of the Confirmation Date, of all pending legal
proceedings against Debtors and their assets and properties as well as any
proceedings not yet instituted against Debtors or their assets and properties,
except as otherwise provided in this Plan. As provided in (S) 524, Bankruptcy
Code, the discharge herein provided operates as an injunction against the
prosecution of any Claim so discharged.
No Liability for Tax Claims: Unless a Governmental Unit has asserted a
---------------------------
Claim against Debtors before the appropriate Bar Date established therefor, no
Claim of such Governmental Unit will be Allowed against the Debtors or will be
paid by the LP for taxes, penalties or interest arising out of the failure, if
any, of Debtors to have filed any tax return, including, but not limited to, any
income tax return or franchise tax return in any prior year or arising out of an
audit of any return for a period before the Petition Date.
Injunction: Except as otherwise expressly provided or permitted in this
----------
Plan, the Confirmation Order will provide that all entities who have held, hold
or may hold a Claim are permanently enjoined on or after the Confirmation Date
from: (1) making demand on, commencing, or continuing in any manner any action
or other proceeding of any kind with respect to any such Claim against the
Debtors, the Reorganized Debtor or the LP; (2) the enforcement, attachment,
collection or recovery by any manner or means of any judgment, award, decree or
order against the Debtors, the Reorganized Debtor or the LP with respect to such
Claim; (3) creating, perfecting or enforcing any Lien, Security Interest or
encumbrance of any kind against the Debtors, the Reorganized Debtor or the LP
with respect to such Claim; (4) asserting any setoff, right of subrogation or
recoupment of any kind against any obligation due Debtors, the Reorganized
Debtor, any entity which has issued an Insurance Policy to the Debtors, or
against the property of the Debtors with respect to such Claim; (5) any act, in
any manner, that does not conform to or comply with the provisions of this Plan
or the Plan Documents; and (6) making demand on, commencing, enforcing, or
continuing in any manner any action or proceeding against any Entity, including
but not limited to the Debtors' officers, directors, Affiliates, or companies
which have issued an Insurance Policy to the Debtors, with respect to any claim
or cause of action which is property of one or more of the Estates (as defined
under (S) 541, Bankruptcy Code). The Confirmation Order will further provide
that all Entities who have not made the Non-Assignment Election are permanently
enjoined on or after the Confirmation Date from making demand on, commencing, or
continuing in any manner any action or proceeding against any party, including
but not limited to the Debtors' officers, directors, Affiliates, or companies
which have issued an Insurance Policy to the Debtors, with respect to any
Assigned Third Party Action. Provided, however, that such injunction shall not
impair the rights of the LP to prosecute any Debtors Action or any Assigned
Third Party Action.
Term of Injunctions or Continuation of Automatic Stay: Notwithstanding any
-----------------------------------------------------
provision in (S) 362, Bankruptcy Code, unless otherwise provided in this Plan or
by Order of the Bankruptcy Court, all injunctions or automatic stays provided
for in the Proceedings pursuant to
Exhibit 2 to Joint Plan
========
(S)(S) 105 or 362, Bankruptcy Code, or otherwise, and in existence on the
Confirmation Date shall be continued and shall remain in full force and effect
until Consummation of the Plan.
Cancellation of Indenture: On the Effective Date, the securities issued
-------------------------
pursuant to the Indenture shall, except as provided in the Plan, be deemed
cancelled, terminated, and of no further force or effect. The cancellation of
the respective securities issued pursuant to the Indenture and surrender of
instruments pursuant to this Plan shall extinguish the right of any holder of
Allowed Class 10 Claim to commence any course of action against any Entity for
principal and interest.
Discharge of Indenture Trustee: Subsequent to the performance of the
------------------------------
Indenture Trustee or its agents required under the provisions of the Plan and
Confirmation Order and under the terms of the Indenture, the Indenture Trustee
and its agent shall be relieved of all obligations associated with the
Indenture.
ARTICLE IX
----------
RETENTION OF JURISDICTION
-------------------------
Jurisdiction: Until the Proceedings are closed, the Bankruptcy Court shall
------------
retain the fullest and most extensive jurisdiction that is permissible,
including that necessary to ensure that the purposes and intent of this Plan are
carried out and to hear and determine all Claims that could have been brought
before the entry of the Confirmation Order. Except as otherwise provided in this
Plan, the Bankruptcy Court shall retain jurisdiction to hear and determine all
Claims against Debtors and to adjudicate and enforce the Debtors' Actions, the
Assigned Third Party Actions and all other causes of action which may exist on
behalf of Debtors as they may be vested in the LP.
General Retention: Following the Confirmation of this Plan, the Bankruptcy
-----------------
Court shall further retain jurisdiction for the purpose of classification of any
Claim of any Claimant and the re-examination of Claims which have been Allowed
for purposes of voting, and the determination of such objections as may be filed
with the Bankruptcy Court against any Claim of any Claimant. The failure by
Debtors to object to, or examine, any Claim for the purposes of voting, shall
not be deemed a waiver of the right of Debtors or the LP to object to, or re-
examine, such Claim, in whole or part.
Specific Purposes: In addition to the foregoing, the Bankruptcy Court
-----------------
shall, without limitation, retain jurisdiction for the following specific
purposes after the Confirmation of this Plan:
(a) to modify this Plan or any of the Plan Documents after
Confirmation pursuant to the Bankruptcy Rules and the Bankruptcy Code;
(b) to assure the performance by Debtors, the LP and the Manager of
their
Exhibit 2 to Joint Plan
========
respective obligations to make distributions under this Plan and the Plan
Documents;
(c) to enforce and interpret the terms and conditions of this Plan and
the Plan Documents, including the appointment of members of the LP
Committee or any successors to such members, the Debtors' Claims Agent, or
the Manager;
(d) to enter such orders, including injunctions, as are necessary to
enforce the title, rights, and powers of Debtors, the Debtors' Claims
Agent, or the LP without limitation, and orders authorizing or directing
amendments, extensions or waivers of the terms of the Plan Documents, and
to impose such limitations, restrictions, terms, and conditions on such
title, rights, and powers as the Bankruptcy Court may deem necessary;
(e) to enter an order concluding and terminating the Proceedings;
(f) to correct any defect, cure any omission, or reconcile any
inconsistency in this Plan, the Plan Documents, or the Confirmation Order
as may be necessary, consistent with the requirements of the Bankruptcy
Code and Bankruptcy Rules to carry out the purposes and intent of this
Plan, including the adjustment of the date(s) of performance under this
Plan, the Plan Documents, and any other documents related thereto in the
event the Effective Date does not occur as provided herein, so that the
intended effect of this Plan, the Plan Documents, and such other documents
may be substantially realized thereby;
(g) to decide issues concerning federal tax reporting and withholding
which arise in connection with the Confirmation or Consummation of this
Plan;
(h) to hear and determine all Debtors' Actions and Assigned Third
Party Actions and collect, compromise, discharge, and/or release all
Debtors' Actions and Assigned Third Party Actions and grant such other
relief as may be appropriate thereto;
(i) to enforce and interpret the terms and conditions of the Plan
Documents;
(j) to approve all Fee Claims;
(k) to hear and determine any causes of action arising prior to the
Effective Date or thereafter or in any way related to this Plan or the
transactions contemplated hereby against Debtors and/or the Committee, and
their respective officers, directors, shareholders, members, partners,
attorneys, financial advisors, representatives, and agents;
(l) to determine any and all applications pending on Confirmation for
the rejection, assumption or assignment of Executory Contracts or Unexpired
Leases and the allowance of any Claim resulting therefrom;
(m) to determine such other matters and for such other purposes as may
be
Exhibit 2 to Joint Plan
========
provided in the Confirmation Order;
(n) to determine all questions and disputes regarding title to the
assets of Debtors, their Estates, or the LP.
(o) to adjudicate the exercise of the discretionary power vested in
the Debtors' Claims Agent, the LP, or the Manager under this Plan,
including but not limited to the allocation of the LP's income between
Assigned Third Party Recoveries and Debtors' Actions Recoveries;
(p) to hear and determine any and all adversary proceedings,
applications, and contested matters, including any remands of appeals;
(q) to ensure that distributions to holders of Allowed Claims are
accomplished as provided herein;
(r) to hear and determine any timely objections to or applications
concerning Claims or the allowance, classification, priority, compromise,
estimation, or payment of any Administrative Claim, Claim, or Interest;
(s) to enter and implement such orders as may be necessary or
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified, reversed, or vacated;
(t) to enter and implement such orders as may be necessary or
appropriate to execute, interpret, implement, consummate, or enforce the
Plan and the transactions contemplated thereunder;
(u) to recover all assets of the Debtors, the LP and property of the
Estates and the LP, wherever located;
(v) to hear and determine matters concerning state, local, and federal
taxes in accordance with (S)(S) 346, 505, and 1146, Bankruptcy Code;
(w) to determine the scope and extent of property of the Debtor's
Estates as such property may be vested in the LP;
(x) to issue appropriate injunctions to protect, or preserve property
of the Debtor's Estates for the benefit of the LP; and
(y) to issue Estimation Orders and hear actions initiated by the
Debtors' Claims Agent.
Failure of the Bankruptcy Court to Exercise Jurisdiction: If the Bankruptcy
--------------------------------------------------------
Court abstains from exercising, or declines to exercise, jurisdiction or is
otherwise without jurisdiction
Exhibit 2 to Joint Plan
========
over any matter arising in, arising under, or related to the Proceedings,
including the matters set forth in this Article IX, this Article IX shall have
no effect upon and shall not control, prohibit, or limit the exercise of
jurisdiction by any other court having jurisdiction with respect to such matter.
In the event that the Bankruptcy Court or District Court fail to exercise or
abstain from exercising jurisdiction, then the matter will be tried before the
courts of the State of Texas, Nueces County, and venue for all purposes shall be
in State of Texas, Nueces County.
ARTICLE X
---------
CONDITIONS PRECEDENT TO CONFIRMATION AND EFFECTIVENESS
------------------------------------------------------
Conditions to Confirmation: Confirmation of this Plan shall not occur
--------------------------
unless each of the following conditions has occurred or has been waived in a
writing executed by Debtors and the Committee:
a. Confirmation Order: The Confirmation Order, in form and substance
------------------
acceptable to Debtors and the Committee, shall have been entered by the
Bankruptcy Court.
b. U.S. Trustee's Fees: The fees of the United States Trustee then
-------------------
owing by Debtors shall have been paid in full.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
Revocation of Plan: Debtors and the Committee jointly reserve the right to
------------------
revoke and withdraw this Plan before the entry of the Confirmation Order. If
Debtors and the Committee revokes or withdraws this Plan, or if Confirmation of
this Plan does not occur, then this Plan shall be deemed null and void and
nothing contained herein shall be deemed to constitute a waiver or release of
any Claims by or against Debtors, the Committee or any other Entity, or to
prejudice in any manner the rights of Debtors, the Committee or any other
Entity, in any further proceedings involving Debtors.
Headings: Headings are utilized in this Plan for convenience and reference
--------
only, and shall not constitute a part of this Plan for any other purpose.
Due Authorization by Claimants: Each and every Claimant who elects to
------------------------------
participate in the distributions provided for herein warrants that Claimant is
the duly authorized holder of such Claim and has not transferred such Claim,
that Claimant is authorized to accept, in consideration of its Claim against
Debtors, the distributions provided for in this Plan, and that there are no
outstanding commitments, agreements, or understandings, express or implied, that
may or can in any way defeat or modify the rights conveyed, or obligations
undertaken, by such Claimant
Exhibit 2 to Joint Plan
========
under this Plan.
Payment or Distribution Dates: Whenever any payment or distribution to
-----------------------------
be made under this Plan shall be due on a day otherthan a Business Day, such
payment or distribution shall, instead, be made, without interest, on the next
Business Day thereafter.
Modification of Payment Terms: Debtors and the Committee reserve the right
-----------------------------
to modify the treatment of any Allowed Claim, as provided in (S) 1123(a)(4),
Bankruptcy Code, at any time after the Effective Date upon the consent of the
Committee and the Claimant whose Allowed Claim treatment is being modified.
Entire Agreement: This Plan, as described herein and in the Disclosure
----------------
Statement and Exhibits and Annexes hereto and thereto, sets forth the entire
agreement and understanding among the parties hereto relating to the subject
matter hereof and supersedes all prior discussions and documents. No party
hereto shall be bound by any terms, conditions, definitions, warranties,
understandings, or representations with respect to the subject matter hereof,
other than as expressly provided for herein or as may hereafter be agreed to by
the parties in writing.
Administrative Claims Bar Date: Unless otherwise ordered by the Bankruptcy
------------------------------
Court, the Confirmation Order will operate to set a bar date for Administrative
Claims, which bar date shall be sixty (60) days after the Effective Date.
Claimants holding Administrative Claims against Debtors not paid on the
Effective Date may submit Proofs of Claim on or before such bar date. The
notice of Confirmation to be delivered pursuant to Bankruptcy Rules 3020(c) and
2002(f) will set forth such date and constitute notice of the Administrative
Claims bar date. Debtors, the Committee and any other party-in-interest will
have ninety (90) days after the Administrative Claims bar date to review and
object to such Claims before a hearing on such Administrative Claims for
determination by the Bankruptcy Court.
Preservation of Insurance Claims: The Debtors' discharge and release from
--------------------------------
all Claims as provided herein shall neither diminish nor impair the
enforceability of any of the Insurance Policies purchased by, or on behalf of,
Debtors and any other Entity and providing insurance coverage to Debtors and
certain other Entities which may cover Claims against Debtors and such Entities.
Preservation of Claims and Causes of Action: The Debtors' discharge and
-------------------------------------------
release from all Claims as provided herein shall neither diminish nor impair the
enforceability of any claims or causes of action which were owned by Debtors on
or before the Confirmation Date, all such claims whether or not listed in the
Disclosure Statement, being hereby expressly reserved and preserved for the
Reorganized Company and assigned to the LP.
Confirmation Order: In addition to the requirements set forth in this Plan,
------------------
the Confirmation Order shall also ratify all transactions consistent with the
provisions of this Plan and the Plan Documents effected by Debtors during the
period commencing on the Petition Date and ending on the Effective Date.
Exhibit 2 to Joint Plan
========
Dissolution of the Official Committee: Except as provided in the LP
-------------------------------------
Agreement, on the Effective Date, the Official Committee, their attorneys and
other professionals, will be dissolved, discharged and released of and from all
further authority, duties, responsibilities and obligations related to and
arising from the Proceedings.
