EXHIBIT 99.1
THIS DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED BY THE COURT
THIS PROPOSED DISCLOSURE STATEMENT IS NOT A SOLICITATION OF ACCEPTANCE
OR REJECTION OF THE AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION. ACCEPTANCES
OR REJECTIONS MAY NOT BE SOLICITED UNTIL THE COURT HAS APPROVED THIS DISCLOSURE
STATEMENT UNDER BANKRUPTCY CODE SECTION 1125. THIS PROPOSED DISCLOSURE STATEMENT
IS BEING SUBMITTED FOR APPROVAL ONLY, AND IT HAS NOT YET BEEN APPROVED BY THE
COURT.
FURTHER, THE PLAN PROPONENTS PROVIDE NO ASSURANCE THAT THE DISCLOSURE
STATEMENT, INCLUDING ANY EXHIBITS TO THE DISCLOSURE STATEMENT, THAT IS
ULTIMATELY APPROVED IN THE CHAPTER 11 CASES (1) WILL CONTAIN ANY OF THE TERMS IN
THE CURRENT DOCUMENT OR (2) WILL NOT CONTAIN DIFFERENT, ADDITIONAL, MATERIAL
TERMS THAT DO NOT APPEAR IN THE CURRENT DOCUMENT. THEREFORE, MAKING INVESTMENT
DECISIONS BASED UPON THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, THE
PLAN AND THE EXHIBITS IN THE EXHIBIT BOOK IS HIGHLY SPECULATIVE, AND THE
DOCUMENTS SHOULD NOT BE RELIED UPON IN MAKING SUCH INVESTMENT DECISIONS WITH
RESPECT TO (1) THE DEBTORS OR (2) ANY OTHER PARTIES THAT MAY BE AFFECTED BY THE
CHAPTER 11 CASES.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: ) CHAPTER 11
)
W. R. GRACE & CO., ET AL.,(1) ) CASE NO. 01-1139 (JKF)
) (JOINTLY ADMINISTERED)
DEBTORS. )
- ----------------------------------------
AMENDED DISCLOSURE STATEMENT FOR THE AMENDED JOINT PLAN OF REORGANIZATION
PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
IMPORTANT DATES
o Date by which Ballots must be received: [____], 2005
o Date by which objections to the Plan must be filed and served: [____], 2005
o Hearing on Confirmation of the Plan: [____], 2005
KIRKLAND & ELLIS LLP PACHULSKI, STANG, ZIEHL, YOUNG, JONES
David M. Bernick, P.C. & WEINTRAUB P.C.
Janet S. Baer Laura Davis Jones (Bar No. 2436)
Jonathan P. Friedland David W. Carickhoff, Jr. (Bar No. 3715)
Samuel L. Blatnick 919 North Market Street, 16th Floor
200 East Randolph Drive P.O. Box 8705
Chicago, Illinois 60601 Wilmington, Delaware 19899-8705 (Courier 19801)
Telephone: (312) 861-2000 Telephone: (302) 652-4100
and
Bennett L. Spiegel
Lori Sinanyan
777 South Figueroa Street
Los Angeles, California 90017
Telephone: (213) 680-8400
- Co-Counsel for the Debtors and Debtors in Possession -
Dated: January 13, 2005
THIS DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED BY THE COURT
- ----------
(1) The "Debtors," and all capitalized terms not defined in this Disclosure
Statement, are defined in the Glossary. The Glossary is included as Exhibit
2 to the Exhibit Book. The Exhibit Book (and each Exhibit thereto) is
incorporated by reference into this Disclosure Statement.
EXHIBIT 99.1
NOTICE TO HOLDERS OF CLAIMS AND/OR EQUITY INTERESTS AND GENERAL
DISCLAIMERS WITH RESPECT TO THIS DISCLOSURE STATEMENT
PLEASE READ THIS IMPORTANT INFORMATION
The Bankruptcy Code requires that a party proposing a chapter 11 plan
of reorganization prepare and file a document with the Bankruptcy Court called a
"Disclosure Statement." This document is the proposed Disclosure Statement for
the Debtors' Chapter 11 Plan of Reorganization. All Exhibits to this Disclosure
Statement are incorporated into and made a part of this Disclosure Statement as
if set forth in full herein.
The Plan Proponents are providing the information in this Disclosure
Statement solely for the purposes of providing information concerning the Plan
to Holders of Claims against or Equity Interests in the Debtors so that those
who are entitled to vote on the Plan can make an informed decision with respect
to voting on acceptance or rejection of the Plan.
No one is authorized to provide to any other party information
concerning the Plan other than the contents of this Disclosure Statement. Except
as set forth in this Disclosure Statement, no representations concerning the
Debtors, their assets, past or future business operations, the financial
information or the Plan are authorized, nor should any such representations be
relied upon in arriving at a decision with respect to the Plan. Holders of
Claims or Equity Interests should not rely on any information, representations,
or inducements made to obtain acceptance or rejection of the Plan that are other
than, or inconsistent with, the information contained herein and in the Plan.
Any representations made to secure acceptance or rejection of the Plan other
than those contained in this Disclosure Statement should be reported to counsel
for the Debtors. The statements and information about the Debtors, including all
Financial Information and information regarding Claims or Equity Interests
contained herein, have been prepared from documents and information prepared by
the Debtors or their Professionals.
Nothing contained in this Disclosure Statement is, or shall be deemed
to be, an admission or statement against interest by the Plan Proponents for
purposes of any pending or future litigation matter or proceeding. Moreover,
this Disclosure Statement does not constitute, and may not be construed as, an
admission of fact or liability, a stipulation, or a waiver. Instead, this
Disclosure Statement should be construed as a statement made in settlement
negotiations related to contested matters, adversary proceedings and other
pending or threatened litigation or actions.
The description herein of the Plan only is a summary, and Holders of
Claims and/or Equity Interests are urged to review the entire Plan, which is
included as Exhibit 1 to the Exhibit Book. In the event that there is any
inconsistency or conflict between this Disclosure Statement and the Plan, the
terms of the Plan shall control.
This Disclosure Statement also summarizes Financial Information and
other documents. The Financial Information and other documents incorporated by
reference herein are qualified in their entirety by reference to those
documents. In the event there is any inconsistency or discrepancy between a
description in this Disclosure Statement and the Financial Information or other
documents so described, the underlying Financial Information or other documents,
as the case may be, shall govern for all purposes.
EXHIBIT 99.1
Further, each Holder of a Claim and/or Equity Interest that is
entitled to vote is encouraged to seek the advice of its own counsel before
casting a Ballot and/or Master Ballot, as applicable.
Although certain of the attorneys, accountants, advisors and other
Professionals retained and/or employed by the Plan Proponents have assisted in
preparing this Disclosure Statement, which is based upon factual information and
assumptions respecting financial, business and accounting data found in the
books and records of the Debtors, they have not independently verified such
information. The attorneys, accountants, advisors, and other Professionals
retained and/or employed by the Plan Proponents do not provide any warranty,
representation or guaranty regarding the accuracy of any information contained
in this Disclosure Statement or any of the Plan Documents and shall have no
liability for any inaccurate, untrue or incomplete information contained in this
Disclosure Statement or any of the Plan Documents.
Further, there has been no independent audit of the proforma or
prospective financial information contained in this Disclosure Statement, and no
fairness opinion has been obtained regarding the value of the Debtors' assets
and the amount of their liabilities. The factual information regarding the
Debtors and their assets and liabilities has been provided by the Debtors or
otherwise derived from the Debtors' schedules, available public records,
pleadings, reports on file with the Court, the Debtors' internal documents and
related documents specifically identified herein. While the Plan Proponents
endeavored to provide accurate information herein, the Plan Proponents cannot,
and do not, warrant or represent that the information contained in this
Disclosure Statement does not contain any material inaccuracy.
The Plan Proponents and their Professionals have also endeavored to
identify in this Disclosure Statement and the Plan certain pending litigation
claims and potential causes of action and objections to Claims. However, no
reliance should be placed on the fact that a particular litigation claim or
potential cause of action or objection to a Claim is, or is not, identified in
this Disclosure Statement, the Plan, or any Plan Document. The Debtors, the
Reorganized Debtors, or the Asbestos Trust, as applicable may seek to
investigate, file and prosecute litigation claims and projected causes of action
and objections to Claims after the Effective Date of the Plan, irrespective of
whether this Disclosure Statement, the Plan or any Plan Document identifies any
such claims, causes of action, or objections to Claims.
The Court's approval of this Disclosure Statement does not constitute
the Court's approval of the merits of the Plan, an endorsement of the Plan or a
guarantee of the accuracy or completeness of the information contained herein.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SEC OR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY, NOR HAS THE SEC OR ANY
OTHER FEDERAL OR STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THE STATEMENTS CONTAINED HEREIN. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The securities described herein will be issued in reliance on the
exemptions set forth in Bankruptcy Code Section 1145 and without registration
under the Securities Act, or any similar
EXHIBIT 99.1
federal, state or local law. The Plan Proponents recommend that potential
recipients of any securities pursuant to the Plan consult their own legal
counsel concerning the securities laws governing the transferability of any such
securities.
This Disclosure Statement may contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements consist of any statements other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "believe," "anticipate," "project," "assume," "estimate," or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements,
including proforma and prospective financial information, are necessarily
speculative, and there are risks and uncertainties that could cause actual
events or results to differ materially from those referred to in such
forward-looking statements. The liquidation analyses, proforma and prospective
financial information, and other information are estimates only, and the timing
and amounts of actual distributions to Claimants may be affected by many factors
that cannot be predicted. Therefore, any analyses, estimates, or recovery
projections may or may not prove to be accurate, and the Plan Proponents provide
no assurance that these projections or estimates will be correct.
The Debtors make the statements and provide the Financial Information
contained herein as of the date hereof unless otherwise specified. Holders of
Claims and/or Equity Interests reviewing this Disclosure Statement should not
infer at the time of such review that the facts set forth herein have not
changed since the date hereof unless so specified. Each Holder of an impaired
Claim or Equity Interest that is entitled to vote should therefore carefully
review all of the Plan Documents. See Article 8 of this Disclosure Statement for
a discussion of various considerations and risk factors to be considered in
deciding whether to accept the Plan.
This Disclosure Statement does not constitute legal, business,
securities, financial or tax advice. All Entities desiring such advice or any
other advice should consult with their own advisors. Further, neither this
Disclosure Statement (including the Plan and all of the Exhibits in the Exhibit
Book) nor any of the Plan Documents should be relied upon in making any
investment decisions with respect to Grace or any other parties that may be
affected by the Plan.
A vote by a Claimant or Holder of an Equity Interest - whether for or
against the Plan - does not constitute a waiver or release of any claims or
rights of the Debtors (or any party in interest) to object to that Claimant's
Claim or Holder's Equity Interest of estate assets, regardless of whether any
claims of the Debtors or their respective estates are specifically or generally
identified herein.