Discharge of Professionals: On the Effective Date, all Professional
--------------------------
Persons shall be discharged from their roles as professionals employed by the
Debtor or the Committee, as the case may be. No Professional Person shall be
paid from Estate funds or by the LP for services rendered after the Effective
Date, except as may be necessary to comply with the Orders of the Bankruptcy
Court, and further except to the extent that such Professional Person is
employed by the LP or the Debtors' Claims Agent.
Fees and Expenses of Professionals of the Debtors and U.S. Trustee Fees
-----------------------------------------------------------------------
Incurred Subsequent to Confirmation Date: All fees and expenses of Professional
- ----------------------------------------
Persons shall require submission to the Bankruptcy Court for approval.
Provided, however, that the LP or the Debtors' Claims Agent may move to
establish procedures for interim payment of its Professional Persons incurred
subsequent to the Effective Date as the Bankruptcy Court may subsequently
approve. All U.S. Trustee's fees incurred from Confirmation Date (and any
unpaid fees through Confirmation Date) until the Chapter 11 case is closed shall
be paid as an expense of administration by the LP.
Governing Law: FEDERAL LAW (INCLUDING, WITHOUT LIMITATION, THE BANKRUPTCY
-------------
CODE AND THE BANKRUPTCY RULES) SHALL GOVERN THE POWERS AND RIGHTS OF THE DEBTOR,
THE REORGANIZED DEBTOR AND THE LP PURSUANT TO THIS PLAN (INCLUDING THE
ASSIGNMENT AND/OR TRANSFER OF ASSETS, CLAIMS AND CAUSES OF ACTION TO THE LP).
IN ALL OTHER RESPECTS, THE RIGHTS AND OBLIGATIONS ARISING UNDER THIS PLAN SHALL
BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF.
Incorporation by Reference: All of the terms, provisions and conditions
--------------------------
contained in the Disclosure Statement are hereby realleged and herein
incorporated by reference and made a part of this Plan for all purposes. To the
extent of any inconsistency, the Plan prevails.
Severability: Should the Bankruptcy Court determine, prior to the
------------
Confirmation Date, that any provision in this Plan is either unlawful on its
face or unlawful as applied to any Claim, such provision shall be unenforceable
either as to all Claimants holding Claims or as to the Claimant holding such
Claim as to which the provision is unlawful, respectively. Such a determination
of unenforceability shall in no way limit or affect the enforceability and
operative effect of any other provision of this Plan.
Time: In computing any period of time prescribed or allowed by this Plan,
----
the day of the act, event, or default from which the designated period of time
begins to run shall not be
Exhibit 2 to Joint Plan
========
included. The last day of the period so computed shall be included, unless it is
not a Business Day, or, when the act to be done is the filing of a paper in
court, a day on which weather or other conditions have made the clerk's office
inaccessible, in which event the period runs until the end of the next day which
is not one of the aforementioned days. When the period of time prescribed or
allowed is less than 11 days, intermediate days that are not Business Days
----
shall be excluded in the computation.
No Penalty or Interest: Except as expressly stated in this Plan or
----------------------
otherwise Allowed by the Bankruptcy Court, no interest, penalty or late charge
arising after the Petition Date and no penalty, including exemplary or punitive
damages of any kind where any of the facts giving rise to same have arise
prepetition, or post-petition but prior to the Effective Date hereof, is to be
allowed on any Claim.
No Attorneys' Fees: No attorneys' fees will be paid with respect to any
------------------
Claim (other than administrative claims of Professional Persons) except as
specified herein or as Allowed by a Final Order of the Bankruptcy Court.
Promissory Notes: Any promissory note to be delivered to a Creditor shall
----------------
be in accordance with State Bar of Texas forms, but shall require the holder
thereof to give ten days notice of any intent to accelerate and of acceleration
and shall not contain any provision permitting the holder thereof to accelerate
the indebtedness in the event the holder deems itself insecure. In the event
any existing lien or security documents permit such action they are hereby
modified and reformed to comply with the terms of this paragraph.
Addresses for Distributions to Claimants Holding Allowed Claims: Unless
---------------------------------------------------------------
otherwise provided in this Plan, the Plan Documents, or a Final Order of the
Bankruptcy Court, distributions to be made under this Plan to Creditors holding
Allowed Claims shall be made by first class United States mail, postage pre-paid
to: (a) the latest mailing address set forth in a Proof of Claim timely filed
with the Bankruptcy Court by or on behalf of such Claimant, or (b) if no such
Proof of Claim has been timely filed, the mailing address set forth in the
Schedules filed by Debtors in their respective Proceeding, as amended, or such
address as the Indenture Trustee may provide. The Manager shall not be required
to make any other effort to locate or ascertain the address of the holder of any
Claim.
Consent to Jurisdiction: Upon default under this Plan, Debtors, the
-----------------------
Committee and all Creditors consent over any proceeding relating to such default
to the jurisdiction of the unit of the United States District Court for the
Southern District of Texas, Corpus Christi Division, known as the Bankruptcy
Court for that District, or any successor thereto, and agrees that it shall be
the preferred forum for all proceedings relating to such default.
Prosecution of Objections: After the date of entry of the Confirmation
-------------------------
Order, only the LP shall have authority to file objections, litigate to
judgment, settle, or withdraw objections to Disputed Claims.
Claims Objection Deadline: As soon as practicable, but in no event later
-------------------------
than 180 days
Exhibit 2 to Joint Plan
========
after the Effective Date, unless otherwise ordered by the Bankruptcy Court,
objections to Claims shall be filed with the Bankruptcy Court and served upon
the Claimants holding such Claims to which objections are made.
Time Bar to Cash Payments: Checks issued by the LP in respect of Allowed
-------------------------
Claims or LP Units shall be null and void if not negotiated within six (6)
months after the date of issuance thereof. Any amounts requests for reissuance
of any check shall be made directly to the Manager by the holder of the Allowed
Claim or LP Unit with respect to which such check originally was issued. Any
claim in respect of such a voided check shall be made on or before the later of
(1) the second anniversary of the Effective Date or (2) ninety (90) days after
the date of issuance of such check. After such date, all claims in respect of
void checks shall be discharged and forever barred.
Setoffs: Subject to the limitations provided in (S) 553, Bankruptcy Code,
-------
the LP acting on behalf of the Debtors may, but shall not be required to, set
off against any Claim and the payments or other distributions to be made
pursuant to this Plan in respect of such Claim, claims of any nature whatsoever
Debtors may have against the Claimant holding such Claim, but neither the
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by Debtors or the LP of any such claim that Debtors may have
against such Claimant.
Successors and Assigns: The rights, duties and obligations of any Entity
----------------------
named or referred to in this Plan shall be binding upon, and shall inure to the
benefit of, the successors and assigns of such Person.
Allocation of Consideration Between Interest and Principal: Consideration
----------------------------------------------------------
received by the holder of an Allowed Claim in exchange for such Claim shall be
allocated first to the principal amount of such Claim and then, to the extent
that such consideration (a) exceeds the principal amount of such Claim but (b)
does not exceed the sum of the principal amount of such Claim and accrued but
unpaid interest on such Claim, shall be allocated to such accrued but unpaid
interest. Any excess of the consideration received by the holder of an Allowed
Claim in exchange for such Claim over the sum of the principal amount of such
Claim and the accrued but unpaid interest on such Claim shall be allocated to
principal.
ARTICLE XII
-----------
MODIFICATION OF PLAN
--------------------
ERLY WEI and the Committee may jointly propose amendments to, or
modifications of, this Plan in accordance with and pursuant to (S) 1127,
Bankruptcy Code at any time prior to or subsequent to the Confirmation.
Exhibit 2 to Joint Plan
========
ARTICLE XIII
------------
NOTICES
-------
Any notice required to given in connection with this Plan shall be given to
the following:
ERLY Industries, Inc.
Attn: Nanette Kelley, President
P.O. Box 788
Baton Rouge, LA 70821
Watch-Edge International, Inc.
Attn: Nanette Kelley, President
P.O. Box 788
Baton Rouge, LA 70821
With a copy to:
- --------------
Law Offices of Matthew A. Rosenstein William B. Finkelstein
Matthew A. Rosenstein Howard Marc Spector
American Bank Plaza, Suite 420 Hughes & Luce, L.L.P.
711 N. Carancahua 1717 Main Street, Suite 2800
Corpus Christi, Texas 78475 Dallas, Texas 75201
Phone 361-883-5577 Fax 213-939-6100
Fax 361-883-5590 Attorney for the ERLY Committee
Attorney For ERLY Industries, Inc.
JEFFERS & BANACK, INCORPORATED
R. Glen Ayers
State Bar No. 01467500
745 E. Mulberry
San Antonio, TX 78212
210-736-6600 Phone
210-736-6889 Fax
Attorneys for Watch-Edge
International, Inc.
Exhibit 2 to Joint Plan
========
EXECUTED as of June 1, 1999.
ERLY Industries, Inc.
By: /s/ Nanette Kelley
----------------------------
Nanette Kelley, Chairman,
President and Chief Executive
Officer
Law Offices of Matthew A. Rosenstein
By: /s/ Matthew A. Rosenstein
-----------------------------
Matthew A. Rosenstein
Texas Bar No. 17280000
S.D. Id No. 291
American Bank Plaza, Suite 420
711 N. Carancahua
Corpus Christi, Texas 78475
Phone 512-883-5577
Fax 512-883-5590
Attorney For ERLY Industries, Inc.
Watch-Edge International, Inc.
By: /s/ Nanette Kelley
------------------------------
Nanette Kelley, Chairman &
President
Exhibit 2 to Joint Plan
========
JEFFERS & BANACK, INCORPORATED
By: /s/ R. Glen Ayers
-----------------------------
R. Glen Ayers
State Bar No. 01467500
745 E. Mulberry
San Antonio, TX 78212
210-736-6600 Phone
210-736-6889 Fax
Attorneys for Watch-Edge International, Inc.
ERLY INDUSTRIES, INC. STATUTORY
CREDITORS COMMITTEE
By: /s/ Michael Coal
-----------------------------
Chairman
Hughes & Luce, L.L.P
By: /s/ William B. Finkelstein
----------------------------------
William B. Finkelstein
State Bar No. 07016300
S.D. Tex No. 13910
Howard Marc Spector
State Bar No. 00785023
S.D. Tex No. 23274
1717 Main Street, Suite 2800
Dallas, Texas 75201
214-939-5500 Phone
214-939-6100 Fax
Attorneys for the ERLY
Statutory Creditors Committee
Exhibit 2 to Joint Plan
========
Exhibit 1
A. ERLY executory contracts and unexpired leases Assumed:
(1) written and oral tax sharing agreements with affiliates and subsidiaries
such as ARI and Chemonics are hereby assumed;
(2) All insurance policies, including but not limited to Directors and Officers
Insurance Policies, are hereby assumed.
B. WEI executory contracts and unexpired leases Assumed:
(1) All insurance policies, including but not limited to Directors and
Officers Insurance Policies, are hereby assumed.
(2) The Terminal Services Contract and the sublease of real property in
Phoenix, AZ between WEI and Fire-Trol Holdings, LLC. The LP will
contribute sufficient funds to the Reorganized Debtor to permit the
Reorganized Debtor to perform under these assumed agreements. Any default
will be cured by the Effective Date.
Exhibit 2 to Joint Plan
========
AGREEMENT OF LIMITED PARTNERSHIP
OF
ERLY AND WEI CREDITORS, L.P.
Dated as of _________, 1999
Exhibit 2 to Joint Plan
========
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS.......................................................
ARTICLE II - ORGANIZATION OF PARTNERSHIP......................................
SECTION 2.1 Continuation................................................
SECTION 2.2 Name........................................................
SECTION 2.3 Names and Addresses of Partners.............................
SECTION 2.4 Principal Office, Registered Agent and Registered Office
of the Partnership..........................................
SECTION 2.5 Term........................................................
ARTICLE III - PURPOSE.........................................................
SECTION 3.1 Purpose.....................................................
SECTION 3.2 Powers......................................................
ARTICLE IV - CAPITAL CONTRIBUTIONS............................................
SECTION 4.1 Capital Contributions.......................................
SECTION 4.2 Record of Contributions.....................................
SECTION 4.3 No Withdrawal...............................................
SECTION 4.4 Capital Accounts............................................
SECTION 4.5 Capital Account Calculations and Adjustments................
ARTICLE V - DISTRIBUTIONS AND ALLOCATIONS.....................................
SECTION 5.1 Distributions...............................................
SECTION 5.2 Allocations.................................................
SECTION 5.3 Special Provisions Relating to the Transitional
Limited Partner.............................................
SECTION 5.4 Admittance of Limited Partners..............................
ARTICLE VI - MANAGEMENT AND OPERATION OF BUSINESS.............................
SECTION 6.1 Management..................................................
SECTION 6.2 Expenses of the General Partner.............................
SECTION 6.3 Partnership Funds...........................................
SECTION 6.4 Contracts with Affiliates...................................
SECTION 6.5 Liability of the General Partner and Other Indemnitees......
SECTION 6.6 Indemnification.............................................
SECTION 6.7 Special Prohibitions and Limitations........................
SECTION 6.8 Other Matters Concerning the General Partner................
SECTION 6.9 Title to Partnership Assets.................................
SECTION 6.10 Resolution of Conflicts of Interest.........................
SECTION 6.11 Approval of Settlements.....................................
ARTICLE VII - LP COMMITTEE...................................................
SECTION 7.1 Establishment of LP Committee; Voting; Successors..........
ARTICLE VIII - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS....................
SECTION 8.1 Limitation of Liability....................................
SECTION 8.2 Management of Business.....................................
SECTION 8.3 Return of Capital..........................................
SECTION 8.4 Rights of Limited Partners Relating to the Partnership.....
SECTION 8.5 Right to Receive Distributions.............................
SECTION 8.6 Right to Elect to Dissolve Partnership.....................
ARTICLE IX - BOOKS, RECORDS, ACCOUNTING AND REPORTS..........................
SECTION 9.1 Records and Accounting.....................................
SECTION 9.2 Fiscal Year................................................
SECTION 9.3 Other Information..........................................
ARTICLE X - TAX MATTERS......................................................
SECTION 10.1 Preparation of Tax Returns.................................
SECTION 10.2 Tax Elections..............................................
SECTION 10.3 Tax Controversies..........................................
SECTION 10.4 Other Tax Matters..........................................
SECTION 10.5 Withholding................................................
ARTICLE XI - POWER OF ATTORNEY...............................................
SECTION 11.1 Power of Attorney..........................................
ARTICLE XII - TRANSFER AND CONVERSION OF
PARTNERSHIP INTERESTS.........................................
SECTION 12.1 Transfers..................................................
SECTION 12.2 Transfer of Interests of the General Partner...............
SECTION 12.3 Restrictions on Limited Partner Transfers..................
SECTION 12.4 Successor Partners.........................................
SECTION 12.5 Effectiveness of Transfer..................................
ARTICLE XIII - ADMISSION OF PARTNERS.........................................
SECTION 13.1 Admission of the Transitional Limited Partner..............
SECTION 13.2 Admission of Limited Partners..............................
SECTION 13.3 Admission of Substituted Limited Partners..................
SECTION 13.4 Admission of Successor or Additional General Partner.......
SECTION 13.4 Admission of the Organizational Partner....................
ARTICLE XIV - WITHDRAWAL OR REMOVAL OF PARTNERS..............................
SECTION 14.1 Withdrawal or Removal of the General Partner...............
SECTION 14.2 Interest of Departing Partner and Successor................
SECTION 14.3 Withdrawal of Organizational Partner.......................
ARTICLE XV - DISSOLUTION AND LIQUIDATION......................................
SECTION 15.1 Dissolution................................................
SECTION 15.2 Continuation of the Business of the Partnership............
SECTION 15.3 Liquidation................................................
SECTION 15.4 Cancellation of Certificate of Limited Partnership.........
SECTION 15.5 Reasonable Time for Winding Up.............................
SECTION 15.6 Return of Contributions....................................
SECTION 15.7 Waiver of Partition........................................
ARTICLE XVI - AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE.........................................
SECTION 16.1 Amendments to Be Adopted Solely
by the General Partner.....................................
SECTION 16.2 Amendment Procedures.......................................
SECTION 16.3 Meetings...................................................
SECTION 16.4 Notice of a Meeting........................................
SECTION 16.5 Record Date................................................
SECTION 16.6 Adjournment................................................
SECTION 16.7 Waiver of Notice; Consent to Meeting;
Approval of Minutes........................................
SECTION 16.8 Quorum.....................................................
SECTION 16.9 Conduct of Meeting.........................................
SECTION 16.10 Action Without a Meeting...................................
SECTION 16.11 Voting and Other Rights....................................
ARTICLE XVII - CERTIFICATES...................................................
SECTION 17.1 No Certificates............................................
ARTICLE XVIII - GENERAL PROVISIONS............................................
SECTION 18.1 Addresses and Notices......................................
SECTION 18.2 Titles and Captions........................................
SECTION 18.3 Pronouns and Plurals.......................................
SECTION 18.4 Parties....................................................
SECTION 18.5 Action.....................................................
SECTION 18.6 Binding Effect.............................................
SECTION 18.7 Integration................................................
SECTION 18.8 Creditors..................................................
SECTION 18.9 Waiver.....................................................
SECTION 18.10 Counterparts...............................................
SECTION 18.11 Applicable Law.............................................
SECTION 18.12 Invalidity of Provisions...................................
AGREEMENT OF LIMITED PARTNERSHIP
OF
ERLY AND WEI CREDITORS, L.P.
This Agreement of Limited Partnership of ERLY and WEI Creditors, L.P. (the
"Partnership'), dated __________, 1999 (the "Agreement"), is entered into by and
among ___________________, Inc., a ______________ corporation [to be designated
by Scott Van Meter as Manager], as general partner (the "General Partner"), and
those Persons now and hereafter named as Limited Partners on the books and
records of the Partnership (the "Limited Partners").
WHEREAS, the Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code for ERLY Industries, Inc. and Watch-Edge International, Inc.
("Debtors"), dated _______, 1999, confirmed by order of the Bankruptcy Court
entered on _______, 1999 (the "Plan") and incorporated herein, authorized the
creation of the Partnership.
WHEREAS, the parties hereto desire to provide for the governance of the
Partnership and to set forth in detail their respective rights and duties
relating to the Partnership.
NOW, THEREFORE, in consideration of the mutual promises and agreements made
herein, the parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article I shall, for the purposes of this Agreement, have the meanings
herein specified. Any capitalized terms not defined herein shall have the
meanings ascribed to them in the Plan.
Affiliate: Any Person directly or indirectly controlling, controlled by or
---------
under common control with the Person in question. As used in this definition of
"Affiliate," the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Agreement: This Agreement of Limited Partnership, as it may be amended,
---------
supplemented or restated from time to time.
Bankruptcy Code: Title 11 of the United States Code, as amended from time
---------------
to time, and any successor statute thereto.
Bankruptcy Court: The United States Bankruptcy Court, Southern District of
----------------
Texas, Corpus Christi Division.
Capital Account: A capital account established and maintained pursuant to
---------------
Article IV.
Certificate of Limited Partnership: The Certificate of Limited
----------------------------------
Partnership, and any and all amendments thereto and restatements thereof, filed
on behalf of the Partnership as required
under the Delaware Act.
Code: The Internal Revenue Code of 1986, as amended and in effect from
----
time to time. Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision of
future law.
Commission: The Securities and Exchange Commission.
----------
Contribution: Contributions to the Partnership as defined in Section 4.1.
------------
Debtors: ERLY Industries, Inc. and Watch-Edge International, Inc.
-------
Delaware Act: The Delaware Revised Uniform Limited Partnership Act (6 Del.
------------
C. (S) 17-101, et seq.), as it may be amended from time to time, and any
successor to such Act.
Departing Partner: The General Partner who has withdrawn or been removed
-----------------
pursuant to Section 14.1.
Distributable Net Proceeds of Assigned Third Party Recoveries: All cash
-------------------------------------------------------------
receipts and recoveries (and, in the event of the liquidation of the
Partnership, non-cash receipts and recoveries which are Partnership Assets) of
the Partnership arising from, on account of, or attributable to any Assigned
Third Party Action, less, without duplication, (a) all expenses incurred by the
Partnership in connection with or attributable to Assigned Third Party Actions,
including without limitation current and accrued but unpaid expenses and a
reasonable allocation of general, administrative and overhead expenses, and (b)
reserves for unpaid expenses and liabilities in connection with or attributable
to Assigned Third Party Actions that the General Partner reasonably expects to
be incurred by the Partnership.
Distributable Net Proceeds of Other Assets: All cash owned by the
------------------------------------------
Partnership (and, in the event of the liquidation of the Partnership, non-cash
Partnership Assets) and not included in Distributable Net Proceeds of Assigned
Third Party Recoveries, less reserves for unpaid expenses and liabilities that
the General Partner reasonably expects to be incurred by the Partnership
(including obligations required to be paid by the Partnership pursuant to the
Plan).
Excess Distributable Proceeds: As defined in Section 5.1(d).
-----------------------------
Fair Market Value: The fair market value as determined by the General
-----------------
Partner.
GAAP: Generally accepted accounting principles in the United States of
----
America as in effect from time to time.
General Partner: __________, Inc. in its capacity as general partner of
---------------
the Partnership, or any successor or additional general partner of the
Partnership admitted pursuant to Sections 12.2(b) or 13.4.
Indemnitee: The General Partner, the Manager, the Transitional Limited
----------
Partners, any Departing Partner, any Person who was at any time on or after the
Effective Date an Affiliate of the General Partner or any Departing Partner, any
Person who was at any time on or after the Effective Date an officer, director,
employee, partner, agent or trustee of the General Partner or
any Departing Partner or any such Affiliate, or any Person who was at any time
on or after the Effective Date serving at the request of the General Partner or
any Departing Partner or any such Affiliate as a director, officer, employee,
partner, agent or trustee of another Person.
Limited Partner: The Organizational Limited Partner, each Transitional
---------------
Limited Partner, each Person to whom Units are issued, and each Substituted
Limited Partner, who is shown as a limited partner on the books and records of
the Partnership. A Person may, but in no event is required to, sign or execute
the Agreement as a Limited Partner, since showing a Person as a limited partner
on the books and records of the Partnership is sufficient to admit a Person as a
Limited Partner.
Liquidating Trustee: Either (i) the General Partner or (ii) the Person or
-------------------
committee appointed pursuant to Section 15.3.
LP Committee: As defined in Article VII.
------------
Majority or Majority Vote: Approval by at least 51% in interest of the
-------------------------
Limited Partners holding Partnership A Units and Partnership B Units (including
the Transitional Limited Partner), with each such Unit entitled to one vote.
Net Income: The net income of the Partnership as defined in Section 4.6(e)
----------
hereof.
Net Loss: The net loss of the Partnership as defined in Section 4.6(e)
--------
hereof.
Opinion of Counsel: A written opinion of counsel (who may be regular
------------------
counsel to the Partnership or the General Partner) selected by, or acceptable
to, the General Partner with the approval of the LP Committee.
Organizational Limited Partner: The Manager under the Plan.
------------------------------
Partner: Any General Partner or Limited Partner.
-------
Partnership: The limited partnership formed pursuant to this Agreement.
-----------
Partnership Assets: All property whether tangible or intangible, including
------------------
the Assigned Third Party Actions and any and all recoveries therefrom, at any
time owned by the Partnership.
Partnership Interest: As to any Partner, all of the interests of that
--------------------
Partner in the Partnership, including, without limitation, any (i) right to a
distributive share of the Net Income and Net Losses of the Partnership, and (ii)
right to a distributive share of Partnership Assets.
Person: Any individual, corporation, association, partnership, joint
------
venture, trust, estate or other entity or organization.
Plan: Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code
----
for ERLY Industries, Inc. and Watch-Edge International, Inc., dated _______,
1999, confirmed by order of the Bankruptcy Court entered on _______, 1999.
Pro Rata: With respect to a Limited Partner and a class of Partnership
--------
Units, at any time,
a fraction, the numerator of which is the number of Units of such class held by
such Limited Partner at such time, and the denominator of which is the aggregate
number of Units of such class held by all Limited Partners (including the
Transitional Limited Partner) at such time.
Reconstituted Partnership: The new limited partnership formed in the
-------------------------
manner described in Section 15.2.
Record Date: The date established by the General Partner for determining
-----------
(i) the identity of Limited Partners entitled to (a) notice of or to vote at any
meeting of Limited Partners, (b) give approval in writing for a meeting of
Limited Partners, or (c) exercise rights in respect of any other lawful action
of Limited Partners, or (ii) the identity of Limited Partners entitled to
receive any report or distribution.
Substantial Resolution: A decision by the General Partner that
----------------------
substantially all of the Assigned Third Party Actions and Debtors' Actions have
been resolved, which decision has been communicated to the Limited Partners and
approved by the Bankruptcy Court.
Substituted Limited Partner: A Person who is admitted as a Limited Partner
---------------------------
in the Partnership pursuant to this Agreement in place of, and with all the
rights of, a Limited Partner pursuant to Section 13.3, and who is shown as a
limited partner on the books and records of the Partnership.
Term: The term of the Partnership as defined in Section 2.5 hereof.
----
Three-Fourths Vote: Approval by at least 75% in interest of the Limited
------------------
Partners holding Partnership A Units and Partnership B Units (including the
Transitional Limited Partner), with each such Unit entitled to one vote.
Transitional Limited Partner: Transitional Limited Partner as defined in
----------------------------
Section 5.3(b).
Treasury Regulation: Any regulation implementing a provision of the Code,
-------------------
promulgated by the Secretary of the Treasury or his delegate, as specifically
referred to herein.
Two-Thirds Vote: Approval by at least 66-2/3% in interest of the Limited
---------------
Partners holding Partnership A Units and Partnership B Units (including the
Transitional Limited Partner), with each such Unit entitled to one vote.
Unit: A unit of limited partner's interest in the Partnership, consisting
----
of three separate classes: the Partnership A Units, the Partnership B Units,
and the Partnership C Units. The number of Units held by Limited Partners
hereunder at any time shall be limited to 1,000,000 Partnership A Units,
1,000,000 Partnership B Units, and 1,000,000 Partnership C Units, subject to
reduction upon any surrender and cancellation of Units pursuant to the Plan.
Units may be issued in fractional amounts, with fractions rounded to the nearest
fifth decimal place.
ARTICLE II
ORGANIZATION OF PARTNERSHIP
SECTION 2.1 Continuation. The parties hereby form a limited partnership
------------
pursuant to
the provisions of the Delaware Act.
SECTION 2.2 Name. The name of the Partnership formed hereby is ERLY and
----
WEI Creditors, L.P. The business of the Partnership shall be conducted under
such name or such other name as the General Partner may from time to time in its
sole discretion determine. "Limited Partnership" or "L.P." (or similar words or
letters) shall be included in the Partnership's name where necessary or
appropriate to maintain the limited liability of the Limited Partners or
otherwise for the purpose of complying with the laws of any jurisdiction that so
requires or as the General Partner may deem appropriate.
SECTION 2.3 Names and Addresses of Partners. The General Partner of the
-------------------------------
Partnership is ___________________, Inc., a ______________ corporation [to be
designated by Scott Van Meter as Manager]. The business address of the General
Partner is __________. The date upon which the General Partner became a general
partner of the Partnership is as set forth in the records of the Partnership.
The General Partner may change its address at any time and from time to time.
The names and business, residence or mailing addresses of the Limited Partners
and the date upon which each such Person became a Limited Partner are as set
forth from time to time in the records of the Partnership.
SECTION 2.4 Principal Office, Registered Agent and Registered Office of
-----------------------------------------------------------
the Partnership.
- ---------------
(a) The principal office of the Partnership shall be located at
__________. The General Partner in its sole discretion may, at any time and
from time to time, change the location of the Partnership's principal place
of business within or outside the State of Delaware and may establish such
additional places of business of the Partnership within or outside the
State of Delaware as it may from time to time determine.
(b) The name of the registered agent for service of process on the
Partnership in the State of Delaware is [[The Prentice-Hall Corporation
System, Inc]]. The address of the registered agent and the address of the
registered office of the Partnership in the State of Delaware is [[32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901]].
SECTION 2.5 Term. The Partnership will commence upon the filing of the
----
Certificate of Limited Partnership in accordance with the Delaware Act and shall
continue in existence until June 30, 2019 (the "Term"), unless earlier
terminated in accordance with any provisions of this Agreement. A Majority Vote
may extend the Term in the event there has not been a Substantial Resolution.
In no event will the Partnership continue after a Substantial Resolution.
ARTICLE III
PURPOSE
The Partnership shall bound by the terms of the Plan and the Confirmation
Order in all respects, including (i) holding the assets conveyed to the
Partnership under the Plan by the Debtors (including, but not limited to, the
Debtors' Actions); (ii) holding the assets conveyed to the Partnership under the
Plan by the Debtors' Creditors (including, but not limited to, the Assigned
Third Party Actions); and (iii) satisfying the Claims of the Debtors' Creditors
in the
manner set forth in the Plan.