EXHIBIT 99.1
TABLE OF CONTENTS
PAGE
----
1. EXECUTIVE SUMMARY.................................................................................1
1.1 The Disclosure Statement...................................................................1
1.2 The Plan...................................................................................1
1.2.1 What Claims and Equity Interests Are Affected by the Plan?........................1
1.2.2 How Will Asbestos Claims be Treated?..............................................8
1.2.3 How Will General Unsecured Claims be Treated Under the Plan?......................9
1.2.4 How Will Equity Interests be Treated Under the Plan?..............................9
1.2.5 How Will the Treatment of Asbestos Claims be Effectuated?........................10
1.2.6 How Will the Plan be Funded?.....................................................10
2. DESCRIPTION OF THE DEBTORS.......................................................................11
2.1 General Overview of the Debtors...........................................................11
2.2 The Debtors' Current Businesses...........................................................11
2.2.1 Davison Chemicals................................................................11
2.2.1.1 Refining Technologies.................................................12
2.2.1.2 Specialty Materials...................................................12
2.2.1.2.1 Silicas...................................................12
2.2.1.2.2 Zeolites..................................................13
2.2.1.3 Polyolefin and Other Catalysts........................................13
2.2.1.4 Other Information.....................................................13
2.2.2 Performance Chemicals............................................................13
2.2.2.1 Construction Chemicals and Building Materials.........................13
2.2.2.2 Sealants and Coatings.................................................14
2.2.2.3 Other Information.....................................................14
2.3 Genesis of the Debtors' Asbestos Liabilities..............................................14
2.3.1 Asbestos-Added Products..........................................................15
2.3.2 Libby Vermiculite................................................................15
2.3.3 Zonolite Attic Insulation........................................................15
2.4 The Debtors' Asbestos-Related Litigation..................................................16
2.4.1 Asbestos Personal Injury Litigation..............................................16
2.4.2 Asbestos Property Damage Litigation..............................................16
2.4.3 Litigation Related to Zonolite Attic Insulation..................................17
2.4.4 Asbestos Medical Monitoring Claims...............................................18
2.5 The Debtors' Other Litigation.............................................................18
2.5.1 Environmental Proceedings and Environmental Insurance Litigation.................18
2.5.1.1 Libby and Vermiculite-Related Remediation.............................18
2.5.1.1.1 Libby, Montana............................................18
2.5.1.1.2 Libby Property Owners.....................................18
2.5.1.1.3 State of Montana's Claims Against the Debtors.............19
2.5.1.1.4 Former Grace Plant in Minneapolis, Minnesota..............19
i
EXHIBIT 99.1
2.5.1.1.5 Other Current and Former Vermiculite Expansion Plants.....19
2.5.1.2 Proceedings in Which Grace is a Potentially Responsible Party.........20
2.5.1.3 The Settling Federal Agencies' Consent Decree.........................20
2.5.1.4 Other Significant Environmental Legal Proceedings and Claims..........22
2.5.1.4.1 Cape Cod Pipeline Remediation.............................22
2.5.1.4.2 Jersey City Chromium Contamination Remediation............22
2.5.1.5 Plan Treatment of Environmental Claims................................23
2.5.1.6 Environmental Insurance Litigation....................................23
2.5.2 Fraudulent Transfer Litigation...................................................24
2.5.3 Tax Claims.......................................................................24
2.5.3.1 IRS Proposed 1993-96 Tax Adjustments..................................26
2.5.3.2 Other Disputed Tax Claims.............................................27
2.5.3.2.1 Temporary Health Care Staffing Business...................27
2.5.3.2.2 Bekaert Textiles N.V......................................27
2.5.3.2.3 Remedium Joint Venture....................................27
2.5.3.2.4 State Income Tax Claims...................................27
2.6 Liabilities other than Litigation Claims..................................................28
2.6.1 Current Liabilities not Subject to Compromise Under the Bankruptcy Code..........28
2.6.2 Non-Current Liabilities not Subject to Compromise Under the Bankruptcy Code......28
2.6.3 Liabilities Subject to Compromise Under the Bankruptcy Code......................28
2.6.3.1 Debt and Accrued Interest.............................................28
2.6.3.2 Income Taxes..........................................................29
2.6.3.3 Post-Retirement Benefits Other than Pensions..........................29
2.6.3.4 Unfunded Special Pension Arrangements.................................29
2.6.3.5 Accounts Payable......................................................29
2.6.3.6 Other Accrued Liabilities.............................................29
2.7 Assets and other Rights...................................................................30
2.7.1 Excess Real Property.............................................................30
2.7.2 Insurance Rights.................................................................30
2.7.2.1 Overview..............................................................30
2.7.2.2 Primary Insurance Coverage............................................30
2.7.2.3 Excess Insurance Coverage.............................................30
2.7.2.4 Estimated Insurance Recoveries........................................31
2.7.3 Debtors' Retained Causes of Action...............................................32
2.7.3.1 Preservation of Causes of Action......................................32
2.7.3.2 Maintenance of Causes of Action.......................................34
2.7.3.3 Avoidance Actions.....................................................34
2.7.3.4 Preservation of All Causes of Action not Expressly Settled or
Released..............................................................34
ii
EXHIBIT 99.1
2.8 Estimated Value of the Reorganized Debtors and Non-Debtor Affiliates......................35
2.8.1 Core Business Value of the Reorganized Debtors and Non-Debtor Affiliates.........35
2.8.1.1 Comparable Public Company Analysis....................................36
2.8.1.2 The Precedent Transaction Analysis....................................37
2.8.2 Calculation of Fully Diluted Reorganized Equity Value............................37
2.8.2.1 Insurance.............................................................38
2.8.2.2 Tax Assets............................................................38
2.8.2.3 Non-Core Liabilities..................................................38
2.8.2.4 Net Debt..............................................................39
2.8.2.5 Proceeds of Options...................................................39
2.8.2.6 Summary...............................................................39
3. THE CHAPTER 11 FILINGS AND RELATED CANADIAN PROCEEDINGS..........................................41
3.1 Overview of Chapter 11....................................................................41
3.2 Significant Events During the Course of the Chapter 11 Cases..............................42
3.2.1 First Day Motions................................................................42
3.2.1.1 Retention and Employment of Professionals By the Debtors..............42
3.2.1.2 Financing and Critical Trade Motions..................................43
3.2.1.3 Operational Motions...................................................43
3.2.2 Motions to Assume Pre-Petition Executory Contracts and Leases....................43
3.2.3 Appointment of Official Committees of Creditors, the Official Equity
Committee and the Future Claims Representative...................................43
3.2.3.1 Official Committees of Creditors.......................................43
3.2.3.1.1 Unsecured Creditors' Committee............................43
3.2.3.1.2 Asbestos PI Committee.....................................44
3.2.3.1.3 Asbestos PD Committee.....................................44
3.2.3.2 Official Equity Committee.............................................44
3.2.3.3 Representative for Future Asbestos Claimants..........................44
3.2.4 Section 341(a) Meeting of Creditors..............................................45
3.2.5 Selected Adversary Proceedings...................................................45
3.2.5.1 Stay of Asbestos-Related Litigation Against Various Affiliates........45
3.2.5.2 Enjoining Bond Payments by National Union.............................45
3.2.6 Extension of Exclusivity Period and Termination of Exclusivity Period............46
3.2.7 Motions to Lift the Automatic Stay...............................................47
3.2.8 Certain Post-Petition Litigation Matters.........................................47
3.2.8.1 Litigation Related to Grace's Savings and Investment Plan.............47
3.2.8.2 The Scotts Company Litigation.........................................48
3.2.8.3 Montana Grand Jury Investigation......................................48
3.2.9 Motion for Entry of Case Management Order........................................49
iii
EXHIBIT 99.1
3.2.10 Debtors' Bar Date for Asbestos PD Claims (Excluding ZAI Claims),
Non-Asbestos Claims, and Asbestos Medical Monitoring Claims......................49
3.2.11 The ADR Program..................................................................50
3.2.12 The Judge Wolin Mandamus and Recusal Proceedings.................................50
3.2.13 Negotiations with the Various Committees and the FCR.............................50
3.2.14 Motion to Protect Tax Benefits...................................................50
3.3 The Canadian Proceedings..................................................................51
3.3.1 General Information..............................................................51
3.3.2 Notice of the Canadian Proceedings...............................................51
3.3.3 Quarterly Reports................................................................51
3.3.4 Court Orders in the Canadian Proceedings.........................................51
3.3.4.1 Orders Extending the Stay of Proceedings in Canada....................52
3.3.4.2 Recognition of the Debtors' March 2003 Bar Date Order.................52
3.3.4.3 The Corporate Reorganization Order....................................52
3.3.5 Post-Petition Canadian Lawsuits..................................................52
4. SUMMARY OF THE PLAN..............................................................................53
4.1 Overview of the Chapter 11 Plan...........................................................53
4.2 PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSES AND PRIORITY TAX CLAIMS.................53
4.3 CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS...............................54
4.3.1 Summary..........................................................................54
4.3.1.1 Class 1. Priority Claims..............................................54
4.3.1.2 Class 2. Secured Claims...............................................55
4.3.1.3 Class 3. Unsecured Pass-Through Employee Related Claims...............55
4.3.1.4 Class 4. Workers' Compensation Claims.................................56
4.3.1.5 Class 5. Intercompany Claims..........................................56
4.3.1.6 Class 6. Asbestos PI-SE Claims........................................56
4.3.1.7 Class 7. Asbestos PI-AO Claims........................................57
4.3.1.8 Class 8. Asbestos PD Claims...........................................58
4.3.1.9 Class 9. General Unsecured Claims.....................................58
4.3.1.10 Class 10. Equity Interests in the Parent..............................60
4.3.1.11 Class 11. Equity Interests in the Debtors other than the Parent.......60
4.3.2 Effect of Asbestos PI Claimant Electing Various Options..........................60
4.3.2.1 Cash-Out Option.......................................................60
4.3.2.2 Litigation Option.....................................................61
4.3.2.3 Registry Option.......................................................61
4.4 MODIFICATION OR WITHDRAWAL OF THE PLAN....................................................61
4.5 PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS AND ASBESTOS CLAIMS GENERALLY.................61
iv
EXHIBIT 99.1
4.5.1 Objections to Claims (other than Asbestos Claims); Prosecution of Disputed
Claims...........................................................................61
4.5.2 Distribution on Account of Disputed Claims.......................................61
4.5.3 Resolution of Asbestos Claims....................................................61
4.6 ACCEPTANCE OR REJECTION OF THE PLAN.......................................................62
4.7 IMPLEMENTATION OF THE PLAN................................................................63
4.7.1 Corporate Governance of the Parent and the Other Debtors.........................63
4.7.2 The Asbestos Trust...............................................................63
4.7.2.1 Creation of the Asbestos Trust........................................63
4.7.2.2 Funding of the Asbestos Trust.........................................64
4.7.2.3 Sections 7.2.3 through 7.2.9 of the Plan..............................64
4.7.3 Payments and Distributions Under the Plan........................................65
4.7.4 Delivery of Distributions and Undeliverable or Unclaimed Distributions...........65
4.7.5 Payments under the Plan..........................................................65
4.7.6 Occurrence of the Confirmation Date..............................................65
4.7.7 Conditions to Occurrence of the Effective Date...................................66
4.7.8 Management of the Reorganized Debtors............................................66
4.7.9 Corporation Action...............................................................66
4.7.10 Effectuating Documents and Further Transactions..................................67
4.7.11 Allocation of Plan Distributions Between Principal and Interest..................67
4.7.12 No Successor Liability...........................................................67
4.7.13 Deemed Consolidation of the Debtors for Plan Purposes Only.......................67
4.8 Injunctions, Releases and Discharge.......................................................68
4.8.1 Discharge........................................................................68
4.8.1.1 Discharge of the Debtors and Related Discharge Injunction.............68
4.8.1.2 Discharge of Liabilities to Holders of Asbestos Claims................69
4.8.1.3 Disallowed Claims and Disallowed Equity Interests.....................69
4.8.1.4 Non-Dischargeable ERISA Liability.....................................69
4.8.2 The Asbestos Channeling Injunction...............................................70
4.8.3 Asbestos Insurance Entity Injunction.............................................71
4.8.3.1 Injunction............................................................71
4.8.3.2 Reservations from the Asbestos Insurance Entity Injunction............72
4.8.4 Released Matters Injunction......................................................73
4.8.4.1 Injunction............................................................73
4.8.4.2 Reservations from the Released Matters Injunction.....................73
4.8.5 Injunctions and Releases Related to the Sealed Air Indemnified Parties and
the Fresenius Indemnified Parties................................................74
4.8.6 Term of Certain Injunctions and Automatic Stay...................................74
4.8.6.1 Injunctions and/or Automatic Stays in Existence Immediately prior
to Confirmation.......................................................74
4.8.6.2 Injunctions Provided for in the Plan..................................74
4.8.7 Additional Releases and Indemnification..........................................74
v
EXHIBIT 99.1
4.8.7.1 Representatives of the Debtors........................................74
4.8.7.1.1 Release of Representatives of the Debtors.................74
4.8.7.1.2 Indemnification of Representatives of the Debtors and
Non-Debtor Affiliates.....................................75
4.8.7.2 Release of Sealed Air Indemnified Parties.............................75
4.8.7.3 Release of Fresenius Indemnified Parties..............................76
4.8.7.4 Specific Releases by Holders of Claims................................76
4.8.7.5 Approval of Sealed Air Settlement Agreement...........................76
4.8.7.6 Effect of the Fresenius Settlement Agreement, the Fresenius
Settlement Order and the Sealed Air Settlement Agreement..............77
4.9 CONTRACTS.................................................................................78
4.10 RETENTION OF JURISDICTION.................................................................78
4.11 MISCELLANEOUS PROVISIONS..................................................................78
5. LIMITED SUBSTANTIVE CONSOLIDATION................................................................81
6. VOTING AND CONFIRMATION PROCEDURES...............................................................82
6.1 Voting Procedures.........................................................................82
6.1.1 Voting Instructions and Deadline.................................................83
6.2 Confirmation Procedures...................................................................84
6.2.1 Confirmation Hearing.............................................................84
6.2.2 Objections to Confirmation of the Plan...........................................84
6.2.3 Questions About the Disclosure Statement, Plan, or Ballots and Master
Ballots..........................................................................86
7. REQUIREMENTS FOR CONFIRMATION OF THE PLAN........................................................86
7.1 Bankruptcy Code Section 1129 Generally....................................................86
7.2 Vote Required for Class Acceptance........................................................88
7.2.1 Cramdown.........................................................................89
7.3 Feasibility of the Plan...................................................................90
7.4 Best Interests Test.......................................................................91
7.5 Information about Corporate Governance, Officers, and Directors of the Reorganized
Debtors, and the Management of the Debtors................................................92
7.5.1 Corporate Governance; Limitation of Director Liability...........................92
7.5.2 Management Compensation and Incentive Program....................................92
7.5.3 Prospective Officer and Director Insurance.......................................93
8. IMPORTANT CONSIDERATIONS AND RISK FACTORS........................................................93
8.1 General...................................................................................93
8.2 Certain Bankruptcy and Mass Tort Law Considerations.......................................93
8.2.1 Parties in Interest May Object to the Debtors' Classification of Claims and
Equity Interests.................................................................93
vi
EXHIBIT 99.1
8.2.2 A Delay in Plan Confirmation May Disrupt Grace's Operations and Have
Potential Adverse Effects of Prolonged Confirmation Process......................94
8.2.3 The Debtors May Not Be Able to Secure Confirmation or Consummation of the Plan...94
8.2.4 There is a Risk of Post-Confirmation Default.....................................94
8.2.5 The Debtors May Object to the Amount or Classification of a Claim................94
8.2.6 The Potential Impact of Pending Asbestos Legislation Is Uncertain................94
8.2.7 Exemption from Registration Requirements of Applicable Federal Securities Laws
May Not Be Available.............................................................95
8.3 Factors Affecting the Distributions to Holders of Allowed Claims After the Effective
Date......................................................................................95
8.3.1 The Debtors Disclaim Accuracy of Financial Information Provided..................95
8.3.2 Variance from the Proforma and Prospective Financial Information.................95
8.3.3 Risk that Amounts of Allowed Claims Will Exceed the Debtors' Projections.........96
8.3.4 Risk Regarding the Solvent Insurance Carriers....................................96
8.4 Factors Affecting the Parent Common Stock.................................................96
8.4.1 The Reorganized Debtors May Not Be Able to Achieve Projected Financial
Results..........................................................................96
8.4.2 The Reorganized Debtors May Not Be Able to Meet Post-Reorganization Debt
Obligations and Finance All Operating Expenses, Working Capital Needs and
Capital Expenditures.............................................................97
8.4.3 Certain Tax Implications of the Debtors' Bankruptcy and Reorganization May
Increase the Tax Liability of the Reorganized Debtors............................97
8.5 Factors Associated with the Business......................................................97
8.5.1 Reorganized Grace May Not Obtain Post-Confirmation Financing.....................98
8.6 Factors Affecting the Asbestos Trust......................................................98
8.6.1 Risk that the Asbestos Trust Will not be Able to Pay All Allowed Claims..........98
8.6.2 Risk of Appointing Different Trustees for the Asbestos Trust.....................99
8.7 Risk that the Information in this Disclosure Statement May be Inaccurate..................99
9. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN........................................99
9.1 Continuation of the Chapter 11 Cases.....................................................100
9.2 Alternative Plans of Reorganization......................................................100
9.3 Chapter 7 Liquidation....................................................................100
10. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.....................................................101
10.1 Federal Income Tax Consequences to the Debtors...........................................102
vii
EXHIBIT 99.1
10.1.1 General Discussion..............................................................102
10.1.2 Deduction of Amounts Transferred to Satisfy Asbestos Claims.....................103
10.1.3 Cancellation of Debt Income.....................................................103
10.1.4 Net Operating Losses............................................................104
10.2 Federal Income Tax Consequences to Holders of Claims and the Asbestos Trust..............106
10.2.1 Holders of Asbestos Claims......................................................106
10.2.2 Treatment of the Asbestos Trust.................................................106
10.2.3 Consequences to Holders of General Unsecured Claims.............................107
10.2.3.1 Accrued Interest.....................................................107
10.2.3.2 Market Discount......................................................108
10.2.4 Consequences to Holders of Equity Interests.....................................108
10.3 Backup Withholding.......................................................................109
11. SECURITIES IMPLICATIONS OF THE PLAN.............................................................109
11.1 The Issuance of Securities Pursuant to the Plan..........................................109
12. CONCLUSION AND RECOMMENDATION...................................................................110
viii
EXHIBIT 99.1
1. EXECUTIVE SUMMARY
The following is a brief summary of this Disclosure Statement, and of
the Plan. This summary is just that - a summary. It is incomplete by definition
and is qualified in its entirety by reference to the more detailed information
appearing elsewhere in this Disclosure Statement, in the Plan, and in the other
Plan Documents.
1.1 THE DISCLOSURE STATEMENT
This Disclosure Statement describes the Debtors (in Article 2),
discusses the events leading to the filing of the Chapter 11 Cases (in Article
2), describes the main events that have occurred in the Chapter 11 Cases (in
Article 3) including the related international proceedings (in Section 3.3) and
proposed limited substantive consolidation (in Article 5).
This Disclosure Statement goes on to summarize the Plan's contents (in
Article 4), describe the Chapter 11 voting procedures (in Article 6), and the
process the Court will follow in determining whether to confirm the Plan (in
Articles 6, 7). This Disclosure Statement then outlines risk factors associated
with the Plan (in Article 8), alternatives to the Plan (in Article 9), certain
potential federal income tax consequences (in Article 10), and securities
implications of the Plan (Article 11). Finally, this Disclosure Statement makes
clear that the Plan Proponents recommend that Holders of Claims and Equity
Interests who are eligible to vote on the Plan vote to accept the Plan (in
Article 12).