SECTION 3.1 Purpose. The business to be conducted and promoted by the
-------
Partnership shall be (i) to prosecute, settle or otherwise resolve Debtor
Actions and Assigned Third Party Actions assigned to the Partnership; (ii) to
defend any counterclaims relating thereto; (iii) to do anything necessary or
incidental to the foregoing, and (iv) to hold or liquidate any assets, to pay
any expenses, obligations or claims, and to perform any action or activity
designated in the Plan to be held, paid, or performed, as the case may be, by
the Partnership.
SECTION 3.2 Powers. The Partnership shall be empowered to do any and all
------
acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and businesses
described herein and for the protection and benefit of the Partnership,
including, without limitation, the following:
(a) To secure, maintain and pay for insurance against liability or
other loss with respect to the activities and assets of the Partnership
(including, without limitation, insurance against liabilities under Section
6.6);
(b) To employ or retain such Persons as may be necessary or
appropriate for the conduct of the Partnership's business, including full-
time, temporary or part-time employees and attorneys, accountants, agents,
consultants and contractors to act for and on behalf of the Partnership to
the extent authorized by the General Partner, including, without
limitation, to:
(i) represent the Partnership in its dealings with third parties,
and execute any kind of document or contract on behalf of the
Partnership subject to the limitations set forth in Section 6.7; and
(ii) propose, approve or disapprove of, and take, action for and
on behalf of the Partnership, with respect to the operations of the
Partnership;
(c) To incur expenses and to enter into, perform and carry out
contracts or commitments of any kind (including any indemnification
expenses hereunder or under any of the Plan Documents), to assume
obligations and to execute, deliver, acknowledge and file documents in
furtherance of the purposes and business of the Partnership;
(d) To pay, collect, compromise, arbitrate, litigate or otherwise
adjust, contest or settle any and all claims or demands, of or against the
Partnership, subject to the limitations set forth in Section 6.7; and
(e) To engage in any kind of activity and to enter into and perform
obligations of any kind with the General Partner or Affiliates of the
General Partner or otherwise, necessary to, or in connection with, or
incidental to, the accomplishment of the purposes and business of the
Partnership, so long as said activities and obligations may be lawfully
engaged in or performed by a limited partnership under the Delaware Act.
ARTICLE IV
CAPITAL CONTRIBUTIONS
SECTION 4.1 Capital Contributions. At any time on or after the Effective
---------------------
Date:
(a) Limited Partners.
----------------
(i) Each Limited Partner issued Partnership A Units shall be
deemed to have made a Contribution in an amount equal to its Pro Rata
share (with respect to Partnership A Units) at such time of 99.9%
(ninety-nine and nine-tenths percent) of the Fair Market Value as of
the Effective Date of the aggregate of all assets, other than Assigned
Third Party Actions, assigned or deemed assigned to the Partnership
pursuant to the Plan.
(ii) Each Limited Partner issued Partnership B Units shall be
deemed to have made a Contribution in an amount equal to its Pro Rata
share (with respect to Partnership B Units) at such time of 99.9%
(ninety-nine and nine-tenths percent) of the Fair Market Value as of
the Effective Date of the Assigned Third Party Actions assigned or
deemed assigned to the Partnership pursuant to the Plan.
(iii) Each Limited Partner issued Partnership C Units shall be
deemed to have made a Contribution in an amount equal to its Pro Rata
share (with respect to Partnership C Units) at such time of the Fair
Market Value as of the Effective Date of the Excess Contribution
Amount (defined below).
(iv) Notwithstanding the foregoing, the amount of the
aggregate Contribution made by a Limited Partner pursuant to Sections
4.1(a)(i) and (ii) shall not exceed the amount of such Limited
Partner's Allowed Claim, plus interest at the Federal Judgment Rate in
effect on the Effective Date through the date an amount equal to such
Allowed Claim plus interest has been distributed to such Limited
Partner. The aggregate amount in excess of such amounts of Allowed
Claims plus interest shall constitute the "Excess Contribution
Amount."
(v) The Organizational Limited Partner will make a $100
Contribution in cash.
(b) General Partner. The General Partner shall be deemed to have
---------------
made a Contribution in an amount equal to 0.1% (one-tenth of one percent)
of the Fair Market Value as of the Effective Date of all assets assigned or
deemed assigned to the Partnership pursuant to the Plan.
SECTION 4.2 Record of Contributions. The books and records of the
-----------------------
Partnership shall include true and full information regarding the amount of cash
and cash equivalents and a designation and statement of the Fair Market Value of
any other property contributed by each Partner to the Partnership.
SECTION 4.3 No Withdrawal. No Person shall be entitled to withdraw any
-------------
part of his
Contribution or Capital Account, or to receive any distribution from
the Partnership, except as otherwise provided in this Agreement.
SECTION 4.4 Capital Accounts. The Partnership shall maintain for each
----------------
Limited Partner and the General Partner a separate Capital Account in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv) and the provisions of Section
4.6 hereof. In the event any Partnership Interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account and Partnership Interest of the transferor to the extent it relates to
the transferred interest.
SECTION 4.5 Capital Account Calculations and Adjustments.
--------------------------------------------
(a) Capital Account. The Capital Account of a Partner shall be
---------------
the amount of money and the Fair Market Value of any asset contributed
(including any asset deemed contributed pursuant to Section 4.1 hereof) to
the Partnership (net of any liability secured by such property that the
Partnership is considered to assume or take subject to under Section 752 of
the Code) by such Partner, increased by
(i) such Partner's share of Net Income (or items thereof),
including income exempt from tax and income described in Treasury
Regulation Section 1.704-1(b)(2)(iv)(a)(3)(g),
(ii) such Partner's share of any gains described in Section
5.1(c) hereof, and
(iii) any other amounts required by Treasury Regulation
Section 1.704-1(b),
and decreased by
(iv) the amount of money and the Fair Market Value of any
Partnership property distributed by the Partnership (net of any
liabilities secured by such property that the Partner is considered to
assume or take subject to under Section 752 of the Code) to such
Partner,
(v) such Partner's share of Net Loss (or items thereof),
including expenditures described in Section 705(a)(2)(B) of the Code
and deductions and losses described in Treasury Regulation Section
1.704-1(b)(2)(i)(g),
(vi) such Partner's share of any losses described in Section
5.1(c) hereof, and
(vii) any other amounts required by Treasury Regulation
Section 1.704-1(b).
(b) No Partner shall be entitled to interest on his Capital Account.
(c) Net Income and Net Loss. "Net Income" and "Net Loss" shall mean
-----------------------
the income or loss of the Partnership for any relevant period, computed in
accordance with
federal income tax principles, except that gain or loss on disposition of
Partnership Assets and the depreciation, amortization and other cost
recovery deductions, if any, with respect to Partnership Assets shall be
calculated by reference to their Book Values, rather than their adjusted
tax bases. Article V hereof requires a determination of the portion of Net
Income and Net Loss attributable to Assigned Third Party Actions and
attributable to Partnership assets and operations other than Assigned Third
Party Actions. The General Partner, with the approval of the LP Committee,
shall make such determination in its reasonable discretion, and in doing so
shall take into account, and be consistent with, the definition of
Distributable Net Proceeds of Assigned Third Party Recoveries, and shall
reasonably allocate general, administrative and overhead expenses.
ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS
SECTION 5.1 Distributions.
-------------
(a) Subject to Section 5.1(d), at the end of each calendar year
(or more often if requested by the LP Committee), the General Partner shall
make a distribution to the holders of Partnership A Units, Pro Rata, of the
Distributable Net Proceeds of Other Assets.
(b) Subject to Section 5.1(d), at the end of each calendar year
(or more often if requested by the LP Committee), the General Partner shall
make a distribution to the holders of Partnership B Units, Pro Rata, of the
Distributable Net Proceeds of Assigned Third Party Recoveries.
(c) At the end of each calendar year (or more often if requested
by the LP Committee), the General Partner shall make a distribution to the
holders of Partnership C Units, Pro Rata, of the Excess Distributable
Proceeds, but only to the extent of such holders' Allowed Claim, plus
interest at the Federal Judgment Rate in effect on the Effective Date
through the date an amount equal to such Allowed Claim plus interest has
been distributed to such Limited Partner. If there are Excess Distributable
Proceeds that exceed such limitation, then they shall be distributed to all
Limited Partners in proportion to the aggregate amount of distributions
previously made to them by the Partnership.
(d) The amount of the aggregate distributions made to a Limited
Partner by the Partnership pursuant to Sections 5.1(a) and 5.1(b) shall not
exceed the amount of such Limited Partner's Allowed Claim, plus interest at
the Federal Judgment Rate in effect on the Effective Date through the date
an amount equal to such Allowed Claim plus interest has been distributed to
such Limited Partner. The aggregate amount of Distributable Net Proceeds
of Assigned Third Party Recoveries plus Distributable Net Proceeds of Other
Assets in excess of such amounts of permitted distributions shall
constitute the "Excess Distributable Proceeds."
SECTION 5.2 Allocations. For any fiscal year of the Partnership:
-----------
(a) Subject to Section 5.2(c), the Net Income, if any, and any
items thereof, attributable to Assigned Third Party Actions shall be
allocated in the following order of
priority:
(i) to the General Partner, to the extent that the sum of any
Net Loss allocated to it under Section 5.2(d)(iii) exceeds any Net
Income previously allocated to it under this paragraph 5.2(a)(i);
(ii) to the General Partner and the holders of Partnership B
Units, to the extent that the sum of any Net Loss allocated to them
under Section 5.2(d)(i) or 5.2(d)(ii), respectively, exceeds any Net
Income previously allocated to them under this paragraph 5.2(a)(ii),
in proportion to the amounts of such Net Loss allocations;
(iii) to the General Partner, in an amount equal to 0.1% (one-
tenth of one percent) of such Net Income; and
(iv) to the holders of Partnership B Units, Pro Rata.
(b) Subject to Section 5.2(c), the Net Income, if any, and any items
thereof, attributable to Partnership assets and operations other than
Assigned Third Party Actions shall be allocated in the following order of
priority:
(i) to the General Partner, to the extent that the sum of any
Net Loss allocated to it under Section 5.2(e)(iii) hereof exceeds any
Net Income previously allocated to it under this paragraph 5.2(b)(i);
(ii) to the General Partner and the holders of Partnership B
Units, to the extent that the sum of any Net Loss allocated to them
under Section 5.2(e)(i) or 5.2(e)(ii), respectively, exceeds any Net
Income previously allocated to them under this paragraph 5.2(b)(ii),
in proportion to the amounts of such Net Loss allocations;
(iii) to the General Partner, in an amount equal to 0.1% (one-
tenth of one percent) of such Net Income; and
(iv) to the holders of Partnership A Units, Pro Rata.
(c) The aggregate amount of Net Income allocable to a Limited Partner
pursuant to Sections 5.2(a) and (b) shall not exceed the amount which, when
credited to its Capital Account, would cause its Capital Account to equal
the maximum amount of remaining distributions to which such Limited Partner
is entitled pursuant to Sections 5.1(a), 5.1(b) and 5.1(d). The aggregate
amount of Net Income in excess of such amounts shall be allocated, first,
to the holders of Partnership C Units, Pro Rata, but only to the extent of
the amount of remaining distributions to which such Limited Partners are
entitled pursuant to the first sentence of Section 5.1(c), and second, to
all Limited Partners in proportion to the amounts of distributions to which
such Limited Partners are entitled pursuant to the second sentence of
Section 5.1(c).
(d) the Net Loss, if any, and any items thereof, attributable to
Assigned Third Party Actions shall be allocated in the following order of
priority:
(i) to the General Partner, in an amount equal to his positive
Capital Account balance, if any;
(ii) to the holders of Partnership B Units, Pro Rata, but only
to the extent of any positive balance in their Capital Accounts; and
(iii) to the General Partner.
(e) the Net Loss, if any, and any items thereof, attributable to
Partnership assets and operations other than Assigned Third Party Actions
shall be allocated in the following order of priority:
(i) to the General Partner, in an amount equal to his positive
Capital Account balance, if any;
(ii) to the holders of Partnership A Units, Pro Rata, but only
to the extent of any positive balance in their Capital Accounts; and
(iii) to the General Partner.
(f) The allocation of each item of income, gain, loss and deduction
for federal income tax purposes shall be allocated to the Partners in the
same manner as the corresponding item of Net Income or Net Loss as provided
herein, and any tax credits shall be allocated among the Partners in
proportion to the item of Net Income most closely associated with the
activities which give rise to such credit (as determined in the discretion
of the General Partner). For tax purposes only, any allocations required
by Section 704(c) of the Code and Treasury Regulation Section 1.704-
1(b)(4)(i) shall be made notwithstanding anything to the contrary in this
Section 5.2.
(g) Except as provided in Section 5.4 and 13.2(b) hereof, if there is
a change in the Units owned by any Partner during a taxable period of the
Partnership, the allocations set forth in this Section 5.2 shall be made on
the basis of an interim closing of the books of the Partnership as of the
close of business on the last day of the calendar quarter in which such
change occurs.
(h) For purposes of Section 5.2, no allocation of any loss or
deduction shall be made to a Limited Partner if the effect of such
allocation would be to cause or increase a deficit balance in such Limited
Partner's Capital Account as of the end of the Partnership taxable year to
which such allocation relates. For purposes of the preceding sentence,
such Limited Partner's Capital Account shall be reduced by items described
in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6). If
any Limited Partner unexpectedly receives an adjustment, allocation, or
distribution described in Treasury Regulation Sections 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), there shall be allocated to such Limited
Partner items of income and gain (consisting of a pro rata portion of each
item of Partnership income, including gross income, and gain for such year)
in an amount and manner sufficient to eliminate such deficit balance as
quickly as possible. This provision is designed to constitute a "qualified
income offset" in accordance with Treasury Regulation Section 1.704-
1(b)(2)(ii)(d) and shall be construed in accordance with such
intent.
SECTION 5.3 Special Provisions Relating to the Transitional Limited
-------------------------------------------------------
Partner.
- -------
(a) The maximum number of Units that will be issued under this
Agreement is fixed at 1,000,000 Partnership A Units, 1,000,000 Partnership
B Units, and 1,000,000 Partnership C Units, all of which are to be issued
as of the Effective Date. However, as of that time and as of the time
required to make any allocation under Section 5.2 or any distribution under
Section 5.1, the identity of all Persons who ultimately will be admitted to
the Partnership as Limited Partners and issued Units under the Plan, and
the final amount of Units to which each Person is entitled, will not be
known. The provisions of this Article V have been adopted to provide for
the ultimate distribution of a Unit to any Person who may become a Limited
Partner, or whose Units increase, after the Effective Date and to provide
for the payment of any tax liabilities in respect of the Net Income
attributable to such Units. Provisions relating to allocations and
distributions in this Section 5.3 therefore override anything to the
contrary in Sections 5.1 and 5.2.
(b) The Manager in his capacity as such under the Plan is hereby
designated as the "Transitional Limited Partner" hereunder to act as an
escrow agent, temporarily holding Units on behalf of, and for ultimate
distribution to, the respective holders of Allowed Claims that are
ultimately entitled to Units, or additional Units, under the Plan, pursuant
to Section 13.1.
(c) Any Net Income or Net Loss allocable to any Unit held by the
Transitional Limited Partner shall be allocated to the Transitional Limited
Partner in its capacity as a Limited Partner. All tax information
reporting forms, including, without limitation, Schedule K-1 to IRS Form
1065, shall be mailed to the Transitional Limited Partner in respect of all
Units registered in the name of the Transitional Limited Partner as of the
date such forms are prepared and mailed. The Transitional Limited Partner
shall file appropriate federal income tax returns in respect of any such
allocations and shall remit federal income tax to the Internal Revenue
Service at the highest rate of tax applicable to trusts under the Code
based on information provided by the General Partner. Such tax for any
taxable year shall be paid from any distributions made by the Partnership
to the Transitional Limited Partner in respect of the Units with respect to
which such taxable income allocations were made or, if any distribution
during or subsequent to the end of such taxable year is made and designated
by the General Partner as a distribution for tax liabilities for such
taxable year, from such distribution if to be made by the Partnership to a
Limited Partner transferee of such Units (such amount being withheld from
the distribution to the transferee Limited Partner and remitted to the
Transitional Limited Partner instead). The Partnership shall indemnify and
hold harmless the Transitional Limited Partner for any and all taxes paid
or payable by such Transitional Limited Partner, including any taxes
payable as a result of receiving such indemnity payments, if any, in
respect of any Units held by such Transitional Limited Partner to the
extent that the distributions made to such Transitional Limited Partner and
remittances of amounts withheld from distributions otherwise payable to
transferee Limited Partners described in the preceding sentence are not
sufficient to cover any such tax liability.
(d) If, as of the time any distribution is made by the Partnership
pursuant to Section 5.1, a Transitional Limited Partner holds one or more
Units, the Partnership shall
make the distribution in respect of any such Units to such Transitional
Limited Partner. Subject to Section 5.3(c), the Transitional Limited
Partner shall hold any such distribution received with respect to such
Units for disposition as follows:
(i) if such Units are subsequently transferred to an Allowed
Claim holder, for delivery to such holder at the time of such
transfer; or
(ii) if such Units are subsequently deemed surrendered to and
cancelled by the Partnership, for delivery to the Partnership at the
time of such surrender and cancellation;
provided, however, that such Transitional Limited Partner shall withhold
-------- -------
from any such delivery an amount necessary to pay the tax described in
Section 5.3(c) in respect of any taxable year or portion thereof in which
such Transitional Limited Partner is allocated taxable income with respect
to such Units.
SECTION 5.4 Admittance of Limited Partners. Upon the issuance, or upon
------------------------------
the transfer from the Transitional Limited Partner, of one or more Units to a
holder of an Allowed Claim, such holder shall be a Limited Partner of the
Partnership in accordance with Section 13.2. The Partnership shall treat such
holder as a Limited Partner for tax information reporting purposes as of the
first day allowable under applicable law.
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 6.1 Management.
----------
(a) Except as otherwise expressly provided in this Agreement, all
decisions respecting any matter set forth herein or otherwise affecting or
arising out of the conduct of the business of the Partnership shall be made
by the General Partner. Except as otherwise expressly provided in this
Agreement, the General Partner shall have full authority to do all things
on behalf of the Partnership deemed necessary or desirable by it in the
conduct of the business of the Partnership, including, without limitation,
authority to exercise all of the powers contained in Section 3.2 and to
effectuate the purposes specified in Section 3.1. The power and authority
of the General Partner pursuant to this Agreement shall be liberally
construed to encompass the General Partner's undertaking, on behalf of the
Partnership, of all acts and activities in which a limited partnership may
engage under the Delaware Act.
(b) Each of the Limited Partners and each other Person who may
acquire Partnership Interests hereby agrees that the General Partner is
authorized to execute, deliver and perform the agreements, acts,
transactions, and matters contemplated hereby on behalf of the Partnership
without any further act, approval or vote of the Limited Partners. None of
the execution, delivery or performance by the General Partner of any
agreement authorized or permitted under this Agreement shall constitute a
breach by the General Partner of any duty that the General Partner may owe
the Partnership or the Limited Partners under this Agreement, any other
agreement contemplated herein, or of any duty stated or implied by law or
equity.
(c) The General Partner shall use all reasonable efforts to cause to
be filed the Certificate of Limited Partnership as required by the Delaware
Act and such other certificates or filings as may be determined in its sole
discretion by the General Partner to be reasonable and necessary or
appropriate for the formation and continuation and operation of a
partnership in which the limited partners have limited liability in the
State of Delaware or any other state in which the Partnership elects to do
business. To the extent that the General Partner in its sole discretion
determines such action to be reasonable and necessary or appropriate, the
General Partner thereafter (i) shall file any necessary amendments to the
Certificate of Limited Partnership, including, without limitation,
amendments to reflect successor or additional general partners admitted
pursuant to Section 13.4, and (ii) shall otherwise do all things (including
the appointment or replacement of registered agents of the Partnership and
maintenance of registered offices of the Partnership) requisite to the
maintenance of the Partnership as a limited partnership under the laws of
the State of Delaware or any other state in which the Partnership may elect
to do business. If permitted by applicable law, the General Partner may
omit from the Certificate of Limited Partnership and from any other
certificates or documents filed in any state in order to qualify the
Partnership to do business therein, and from all amendments thereto, the
names and addresses of the Limited Partners and information relating to the
Contributions and shares of profits and compensation of the Limited
Partners, or state such information in the aggregate rather than with
respect to each individual Limited Partner. Except as provided in Section
8.4(a), the General Partner shall not be required, before or after filing,
to deliver or mail a copy of the Certificate of Limited Partnership or any
amendment thereto to any Limited Partner.
(d) The General Partner shall cause the Partnership to enter into a
management agreement with the Manager pursuant to which the Manager will be
engaged and authorized to act and perform, for and on behalf of the
Partnership, those actions, activities and services specified in the Plan
to be done by the Manager and any other actions, activities or services
which the General Partner, with the approval of the LP Committee or as
authorized by the Bankruptcy Court, determines should also be included.
The Manager is hereby expressly authorized to act for and on behalf of the
Partnership, and in the General Partner's name, place and stead, with
respect to those actions, activities and services set forth in such
management agreement. Any act or action specified herein to be done by the
General Partner may be delegated to the Manager pursuant to such management
agreement.
SECTION 6.2 Expenses of the General Partner. All direct, out-of-pocket
-------------------------------
expenses incurred by the General Partner, including expenses of any independent
contractors retained by the General Partner, in performing its duties as set
forth in this Agreement, in addition to any reimbursement as a result of
indemnification pursuant to Section 6.6, shall be reimbursed by the Partnership.
The General Partner shall have no obligation whatsoever to pay for any costs or
expenses of operating the Partnership.
SECTION 6.3 Partnership Funds. (a) The funds of the Partnership shall be
-----------------
deposited in such account or accounts in the name of the Partnership as are
agreed upon by the General Partner and the LP Committee. All withdrawals from
or charges against such accounts shall be made by the General Partner. Funds of
the Partnership may be invested by the General Partner, subject to the
restrictions set forth in this Agreement.
(b) Partnership funds may be temporarily invested in United States
treasury bills and notes with maturities of 12 months or less, institutional
money market funds, time deposits and certificates of deposit of commercial
banks organized under the laws of the United States, or any State thereof,
having primary capital of not less than $500,000,000.
SECTION 6.4 Contracts with Affiliates. The General Partner may itself, or
-------------------------
may enter into an agreement with an Affiliate of the General Partner to, render
services to the Partnership, subject to the prior approval of the LP Committee.
Any services rendered to the Partnership by the General Partner or any such
Affiliate shall be on terms that are fair and reasonable to the Partnership.
SECTION 6.5 Liability of the General Partner and Other Indemnitees. (a)
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No Indemnitee shall be liable to the Partnership or any Persons for losses
sustained or liabilities incurred as a result of any act or omission if such
Indemnitee acted in good faith and in a manner it reasonably believed to be in,
or not opposed to, the best interests of the Partnership.
(b) The General Partner and the LP Committee may exercise any of
the powers granted to them by this Agreement and perform any of the duties
imposed upon them hereunder either directly or through agents, and the General
Partner and the LP Committee shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by General Partner or the LP
Committee, as applicable, in good faith and in a manner it reasonably believed
to be in, or not opposed to, the best interests of the Partnership.
SECTION 6.6 Indemnification. (a) To the fullest extent permitted by law,
---------------
each Indemnitee shall be indemnified and held harmless by the Partnership from
and against any costs, expenses, or disbursements of any kind or nature
whatsoever including, without limitation, legal fees which such Indemnitee may
incur in connection with its status as (v) the General Partner, a Departing
Partner or an Affiliate thereof, (w) an officer, director, employee, partner,
agent or trustee of the General Partner, any Departing Partner or an Affiliate
thereof, (x) a Person serving at the request of the Partnership in a similar
capacity, (y) the LP Committee or its members, or employees or agents of the LP
Committee, or (z) the Transitional Limited Partner, other than costs, expenses,
or disbursements of any kind or nature whatsoever arising from the willful
neglect or gross negligence of such Indemnitee, if the Indemnitee acted in good
faith and in a manner it reasonably believed to be in, or not opposed to, the
best interests of the Partnership, and, with respect to any criminal proceeding,
had no reasonable cause to believe its conduct was unlawful.
(b) To the extent commercially reasonable, the Partnership shall
purchase and maintain insurance on behalf of the General Partner and the LP
Committee, and such other Indemnitees as the General Partner shall determine
against any liability that may be asserted against or expense that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(c) Any indemnification hereunder shall be satisfied solely out of
the assets of the Partnership (including, but not limited to any coverage
provided under any policy of insurance). In no event may an Indemnitee subject
the General Partner, the LP Committee, the Limited Partners or assignees,
employees, independent contractors, or Affiliates of any of them
to personal liability by reason of indemnification hereunder.
(d) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 6.6 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applied if the transaction
were otherwise permitted by the terms of this Agreement.
(e) The indemnification provided in this Section 6.6 is for the
benefit of the Indemnitees and shall not be deemed to create any right to
indemnification for any other Persons.
(f) The indemnification provided in this Section 6.6 obligates the
Partnership to defend all claims subject to indemnification made against
Indemnitees and to advance such funds as may be necessary to such defense.
(g) The Partnership shall establish such reserves as may be
necessary to discharge the indemnification obligations of this Section 6.6. No
distributions shall be made to holders of Partnership A Units, Partnership B
Units or Partnership C Units from reserved funds until claims of Indemnitees
subject to indemnification have been fully satisfied.
SECTION 6.7 Special Prohibitions and Limitations. Without a Majority
------------------------------------
Vote, the General Partner shall not, acting on behalf of the Partnership,
(i) extend the Term of the Partnership;
(ii) approve the dissolution of the Partnership prior to the
expiration of the Term; or
(iii) approve the amendment of the Agreement, except as provided in
Section 2.7 and in Article XVI.
SECTION 6.8 Other Matters Concerning the General Partner. (a) The General
--------------------------------------------
Partner may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it and any opinion of any such Person as to
matters that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by the General
Partner hereunder in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney- or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
SECTION 6.9 Title to Partnership Assets. All Partnership Assets shall be
---------------------------
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership Assets or
any portion thereof. Title to any or all of the Partnership Assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership Assets for which legal title is held in the name
of the General Partner shall be held in trust by the General Partner for the use
and benefit of the Partnership in accordance with the terms and provisions of
this Agreement. All Partnership Assets shall be recorded as the property of the
Partnership on its books and records, irrespective of the name in which legal
title to such Partnership Assets is held.
SECTION 6.10 Resolution of Conflicts of Interest. Unless otherwise
-----------------------------------
expressly provided in this Agreement, whenever a potential conflict of interest
exists or arises between the General Partner or any of its Affiliates, on the
one hand, and the Partnership, or any Limited Partner, on the other hand, any
resolution or course of action in respect of such conflict of interest shall be
permitted and deemed approved, ratified and confirmed by all Limited Partners
and other Persons who may acquire Partnership Interests, and shall not
constitute a breach of this Agreement, of any other agreement contemplated
herein, or of any duty stated or implied by law or equity, if the resolution or
course of action is approved by the LP Committee, which approval shall not be
unreasonably withheld, or is approved by operation of this Agreement.
SECTION 6.11 Approval of Settlements. Any proposed settlement of an
-----------------------
Assigned Third Party Action or a Debtors' Action shall be subject to the
approval of the LP Committee and the Bankruptcy Court.
ARTICLE VII
LP COMMITTEE
SECTION 7.1 Establishment of LP Committee; Voting; Successors. A
-------------------------------------------------
committee to be known as the "LP Committee" is hereby established and will
consist of a number of members designated and named by the Bankruptcy Court at
or before the Confirmation Hearing. The LP Committee will have the
responsibilities expressly set forth in this Agreement. Whenever action or
approval is required by the LP Committee, the LP Committee shall act by majority
vote of all members. In the event a member, or its Affiliate, employer or
employer's Affiliate, is an interested party with respect to an action or
approval being voted upon by the LP Committee, such member shall not participate
in such voting and such action or approval will require only the majority vote
of the members eligible to vote. The General Partner shall notify each LP
Committee member in writing whenever an action or approval is required of the LP
Committee. If the requisite majority of the LP Committee has not responded in
writing to the General Partner indicating the action to be taken or not taken or
approval or disapproval within thirty (30) days of the date the General Partner
sends such notice, the LP Committee shall be deemed to approve the proposed
action. Members of the LP Committee may be involuntarily removed as a member
only by order of the Bankruptcy Court. In the event a member of the LP
Committee is removed, voluntarily resigns, or otherwise is unable to perform his
or her duties as a member of the LP Committee, a successor shall be selected by
the Bankruptcy Court, upon Motion filed by the General Partner.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
SECTION 8.1 Limitation of Liability. The Limited Partners shall have no
-----------------------
liability under this Agreement, except as provided in this Agreement or by
applicable law.