1.2 THE PLAN
1.2.1 WHAT CLAIMS AND EQUITY INTERESTS ARE AFFECTED BY THE PLAN?
The Plan will pay all Claimants in full and will leave most Claimants,
including Holders of Asbestos Claims, unimpaired.(2) Holders of General
Unsecured Claims (Class 9) and Holders of Equity Interests in the Parent (Class
10) are impaired under the Plan. Specifically, Holders of Class 9 Claims are
impaired as they are to receive 15% of the Allowed Amount of their Claims in the
form of stock, the value of which may be volatile and cannot be guaranteed.
The following table summarizes the classification and treatment of
Claims and Equity Interests under the Plan. The figures in the column entitled
"Estimated Amount of Allowed Claims" are consistent with the Debtors' books and
records and include the Debtors' estimates for certain Claims that are disputed,
which Claims may ultimately be determined to be significantly higher or lower.
- ----------
(2) Bankruptcy Code Section 1124 explains the circumstances under which a
plan's treatment of a class of claims or equity interests constitutes
impairment of those claims or equity interests. Broadly stated, any
alteration of a creditor's or equity interest holder's legal rights that
occurs under a plan constitutes impairment.
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
N/A Administrative N/A Each Holder of an Allowed $138 million(3) 100%
Expense Claims Administrative Expense Claim shall
be paid the Allowed Amount of its
Claim either (i) in full, in cash,
by the Reorganized Debtors, on the
Effective Date or as soon as
practicable thereafter, or (ii) on
such less favorable terms as may be
agreed to by such Holder. Ordinary
course of business Claims and Claims
of Professionals shall be paid as
described in the Plan.
- ---------------------------------------------------------------------------------------------------------------------------
N/A Priority Tax Claims N/A Each Holder of an Allowed Priority $232 million 100%
Tax Claim shall be paid the Allowed
Amount of its Priority Tax Claim, at
the option of the Reorganized
Debtors, either (i) in full, in
cash, by the Reorganized Debtors, on
the Effective Date or as soon as
practicable thereafter, or (ii) on
such less favorable terms as may be
agreed to by such Holder, or (iii)
in equal quarterly cash payments on
the Initial Distribution Date and,
thereafter, on each Quarterly Tax
Distribution Date in an aggregate
amount equal to such Allowed
Priority Tax Claim, together with
interest at 3.5% per annum, over a
period not exceeding six (6) years
after the date of assessment of such
Allowed Priority Tax Claim, or upon
such other terms determined by the
Bankruptcy Court, which will provide
the Holder of such Allowed Priority
Tax Claim deferred cash payments
having a value, as of the Effective
Date, equal to such Allowed Priority
Tax Claim; provided, however, that
each Holder of a Claim which by
operation of the Fresenius
Settlement Agreement is an
obligation for Indemnified Taxes
promptly shall be paid in full in
cash as such Fresenius Indemnified
Taxes become due and payable.
- ---------------------------------------------------------------------------------------------------------------------------
Class 1 Priority Claims No Each Holder of an Allowed Priority $0 100%
Claim shall be paid the Allowed
Amount of its Allowed Priority Claim
either (i) in full, in cash, on the
later of (A) the Effective Date or
as soon as practicable thereafter or
(B) the date such Priority Claim
becomes an Allowed Priority Claim,
or as soon as practicable
thereafter, or (ii) on such less
favorable terms as may be agreed to
by such Holder.
- ---------------------------------------------------------------------------------------------------------------------------
- -------------
(3) Includes amounts classified as liabilities subject to compromise which are
expected to be paid on the Effective Date, or as soon as practicable
thereafter (approximately $76 million), and after the Effective Date in
accordance with their terms (approximately $62 million).
2
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
Class 2 Secured Claims No Each Holder of an Allowed Secured $90,000 plus interest at 100%
Claim shall be paid the Allowed the applicable rate, if any
Amount of its Allowed Secured Claim
at the option of the Reorganized
Debtors, either (i) in full, in
cash, on the later of (A) the
Effective Date or as soon as
practicable thereafter or (B) the
date such Secured Claim becomes an
Allowed Secured Claim, or as soon as
practicable thereafter; (ii) on such
less favorable terms as may be
agreed to by such Holder; (iii) by
the surrender to the Holder or
Holders of any Allowed Secured Claim
of the property securing such Claim;
or (iv) notwithstanding any
contractual provision or applicable
law that entitles the Holder of a
Secured Claim to demand or receive
payment thereof prior to the stated
maturity from and after the
occurrence of a default, by
reinstatement in accordance with
Bankruptcy Code Section
1124(2)(A)-(D).
- ---------------------------------------------------------------------------------------------------------------------------
Class 3 Unsecured No The Plan leaves unaltered the legal, Most Allowed Claims have 100%
Pass-Through equitable, and contractual rights to already been paid pursuant
Employee which each such Claim entitles the to first day orders of this
Related Claims Holder of such Claim. Court and continueto be
paid in the ordinary course
as they become due; $190
million of Claims(4) are
estimated to be Allowed and
outstanding.
- ---------------------------------------------------------------------------------------------------------------------------
Class 4 Workers' No The Plan leaves unaltered the legal, Allowed Claims have already 100%
Compensation equitable, and contractual rights to been paid pursuant to first
Claims which each such Claim entitles the day orders of this Court
Holder of such Claim. and continue to be paid in
the ordinary course as they
become due.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
(4) Includes approximately $123 million of post-retirement benefits other than
pensions classified pursuant to Section 2.6.3.3, approximately $63 million
of unfunded special pension arrangements classified pursuant to Section
2.6.3.4, and approximately $5 million of deferred compensation classified
pursuant to Section 2.6.3.6.
3
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
Class 5 Intercompany No The Plan leaves unaltered the legal, For proforma cash flow 100%
Claims equitable, and contractual rights to purposes all Claims will
which each such Claim entitles the have no impact upon the
Holder of such Claim. Plan as all payments under
the Plan are based upon the
Debtors and Non-Debtor
Affiliates as consolidated.
- ---------------------------------------------------------------------------------------------------------------------------
Class 6 Asbestos PI-SE No All Allowed Class 6 Claims shall be An amount to be determined 100%
Claims paid in full by the Asbestos Trust by the Bankruptcy Court
out of the Asbestos PI-SE Class Fund pursuant to the Estimation
and shall be processed and paid in Motion(5)
accordance with the Asbestos Trust
Agreement and the PI-SE TDP. Each
Holder of an Asbestos PI-SE Claim
shall complete an Asbestos PI
Questionnaire or Claims Materials,
as applicable, and have the option
to elect: (A) the Litigation Option
or Canadian Litigation Option as
applicable or (B) the Cash-Out
Option; provided, however, that a
Holder of a Third Party
Indemnification/Contribution Claim
shall be conclusively presumed to
have elected the Litigation Option
or Canadian Litigation Option as
applicable. Failure to complete and
return an Asbestos PI Questionnaire
or Claims Materials, as applicable,
by the applicable deadline shall
result in an automatic election of
the Litigation Option or Canadian
Litigation Option as applicable. A
Holder may also be treated on such
less favorable terms as may be
agreed to by such Holder.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
(5) As a condition precedent to confirmation of the Plan, the Court shall have
found that the aggregate of the Asbestos PI-SE Class Fund, the Asbestos PD
Class Fund, and the Asbestos Trust Expenses Fund is not greater than
$1,483,000,000.
4
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
Class 7 Asbestos PI-AO No All Allowed Class 7 Claims shall be An amount to be determined 100%
Claims paid in full initially by the by the Bankruptcy Court
Asbestos Trust out of the Asbestos pursuant to the Estimation
PI-AO Class Fund and then in cash by Motion(6)
the Asbestos Trust from funds to be
paid to the Asbestos Trust by the
Reorganized Debtors. All Allowed
Class 7 Claims shall be processed
and paid in accordance with the
Asbestos Trust Agreement and the
PI-AO TDP. In accordance with the
terms of the Asbestos Trust
Agreement and the PI-AO TDP, each
Holder of an Asbestos PI-AO Claim
shall complete an Asbestos PI
Questionnaire or Claims Materials,
as applicable, and have the option
to elect: (A) the Litigation Option
or Canadian Litigation Option as
applicable, (B) the Cash-Out Option;
or (C) the Registry Option;
provided, however, that a Holder of
a Third Party
Indemnification/Contribution Claim
shall be conclusively presumed to
have elected the Litigation Option
or Canadian Litigation Option as
applicable. Failure to complete and
return an Asbestos PI Questionnaire
or Claims Materials, as applicable,
by the applicable deadline shall
result in an automatic election of
the Litigation Option or Canadian
Litigation Option as applicable. A
Holder may also be treated on such
less favorable terms as may be
agreed to by such Holder.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
(6) As a condition precedent to confirmation of the Plan, the Court shall have
found that the Asbestos PI-AO Class Fund is not greater than $130,000,000.
5
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
Class 8 Asbestos PD No All Allowed Class 8 Claims shall be An amount to be determined 100%
Claims paid in full and processed and paid by the Bankruptcy Court
in accordance with the Asbestos pursuant to the Estimation
Trust Agreement and the PD TDP. A Motion(7)
Holder may also be treated on such
less favorable terms as may be
agreed to by such Holder.
- ---------------------------------------------------------------------------------------------------------------------------
Class 9 General Yes Each Holder of an Allowed General $1,175 million as of 100%
Unsecured Unsecured Claim shall be paid the 9/30/04, plus accrued
Claims Allowed Amount of its General interest through the
Unsecured Claim on the GUC payment date(8)
Distribution Date. Such payment
shall be in full, plus post-petition
interest, such payment to be 85% in
cash and 15% in Parent Common Stock,
such Parent Common Stock being
subject to, among other things, the
transactions described in Section
7.2.2 of the Plan, and the
Management Stock Incentive Plan.
Each Holder of a Claim which by
operation of the Fresenius
Settlement Agreement is an
obligation for Indemnified Taxes
promptly shall be paid in full in
cash as such Fresenius Indemnified
Taxes become due and payable. A
Holder may also be treated on such
less favorable terms as may be
agreed to by such Holder.
Post-petition interest shall accrue
from the Petition Date through the
date of payment and shall be (i) for
the Holders of the Debtors'
pre-petition bank credit facilities,
at a rate of 6.09% per annum,
compounded quarterly, (ii) for the
Holders of Claims who, but for the
Filing of the Chapter 11 Cases would
be entitled under a contract or
otherwise to accrue or be paid
interest on such Claim in a
non-default (or non-overdue payment)
situation under applicable
non-bankruptcy law, the rate
provided in the contract between a
Debtor(s) and the Claimant or such
rate as may otherwise apply under
applicable non-bankruptcy law, or
(iii) for all other Holders of Class
9 Claims, at a rate of 4.19% per
annum (the federal judgment rate as
of the Petition Date), compounded
annually.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
(7) As a condition precedent to confirmation of the Plan, the Court shall have
found that the aggregate of the Asbestos PI-SE Class Fund, the Asbestos PD
Class Fund, and the Asbestos Trust Expenses Fund is not greater than
$1,483,000,000.
(8) Includes unliquidated liabilities, estimated at approximately $185 million,
that would be Class 9 Claims if and when Allowed. These unliquidated
liabilities are not expected to be Allowed General Unsecured Claims at the
Effective Date.
6
EXHIBIT 99.1
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
DESCRIPTION ESTIMATED AMOUNT OF PERCENTAGE
CLASS OF CLASS IMPAIRED TREATMENT UNDER THE PLAN ALLOWED CLAIMS RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
Class 10 Equity Interests Yes On the Effective Date, Holders of N/A N/A
in the Parent Class 10 Equity Interests in the
Parent shall retain such interests;
provided that such Equity Interests
shall: (i) be subject, among other
things, to the transactions
described in Section 7.2.2 of the
Plan, and the Management Stock
Incentive Plan and (ii) be
restricted as described in Section
7.1.1 of the Plan.
- ---------------------------------------------------------------------------------------------------------------------------
Class 11 Equity Interests No The Plan leaves unaltered the legal, N/A 100%
in Debtors equitable, and contractual rights to
Other than the which each such Equity Interest
Parent entitles the Holder of such Equity
Interest.
- ---------------------------------------------------------------------------------------------------------------------------
7
EXHIBIT 99.1
1.2.2 HOW WILL ASBESTOS CLAIMS BE TREATED?
The Plan divides Asbestos Claims into two categories: (1) Asbestos PI
Claims and (2) Asbestos PD Claims (a.k.a. Asbestos Property Damage Claims)
(Class 8). The Plan further divides Asbestos PI Claims into two Classes: (a)
Asbestos PI-SE Claims (a.k.a. Asbestos Personal Injury Symptomatic/Eligible
Claims) (Class 6) and (b) Asbestos PI-AO Claims (a.k.a. Asbestos Personal Injury
Asymptomatic/Other Claims) (Class 7). All Asbestos Claims will be channeled to
the Asbestos Trust (the Asbestos Trust is described below).
A key goal of the Plan is to set up a structure under which Holders of
Asbestos PI Claims are able to settle with the Asbestos Trust in a fair,
efficient, and expedient manner. The Debtors believe that this will allow
Asbestos PI Claimants to recover the full value of their respective Claims as
quickly as possible. To this end, most Asbestos PI Claimants will be able to
elect to enter into a settlement with the Asbestos Trust instead of litigating
against it, as described below.
Each and every Holder of an Asbestos PI Claim will have the option to
retain his right to litigate his Claim against the Asbestos Trust and to recover
the full amount of his Allowed Claim against the Asbestos Trust. This is
referred to in the Plan as the "Litigation Option." Holders of Asbestos PI
Claims which are Canadian Claims will have the option of electing their own
litigation option, the "Canadian Litigation Option." If an Asbestos PI Claimant
elects, or is deemed to elect, the Litigation Option (or the Canadian Litigation
Option, as applicable), his Claim will be litigated against the Asbestos Trust
and he will be precluded from seeking any further recovery against any party
protected and/or released under the Plan on account of such Claim.
Holders of Asbestos PI Claims may also generally elect to have their
Claims resolved through the "Cash-Out Option" instead of the Litigation Option
or the Canadian Litigation Option, as applicable. If an Asbestos PI Claimant
elects the Cash-Out Option, his Claim will be treated under the terms of the
applicable TDP (a.k.a. Trust Distribution Procedures) and he will be precluded
from seeking any further recovery against any party protected and/or released
under the Plan on account of such Claim. The amounts available under the
Cash-Out Option vary depending on the Class of the Asbestos PI Claimant. The
Cash-Out Option offered to Asbestos PI-AO Claimants who meet certain minimal
requirements, as set forth in the PI-AO TDP, is a payment of $250. In contrast,
the PI-SE TDP sets forth a matrix of significant settlement amounts (ranging
from $4,459 for Asbestosis (Level I) to $71,215 for Mesothelioma (Level VI))
that is based on the type of asbestos-related disease, level of functional
impairment and level of exposure to asbestos from Grace products that an
Asbestos PI-SE Claimant is able to prove.
Asbestos PI-SE Claims are those Asbestos PI Claims (other than those
Asbestos Claims that have been previously settled or adjudicated) that meet the
Asbestos PI-SE Eligibility Requirements. These requirements, stated very
summarily, are that the Asbestos PI Claimant provide appropriate evidence of (1)
exposure to asbestos related to Grace and (2) current symptoms of
asbestos-related disease. As described above, the Holders of Asbestos PI-SE
Claims may generally choose either the Litigation Option (or the Canadian
Litigation Option, as applicable) or the Cash-Out Option.
8
EXHIBIT 99.1
Asbestos PI Claims (other than those Asbestos Claims that have been
previously settled or adjudicated) that do not currently meet the Asbestos PI-SE
Eligibility Requirements are Asbestos PI-AO Claims. As described above, the
Holders of Asbestos PI-AO Claims may also generally choose either the Litigation
Option (or the Canadian Litigation Option, as applicable) or the Cash-Out
Option, but the Holders of Asbestos PI-AO Claims also have a third option, the
"Registry Option." In no event may the Holder of an Asbestos Claim that is not a
Canadian Claim elect the Canadian Litigation Option.
If an Asbestos PI-AO Claimant chooses the Registry Option, he will (1)
register his name on the Registry, (2) be precluded from seeking any further
recovery against any party protected and/or released under the Plan on account
of such Claim, (3) have the statute of limitations be deemed to be tolled to the
extent that he becomes an Asbestos PI-SE Claimant, and (4) be entitled to seek
further recovery (in accordance with the provisions of the Plan) against the
Asbestos Trust if he becomes an Asbestos PI-SE Claimant.
Each Holder of a Class 8 Asbestos PD Claim will retain his right to
litigate his Claim against the Asbestos Trust and to recover the full amount of
his Allowed Claim against the Asbestos Trust.
1.2.3 HOW WILL GENERAL UNSECURED CLAIMS BE TREATED UNDER THE
PLAN?
The Plan provides that all Holders of General Unsecured Claims will be
paid the value of their Allowed Claims including interest at the specified rate,
such payment to be 85% in cash and 15% in Parent Common Stock. However,
Fresenius Indemnified Taxes will be paid in cash by the Reorganized Debtors in
the ordinary course of their business, in accordance with the Fresenius
Settlement Order.
Grace will satisfy certain other non-asbestos related liabilities,
including environmental, tax, workers' compensation, employee-related benefits,
pension and retirement medical obligations, and Intercompany Claims, as they
become due and payable over time. In essence, these claims will "pass through"
confirmation and be paid by the Reorganized Debtors in the ordinary course of
their business.
1.2.4 HOW WILL EQUITY INTERESTS BE TREATED UNDER THE PLAN?
The Plan provides that Parent Common Stock will remain outstanding.
However, the interests of existing stockholders will be subject to dilution by,
among other things, additional shares of Parent Common Stock issued under the
Plan and possible exercise of the Warrants issued under the Plan.
In addition, in order to preserve significant net operating loss
carryforwards, which are subject to elimination or limitation in the event of a
change in control (as defined by the Internal Revenue Code), the Plan places
restrictions on the purchases of Parent Common Stock. The restrictions would
prohibit, for a period of three years, a person or entity from acquiring more
than 4.75% of the outstanding common stock or prohibit those persons already
holding more than 4.75% from increasing their holdings.
9
EXHIBIT 99.1
1.2.5 HOW WILL THE TREATMENT OF ASBESTOS CLAIMS BE EFFECTUATED?
The Asbestos Trust will, among other things, (1) assume liability for
all Asbestos Claims (whether now existing or arising at any time in the future),
(2) process and liquidate all Asbestos Claims (whether through the Cash-Out
Option, the Litigation Option (or the Canadian Litigation Option, as
applicable), or the Registry Option, as applicable), and (3) pay all Asbestos
Claims in accordance with the Plan and the Plan Documents. The Reorganized
Debtors, however, will have significant ongoing rights and obligations vis-a-vis
the Asbestos Trust after the Effective Date. For example, all Asbestos PI-AO
Claims whose Holders elect the Litigation Option or the Canadian Litigation
Option, as applicable, will be litigated by the Reorganized Debtors or the
Canadian Affiliates in the name of the Asbestos Trust, initially at the expense
of the Asbestos Trust out of the Asbestos PI-AO Class Fund. After the exhaustion
of the Asbestos PI-AO Class Fund in its entirety, all Allowed PI-AO Claims will
be paid in cash by the Asbestos Trust from funds to be paid to the Asbestos
Trust by the Reorganized Debtors, such funds being in addition to the Debtors'
Payment.
The Asbestos Trust will be the only Entity that a Holder of an
Asbestos Claim may look to for recovery on account of such a Claim. Article 8 of
the Plan (Injunctions, Releases & Discharge) makes this clear. The Asbestos
Trust Agreement and the respective TDPs (there are three TDPs, one for each of
Classes 6, 7, and 8) govern more specifically the operation of the Asbestos
Trust and how Asbestos Claims whose Holders elect the Cash-Out Option will be
dealt with.
1.2.6 HOW WILL THE PLAN BE FUNDED?
The Debtors have filed the Estimation Motion which seeks an order,
among other things, estimating the total amount that needs to be contributed to
the Asbestos Trust to fully satisfy Classes 6, 7, and 8 as well as the expenses
of the Asbestos Trust. In the case of Classes 6 and 8 and the expenses of the
Asbestos Trust, such estimated amounts will constitute the maximum amount that
the Reorganized Debtors will be required to pay (in addition to the Sealed Air
Payment) in order to fully satisfy all Allowed Asbestos PI-SE Claims, Allowed
Asbestos PD Claims and Asbestos Trust Expenses, respectively. The Debtors intend
to use these estimates in support of the feasibility of the Plan and in support
of the other factual findings that must be made to confirm the Plan. The only
alternative would be to individually litigate hundreds of thousands of Claims
prior to confirmation - an expensive and unwieldy proposition that could delay
distributions for years.
Funding of the Asbestos Trust in an amount equal to the estimates
obtained under the Estimation Motion will come from several sources, including
(1) the Debtors' Payment and (2) the Sealed Air Payment. The Sealed Air Payment
- -- comprised of a combination of cash in the amount of $512.5 million plus
interest and 9 million shares of common stock of Sealed Air -- is an integral
part of the Plan.
The Reorganized Debtors will fund distributions to all other Classes
directly, with funds from a number of sources including (1) the Exit Financing,
(2) the Fresenius Settlement Agreement, (3) insurance proceeds, (4) cash flow
from future operations, and (5) Parent Common Stock.
10
EXHIBIT 99.1
Specifically, all Asbestos PI-SE Claims whose Holders elect the
Litigation Option (or the Canadian Litigation Option, as applicable) shall be
(1) litigated by, and at the expense of, the Asbestos Trust in the name of the
Asbestos Trust and (2) paid by the Asbestos Trust out of the Asbestos PI-SE
Class Fund, which shall be funded solely by the Sealed Air Payment and the
Parent Common Stock component of the Debtors' Payment, if necessary. In
contrast, all Asbestos PI-AO Claims whose Holders elect the Litigation Option
(or the Canadian Litigation Option, as applicable) shall be litigated by the
Reorganized Debtors in the name of the Asbestos Trust, initially at the expense
of the Asbestos Trust out of the Asbestos PI-AO Class Fund. All Allowed PI-AO
Claims shall be paid initially by the Asbestos Trust out of the Asbestos PI-AO
Class Fund, which shall be funded by the Sealed Air Payment (to the extent any
funds remain after first funding the Asbestos PI-SE Class Fund, the Asbestos PD
Class Fund and the Asbestos Trust Expenses Fund) and the Warrants. After the
exhaustion of the Asbestos PI-AO Class Fund in its entirety, all Allowed PI-AO
Claims shall be paid in cash by the Asbestos Trust from funds to be paid to the
Asbestos Trust by the Reorganized Debtors, such funds being in addition to the
Debtors' Payment.
2. DESCRIPTION OF THE DEBTORS
2.1 GENERAL OVERVIEW OF THE DEBTORS
The Debtors are engaged in specialty chemicals and materials
businesses, operating on a worldwide basis, predominantly through two business
segments: Davison Chemicals ("Davison"), which manufactures and sells catalysts
and silica-based products; and Performance Chemicals, which manufactures and
sells construction chemicals, building materials, sealants and coatings.
W. R. Grace & Co. (the "Parent") is a global holding company that
conducts substantially all of its business through a direct, wholly owned
subsidiary, W. R. Grace & Co. - Conn. ("Grace-Conn."). Grace-Conn., which was
incorporated in 1899, owns substantially all of the Grace assets, properties,
and rights in the United States. It has 77 domestic subsidiaries and Affiliates,
60 of which are Debtors in the Chapter 11 Cases. Grace's non-U.S. operations are
conducted through 93 Non-Debtor Affiliates, including three Canadian Affiliates.
(As used within Article 2 of this Disclosure Statement, "Grace" means either the
Debtors, or the business of the Parent and its subsidiaries in general, as the
context requires). The Debtors and their Non-Debtor Affiliates employ
approximately 6,400 employees.
Grace-Conn. has operated and divested itself of, or otherwise ceased
operating, a substantial number of businesses over the years. The Plan provides
for the reorganization of all Debtors. However, because many of the Debtors
conduct no business today, certain of the Debtors may be dissolved after the
Effective Date.
2.2 THE DEBTORS' CURRENT BUSINESSES
2.2.1 DAVISON CHEMICALS
Davison consists of two primary product groups: (1) refining
technologies and (2) specialty materials. These product groups principally apply
silica, alumina and zeolite
11
EXHIBIT 99.1
technology in the design and manufacture of products to meet the varying
specifications of such diverse customers as major oil refiners, plastics and
chemical manufacturers, consumer products manufacturers, and
pharmaceutical/nutraceutical companies.
2.2.1.1 REFINING TECHNOLOGIES
Davison produces refinery catalysts, including (1) fluid cracking
catalysts ("FCC") used by petroleum refiners to convert distilled crude oil into
transportation fuels (such as gasoline and diesel fuels) and other
petroleum-based products, and (2) hydroprocessing catalysts that upgrade heavy
oils and remove certain impurities (such as nitrogen, sulfur and heavy metals).
Davison operates its hydroprocessing catalyst business through Advanced Refining
Technologies LLC, a joint venture between Grace and Chevron Texaco Products
Company. Davison also develops and manufactures FCC additives used for enhanced
petrochemical production and reduction of emissions of sulfur oxides, nitrogen
oxides and carbon monoxide from the refining unit. Davison has recently
introduced new catalyst/additive technologies for sulfur reduction in gasoline
and, as an alternative technology, membranes which, when employed in a
pervaporation system, will remove sulfur from refinery streams.
2.2.1.2 SPECIALTY MATERIALS
Davison's specialty materials include various silicas, zeolite
adsorbents, and polyolefin and other chemical catalysts that are used in a wide
variety of industrial, consumer, biotechnology, and pharmaceutical applications.
2.2.1.2.1 SILICAS
Davison manufactures (i) silica gels, (ii) colloidal silicas, and
(iii) precipitated silicas. These silicas have different physical properties,
such as particle size, surface area, porosity, and surface chemistry, which give
each type of silica unique characteristics that make it appropriate for specific
applications.
Silica gels are used in coatings as matting (gloss-reducing) agents,
in plastics to improve handling, in pharmaceuticals as a formulating agent, in
toothpastes as abrasives and whiteners, in foods to carry flavors and prevent
caking, in the purification of edible oils, and in beer stabilization.
Davison's colloidal silicas are used primarily as binders in precision
investment casting and refractory applications. They have also recently been
introduced for use in ink jet printing of digital media, such as digital
photographs. Precipitated silicas are used predominantly in the manufacture of
tires and other industrial rubber goods such as belts, hoses and footwear.
Davison is leveraging its materials science expertise, both internally and
through acquisitions, to develop and introduce new silica materials and
technologies, particularly for the higher-growth segments of digital media,
industrial coatings, and biotechnology separations applications.
Davison is levering its material science expertise, both internally
and through acquisitions, to develop and introduce new silica materials and
technologies, particularly for the higher growth segments of digital media,
industrial coatings, and biotechnology separations applications. Davison has
recently focused on expanding its separations business to take
12
EXHIBIT 99.1
advantage of higher growth opportunities in drug discovery, purification and
manufacturing processes.
2.2.1.2.2 ZEOLITES
Zeolites, while not silica-based products, are based on related
silica/alumina technology. Zeolite adsorbents are used between the two panes of
insulating glass to adsorb moisture and are also used in process applications to
adsorb water and separate certain chemical components from mixtures.
2.2.1.3 POLYOLEFIN AND OTHER CATALYSTS
Davison is also a major producer of polyolefin catalysts and
silica-based catalyst supports, essential components in the manufacture of high
density and linear low density polyethylene resins, and polypropylene resins,
which are used in products such as plastic film, high-performance plastic pipe
and plastic household containers.
2.2.1.4 OTHER INFORMATION
As of September 30, 2004, Davison employed approximately 3,200 people
worldwide in 20 facilities. Davison has a direct sales force and distributes
most of its products directly to approximately 12,000 customers, the largest of
which accounted for approximately 4% of Davison's 2003 sales.
2.2.2 PERFORMANCE CHEMICALS
Performance Chemicals' businesses include (1) specialty construction
chemicals and building materials, in which Grace is a leading supplier to the
nonresidential (commercial and infrastructure) construction industry, and also
to the residential construction and repair segment; and (2) a sealant and
coating product-line operated under the Darex(R) brand.
2.2.2.1 CONSTRUCTION CHEMICALS AND BUILDING MATERIALS
Specialty construction chemicals (principally concrete admixtures,
cement additives and additives for masonry products) improve durability and
enhance the handling and application of concrete, improve the manufacturing
efficiency and performance of cement, and improve the water resistance and other
qualities of masonry wall and paving systems.
Performance Chemicals has introduced a number of new construction
chemical products and product enhancements in recent years. These include: (1)
an additive that improves cement processing efficiency and product quality, (2)
new polymeric fiber reinforcements for concrete that can substitute for
secondary metal reinforcements, (3) an automated system to improve the
reliability and accuracy of adding fibers to concrete production, (4) an
admixture system for producing self-consolidating concrete (which improves the
concrete's conformity to the shape of a structure), and (5) a liquid pigment
admixture and dispensing system for concrete. Grace continually seeks to improve
and adapt these products for different applications. Grace's strategy includes
extending its product portfolio and geographic reach through acquisitions.
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EXHIBIT 99.1
Specialty building materials prevent structural water damage (for
example, water-and ice-barrier products for residential use and waterproofing
systems for commercial structures), and protect structural steel against
collapse caused by fire. In North America, the specialty building materials
product line also manufactures and distributes vermiculite products used in
insulation and other applications. Recent product developments include
liquid-applied waterproofing products and new roof underlayments that provide
protection from ice and wind-driven rain; and enhancements to spray-on
fireproofing products that improve applicator productivity.
2.2.2.2 SEALANTS AND COATINGS
The Darex(R) sealants and coatings business consists primarily of four
product lines: (1) can sealants for rigid containers, (2) sealants for metal and
plastic bottle closures, (3) coatings for metal packaging, and (4) specialty
barrier coatings for flexible packaging. These products are used to assure the
quality of packaging and to preserve container contents. Can sealants ensure a
hermetic seal between the lid and the body of beverage, food, aerosol and other
containers. Closure sealants are used to seal pry-off and twist-off metal
crowns, as well as roll-on pilfer-proof and plastic closures for glass and
plastic bottles and jars used in beverage and food applications. Coatings are
used in the manufacture of cans and closures to protect the metal against
corrosion, protect the contents against the influences of metal, ensure proper
adhesion of sealing compounds to metal surfaces, and provide base coats for inks
and for decorative purposes. These products are sold principally to container
manufacturers. Specialty barrier coatings are used to improve the gas and/or
vapor barrier performance of various packaging materials. They are sold
principally to manufacturers of oriented polypropylene films for food packaging.