SECTION 8.2 Management of Business. No Limited Partner (other than any
----------------------
Indemnitee or any employee or agent of the Partnership, in its capacity as such,
if such Person shall also be a Limited Partner) shall take part in the
operation, management or control of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by any
Indemnitee or any employee or agent of the Partnership shall not affect, impair
or eliminate the limitations on the liability of any such Limited Partner under
this Agreement.
SECTION 8.3 Return of Capital. No Limited Partner shall be entitled to
-----------------
the withdrawal or return of his Contribution, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law, and then only to the extent
provided for in this Agreement.
SECTION 8.4 Rights of Limited Partners Relating to the Partnership. In
------------------------------------------------------
addition to other rights or obligations provided by this Agreement or by
applicable law, the Limited Partners shall have the following rights and
obligations relating to the Partnership:
(a) Each Limited Partner, and each Limited Partner's duly
authorized representative, shall have the right, upon reasonable notice and
at reasonable times and at such Person's own expense, but only upon his
written request and for a purpose reasonably related to such Person's
interest as a Limited Partner, (i) to have true and full information
regarding the status of the business and financial condition of the
Partnership, (ii) to inspect and copy, promptly after they become
available, the Partnership's federal, state and local income tax returns
for each year, (iii) to have on demand a current list of the full name and
last known business, residence or mailing address of each Limited Partner,
(iv) to have true and full information regarding the Fair Market Value of
any Contribution made by any Limited Partner and the date on which each
such Person became a General Partner or Limited Partner, (v) to have a copy
of this Agreement and the Certificate of Limited Partnership and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which this Agreement or any such Certificate has been executed,
and (vi) to have any other information regarding the affairs of the
Partnership as is reasonable.
(b) Anything in Section 8.4(a) to the contrary notwithstanding,
either the General Partner or the LP Committee may keep confidential from
the Limited Partners, and each Limited Partner's duly authorized
representatives, for such period of time as the General Partner deems
reasonable, any information that the General Partner reasonably believes is
not in the best interests of the Partnership or could damage the
Partnership or its business or which the Partnership is required by law or
by agreements with third parties to keep confidential. If the Litigation'
Managing Agent and the General Partner disagree on whether certain
information is confidential, such information shall be kept confidential
unless a determination is made by the Bankruptcy Court to release such
information or unless disclosure is required by law or a regulatory
authority.
(c) In order to receive information with respect to the
Partnership, each Limited Partner shall agree in writing to keep
confidential all information obtained by it or made available to it except
to the extent that such information is generally available to the public or
available on a nonconfidential basis or disclosure thereof is required, or
counsel for such Limited Partner advises that disclosure of such
information should be made, pursuant to applicable law, regulations,
subpoena, judicial process or for similar compelling reasons.
(d) Notwithstanding paragraph (c) of this Section 8.4, in the
event that, in connection with litigation, a Limited Partner wishes to
disclose information concerning the Partnership obtained by it or made
available to it, such Limited Partner shall notify the Partnership in a
manner so as to provide the Partnership with adaquate opportunity to review
the proposed disclosure and to seek protective orders from a court of
competent jurisdiction regarding limitations on such disclosure.
SECTION 8.5 Right to Receive Distributions. No Limited Partner shall be
------------------------------
entitled to any distribution from the Partnership for any reason or upon any
event except as expressly set forth herein.
SECTION 8.6 Right to Elect to Dissolve Partnership. Upon a Three-Fourths
--------------------------------------
Vote of the Limited Partners, the General Partner shall petition the Bankruptcy
Court to dissolve the Partnership.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 Records and Accounting. The General Partner shall keep
----------------------
complete and accurate books and records with respect to the Partnership's
business, which books and records shall at all times be kept at the principal
office of the General Partner. Any records maintained by the General Partner in
the regular course of its business, including the names and addresses of Limited
Partners, books of account and records of Partnership proceedings, may be kept
on or be in the form of punch cards, magnetic tape, photographs, micrographic or
any other information storage device, provided that the records so kept are
convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial reporting
purposes, on the accrual basis in accordance with GAAP.
SECTION 9.2 Fiscal Year. The fiscal year of the Partnership shall be a
-----------
calendar year, unless a different taxable year is required by the Code.
SECTION 9.3 Other Information. Subject to applicable conflict
-----------------
restrictions and attorney/client privilege, the General Partner may release such
information concerning the operations of the Partnership to such sources as is
customary in the industry or required by law or regulation of any regulatory
body.
ARTICLE X
TAX MATTERS
SECTION 10.1 Preparation of Tax Returns. The General Partner shall
--------------------------
arrange with an independent contractor for the preparation and timely filing of
all returns relating to Partnership assets or operations, as necessary for
federal, state and local income tax purposes, and shall furnish, or arrange to
be furnished, to the Limited Partners as soon as practicable after the close of
the taxable year, within such period as may be required by law, the tax
information reasonably required for federal, state and local income tax
reporting purposes. The classification, realization and recognition of income,
gains, losses, deductions, credits and other items shall be on the accrual
method of accounting for federal income tax purposes.
SECTION 10.2 Tax Elections.
-------------
(a) The Partnership shall not be required to make the election under
Section 754 of the Code. The General Partner may make such election in its
sole discretion.
(b) The Partnership shall elect to deduct expenses incurred in
organizing the Partnership ratably over a sixty month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine in its sole discretion whether to make any other elections
available under the Code or under any state's tax laws on behalf of the
Partnership.
SECTION 10.3 Tax Controversies. Subject to the provisions hereof, the
-----------------
General Partner is designated as the Tax Matters Partner (as defined in Section
6231 of the Code) and is authorized and required to represent the Partnership
(at the Partnership's expense) in connection with all examinations of the
Partnership's affairs by tax authorities, including resulting administrative and
judicial proceedings, and to expend Partnership funds for professional services
and costs associated therewith.
SECTION 10.4 Other Tax Matters. The General Partner may retain tax
-----------------
professionals necessary in its reasonable discretion with respect to any tax
matters relating to the Partnership, including, but not limited to, any
communications with the Internal Revenue Service and performing its duties as
Tax Matters Partner.
SECTION 10.5 Withholding. Notwithstanding any other provision of this
-----------
Agreement, the General Partner is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any withholding and reporting obligations imposed by law, including
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code.
ARTICLE XI
POWER OF ATTORNEY
SECTION 11.1 Power of Attorney. Each Limited Partner constitutes and
-----------------
appoints each of the General Partner and the Liquidating Trustee severally (and
any successor to either thereof by merger, transfer, election or otherwise), and
each of the General Partner's and the Liquidating
Trustee's authorized officers and attorneys-in-fact, with full power of
substitution, as his true and lawful agents and attorneys-in-fact, with full
power and authority in his name, place and stead to:
(a) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (i) all certificates and other instruments
including, at the option of the General Partner or Liquidating Trustee, as
the case may be, this Agreement and the Certificate of Limited Partnership
and all amendments and restatements thereof, that the General Partner or
Liquidating Trustee, as the case may be, deems appropriate or necessary to
carry out the purposes of this Agreement and to form, qualify, or continue
the existence or qualification of the Partnership as a limited partnership
or a partnership in which the Limited Partners have limited liability in
the State of Delaware and under the Delaware Act and in all jurisdictions
in which the Partnership may or may wish to conduct business or own
property; (ii) all instruments that the General Partner or Liquidating
Trustee, as the case may be, deems appropriate or necessary to reflect any
amendment, change or modification of this Agreement in accordance with its
terms; (iii) all conveyances and other instruments or documents that the
General Partner or Liquidating Trustee, as the case may be, deems
appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement (including a
certificate of cancellation); and (iv) all instruments (including, if
required by law, this Agreement and the Certificate of Limited Partnership
and amendments and restatements thereof) relating to the admission,
withdrawal or substitution of any Partner, or the Contribution of any
Partner; and
(b) sign, execute, swear to and acknowledge all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole discretion of the General Partner or the Liquidating
Trustee, as the case may be, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole discretion of the General Partner or
the Liquidating Trustee, as the case may be, to effectuate the terms or
intent of this Agreement; provided, however, that when required by any
provision of this Agreement which establishes a percentage of the Limited
Partners or Limited Partners of any class or series required to take any
action, the General Partner or Liquidating Trustee may exercise the power
of attorney made in this subsection (b) only after the necessary vote,
consent or approval by the Limited Partners.
Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XVI or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive, and shall not
be affected by, the subsequent death, incompetency, dissolution,
disability, incapacity, bankruptcy or termination of any grantor and the
transfer of all or any portion of his Partnership Interest and shall extend
to such Person's heirs, successors and assigns. Each Limited Partner is
deemed to consent to be bound by any representations made by the General
Partner or the Liquidating Trustee, acting in good faith pursuant to such
power of attorney. Each Limited Partner is deemed to consent to, and waive
any and all defenses that may be available to contest, negate or disaffirm,
the action of the General Partner or the Liquidating Trustee, taken in
good faith under such power of attorney. Each Limited Partner shall execute
and deliver to the General Partner or the Liquidating Trustee, within 15
days after receipt of the General Partner's or the Liquidating Trustee's
request therefor, such further designations, powers of attorney and other
instruments as the General Partner or the Liquidating Trustee reasonably
deems necessary to effectuate this Agreement and the purposes of the
Partnership. Failure to do so, however, does not revoke the powers granted
in this Article XI.
ARTICLE XII
TRANSFER AND CONVERSION OF
PARTNERSHIP INTERESTS
SECTION 12.1 Transfers.
---------
(a) The term "transfer," when used in this Article with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
Partner assigns all or any part of its Partnership Interest (including any
Unit) and includes a sale, assignment, gift, pledge, hypothecation,
mortgage, exchange or any other disposition of all or any part of any
Partnership Interest (including any Unit).
(b) Except as provided in Sections 5.3, 13.1 and 13.2, no Partnership
Interest (including any Unit) or all or any part of any Partnership
Interest (including any Unit) may be transferred in whole or in part,
except in accordance with the terms and conditions set forth in this
Article XII. Any transfer or purported transfer of all or any part of any
Partnership Interest (including any Unit) not made in accordance with this
Article XII shall be null and void.
SECTION 12.2 Transfer of Interests of the General Partner.
--------------------------------------------
(a) The General Partner may not transfer its Partnership Interest as
the General Partner, and the General Partner represents that there will be
no transfer of the ownership of the General Partner, unless a Majority Vote
approves of such transfer; provided, however, that no such transfer of all
of the General Partner's Partnership Interest as the General Partner shall
be effective until such time as an additional or successor general partner
has been approved by a Majority Vote, and admitted pursuant to Section
13.4.
(b) Neither Section 12.2(a) nor any other provision of this Agreement
shall be construed to prevent (and all Limited Partners expressly approve
of) (i) the transfer by the General Partner of all or any part of its
Partnership Interest to an Affiliate, and the assumption of the rights and
duties of the General Partner by such Affiliate and its admission as
general partner, (ii) the transfer by the General Partner of any part (but
not all) of its interest in items of Partnership income, gain, loss,
deduction, credit or distribution, or (iii) the transfer by the General
Partner of all of its interest in items of Partnership income, gain, loss,
deduction, credit or distribution if the General Partner agrees,
notwithstanding Section 17-702(a)(4) of the Delaware Act, to continue to be
the General Partner and, if it so agrees, all Limited Partners hereby agree
that it shall continue as a General Partner. In the case of a transfer
pursuant to clause (i) of this Section 12.2(b), the transferee shall be
admitted to the Partnership as a general partner
immediately prior to the transfer of the General Partner's Partnership
Interest, and the transferee shall continue the business and operations of
the Partnership without dissolution due to the admission of such transferee
as a General Partner.
SECTION 12.3 Restrictions on Limited Partner Transfers. Each Limited
-----------------------------------------
Partner (except a Transitional Limited Partner as set forth in Sections 5.3,
13.1 or 13.2) is prohibited from selling, conveying, assigning, hypothecating or
otherwise transferring its Partnership Interest or any interest in or right
relating to such Partnership Interest (including any Units) without the prior
written consent of the General Partner, which such consent may be withheld for
any reason, except in the case of death or dissolution of such Limited Partner
or by operation of law. In considering whether to provide its consent to such
transfer, the General Partner may require that the Limited Partner proposing
such transfer obtain, at the Limited Partner's expense, an Opinion of Counsel
that such proposed transfer would not (a) violate the then applicable federal
and state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authorities with jurisdiction
over such transfer, or (b) affect the Partnership's existence or qualification
as a limited partnership under the Delaware Act. Notwithstanding the above, the
General Partner may withhold his consent to any transfer in his sole discretion,
for any reason or for no reason. In addition, any request to transfer a
Partnership Interest, other than any transfer pursuant to Sections 5.3, 13.1
and/or 13.2, to any Person that is a defendant or an Affiliate of a defendant in
any cause of action relating to any Assigned Third Party Action or Debtors'
Action being pursued or to be pursued by the Partnership shall be denied.
SECTION 12.4 Successor Partners. Upon any permitted transfer, the
------------------
transferee Partner shall assume all of the obligations of the transferor
Partner, and the transferor Partner shall be deemed to be released from those
obligations.
SECTION 12.5 Effectiveness of Transfer. Upon a transfer of a transferor
-------------------------
Limited Partner's Partnership Interest in accordance with Article XII or
Sections 5.3, 13.1 or 13.2, upon the transferee's becoming a Limited Partner,
such transferor Limited Partner shall cease to be a Limited Partner with respect
to the Partnership Interest so transferred, but until such transferee becomes a
Limited Partner, the transferor shall continue to be a Limited Partner.
ARTICLE XIII
ADMISSION OF PARTNERS
SECTION 13.1 Admission of the Transitional Limited Partner. On the
---------------------------------------------
Effective Date, the Transitional Limited Partner shall be admitted to the
Partnership as a Limited Partner holding an aggregate of 1,000,000 Partnership A
Units, 1,000,000 Partnership B Units, and 1,000,000 Partnership C Units. Such
Units shall be held and disposed of in accordance with the Plan, Section 5.3,
and this Article XIII.
SECTION 13.2 Admission of Limited Partners.
-----------------------------
(a) As soon as practicable after the Effective Date, the Transitional
Limited Partner shall transfer (as of the Effective Date) to holders of
Allowed Claims the Units to which such holders are entitled pursuant to the
initial distribution provisions of the Plan.
(b) From time to time after the Effective Date, each time a
Disputed Claim in Class 9, 10, 11 or 12 becomes an Allowed Claim or is
finally disallowed, the Transitional Limited Partner shall transfer (as of
the first day allowable under applicable law for tax reporting purposes) to
holders of Allowed Claims the Units to which such holders are entitled
pursuant to the subsequent distribution provisions of the Plan.