2.2.2.3 OTHER INFORMATION
At year-end 2003, Performance Chemicals employed approximately 3,000
people at 62 facilities. Most of Performance Chemicals' sales are direct sales
to the customer. Performance Chemicals' capital expenditures tend to be
relatively lower, and sales and marketing expenditures tend to be relatively
higher, than those of Davison Chemicals.
2.3 GENESIS OF THE DEBTORS' ASBESTOS LIABILITIES
The Chapter 11 Cases were the result of a precipitous increase,
beginning around 2000, in the number of claims asserted against Grace alleging
personal injury from exposure to asbestos in certain products that it had
previously manufactured. This increase seriously threatened the Debtors' core
business operations, and the Debtors concluded that there was no way to define
and resolve their asbestos liabilities while preserving the value and viability
of their core business operations, other than to reorganize under Chapter 11 of
the Bankruptcy Code.
Grace's involvement with asbestos began in 1963, when its construction
products unit, now part of Performance Chemicals, purchased the Zonolite Company
("Zonolite"). Zonolite purchased asbestos from commercial suppliers and
incorporated it in certain building products. It also mined and processed
vermiculite from its mines in South Carolina and near Libby, Montana. The
vermiculite product from the Libby mine contained small amounts of asbestos, as
more fully described below. Grace ended U.S. manufacture of asbestos-added
products in 1973, and closed the Libby facility in 1990.
14
EXHIBIT 99.1
2.3.1 ASBESTOS-ADDED PRODUCTS
The principal asbestos-added products produced by Grace were spray-on
fireproofing, acoustical plasters and textured ceiling finishes. They consisted
of binders, insulating materials (gypsum, cement, clay, vermiculite), and added
asbestos purchased from asbestos producers. The fireproofing product, Monokote-3
("MK-3"), was sprayed on steel structural-components of buildings to prevent or
delay the steel from collapsing in the event of a fire.
2.3.2 LIBBY VERMICULITE
Vermiculite is a mineral that expands into popcorn-like, low-density
pieces when heated. This exfoliated or expanded vermiculite is lightweight and
fire-resistant, and thus can be used for insulation, fireproofing, potting soil
and other applications. Vermiculite is itself an inert mineral that is not a
form of asbestos and has no known toxic properties.
Vermiculite ore from the Libby mine contained numerous secondary
minerals, including a form of asbestos known as fibrous asbestiform
tremolite.(9) The Libby facility milled the mined ore into a concentrate through
a crushing, screening, washing and flotation separation process that removed
most impurities, including tremolite. After milling, the vermiculite concentrate
contained 1-3% and generally less than 1% asbestos. At Grace's "expansion
plants" throughout the country, the concentrate was passed through furnaces at
temperatures approaching 2,000 degrees Fahrenheit, which resulted in the further
reduction of asbestos content. The expanded vermiculite - with asbestos content
that was typically a fraction of 1% - was bagged and sold under the Zonolite
trade name.
After acquiring the Libby mine, Grace implemented a series of changes
that dramatically reduced asbestiform tremolite dust levels at the Libby
facilities. With these improvements, Grace lowered asbestiform tremolite dust
levels from approximately 50 fibers per cubic centimeter of air ("fibers/cc") in
1963, to less than 1 fiber/cc in 1975 and down to 1/15 fiber/cc in 1985, which
was many times lower than required under then-applicable government standards.
Grace also implemented a medical program to educate employees about the hazards
of asbestiform tremolite and to monitor their exposure levels and health.
2.3.3 ZONOLITE ATTIC INSULATION
One of Grace's principal commercial vermiculite products was Zonolite
Attic Insulation ("ZAI"). ZAI was expanded loose-fill vermiculite that was
poured into attics in homes and other buildings. Like other expanded Libby
vermiculite, ZAI often contained trace quantities of asbestos. Asbestos was not
added to ZAI, and, as noted above, the milling and expansion processes removed
nearly all asbestos contaminants from the vermiculite ore. Because the asbestos
impurities were reduced to trace levels, ZAI is not an asbestos-containing
product as
- ----------
(9) Fibrous asbestiform tremolite impurities in vermiculite are atypical and
not characteristic of most vermiculite deposits. It is believed that the
amount of impurities is related to the extreme depth of the ore deposit in
Libby. Most vermiculite deposits - such as those at Grace's Enoree, South
Carolina mine - are relatively shallow.
15
EXHIBIT 99.1
defined in federal regulations.(10) Although the Asbestos PD Committee asserts
that ZAI has been found to contain more than 1% asbestos, the Debtors contend
that such samples are exceedingly rare and have no significance on the question
of whether ZAI poses an unreasonable risk of harm.
2.4 THE DEBTORS' ASBESTOS-RELATED LITIGATION
The pre-Chapter 11 litigation and Claims against the Debtors alleging
asbestos-related injuries and damages ("Asbestos Claims," as defined more fully
in the Glossary) are primarily the following: Claims for personal injury from
asbestos exposure; asbestos-related property damage Claims; and ZAI Claims.
For many years, the Debtors faced a substantial volume of Asbestos
Claims, but were able to resolve such Claims primarily through negotiated
settlements. Although the Debtors believed that a high percentage of these
Claims were without merit, they agreed to settle most of these Claims rather
than incur the significant costs and practical difficulties associated with
simultaneously litigating thousands of independent Claims in multiple
jurisdictions nationwide. This strategy of negotiated settlements was initially
successful, as the amounts and number of Claims were manageable, and the funds
required to satisfy such Claims were fairly predictable. However, beginning in
the year 2000, the Debtors experienced a precipitous increase in the number of
personal injury Claims and the amount of money required to resolve such Claims.
This led to the Debtors' bankruptcy filing.
2.4.1 ASBESTOS PERSONAL INJURY LITIGATION
Asbestos PI Claims allege adverse health effects from exposure to
Grace's asbestos-containing products. On the Petition Date, the Debtors were
defendants in lawsuits asserting approximately 118,000 Asbestos PI Claims. In
the Debtors' view, only a small portion of the Asbestos PI Claims allege even a
prima facie case of any functional impairment attributable to exposure to the
Debtors' products. The Debtors, therefore, intend to vigorously contest all or
most of the Asbestos PI Claims through a number of defenses, as outlined in more
detail in their Case Management Motion (which was filed simultaneously with the
Plan and Disclosure Statement). Although the Asbestos PI Committee has asserted
that the value of the current asbestos personal injury claims, alone, exceed the
Debtors' consolidated enterprise value, the Debtors believe that the Asbestos
Trust Assets, when administered in a manner consistent with the TDPs, will be
sufficient to satisfy all legitimate Asbestos PI Claims.
2.4.2 ASBESTOS PROPERTY DAMAGE LITIGATION
Asbestos PD Claims generally purport to seek payment for the cost of
removing or containing asbestos in buildings. On the Petition Date, there were
eight asbestos property damage lawsuits (not including the ZAI lawsuits
described immediately below) pending against
- ----------
(10) Under federal regulations, "materials" containing less than 1% asbestos by
weight are not defined as asbestos-containing "materials." See, e.g., 40
Code of Federal Regulations Sections. 61.141 and 763.83.
16
EXHIBIT 99.1
the Debtors.(11) However, approximately 4,300 Asbestos PD Claims were submitted
prior to the March 2003 Bar Date. The Debtors have examined these Claims, and
intend to object to all or almost all of them on a number of different grounds.
Such grounds may include: insufficient or lack of supporting documentation; lack
of product identification; statute of limitations, statute of repose, and
laches; lack of negligence; inapplicability of strict liability; lack of
causation; and improper calculation of damages. Under the Plan, those Asbestos
PD Claims not disallowed through the objection process will be channeled to the
Asbestos Trust, the assets of which the Debtors believe will be sufficient to
satisfy all legitimate Asbestos PD Claims.
2.4.3 LITIGATION RELATED TO ZONOLITE ATTIC INSULATION
ZAI claims are part of the Asbestos PD Claims. In 2000 and 2001, prior
to the Petition Date, nine lawsuits (one of which has since been dismissed)
styled as class actions were filed in various jurisdictions on behalf of owners
of homes containing ZAI, seeking damages and other relief, including removal of
the attic insulation, because of its alleged asbestos content. Some of the
lawsuits were filed on behalf of residents of particular states while others
purport to be nationwide in scope. As of the Petition Date, many of the lawsuits
had not proceeded beyond the initial pleadings. Four of the federal class
actions were consolidated for pretrial purposes in a multi-district litigation
proceeding; a motion for class certification was pending in this proceeding as
of the Petition Date. A statewide class was certified in a Washington state
case. None of the cases reached a decision on the merits, although the
Washington state court denied a motion seeking a preliminary injunction that
would have required the Debtors to warn all state residents of the alleged
hazards of ZAI. In October 2004, two additional class action lawsuits were filed
in Canada. The plaintiffs allege that ZAI is in millions of homes and that
removal would cost several thousand dollars per home.
In April 2002, the Debtors filed ten proofs of Claim on behalf of
individual Claimants for Claims relating to ZAI and subsequently filed
objections thereto to establish a forum for determining whether ZAI creates an
unreasonable risk of harm (the "ZAI Science Trial"). The ZAI Claims and
objections, and subsequent responses and summary judgment motions, form the
basis for the ZAI Science Trial. The ZAI Science Trial issues are fully briefed
and ready to proceed. The Bankruptcy Court held a hearing on the ZAI Science
Trial motions on October 18, 2004 and has taken the motions under advisement.
The Court has indicated it may need to have further proceedings with respect to
the matters addressed in the motions.
- ----------
(11) Plaintiffs in these eight lawsuits are seeking damages allegedly arising
from the presence of Grace's asbestos-containing acoustical plaster as well
as Monokote-3 fireproofing in their buildings. Debtors are aware of
approximately 300 buildings involved. Two cases are currently on appeal
(Solow -- judgment against Grace of approximately $11.6 million -- and Ohio
Hospital -- summary judgment granted for Grace); one case has been stayed
since 1990 (Jefferson Parish); Grace was dismissed at the trial level in
another case (District of Columbia -- not a final order); and a proof of
Claim has been filed in Pacific Freeholds. Three cases are pending:
Anderson Memorial (motion to certify the class granted as to the other
defendants but stayed with respect to Grace as motion was pending as of the
Petition Date), Orange County (putative class action served), and
Prudential; proofs of Claim have also been filed in each of these three
cases.
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EXHIBIT 99.1
2.4.4 ASBESTOS MEDICAL MONITORING CLAIMS
Approximately 1,000 proofs of Claim for asbestos medical monitoring
based on alleged asbestos exposure were filed against the Debtors prior to the
March 2003 Bar Date. However, a substantial number of those Claims were for
actual personal injury. Under the Plan, Asbestos Medical Monitoring Claims are
included within the Class of Asbestos PI-AO Claims (Class 7).
2.5 THE DEBTORS' OTHER LITIGATION
The Debtors are also parties to a number of pre-petition legal
proceedings that do not involve Claims for personal injury arising out of
exposure to asbestos, or property damage arising out of the installation of
asbestos-containing products in buildings. Except as otherwise indicated, Claims
with respect to such litigation will be treated as Class 9 General Unsecured
Claims. Based on the amount that the Debtors reasonably believe to be involved,
the following are the significant legal proceedings to which the Debtors are
subject.
2.5.1 ENVIRONMENTAL PROCEEDINGS AND ENVIRONMENTAL INSURANCE
LITIGATION
The Debtors' estimate, at September 30, 2004, of their total liability
for vermiculite-related remediation is approximately $205.3 million. This
estimate is based on public comments regarding the spending plans of the U.S.
Environmental Protection Agency ("EPA"), discussions of spending forecasts with
EPA representatives, and analysis of other information made available from the
EPA. However, the EPA's cost estimates have increased substantially over the
course of its cleanup. Consequently, the Debtors' estimate may change materially
as more information becomes available. Any such additional information could
have a material effect on the Debtors' liability for these matters.
2.5.1.1 LIBBY AND VERMICULITE-RELATED REMEDIATION
2.5.1.1.1 LIBBY, MONTANA
In March 2001, the EPA filed a lawsuit in the U.S. District Court for
the District of Montana seeking recovery of costs allegedly incurred in response
to the release or threatened release of asbestos in the Libby area relating to
former vermiculite mining activities. In August 2003, the Montana court issued a
ruling in favor of the United States that requires Grace to reimburse the EPA
for $54.5 million (plus interest) in costs expended through December 2001, and
for all appropriate future costs to complete the cleanup. Grace has appealed the
Montana court's ruling to the Ninth Circuit Court of Appeals.
2.5.1.1.2 LIBBY PROPERTY OWNERS
A class-action lawsuit was filed against Grace in the U.S. District
Court for the District of Montana in February 2000 on behalf of all owners of
improved private real property situated within 12 miles of Libby. The complaint
alleges that the class members have suffered harm in the form of environmental
contamination and loss of property rights resulting from Grace's former
vermiculite mining and processing operations, and seeks remediation, property
damages and punitive damages. This case has been stayed as a result of the
Chapter 11 Cases. However, as described above, the EPA has been conducting
remediation activities in and around Libby that includes the remediation of
private real property. While investigation of the Claims has not been
18
EXHIBIT 99.1
completed, Grace has no reason to believe that it will incur material liability
in addition to the amount of the EPA's recoverable costs for cleanup activities
around Libby.
2.5.1.1.3 STATE OF MONTANA'S CLAIMS AGAINST THE DEBTORS
After the Petition Date, certain of the residents of Libby, Montana
filed an action captioned Orr v. State of Mont., suing the state of Montana
alleging that the state negligently failed to warn them of the hazardous
conditions at the mine, as a result of which they suffered grave injuries. The
district court dismissed the lawsuit but, on December 14, 2004, the Montana
Supreme Court reversed the district court ruling and held that once the state
was aware of the dangerously high asbestos levels in the Libby mine, it was
required by law to protect the miners by warning them of the known hazards of
working in the mine. The state of Montana has filed a proof of Claim in an
unliquidated amount seeking indemnification from the Debtors for this lawsuit.
To the extent that the Claim is Allowed, it will be treated as a General
Unsecured Claim. However, Grace maintains that it has no indemnification
obligation as the lawsuit relates to the state's own duty to warn.
The state of Montana has also filed two proofs of claim against the
Debtors in the approximate amount of $15.6 million for the cost of future and
past Medicaid reimbursement. The state alleges that the Debtors are responsible
for such reimbursement. To the extent that the Claim is Allowed, it will be
treated as a General Unsecured Claim. However, Grace maintains that it has no
such reimbursement obligation.
The State of Montana has filed an objection stating that, in the event
the State of Montana is classified as a General Unsecured Claimant, it cannot
receive stock as a form of payment on an indebtedness. The Debtors and the State
of Montana are working to resolve this issue before Plan confirmation.
2.5.1.1.4 FORMER GRACE PLANT IN MINNEAPOLIS, MINNESOTA
A class action lawsuit was filed in the U.S. District Court for the
District of Minnesota in October 2000, alleging loss of property values in the
vicinity of a former Grace plant in Minneapolis that expanded vermiculite from
the Libby mine. This case has been stayed as a result of the Chapter 11 Cases.
In addition, the EPA is engaged in a program of removing suspected vermiculite
expansion by-products from the yards and driveways of houses near the former
Minneapolis plant. As of September 30, 2004, the EPA had spent approximately
$3.4 million on these residential cleanup actions. The EPA also has remediated
industrial property in the area, including the former vermiculite processing
plant, at a cost of approximately $650,000. The EPA has submitted proofs of
Claim for $10.9 million for the past and projected future costs (including
indirect costs) of remediation of the residential and industrial properties at
or around the former expansion plant site.
2.5.1.1.5 OTHER CURRENT AND FORMER VERMICULITE
EXPANSION PLANTS
The EPA also has compiled for investigation a list of 245 facilities
that at one time used, stored, or processed vermiculite that originated from the
Libby mine. Included in this list are 50 vermiculite expansion plants currently
or formerly operated by Grace, of which the EPA has
19
EXHIBIT 99.1
listed 17 as requiring additional action. Corrective actions or investigations
have been conducted at 6 of these sites.
The EPA has submitted proofs of Claim for 10 of such 50 sites, and for
3 other sites never owned or operated by Grace. The amount claimed with respect
to these 13 sites is $26 million. In addition, the Agency for Toxic Substances
and Disease Registry ("ATSDR") has commenced a separate investigation at 28 of
the 245 facilities, 22 of which are currently or were formerly operated by
Grace.
2.5.1.2 PROCEEDINGS IN WHICH GRACE IS A POTENTIALLY
RESPONSIBLE PARTY
The EPA has designated Grace (together, in most cases, with many other
companies) as a "potentially responsible party" ("PRP") for paying the costs of
investigating and remediating pollution at various sites under the jurisdiction
of federal, state and/or local authorities. At December 31, 2003, proceedings
were pending with respect to approximately 30 such sites nationally. Applicable
law provides that all PRPs for a site may be held jointly and severally liable
for the costs of investigating and remediating the site - that is, any one or
more of the PRPs may be required to pay for all the costs. During the Chapter 11
Cases, the Debtors have not been participating (except in a limited number of
special cases) in the joint funding of investigation and remediation at
non-owned sites where any of them is a PRP. Grace's expected liability,
estimated at September 30, 2004, for environmental remediation at such PRP sites
and other sites (excluding liability related to Grace's former vermiculite
mining and processing activities as described above) is estimated at $141.0
million. Some of these Claims may be resolved by the proposed Consent Decree
described immediately below.
2.5.1.3 THE SETTLING FEDERAL AGENCIES' CONSENT DECREE
The Debtors and the EPA, the United States Department of Agriculture,
the United States Department of the Interior, and the United States Army Corps
of Engineers (collectively, the "Settling Federal Agencies") currently are
negotiating the terms of a Consent Decree (the "Consent Decree") to settle the
various claims that the Settling Federal Agencies have asserted against the
Debtors with respect to certain costs incurred or to be incurred by the Settling
Federal Agencies in the course of responding to releases and threats of releases
of hazardous substances into the environment for certain sites, including the
Libby site. The sites that are currently contemplated are the following 26
sites:
1. Aqua Tech Site in Greer, South Carolina
2. Blackburn and Union Privileges Site in Walpole, Massachusetts
3. Casmalia Resources Site in Santa Barbara, California
4. Central Chemical Site in Hagerstown, Maryland
5. Elwood City Zonolite Site in Ellwood City, Pennsylvania
6. Galaxy/Spectron Site in Elkton, Maryland
7. Green River Site in Maceo, Kentucky
8. Harrington Tools Site in Glendale, California
9. Intermountain Insulation Site in Salt Lake City, Utah
10. Li Tungsten Site in Glen Cove, New York
11. Malone Services Co. Site in Texas County, Texas
12. N-Forcer Site in Dearborn, Michigan
20
EXHIBIT 99.1
13. Operating Industries Site in Monterey Park, California
14. Prince George's County Zonolite Site in Beltsville, Maryland
15. R&H Oil/Tropicana Site in San Antonio, Texas
16. RAMP Industries Site in Denver, Colorado
17. Reclamation Oil Site in Detroit, Michigan
18. Robinson Insulation Site in Minot, North Dakota
19. Solvents Recovery Service of New England Site in Southington,
Connecticut
20. Vermiculite Intermountain Site in Salt Lake City, Utah
21. Vermiculite Northwest Site in Spokane, Washington
22. Watson Johnson Landfill Site in Richland Township, Pennsylvania
23. Western Minerals Processing Site in Denver, Colorado
24. Western Minerals Products Site in Minneapolis, Minnesota
25. Zonolite/Grace Site in Hamilton Township, New Jersey
26. Zonolite/Grace Site in Wilder, Kentucky
In addition, the Consent Decree addresses treatment of rights and
claims regarding access to the Libby, Montana Site, treatment of the claim
regarding the ATSDR nationwide investigation of the Libby Site material, and
treatment of claims and expenses regarding the following Debtor-owned sites:
1. Acton Plant Site in Acton, Massachusetts
2. Cambridge Plant in Cambridge, Massachusetts
3. Curtis Bay Site in Curtis Bay, Maryland
4. Kootenai Bluffs and Kootenai Flyway Properties in Libby, Montana
5. Wells G&H Site in Woburn, Massachusetts
6. Zonolite/Grace Site in New Castle, Pennsylvania
The Consent Decree will provide for: (1) the allowance of certain
General Unsecured Claims with respect to certain sites, (2) treatment of Claims
regarding the ATSDR's nationwide investigation of former vermiculite expansion
sites, (3) treatment of Claims regarding certain other Debtor-owned sites, and
(4) the treatment, as Administrative Expense Claims, of certain Comprehensive
Environmental Response, Compensation, and Liability Act response costs incurred
post-petition at certain Debtor-owned sites. The Consent Decree will also
resolve the claims of certain PRP groups and establish a protocol for addressing
the liability and obligations of the Debtors to the Settling Federal Agencies
with respect to additional non-owned sites not currently addressed in the
Consent Decree.
The Debtors and the Settling Federal Agencies currently are conducting
investigation in order to reach agreement about the allowed amount of the Claims
on many of the sites that will be included in the Consent Decree. It is not
known at this time when the Consent Decree will be finalized, what properties it
will cover, and at what Allowed Amount. The EPA has filed numerous Claims
against the Debtors as outlined above. While the Debtors believe the Consent
Decree will ultimately be finalized, in the event that it is not, the EPA Claims
will be addressed through the traditional Claims objection process. As outlined
herein, the Debtors' estimates and projections are not based on entry of the
Consent Decree but many of the Allowed amounts provided for in the Consent
Decree are consistent with the Debtors' estimates and projections which are
based on public comments regarding the spending plans of the EPA, discussions of
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EXHIBIT 99.1
spending forecasts with EPA representatives, analysis of other information made
available from the EPA, previous consent decrees and agreements, actual
outstanding invoices, and historical costs.
2.5.1.4 OTHER SIGNIFICANT ENVIRONMENTAL LEGAL PROCEEDINGS
AND CLAIMS
Grace is a party to other legal proceedings and Claims involving
federal, state and/or local government agencies and private parties regarding
Grace's responsibility for alleged noncompliance with environmental laws and
regulations. In addition, Grace may incur material liability in connection with
future actions of governmental agencies or private parties relating to Grace's
past or future practices with respect to the generation, storage, handling,
discharge, disposition or stewardship of hazardous wastes and other materials.
The two such proceedings that are significant are discussed immediately below.
2.5.1.4.1 CAPE COD PIPELINE REMEDIATION
Grace is involved in disputes over the remediation of an abandoned jet
fuel pipeline on Cape Cod, Massachusetts. In 1993, Grace Energy Corporation
("Grace Energy"), a Debtor, sold certain of its subsidiaries, one of which then
owned the Cape Cod pipeline, to Kaneb Pipe Line Operating Partnership L.P.
("Kaneb"). In 1995 and 1997, respectively, the Massachusetts Department of
Environmental Protection and the U.S. Department of Justice made cleanup demands
related to alleged pipeline leaks, and the EPA is engaged in extensive cleanup
of the pipeline site. Federal officials have estimated that the remediation may
cost as much as $100 million.
In 1997, Grace Energy brought an action in Texas state court against
Kaneb to: (a) determine the ownership of, and responsibility for, the pipeline,
and (b) seek indemnification for cleanup costs. The Texas state court held that
the pipeline had been transferred to the defendants and that Grace Energy does
not owe indemnity to Kaneb for the pipeline cleanup costs. The Texas state court
awarded Grace Energy approximately $1.8 million in attorneys' fees, but also
found that Grace Energy was not entitled to indemnification. Both sides appealed
shortly before the action was stayed by the Chapter 11 Cases and the modified
preliminary injunction that was subsequently entered by the Bankruptcy Court.
In addition, on the basis of indemnification agreements entered into
by Grace, Samson Hydrocarbons, a buyer of one of the Debtors' former businesses,
has filed proofs of Claim for indemnification of past and future remediation
expenses related to the pipeline and six other remediation sites. The
Massachusetts Department of Environmental Protection has also filed proofs of
Claim against Grace for obligations to continue to perform assessment,
containment and removal activities at the Cape Cod pipeline site. Grace may
incur material liability in connection with the Cape Cod pipeline remediation
controversy.
2.5.1.4.2 JERSEY CITY CHROMIUM CONTAMINATION
REMEDIATION
Beginning in 1995, citizens groups brought suit in the U.S. District
Court for the District of New Jersey against Honeywell International Inc.
("Honeywell"), Grace, and another Debtor for injunctive relief requiring the
remediation of chromium contamination of certain property in
22
EXHIBIT 99.1
Jersey City, New Jersey. Grace asserted cross-claims against Honeywell to
recover all past and future costs and damages, and for injunctive relief
requiring Honeywell to remediate the site. In May 2003, the New Jersey district
court found in favor of the plaintiff and Grace.
Honeywell appealed the judgment to the U.S. Court of Appeals for the
Third Circuit. The parties entered into a settlement agreement which was
approved by the Bankruptcy Court on October 13, 2004. The parties have already
performed their obligations under the settlement agreement, which agreement
provides for settlement of the litigation, transfer of the Jersey City property
to Honeywell, and payment to the Debtors of $62.5 million. The Debtors expect to
realize net cash proceeds of $52 million after legal expenses and transfer
taxes.
2.5.1.5 PLAN TREATMENT OF ENVIRONMENTAL CLAIMS
The Plan provides for varying treatment of Allowed environmental
Claims. With respect to environmental Claims that constitute Allowed
Administrative Expense Claims (primarily post-petition remediation costs of
Debtor-owned properties), the Claimants will be paid in cash in full on the
Effective Date or as soon as practicable thereafter or upon such other terms as
may be agreed upon by the Holders of such Claims; provided, however, that such
Allowed Administrative Expense Claims not yet due on the Effective Date will be
paid as they become due.
The Plan provides that Allowed environmental Claims that constitute
Allowed Class 9 General Unsecured Claims (primarily pre-petition remediation
costs for both owned and non-owned properties and post-petition remediation
costs for pre-petition contamination on non-owned properties), will be paid in
the same manner as all other General Unsecured Claims.
2.5.1.6 ENVIRONMENTAL INSURANCE LITIGATION
Grace is a party to three pending environmental insurance coverage
actions with insurance companies, all of which have been stayed as a result of
the Chapter 11 Cases. Two of the three pending environmental insurance coverage
actions have been settled between Grace and Continental Casualty Company, the
only insurance carrier involved in those actions but await Bankruptcy Court
approval. The two settled actions are captioned Maryland Casualty Co. v. W. R.
Grace & Co., 88 CIV 4337, filed in 1988, and Continental Casualty Company v. W.
R. Grace & Co. and W. R. Grace & Co. Conn., 00 CIV 4524, filed in 2000. The
Maryland Casualty action involved approximately 200 claims arising from
environmental contamination of sites owned or once owned by Grace and off-site,
un-owned disposal sites. The Continental Casualty action involved approximately
45 claims of the same nature, including Grace's claims for coverage regarding
certain claims involving former vermiculate mining operations in Libby, Montana.
The confidential settlement agreement between Grace and Continental Casualty
Company, which will result in the dismissal of the Maryland Casualty and
Continental Casualty actions, was finalized in December 2004 and will be
submitted for the Bankruptcy Court's approval. The third pending environmental
insurance coverage action is captioned Unigard Security Ins. Co. v. W. R. Grace
& Co.-Conn. and W. R. Grace & Co., 97 CIV 8941, and was filed in 1997. In this
suit, Unigard seeks a declaration of no liability regarding potential bodily
injury claims against Grace arising from environmental contamination at four
sites formerly owned by Grace. The Unigard action is stayed as a result of the
bankruptcy. The Unigard policy at issue is a first-layer excess policy that was
in effect from June 30, 1974 to June 30, 1975, with
23
EXHIBIT 99.1
limits of $10,000,000. No personal injury claims have been identified regarding
the four sites identified by Unigard. Additionally, in June 2003, the Second
Circuit Court of Appeals, while interpreting coverage under the Continental
Casualty Policy underlying the Unigard policy, held that Section 46 of the New
York Insurance Law, which was in effect from 1971 to 1982, prohibits coverage
for claims arising from gradual pollution.
2.5.2 FRAUDULENT TRANSFER LITIGATION
In September 2000, Grace was named in a class action suit that was
filed in California state court. The suit alleged that Grace's (1) 1996
reorganization transaction with Fresenius and (2) 1998 reorganization
transaction with Sealed Air involved fraudulent transfers. Two similar class
actions were also filed prior to the Petition Date.
On June 14, 2001, the PD Committee and the PI Committee filed their
Joint Motion for Authority to Prosecute Fraudulent Transfer Claims (Docket No.
527), seeking authority to prosecute certain fraudulent transfer and successor
liability claims against Sealed Air and Fresenius. Thereafter, the District
Court directed the PD Committee and the PI Committee to investigate and
ultimately prosecute the claims. On March 18, 2002 the PD Committee and the PI
Committee filed the Fraudulent Conveyance Adversary Proceedings on behalf of the
Debtors' estate.
In November 2002, Fresenius and Sealed Air announced that they had
reached agreements in principle to settle the Fraudulent Conveyance Adversary
Proceedings.
In July 2003, the Fresenius Settlement Agreement was approved by the
District Court. Subject to certain conditions, Fresenius will pay $115.0 million
to the Debtors' estates as directed by the District Court upon confirmation of
the Plan.
Under the terms of the Sealed Air Settlement Agreement and subject to
certain conditions, Cryovac, Inc. will transfer $512.5 million in cash (plus
interest thereon from December 21, 2002 until the Effective Date compounded
annually) and 9 million shares of Sealed Air Common Stock to the Asbestos Trust.
This payment constitutes the initial and primary funding under the Plan for the
Asbestos Trust. This payment is critically important in order to achieve
confirmation of the Plan.
On November 26, 2003, Sealed Air, the PI Committee and the PD
Committee filed a motion seeking approval of the Sealed Air Settlement Agreement
(the "Settlement Motion"). Due to a stay imposed in connection with the
proceedings to have Judge Wolin removed from the Debtors' cases, among other
cases, no objection deadline or hearing date has ever been set on the Settlement
Motion and it remains pending with the District Court. On November 24, 2004, the
Debtors filed a Motion with District Judge Buckwalter seeking referral of the
Settlement Motion to the Bankruptcy Court (the "Referral Motion") (Docket No.