(c) Upon the transfer of Units in accordance with Section 13.2(a)
or (b) to any holder of an Allowed Claim such holder shall be deemed
admitted to, and as a Limited Partner of, the Partnership as of the date
specified in such Section.
(y) In the event any Units become unclaimed property pursuant to
the Plan which are to be vested in, and the property of, the Partnership,
the Transitional Limited Partner (or other owner thereof, if any) shall
transfer such Units to the Partnership for cancellation and such Units
shall no longer be outstanding Units of the Partnership.
SECTION 13.3 Admission of Substituted Limited Partners.
-----------------------------------------
(a) An assignee of the Partnership Interest of a Limited Partner
other than pursuant to Sections 5.3, 13.1 or 13.2 (which shall be
understood to include any purchaser, transferee, donee, or other recipient
on any disposition of that Partnership Interest in compliance with Section
12.3) shall be deemed admitted as a Limited Partner of the Partnership only
upon the satisfactory completion of the following:
(1) Acceptance and agreement by the assignee to be bound by
the terms and provisions of this Agreement and such other documents or
instruments as the General Partner may require (which may include
execution of a counterpart of this Agreement);
(2) If the assignee is a corporation, partnership, limited
liability company, trust or estate, evidence to the General Partner of
its authority to become a Limited Partner under the terms and
provisions of this Agreement; and
(3) Payment by the assignee to the Partnership of a transfer
fee that is sufficient to cover all reasonable expenses connected with
the substitution.
(b) A Substituted Limited Partner shall be deemed to have become
such on the date on which all of the foregoing requirements have been
satisfied.
(c) The General Partner and the Partnership shall cooperate with
the Person seeking to become a Substituted Limited Partner by preparing the
documentation required by this Section 13.3 and making all official filings
and publications as promptly as practicable after the satisfaction by the
assignee of the conditions contained in this Section 13.3 to the admission
of that Person as a Limited Partner of the Partnership.
SECTION 13.4 Admission of Successor or Additional General Partner. A
----------------------------------------------------
successor or additional general partner approved pursuant to Sections 12.2(a) or
14.1 shall be admitted to the Partnership as a General Partner (in the place of
or in addition to, as the case may be, the General Partner), effective as of the
date that an amendment to the Certificate of Limited Partnership, adding its
name and other required information, is filed pursuant to Section 6.1(c) (which,
in the
event the successor or transferee General Partner is in the place of the
withdrawing, removed or transferor General Partner, shall be contemporaneous
with the withdrawal of such withdrawing, removed or transferor General Partner
without dissolution of the Partnership), and upon receipt by the withdrawing,
removed or transferor General Partner of all of the following:
(a) acceptance, in form and substance satisfactory to such transferor
General Partner, of all of the terms and provisions of this Agreement;
(b) written agreement of the proposed General Partner to continue the
business of the Partnership; and
(c) such other documents or instruments as may be required in order to
effect its admission as a General Partner under this Agreement and
applicable law.
Each Limited Partner, by requesting and receiving admission to the Partnership,
is deemed to approve of the admission of a successor or additional General
Partner selected pursuant to the terms of this Agreement, and no further
approval of Partners shall be required to effect such admission. Any such
successor or additional General Partner shall carry on the business of the
Partnership.
SECTION 13.4 Admission of the Organizational Limited Partner. The
-----------------------------------------------
Organizational Limited Partner is and shall be admitted to the Partnership upon
the execution of this Agreement by the Organizational Limited Partner and the
General Partner and the filing of the Certificate of Limited Partnership.
ARTICLE XIV
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 14.1 Withdrawal or Removal of the General Partner.
--------------------------------------------
(a) The General Partner covenants and agrees that it will not
voluntarily withdraw as the general partner of the Partnership except with
a Majority Vote. If the General Partner gives a notice of its intent to
withdraw, it shall call and conduct a meeting of the Limited Partners no
sooner than 60 days after the date of notice to consider and approve a
successor by a Majority Vote. Any Limited Partner may, by notice to the
General Partner at least 30 days prior to the date of the meeting, propose
a successor general partner. Such proposed successor general partner shall
be included on the ballot only if it has complied with all legal
requirements necessary for such inclusion. If no successor general partner
is approved on the first ballot of such meeting, a second ballot shall be
held as soon as practicable thereafter in order to consider the approval of
the candidate that received the most votes in the first ballot. If such
candidate is not approved on the second ballot, the Partnership shall be
dissolved and liquidated pursuant to Section 15.3, and the General Partner
shall serve as Liquidating Trustee. If a successor general partner is
elected, it shall be admitted immediately prior to the withdrawal of the
General Partner and shall continue the business and operations of the
Partnership without dissolution.
(b) The General Partner may be removed only upon a Three-Fourths Vote.
Any such action for removal of the General Partner may also provide for the
election of a
new general partner. Such removal shall be effective immediately subsequent
to the admission of the successor General Partner pursuant to Article XIII.
The right to remove the General Partner shall not exist or be exercised
unless the Partnership has received an Opinion of Counsel that the removal
of the General Partner and the selection of a successor general partner (A)
would not cause the loss of limited liability pursuant to Delaware law of
the Limited Partners under this Agreement, and (B) would not cause the
Partnership to be treated as a corporation, an association taxable as a
corporation or on a similar basis for federal income tax purposes.
SECTION 14.2 Interest of Departing Partner and Successor.
-------------------------------------------
(a) Upon the withdrawal or removal of the General Partner, the
Partnership shall pay the Departing Partner in cash within ninety (90) days
an amount equal to the Departing Partner's Capital Account in the
Partnership. The Departing Partner shall have no further Partnership
Interest.
(b) Any successor General Partner shall be admitted to the Partnership
on terms and conditions adopted by a Majority Vote.
SECTION 14.3 Withdrawal of Organizational Partner. Upon the admission of
------------------------------------
the Transitional Limited Partner as a Limited Partner, the Organizational
Limited Partner will withdraw from the Partnership and the Partnership will pay
the Organizational Limited Partner its Contribution in cash, without interest or
reduction.
ARTICLE XV
DISSOLUTION AND LIQUIDATION
SECTION 15.1 Dissolution. The Partnership shall not be dissolved by the
-----------
admission of Transitional Limited Partners, Initial Limited Partners or
Substituted Limited Partners, or by the admission of substituted or additional
general partners in accordance with the terms of this Agreement. Upon the
removal, withdrawal or resignation of the General Partner, any remaining general
partner and any substituted general partner shall continue the business of the
Partnership. The Partnership shall be dissolved and its affairs shall be wound
up upon the earlier to occur of:
(a) the expiration of the Term as provided in Section 2.5;
(b) the withdrawal of the General Partner or the occurrence of any
other event that results in its ceasing to be the General Partner (other
than by reason of a transfer pursuant to Section 12.2 or a withdrawal
occurring upon or after, or a removal effective upon or after, approval by
the Limited Partners of a successor pursuant to Section 14.1);
(c) the filing of a certificate of dissolution or the revocation of
the certificate of incorporation of the General Partner if the General
Partner has not reinstated, or caused to be reinstated, such certificate of
incorporation within 30 days;
(d) an election to dissolve the Partnership by the General Partner
which is approved by a Three-Fourths Vote;
(e) the bankruptcy of the General Partner; or
(f) a Three-Fourths pursuant to Section 8.6.
For purposes of this Section 15.1, bankruptcy of the General Partner shall
be deemed to have occurred when (u) it commences a voluntary proceeding, or
files an answer in any involuntary proceeding seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law now or hereafter in effect, (v) it is adjudged a bankrupt or insolvent, or
has entered against it a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect, (w) it
executes and delivers a general assignment for the benefit of its creditors, (x)
it files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding of the
nature described in clause (u) above, (y) it seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator for it or for all or any
substantial part of its properties, or (z)(1) any proceeding of the nature
described in clause (u) above has not been dismissed within 120 days after the
commencement thereof, (2) the appointment without its consent or acquiescence of
a trustee, receiver or liquidator appointed pursuant to clause (y) above has not
been vacated or stayed within 90 days of such appointment, or (3) such
appointment is not vacated within 90 days after the expiration of any such stay.
SECTION 15.2 Continuation of the Business of the Partnership.
-----------------------------------------------
(a) Within 180 days following an event described in Section 15.1(b),
15.1(c), or 15.1(e), the remaining Partners, by a Two-Thirds Vote may elect
in writing to reconstitute and continue the business of the Partnership by
forming a Reconstituted Partnership on the same terms and provisions as are
set forth in this Agreement. Any such election must also provide for the
election of a general partner of the Reconstituted Partnership. If such an
election is timely made, all of the Limited Partners of the Partnership
shall continue as limited partners of the Reconstituted Partnership. The
Partnership Interest of the General Partner of the former Partnership shall
be treated as though it were an equivalent general partner's interest in
the Reconstituted Partnership, and shall be subject to disposition in the
manner provided in Section 14.2(a).
(b) Upon any such election, all Limited Partners shall be bound
thereby and shall be deemed to have approved thereof.
(c) Upon any such election, all necessary steps shall be taken to
cancel this Agreement and the Certificate of Limited Partnership of the
Partnership and to enter into a new partnership agreement and certificate
of limited partnership of the Reconstituted Partnership, and the general
partners of the Reconstituted Partnership may for this purpose and all
purposes stated in such agreement or certificate, as if granted to the
Reconstituted Partnership, exercise the power of attorney granted pursuant
to Article XI.
SECTION 15.3 Liquidation.
-----------
(a) Upon dissolution of the Partnership, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 15.2, the General Partner, or, in the event that there
is no General Partner, a liquidator or liquidating committee selected by
the LP Committee shall be the Liquidating Trustee. The Liquidating Trustee
(if other than the General Partner) shall be entitled to receive such
compensation for its services as may be approved by a Majority Vote. The
Liquidating Trustee shall agree not to resign at any time without 15 days'
prior written notice and (if other than the General Partner) may be removed
at any time, with or without cause, by notice of removal approved by the LP
Committee or by a Two-Thirds Vote. Upon dissolution, removal or
resignation of the Liquidating Trustee, a successor and substitute
Liquidating Trustee (who shall have and succeed to all rights, powers and
duties of the original Liquidating Trustee) shall within 30 days thereafter
be selected by the LP Committee. The right to appoint a successor or
substitute Liquidating Trustee in the manner provided herein shall be
recurring and continuing for so long as the functions and services of the
Liquidating Trustee are authorized to continue under the provisions hereof,
and every reference herein to the Liquidating Trustee shall be deemed to
refer also to any such successor or substitute liquidator appointed in the
manner herein provided. Except as expressly provided in this Article XV,
the Liquidating Trustee appointed in the manner provided herein shall have
and may exercise, without further authorization or approval of any of the
parties hereto, all of the powers conferred upon the General Partner under
the terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of such powers),
regardless of whether the Liquidating Trustee is the General Partner, to
the extent necessary or desirable in the good faith judgment of the
Liquidating Trustee to carry out the duties and functions of the
Liquidating Trustee hereunder for and during such period of time as shall
be reasonably required in the good faith judgment of the Liquidating
Trustee to complete the winding up and liquidation of the Partnership as
provided for herein. The Liquidating Trustee shall liquidate the assets of
the Partnership, and apply and distribute the proceeds of such liquidation,
in the following order of priority, unless otherwise required by mandatory
provisions of applicable law:
(i) the payment to creditors of the Partnership, including
Partners, in order of priority provided by law, and the creation of a
reserve of cash or other assets of the Partnership for contingent
liabilities in an amount, if any, determined by the Liquidating
Trustee to be appropriate for such purposes; and
(ii) to the Partners in accordance with Section 5.1.
(b) In the event any Limited Partner cannot be located within two
years after the liquidation of the Partnership after a good faith effort
has been made to locate such Partner, such Limited Partner's distribution
pursuant to Section 15.3(a) shall be distributed to the remaining Partners
in accordance with Section 5.1(b), except as required by law.
SECTION 15.4 Cancellation of Certificate of Limited Partnership. Upon the
--------------------------------------------------
completion of the distribution of Partnership Assets as provided in Section
15.3, the Partnership shall be terminated, and either the General Partner or the
Liquidating Trustee shall cause the cancellation
of the Certificate of Limited Partnership and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware and shall take such other actions as may be necessary to
terminate the Partnership.
SECTION 15.5 Reasonable Time for Winding Up. A reasonable time shall be
------------------------------
allowed for the orderly winding up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 15.3 in order
to minimize any losses otherwise attendant upon such winding up.
SECTION 15.6 Return of Contributions. The General Partner shall not be
-----------------------
liable for the return of the Contributions of the Limited Partners, or any
portion thereof, it being expressly understood that any such return shall be
made solely from Partnership Assets.
SECTION 15.7 Waiver of Partition. Each Partner, by requesting and being
-------------------
granted admission to the Partnership, is deemed to waive until termination of
the Partnership any and all rights that he may have to maintain an action for
partition of the Partnership's Assets.
ARTICLE XVI
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
SECTION 16.1 Amendments to Be Adopted Solely by the General Partner. The
------------------------------------------------------
General Partner, pursuant to the General Partner's power of attorney, without
the approval at the time of any Limited Partner, may amend any provision of this
Agreement, and execute, swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith, to reflect.
(a) a change in the name of the Partnership or the location of the
principal place of business of the Partnership;
(b) the admission, substitution or withdrawal of Partners in
accordance with this Agreement;
(c) a change that is necessary or advisable in the sole judgment of
the General Partner to qualify the Partnership as a limited partnership or
a partnership in which the Limited Partners have limited liability under
the laws of any state or to ensure that the Partnership will not be treated
as a corporation or as an association taxable as a corporation or on a
similar basis for federal income tax purposes;
(d) a change that in the judgment of the General Partner (i) does not
adversely affect the Limited Partners in any material respect, (ii) is
necessary or desirable to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or contained in any federal or state
statute, or (iii) is required to effect the intent of the provisions of
this Agreement or otherwise contemplated by this Agreement; or
(e) an amendment that, in the judgment of the General Partner, is
necessary or desirable in connection with the issuance of any class or
series of Partnership Interests or
other securities, and the establishment of the rights and preferences of
such class or series of Partnership Interests or other securities.
SECTION 16.2 Amendment Procedures. Except as provided in Sections 16.1
--------------------
and 16.3, all amendments to this Agreement shall be made in accordance with the
following requirements:
(a) Any amendment to this Agreement may be proposed by the General
Partner or by 10% in interest of the Limited Partners by submitting the
text of the amendment to all Limited Partners in writing.
(b) If an amendment is proposed pursuant to subsection (a) above, the
General Partner shall call a meeting of the Limited Partners to consider
and vote on the proposed amendment. Subject to Section 16.3, a proposed
amendment shall be effective upon its approval by the General Partner and a
Majority Vote, unless a different percentage is required by this Agreement.