7036). The Referral Motion is scheduled to be heard before the District Court on
January 18, 2005. Sealed Air has indicated it does not object to the Referral
Motion (Obj. of Sealed Air, at p.3, n.1).
The Debtors are not parties to the Sealed Air Settlement Agreement.
The Debtors, Sealed Air, the PI Committee and the PD Committee negotiated for
some six months to reach an agreement on an acceptable settlement structure. The
great majority of the significant issues
24
EXHIBIT 99.1
were resolved. However, there were certain issues, set forth below, that
resulted in the Debtors not becoming a party the Settlement Agreement.
The Plan and Disclosure Statement are intended to be and the Debtors
believe are in fact, consistent with the Sealed Air Settlement Agreement. In an
effort to accelerate the process of obtaining confirmation of the Plan, the
Debtors do not plan to object to, and are prepared to go forward with, the
Sealed Air Settlement Agreement. The Debtors have clarified this position in
this Disclosure Statement and the Plan. The Unsecured Creditors' Committee
reserves its right to file an objection or other appropriate pleading with
respect to the Sealed Air Settlement Agreement.
However, the Sealed Air Settlement Agreement raises the following
issues that the Debtors believe they are required to disclose as part of the
Plan confirmation process:
o The Sealed Air Settlement Agreement would impose on the
Debtors a requirement to take positions on their financial
statements and tax returns that would not be inconsistent
with Sealed Air achieving favorable tax treatment for the
Sealed Air Payment. While the Debtors generally believe that
they can comply with such requirements, the Debtors and
their executives are concerned that a conflict could arise
between the Debtors' obligations under the Sealed Air
Settlement Agreement and their fiduciary duties and legal
obligations to governmental authorities, including those
imposed by the Sarbanes-Oxley Act of 2002.
o The IRS may assert that the Sealed Air Payment gives rise to
taxable income to the Debtors without any offsetting
deduction. Grace firmly believes that this characterization
would be incorrect under current law. Nonetheless, if the
IRS were to successfully raise this issue, the dollar cost
would be substantial and would materially adversely affect
the Reorganized Debtors. Under the terms of the Sealed Air
Settlement Agreement, Grace's rights to defend itself in a
tax audit from this IRS assertion may be constrained.
o The Sealed Air Settlement Agreement requires the Debtors, in
a number of circumstances, to use their "best efforts" to
take certain actions or refrain from taking certain actions
in support of Sealed Air's tax position. The Debtors are
concerned that "best efforts" is not adequately defined and
could lead to disputes between the parties.
o The Debtors are concerned that, in a case where Grace
derives tax benefits from the Sealed Air Payment, which
Grace would be required to share with Sealed Air under the
Sealed Air Settlement Agreement, Grace may be required to
pay Sealed Air for tax benefits prior to their actual
realization. Sealed Air has indicated that Grace does not
have to make payment for a tax benefit unless the Debtors
have received an actual reduction in the amount of taxes
currently payable by them as a result of the tax benefit. If
this is Sealed Air's position, Grace is in agreement.
However, this result is not stated clearly in the Sealed Air
Settlement Agreement.
25
EXHIBIT 99.1
2.5.3 TAX CLAIMS
2.5.3.1 IRS PROPOSED 1993-96 TAX ADJUSTMENTS
The IRS has asserted approximately $114.0 million of proposed tax
adjustments against Grace, including accrued interest, for tax periods 1993
through 1996. Grace's federal tax returns for 1997 and subsequent periods are
either under examination by the IRS or open for future examination. As a
consequence of any finally determined federal tax adjustments, Grace may be
liable for additional state taxes plus accrued interest. To the extent these IRS
and state tax adjustments are sustained, and they result in Fresenius
Indemnified Taxes, such Fresenius Indemnified Taxes are obligations that the
Debtors are obligated under the Fresenius Settlement Agreement promptly to pay
in full in cash when due and payable.
The most significant contested issue for the 1993-1996 tax periods
concerns corporate-owned life insurance ("COLI") policies. In 1988 and 1990,
Grace acquired COLI policies as part of a strategy to fund the cost of
postretirement health care benefits and other long-term liabilities. COLI
premiums were funded in part by loans issued against the cash surrender value of
the COLI policies. The IRS is challenging deductions of interest on loans
secured by COLI policies for years prior to 1999. In 2000, Grace paid $21.2
million of tax and interest related to this issue for tax years 1990 through
1992. Subsequently, Grace deducted approximately $163.2 million in interest
attributable to COLI policy loans.
Grace has agreed with the Department of Justice and the IRS on a
settlement amount and certain other terms pertaining to this matter (the "COLI
Settlement"). The Bankruptcy Court entered an order authorizing the Debtors to
enter into the COLI Settlement (the "COLI Order") on October 13, 2004. Pursuant
to the COLI Settlement, the federal government would allow Grace to claim
approximately (1) $42.2 million, or 20%, of the approximately $211.2 million in
COLI interest deductions claimed from 1989 through 1996, and (2) $8.2 million,
or 20%, of the approximately $41.1 million in COLI interest deductions claimed
in 1997 and 1998. The COLI Settlement further provides that Grace must allocate
a portion of the permitted COLI interest deductions against foreign source
income for purposes of determining the availability of foreign tax credits in
each of the tax years at issue. This effectively would decrease the amount of
foreign tax credits that Grace may apply to reduce U.S. taxes on foreign source
income. The COLI Order also approves termination of the COLI policies. Upon
termination of the policies, the COLI Settlement provides that Grace will only
have to recognize 20% of the gain as taxable income. Grace expects to apply its
net operating loss ("NOL") carryforwards to offset this income. However, since
NOL carryforwards cannot fully offset a corporation's alternative minimum
taxable income, the recognition of this income may result in some degree of tax
liability if Grace is subject to paying the alternative minimum tax in that
year. As part of terminating the COLI policies at issue, Grace anticipates
receiving cash proceeds from its insurers. Assuming a termination date of
September 30, 2004, Grace would have received approximately $20 million in
proceeds. This amount will likely fluctuate until the actual termination date,
which is expected to be in the first quarter of 2005.
26
EXHIBIT 99.1
2.5.3.2 OTHER DISPUTED TAX CLAIMS
2.5.3.2.1 TEMPORARY HEALTH CARE STAFFING BUSINESS
The IRS has asserted approximately $62 million of additional federal
income tax withholding and Federal Insurance Contributions Act (FICA) taxes plus
interest and related penalties against a Grace subsidiary that operated a
temporary health care staffing business until its sale in 1999. The IRS contends
that certain per diem reimbursements made by the business should have been
treated as wages subject to employment taxes and federal income tax withholding.
Grace contends that the per diem and expense allowance plans were in accordance
with statutory and regulatory requirements, as well as other published guidance
from the IRS. The matter is currently pending in the U.S. Court of Claims. The
parties are in settlement negotiations on this matter.
2.5.3.2.2 BEKAERT TEXTILES N.V.
Under an indemnification agreement, Grace is also responsible for
defense costs and payment of any tax assessments levied by the Belgian
government on a former Grace subsidiary, Bekaert Textiles N.V. ("Bekaert"), in
connection with foreign bond transactions in 1989 and 1990. Shortly after
receipt of the assessments, Bekaert filed tax protests with the Belgian taxing
authority, which failed to act on the protests. To stop the running of interest,
Bekaert commenced litigation in 2001 against the Belgian government on the
issue, which is pending. The total amount allegedly owed for taxes and interest
is approximately $14 million.
2.5.3.2.3 REMEDIUM JOINT VENTURE
In 1999, Grace and de maximis, inc. ("de maximis"), an environmental
project management company, formed a special purpose environmental remediation
management joint venture, Remedium Group, Inc. ("Remedium"), to centralize,
manage and minimize environmental expenditures associated with certain Grace
remediation sites. The joint venture was created by virtue of de maximis
acquiring Remedium Class B stock. Grace reported a $128.6 million capital loss
from that sale. In September 2004, the IRS concluded that Grace's capital loss
should be disallowed but that no penalties should be imposed. Grace contends
that the Remedium joint venture was formed for several valid business reasons
and that the capital loss was properly claimed and reported. If the 1999 capital
loss were disallowed, the result would be a reduction in Grace's NOLs, which
could cost Grace up to $45 million, plus any applicable state taxes, interest or
penalties. Because of the potential magnitude of this issue on Grace's available
NOLs and, as a consequence, its importance in developing the Plan, Grace has
requested and the IRS has agreed to review this issue on an accelerated basis.
Grace is also considering petitioning the Bankruptcy Court to assume
jurisdiction to resolve this matter.
2.5.3.2.4 STATE INCOME TAX CLAIMS
Certain state income tax Claims relating to past tax years may involve
significant amounts. Although state income tax proofs of claim have been filed
against Grace in the amount of approximately $57 million, Grace estimates that
it will have to pay out approximately $10 million with respect to these Claims.
Grace also estimates that it will be required to pay out additional state taxes
and interest to reflect the state impact of IRS federal audit adjustments.
27
EXHIBIT 99.1
The Debtors estimate such liability at approximately $37 million through the
Petition Date. To the extent the state tax obligations are sustained, however,
and they result in Fresenius Indemnified Taxes, the Fresenius Indemnified Taxes
are obligations that the Debtors are obligated under the Fresenius Settlement
Agreement promptly to pay in full in cash when due and payable.
2.6 LIABILITIES OTHER THAN LITIGATION CLAIMS
2.6.1 CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE UNDER THE
BANKRUPTCY CODE
As of September 30, 2004, the Debtors had approximately $366.2 million
in current liabilities not subject to compromise under the Bankruptcy Code. This
amount represents the sum of short-term debt, income taxes, and trade and other
operating liabilities that are due or will become payable within one year after
September 30, 2004. These liabilities are expected to be satisfied in accordance
with their terms.
2.6.2 NON-CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE UNDER THE
BANKRUPTCY CODE
As of September 30, 2004, the Debtors had approximately $404.3 million
in non-current liabilities not subject to compromise under the Bankruptcy Code.
This amount consists of $34.1 million of deferred income taxes, $295.9 million
of liabilities related to Grace's defined-benefit pension plans, $73.0 million
in other non-current liabilities, and $1.3 million in long-term debt. These
liabilities relate to obligations that arose subsequent to the Debtors' Chapter
11 Cases and will be satisfied in accordance with their terms.
2.6.3 LIABILITIES SUBJECT TO COMPROMISE UNDER THE BANKRUPTCY CODE
2.6.3.1 DEBT AND ACCRUED INTEREST
As of September 30, 2004, as recorded on the Debtors' books, there was
outstanding approximately $572.8 million of debt and accrued interest. This
amount consists of $500 million in principal under the Debtors' pre-petition
credit facilities and $57.7 million in interest accrued at the 90-day floating
U.S. LIBOR rate plus 100 basis points (average of 3.2%), $12.5 million drawn
under letters of credit, and the balance in miscellaneous capital lease
obligations. Instead of the 90-day floating U.S. LIBOR rate plus 100 basis
points, the Plan provides for interest at a rate of 6.09%, compounded quarterly,
for obligations under the Debtors' pre-petition credit facilities, which results
in total accrued interest of approximately $120.6 million as of September 30,
2004. In addition, the Plan provides for interest at a rate of 4.19%, compounded
annually, for amounts drawn under letters of credit, which results in accrued
interest of approximately $1.2 million as of September 30, 2004. These
liabilities will be paid as General Unsecured Claims under the Plan. In
addition, certain capital leases will be reinstated and paid in accordance with
their terms; and all undrawn or partially drawn letters of credit, including
letters of credit outstanding under the Debtors' pre-petition credit facilities,
will be replaced as soon as practicable with new or replacement letters of
credit under a new facility.
28
EXHIBIT 99.1
2.6.3.2 INCOME TAXES
As of September 30, 2004, the Debtors have established approximately
$232 million in reserves, for financial reporting purposes, for potential income
taxes and related statutory interest including those described in Section 2.5.3
above (including approximately $30 million of reserves classified in Other
Accrued Liabilities). This amount reflects the Debtors' estimated liability for
a number of contested income tax matters. Of this amount, approximately $182
million is expected to be paid in cash on or before the Effective Date in
settlement of assessed or asserted income tax claims (including approximately
$30 million of reserves classified in Other Accrued Liabilities) including
obligations for Fresenius Indemnified Taxes that the Debtors are obligated
promptly to pay in full in cash when due and payable under the Fresenius
Settlement Agreement. The remainder will be satisfied as Priority Tax Claims
under the Plan or as otherwise agreed with the relevant taxing authorities. To
the extent these tax claims are not paid in full in cash prior to the Effective
Date, and they are Fresenius Indemnified Taxes, they are tax obligations that
the Debtors are obligated under the Fresenius Settlement Agreement promptly to
pay in full in cash when due and payable.
2.6.3.3 POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
As of September 30, 2004, the Debtors had approximately $122.9 million
in liabilities relating to post-retirement benefits other than pensions. This
amount represents the present value of the Debtors' estimated future annual
obligations under their retiree medical program. This liability is being funded
currently, and will pass through as a continuing obligation of the Reorganized
Debtors under the Plan.
2.6.3.4 UNFUNDED SPECIAL PENSION ARRANGEMENTS
As of September 30, 2004, the Debtors had approximately $70.9 million
of unfunded special pension arrangements. This amount represents the present
value of various non-qualified, unfunded special pension arrangements with both
current and former employees of the Debtors. Approximately $8 million of this
amount relates to due but unpaid amounts since the Petition Date as a result of
funding limits set by the Bankruptcy Court, and will be paid on the Effective
Date or as soon as practicable thereafter. Pursuant to the Plan, the remainder
will be re-instated as continuing obligations of the Reorganized Debtors and
will be satisfied in accordance with their terms.
2.6.3.5 ACCOUNTS PAYABLE
As of September 30, 2004, the Debtors had approximately $31.4 million
in liabilities to suppliers and other service providers that were due and
payable as of the Petition Date. These liabilities will be paid as General
Unsecured Claims under the Plan and will include post-petition interest at a
rate of 4.19%, compounded annually, which as of September 30, 2004 was an
additional approximately $4.9 million.
2.6.3.6 OTHER ACCRUED LIABILITIES
As of September 30, 2004, the Debtors had approximately $101 million
in other accrued liabilities. This amount represents contractual obligations and
estimates of costs to resolve pre-
29
EXHIBIT 99.1
petition contingencies. Of this amount, approximately $10 million is expected to
be satisfied as Allowed General Unsecured Claims at the Effective Date,
approximately $30 million is expected to be satisfied as Priority Tax Claims
under the Plan (see Section 2.6.3.2 of this Disclosure Statement), and
approximately $3 million is expected to be satisfied as Administrative Expense
Claims. The remainder will be re-instated and satisfied in accordance with their
terms, including approximately $5 million expected to be treated as Class 3
Claims, $24 million expected to be treated as Administrative Expense Claims, $13
million expected to be General Unsecured Claims, and $17 million of non-core
reserves.