The General Partner shall notify all Limited Partners upon final approval
or disapproval of any proposed amendment.
(c) No amendment shall be permitted which would affect any Partner's
right to receive profits, losses or distributions, or affect its
obligations or liability under this Agreement, without each such Partner's
written consent.
(d) There shall be no amendment to any provision of this Agreement
requiring a Three-Fourths Vote which is not approved by a Three-Fourths
Vote.
(e) There shall be no amendment to any provision of this Agreement
requiring a Two-Thirds Vote which is not approved by a Two-Thirds Vote.
SECTION 16.3 Meetings. Meetings of the Limited Partners may be called by
--------
the General Partner, or the Liquidating Trustee, if any, or by 10% in interest
of the Limited Partners. Limited Partners shall call a meeting by delivering to
the General Partner one or more notices in writing stating that the signing
Limited Partners wish to call a meeting and indicating the specific purposes for
which the meeting is to be called. Action at the meeting shall be limited to
those matters specified in the notice of the meeting. Within 60 days after
receipt of such a notice from Limited Partners or within such greater time as
may be reasonably necessary for the Partnership to comply with any statutes,
rules, regulations, listing agreements or similar requirements governing the
holding of a meeting or the solicitation of proxies for use at such a meeting,
the General Partner shall send a notice of the meeting to all Limited Partners.
A meeting shall be held at a reasonable time and convenient place determined by
the General Partner or the Liquidating Trustee, as the case may be, on a date
not less than 30 days and not more than 60 days after the mailing of notice of
the meeting. Limited Partners may vote either in person or by proxy at any
meeting. No action shall be taken by the Limited Partners without a meeting
duly called and held except as otherwise required by the terms of this
Agreement.
SECTION 16.4 Notice of a Meeting. Notice of a meeting called pursuant to
-------------------
Section 16.4 shall be given either personally in writing or by mail or other
means of written communication addressed to each Limited Partner at the address
of such Limited Partner appearing on the books of the Partnership. An affidavit
or certificate of mailing of any notice or report in accordance with the
provisions of this Article XVI executed by the General Partner or mailing
organization shall be prima facie evidence of the giving of notice. If any
notice addressed to a Limited Partner
at such address is returned to the Partnership by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver it, such notice and any subsequent notices or reports shall be deemed to
have been duly given without further mailing if they are available for the
Limited Partner at the principal executive office of the Partnership for a
period of one year from the date of the giving of the notice to all other
Limited Partners.
SECTION 16.5 Record Date. For purposes of determining the Limited
-----------
Partners entitled to notice of or to vote at a meeting of the Limited Partners,
the General Partner or the Liquidating Trustee, if any, shall set a Record Date,
which shall not be less than ten days nor more than 60 days before the date of
the meeting (unless such requirement conflicts with any law, rule, regulation,
guideline or requirement, in which case such law, rule, regulation, guideline or
requirement shall govern).
SECTION 16.6 Adjournment. When a meeting is adjourned to another time or
-----------
place, notice need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless such adjournment shall be for more than
45 days. At the adjourned meeting, the Partnership may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 45 days or if a new Record Date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given in accordance with
this Article XVI.
SECTION 16.7 Waiver of Notice; Consent to Meeting; Approval of Minutes.
---------------------------------------------------------
The actions taken at any meeting of Limited Partners, which was improperly
called or noticed, are as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the Limited Partners
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All waivers, consents and approvals shall be filed with the
Partnership records or made a part of the minutes of the meeting. Attendance of
a Limited Partner at a meeting shall constitute a waiver of notice of the
meeting, except when the Limited Partner objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters required to be included in the
notice of the meeting, but not so included, if the objection is expressly made
at the meeting.
SECTION 16.8 Quorum. A Majority represented in person or by proxy shall
------
constitute a quorum at a meeting of Limited Partners. Notwithstanding anything
elsewhere provided in this Agreement to the contrary, the Limited Partners shall
be entitled to vote on, consent to or approve of matters only as expressly
provided in this Agreement. At any meeting of the Limited Partners duly called
and held in accordance with this Agreement at which a quorum is present, a
Majority Vote of the Limited Partners entitled to vote and be present in person
or by proxy at such meeting shall be deemed to constitute the act of all Limited
Partners, unless a higher percentage is required with respect to such action
under the provisions of this Agreement, in which case the act of the Limited
Partners entitled to vote and be present in person or by proxy at such meeting
owning such higher percentage shall be required and shall be deemed to
constitute the act of all Limited Partners. The Limited Partners present at a
duly called or held meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Limited Partners to leave less than a quorum, if any action taken (other than
adjournment) is approved by Limited Partners having the requisite percentage of
Partnership
Interests specified in this Agreement. In the absence of a quorum, any meeting
of Limited Partners may be adjourned from time to time by the General Partner or
upon the affirmative vote of a Majority Vote of the Limited Partners represented
either in person or by proxy, but no other business may be transacted.
SECTION 16.9 Conduct of Meeting. The Person who calls the meeting as set
------------------
forth in Section 16.3, whether the General Partner or the Liquidating Trustee,
if any, or in the case of a meeting called by 10% in interest of the Limited
Partners, the General Partner, shall have full power and authority concerning
the manner of conducting any meeting of Limited Partners including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 16.4, the conduct of
voting, the validity and effect of any proxies, and the determination of any
controversies, votes or challenges arising in connection with or during the
meeting or voting. The General Partner, or the Liquidating Trustee, as the case
may be, shall designate Person to serve as chairman of any meeting and shall
further designate a Person to take the minutes of any meeting in either case
including, without limitation, a Partner or an employee or agent of the General
Partner. All minutes shall be kept with the records of the Partnership
maintained by the General Partner. The General Partner or the Liquidating
Trustee, as the case may be, may make such other regulations consistent with
applicable law and this Agreement as they may deem advisable concerning the
conduct of any meeting of the Limited Partners, including regulations in regard
to the appointment of proxies, the appointment and duties of inspectors of
votes, the submission and examination of proxies and other evidence of the right
to vote.
SECTION 16.10 Action Without a Meeting. Any action that may be taken at a
------------------------
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners holding
not less than the minimum percentage interest of each class that would be
necessary to authorize or take such action at a meeting at which all the Limited
Partners were present and voted. Prompt notice of the taking of action without
a meeting shall be given to the Limited Partners who have not approved in
writing. The General Partner may specify that any written ballot submitted to
Limited Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time, not less than 20 days, specified by
the General Partner. If a ballot returned to the Partnership does not vote all
of the Partnership Interests held by the Limited Partner, the Partnership shall
be deemed to have failed to receive a ballot for the Partnership Interests that
were not voted. If approval of the taking of any action by the Limited Partners
is solicited by any Person other than by or on behalf of the General Partner,
the written approvals shall have no force and effect unless and until (a) they
are deposited with the Partnership in care of the General Partner, and (b)
approvals sufficient to take the action proposed are dated as of a date not more
than 90 days prior to the date sufficient approvals are deposited with the
Partnership.
SECTION 16.11 Voting and Other Rights. Only Limited Partners who are
-----------------------
Limited Partners on the Record Date set pursuant to Section 16.5 shall be
entitled to notice of, or to vote at, a meeting of Limited Partners or to act
with respect to matters as to which approvals are solicited. The Transitional
Limited Partner will vote any Units registered in the name of the Transitional
Limited Partner in the same manner and in the same proportion as Units that are
held other than by the Transitional Limited Partners are voted.
ARTICLE XVII
CERTIFICATES
SECTION 17.1 No Certificates. No certificates will be issued to evidence
---------------
ownership of Units. The General Partner or its agent shall cause to be kept a
record of the Limited Partners to whom Units are issued and transferred, as part
of the books and records of the Partnership.
ARTICLE XVIII
GENERAL PROVISIONS
SECTION 18.1 Addresses and Notices. The address of the General Partner
---------------------
for all purposes shall be the address set forth on the books and records of the
Partnership and for each Limited Partner the address set forth in the books and
records of the Partnership. Any notice, demand, request or report required or
permitted to be given or made to a Partner under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or the third
day after sent to the Partner at such address by first class mail or by other
means of written communication.
SECTION 18.2 Titles and Captions. All article or section titles or
-------------------
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof.
SECTION 18.3 Pronouns and Plurals. Whenever the context may require, any
--------------------
pronoun used in this Agreement shall be applied without regard to gender, and
the singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
SECTION 18.4 Parties. The parties hereto include all Limited Partners.
-------
SECTION 18.5 Action. The parties shall execute and deliver all documents,
------
provide all information and take or refrain from taking all actions as may be
necessary or appropriate to achieve the purpose of this Agreement.
SECTION 18.6 Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto, and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
SECTION 18.7 Integration. This Agreement constitutes the entire agreement
-----------
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
SECTION 18.8 Creditors. None of the provisions of this Agreement shall
---------
inure to the benefit of, or shall be enforceable by, any creditor of the
Partnership.
SECTION 18.9 Waiver. No failure by any party hereto to insist upon the
------
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement or condition.
SECTION 18.10 Counterparts. This Agreement may be executed in
------------
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto. Each party shall become bound by this Agreement
immediately upon affixing its signature hereto, independently of the signature
of any other party.
SECTION 18.11 Applicable Law. Notwithstanding the place where this
--------------
Agreement may be executed by any of the parties hereto, the parties hereto
expressly agree that all of the terms and provisions hereof shall be construed
under and governed by the substantive laws of the State of Delaware, without
regard to the principles of conflicts of law.
SECTION 18.12 Invalidity of Provisions. If any provision of this
------------------------
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
-REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK-
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the _____ day of _____, 1999.
GENERAL PARTNER:
_________________, INC.
By:___________________________________
Name:
Title:
ORGANIZATIONAL LIMITED PARTNER:
_______________________________________
[name]
TRANSITIONAL LIMITED PARTNER:
_______________________________________
[name]
Exhibit C to Disclosure Statement
Firm Name/5/ Fees & Estimated
Expenses Balance of
Allowed Additional Fees
and Expenses
(+/-)
- -------------------------------------------------------------------------
Matthew A. Rosenstein $ 181,986.88 $100,000 -
$200,000/6/
- -------------------------------------------------------------------------
Jeffers & Banack, Inc. $325,000
- -------------------------------------------------------------------------
Hughes & Luce, LLP $ 61,747.41 $250,000
- -------------------------------------------------------------------------
Peterson Worldwide, LLC $ 61,878.00 $100,000
- -------------------------------------------------------------------------
Mike Boudloche $ 10,708.05
- -------------------------------------------------------------------------
Wallace & Wheeler, LLP $11,562.50
- -------------------------------------------------------------------------
Harrell Z. Browning $5,000/7/
- -------------------------------------------------------------------------
Diane Sanders $5,000
- -------------------------------------------------------------------------
Postelwaite & Netterville, CPAs $50,000
- -------------------------------------------------------------------------
Steven Toscher $125,000-
$175,00/8/
- -------------------------------------------------------------------------
David Seyer $10,000
- -------------------------------------------------------------------------
Jennings, Strouss & Salmon, PLC $5,000
- -------------------------------------------------------------------------
Lloyd Aderholdt, PE $10,000
- -------------------------------------------------------------------------
Gibson, Dunn & Crutcher/9/ $20,000
- -------------------------------------------------------------------------
Tom Whitlock $15,242,33/10/ $30,000/11/
- -------------------------------------------------------------------------
_________________________
/5/ It is anticipated that Debtor's management will seek additional
compensation.
/6/ Amount depends whether this firm continues on certain matters after
Confirmation.
/7/ This could approximate in excess of $30,000, depending whether this firm
continues on certain matters after Confirmation.
/8/ Anticipates a trial. A settlement could significantly reduce this amount.
/9/ Such amounts are subject to the Committee's objection.
/10/ Includes $820 fee application pending.
/11/ Estimate for services in connection with objection to $11+ million claim of
California Franchise Tax Board Claim.
EXHIBIT F TO DISCLOSURE STATEMENT
Unsecured Creditor $ Scheduled $ Filed
- --------------------------------------------------------------------------------------------
American Rice Inc. $26,793,000.00 $42,000,000.00
Appleton, Pasternak & Pasternak --0-- $ 32,718.28
Ashby Geddes, Attorneys $ 3,424.05 $ 3,424.05
Bank of America --0-- $ 294.31
Business Wire (Goods Sold) --0-- $ 215.00
ChaseMellon Shareholder Services $ 197,232.68 $ 219,466.66
Dennis Graham Accounting --0-- $ 23,078.00
Epman, Dwyer, Worhle & Singer $ 345,273.85 $ 354,093.60
Firemans Fund Insurance Co. --0-- $ 97,947.00
Firetrol Holdings, L.L.C. --0-- $ 291,144.00
Franchise Tax Board (Taxes) --0-- $11,311,677.22
GTE California --0-- $ 1,356.81
Hansen Beverage Company --0-- $ 1,874,911.00
(Breach of Contract Right of First Refusal)
Harris Trust Savings Bank $ 13,430.63 $ 15,232.56
International Marine Underwriters --0-- $ 136,000.00
(Insurance Risks Assumed)
Larry Kasday, Kasday Media Trading Co. --0-- $ 2,071,764.57
(Breach of Contract)
LaSalle/One Westwood Limited Partnership $ 33,066.69 $ 400,936.97
Latham & Watkins, Attorneys $ 6,792.56 $ 101,746.04
Mitchell, Silberberg & Knupp $ 78,094.87 $ 25,232.38
Nelson Marketing (Goods Sold) --0-- $ 2,573.24
Northwestern Mutual Life Insurance Co. --0-- $17,130,599.82
(Guaranty of lease obligations including future rent of
Chemonics)
O'Melveny & Myers, Assignee of Burgess --0-- $ 16,037.00
(Indemnification Agreement for Legal Expenses)
Patton Boggs LLP (Services & Expenses) --0-- $ 23,078.01
Postage Meter Distribution --0-- $ 181.03
Sandburg Financial $ 9,118,626.00 $ 9,118,626.00
Seneca Foods Corporation $ 95,904.00 $ 86,252.07
Seneca Foods Foundation $ 209,000.00 $ 213,500.00
State of Michigan Retirement System $ 400,000.00 $ 464,716.02
Sterns, Jane A. (Money Loaned) --0-- $ 10,000.00
William Burgess $ 31,000.00 $ 48,000.00
Wine World Estates (Assignment and Lawsuit) --0-- $ 1,500,000.00
Zolfo Cooper, LLC $ 49,813.07 $ 49,813.07
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TOTAL $37,374,658.40 $87,624,614.71
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