2.7 ASSETS AND OTHER RIGHTS
2.7.1 EXCESS REAL PROPERTY
The Debtors own a number of parcels of excess real property, most of
which were used in previously divested operations, are not useful for the
Debtors' current operations, and are not readily marketable. Some of the excess
property is not marketable because it is undergoing environmental remediation,
which is often an expensive and lengthy process. Although Grace is actively
engaged in selling properties that are considered marketable, the net value of
the Debtors' excess real property does not appear material.
2.7.2 INSURANCE RIGHTS
2.7.2.1 OVERVIEW
Grace previously purchased insurance policies that provide coverage
for the 1962 - 1985 period with respect to asbestos-related lawsuits and Claims.
Since 1985, however, insurance coverage for asbestos-related liabilities has not
been commercially available to Grace. Insurance policies that were purchased by
Grace prior to 1962 were determined by the courts to be inapplicable because
they were purchased prior to the year in which Grace acquired the Zonolite
Company, through which Grace began producing asbestos containing products.
However, as part of the Zonolite acquisition, Grace obtained all rights under
the insurance policies purchased by Zonolite.
2.7.2.2 PRIMARY INSURANCE COVERAGE
Grace's primary insurance coverage for 1962 - 1985 is in the amount of
$1 million per occurrence with annual aggregate product-liability limits ranging
from $1 to $2 million. With one exception, coverage disputes regarding the Grace
and Zonolite primary policies have been settled, and the settlement amounts paid
in full. The only unsettled primary coverage is that of Continental Casualty
Company ("CNA") for 1973 - 1985. In a pending declaratory judgment action in
U.S. District Court for the Southern District of New York, Grace asserts that
this coverage is still available to pay asbestos-related Claims that are not
based on product liability, such as Claims made by certain Libby residents. This
action is currently stayed due to the filing of the Chapter 11 Cases.
2.7.2.3 EXCESS INSURANCE COVERAGE
Grace's excess coverage is for levels of loss above certain levels.
The levels vary from policy to policy, creating "layers" of excess coverage,
some of which are triggered before others.
30
EXHIBIT 99.1
As of May 31, 2004, after subtracting previous reimbursements by insurers and
allowing for discounts pursuant to certain settlement agreements, there remains
$978 million of excess coverage from more than 30 presently solvent insurers.
Grace has entered into settlement agreements with various excess
insurance carriers. These settlements involve amounts paid and to be paid to
Grace. One such settlement agreement provides for reimbursement of a specified
percentage of each dollar spent by Grace or the Non-Debtor Affiliates to settle
or defend asbestos-related Claims. It is the Debtors' position that, under this
agreement, a group of carriers has agreed to reimburse Grace for 20% of each
dollar spent to settle or defend personal injury or property damage Claims, up
to a remaining maximum reimbursement of approximately $78 million. The other
settlement agreements would be available to pay asbestos-related personal injury
Claims. The remaining maximum aggregate amount available under these other
settlement agreements is approximately $417 million. With respect to
asbestos-related personal injury Claims, the settlement agreements generally
require that the Claims be spread over the Claimant's exposure period and that
each insurer pay a pro rata portion of each Claim based on the amount of
coverage provided during each year of the total exposure period. Nothing in
Section 2.7.2.3 of this Disclosure Statement is intended to affect or vary the
above-reference settled agreements.
Presently, Grace has no agreements in place with insurers with respect
to approximately $483 million of excess coverage, which is at layers of coverage
that have not yet been triggered by the value of claims submitted by Grace.
Grace believes that the ZAI Claims also are covered under the
settlement agreements and unsettled policies discussed above to the extent they
relate to installations of ZAI occurring after July 1, 1973.
Grace has approximately $355 million of excess coverage with insolvent
or non-paying insurance carriers. (Non-paying carriers are those that, although
technically not insolvent, are not currently meeting their obligations to pay
claims.) Grace has filed and continues to file claims in the insolvency
proceedings of insolvent carriers. Grace is currently receiving distributions
from some of these insolvent carriers and expects to receive distributions in
the future.
2.7.2.4 ESTIMATED INSURANCE RECOVERIES
Grace's total reimbursement percentage for asbestos-related personal
injury Claims will vary based on the total amount of asbestos-related liability.
Grace estimates that it would receive $500 million from settled and solvent
unsettled insurance carriers if the Asbestos Trust Aggregate Fund is determined
by the Court to be the maximum permitted under the Plan. (Coverage for property
damage Claims is available only under the settlement agreement referred to above
that has a maximum remaining reimbursement of approximately $78 million and,
therefore, any amounts paid in respect of such property damage Claims would
reduce the amount payable for personal injury Claims.) Generally, the
reimbursement percentage decreases at higher levels of liability. At $1 billion
and $2 billion of estimated personal injury liability, the reimbursement
percentages would be approximately 34% and 28%, respectively. The
31
EXHIBIT 99.1
prospective financial information assumes that there will be no recoveries from
insolvent carriers.
Grace's ultimate recovery of insurance proceeds may be affected by the
financial status of the remaining solvent insurance carriers and the number,
nature and amount of individual Allowed Asbestos Claims.
2.7.3 DEBTORS' RETAINED CAUSES OF ACTION
2.7.3.1 PRESERVATION OF CAUSES OF ACTION
The Debtors are currently investigating whether to pursue potential
causes of action against any Claimants or Entities. The investigation has not
been completed. Under the Plan, the Reorganized Debtors are retaining the
Debtors' rights to commence and pursue any and all Retained Causes of Action.
The Debtors may pursue them before the Effective Date. Otherwise, the
Reorganized Debtors may pursue them after the Effective Date. The potential
causes of action include the following:
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, for, or in any way involving, the
collection of accounts receivable or general ledger items that
are due and owing to the Debtors, including trade receivables,
rent and other lease and sublease charges, franchise and/or
license fees, payments due under equipment leases and licenses,
or other miscellaneous charges;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against customers, including those
customers listed in Exhibit 11 in the Exhibit Book, for accounts
receivable, improper setoff, overpayment, or any other claim
arising out of the customer relationship;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against vendors, including those vendors
listed on Exhibit 11 in the Exhibit Book, for overpayment,
improper setoff, warranty, indemnity, or any other claim arising
out of the vendor relationship;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against Entities, including vendors with
respect to pre-petition violations of applicable federal or state
securities laws;
o All actual actions or potential breach of contract actions
against any customers, vendors or Entities who violated the
automatic stay after the Petition Date, including those customers
or vendors listed on Exhibit 11 in the Exhibit Book;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against landlords, lessees, sublessees,
or assignees arising from various leases, subleases and
assignment agreements relating thereto, including actions for
unpaid rent, overcharges relating to taxes, common area
maintenance and other similar charges, including those claims
identified on Exhibit 11 in the Exhibit Book;
32
EXHIBIT 99.1
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against the Debtors' current or former
insurance carriers to recover unpaid reimbursements and claims,
overpayment of premiums and fees, claims for breach of contract,
indemnity obligations or coverage or similar causes of action,
including those insurers listed on Exhibit 11 in the Exhibit
Book;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against purchasers of assets from the
Debtors relating to breach of the purchase agreement or unpaid
compensation thereunder, including those purchasers listed on
Exhibit 11 in the Exhibit Book;
o Any and all rights to payment against any taxing authority or
other potentially liable party, including parties other than the
government for reimbursement of taxes and tax payments, listed on
Exhibit 11 in the Exhibit Book for any tax refunds, credits,
overpayments or offsets that may be due and owing to the Debtors
for taxes that the Debtors may have paid to any such taxing
authority;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, relating to deposits or other amounts
owed by any creditor, lessor utility, supplier, vendor, landlord,
sub-lessee, assignee or other Entity;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, relating to environmental and product
liability matters;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, arising out of, or relating to, the
Debtors' intellectual property rights;
o Any litigation or lawsuit initiated by any of the Debtors that is
currently pending, whether in the Bankruptcy Court, before the
American Arbitration Association, or any other court or tribunal
or initiated against the Debtors after the Petition Date for
which the Debtors may have counterclaims or other rights,
including those actions listed on Exhibit 11 in the Exhibit Book;
o All actual actions or potential actions, whether legal, equitable
or statutory in nature, against any of the Debtors' former
Professionals, except the Asbestos Protected Parties, for breach
of fiduciary duty, breach of contract, negligence or professional
misconduct or malpractice, or other tortuous conduct, including
those former Professionals listed on Exhibit 11 in the Exhibit
Book;
o All actual or potential contract and tort actions that may exist
or may subsequently arise; and
o All actual actions or potential actions whether legal, equitable
or statutory in nature, arising out of, or in connection with the
Debtors' business or operations, except actions against the
Asbestos Protected Parties to the extent they are released by the
Plan.
33
EXHIBIT 99.1
The above categories of Retained Causes of Action will not be limited
in any way by reference to the Exhibits nor are the categories intended to be
mutually exclusive.
In addition, it is possible that there are numerous Unknown Causes of
Action. The failure to list any such Unknown Causes of Action above, or in
Exhibit 11 in the Exhibit Book, is not intended to limit the rights of the
Reorganized Debtors to pursue any of these actions to the extent the facts
underlying such Unknown Causes of Action become known to the Debtors.
2.7.3.2 MAINTENANCE OF CAUSES OF ACTION
Except as otherwise provided in the Plan, the Reorganized Debtors are
retaining all of the Debtors' rights, to commence and pursue, as appropriate, in
any court or other tribunal including, without limitation, in an adversary
proceeding filed in one or more of the Chapter 11 Cases, any and all causes of
action, whether such causes of action accrued before or after the Petition Date,
including those Retained Causes of Action listed in Exhibit 11 in the Exhibit
Book.
Except as otherwise provided in the Plan, in accordance with
Bankruptcy Code Section 1123(b)(3), any Claims, rights, and causes of action,
including the Retained Causes of Action, that the respective Debtors may hold
against any Entity will vest in the Reorganized Debtors, and the Reorganized
Debtors will retain and may exclusively enforce any and all such Claims, rights
or causes of action, including Retained Causes of Action, and commence, pursue
and settle the causes of action in accordance with the Plan. The Reorganized
Debtors will have the exclusive right, authority, and discretion to institute,
prosecute, abandon, settle, or compromise any and all such Claims, rights, and
causes of action, including Retained Causes of Action, without the consent or
approval of any third party and without any further order of the Court.
2.7.3.3 AVOIDANCE ACTIONS
The Debtors do not possess any causes of action for "Avoidance
Actions" (actions or proceedings under Bankruptcy Code Sections 544, 545, 547,
548 or 553). Pursuant to Bankruptcy Code Section 546(a), a debtor has two years
after entry of the order for relief to bring Avoidance Actions. The Debtors'
order for relief was entered on April 2, 2001; thus the deadline to bring
Avoidance Actions was April 2, 2003. The Debtors analyzed potential Avoidance
Actions and concluded that none should be commenced. The Debtors then provided
their analysis to counsel for the Equity Committee and the various creditors'
committees so that they could also determine whether there were any Avoidance
Actions. No Avoidance Actions were brought by any party prior to the deadline.
The Unsecured Creditors' Committee filed a motion seeking to extend the time
within which the Avoidance Actions could be commenced but the Bankruptcy Court
denied the motion.
2.7.3.4 PRESERVATION OF ALL CAUSES OF ACTION NOT EXPRESSLY
SETTLED OR RELEASED
Unless a Claim or Retained Cause of Action against a Claimant or other
Entity is expressly waived, relinquished, released, compromised or settled in
the Plan or any Final Order, the Debtors expressly reserve such Claim or
Retained Cause of Action (including any Unknown Causes of Action) for later
adjudication by the Reorganized Debtors. Therefore, no preclusion doctrine,
including the doctrines of res judicata, collateral estoppel, issue preclusion,
claim
34
EXHIBIT 99.1
preclusion, waiver, estoppel (judicial, equitable, or other) or laches will
apply to such Claims or Retained Causes of Action upon or after the Confirmation
Date or Effective Date of the Plan based on this Disclosure Statement, the Plan
or the Confirmation Order, except where such Claims or Retained Causes of Action
have been expressly released in the Plan or other Final Order. In addition, the
Debtors, the Reorganized Debtors, and their successors expressly reserve the
right to pursue or adopt any Claim alleged in any lawsuit in which the Debtors
are defendants or an interested party, against any Entity, including the
plaintiffs or co-defendants in such lawsuits.
Any Entity that has incurred an obligation to the Debtors (whether on
account of services, purchase or sale of goods or otherwise), or who has
received services from the Debtors or a transfer of money or property of the
Debtors, or who has transacted business with the Debtors, or leased equipment or
property from the Debtors should assume that such obligation, transfer, or
transaction may be reviewed by the Debtors or the Reorganized Debtors, and may,
if appropriate, be the subject of an action after the Effective Date, whether or
not (1) such Entity has filed a proof of Claim against the Debtors in the
Chapter 11 Cases, (2) such Claimant's proof of Claim has been objected to, (3)
such Claimant's Claim was included in the Debtors' Schedules, or (4) such
Claimant's scheduled Claim has been objected to by the Debtors or has been
identified by the Debtors as a Disputed Claim, a Contingent Claim, or an
Unliquidated Claim.
2.8 ESTIMATED VALUE OF THE REORGANIZED DEBTORS AND NON-DEBTOR
AFFILIATES
The Debtors have been advised by Blackstone with respect to the
reorganization value of the Reorganized Debtors and Non-Debtor Affiliates. For
purposes of this analysis, the Effective Date is assumed to be December 31,
2004. The reorganized enterprise value is calculated as the value of core
operations ("Core Business Value") plus the value of the assumed insurance
receivable (based on the assumed asbestos liabilities(12)), plus the present
value of the projected use of tax assets and the proceeds from the assumed
exercise of in-the-money stock options. To determine the equity value for the
Reorganized Debtors and Non-Debtor Affiliates, estimates for net debt and
non-core liabilities proforma for the implementation of the Plan are subtracted
from the reorganized enterprise value. Further adjustments are made for share
dilution to calculate fully diluted reorganized equity value per share. The
Asbestos PD Committee has indicated it reserves its right to contest the Core
Business Value calculated by the Debtors and to present its own valuation with
respect to the Core Business Value.
2.8.1 CORE BUSINESS VALUE OF THE REORGANIZED DEBTORS AND
NON-DEBTOR AFFILIATES
Two valuation methodologies were used to determine Core Business
Value: (i) an analysis of public market value as a multiple of various operating
statistics for selected similar public companies and (ii) an analysis of
transaction value as a multiple of various operating
- ----------
(12) For purposes of this analysis, asbestos liabilities are assumed to equal
the sum of (i) the maximum aggregate amounts that would satisfy the
conditions precedent in Section 7.6.1(v) and (w) of the Plan; plus (ii) an
estimate of Previously Settled/Adjudicated Asbestos Claims.
35
EXHIBIT 99.1
statistics for selected similar public merger and acquisition transactions. Both
methodologies rely upon the Financial Information prepared by management
attached as Exhibit 4 in the Exhibit Book.
Based on these two methodologies, the estimated Core Business Value at
the Effective Date is approximately $2.2 billion to $2.6 billion, with $2.4
billion as the midpoint estimate. A third methodology was considered: a
calculation of the present value of the free cash flows under the prospective
financial information, including assumptions for a terminal value; however, that
methodology was not used because it was concluded that the resultant reorganized
value would not be meaningful based on the prospective period of two years.
2.8.1.1 COMPARABLE PUBLIC COMPANY ANALYSIS
The comparable public company analysis ("Comparable Public Company
Analysis") estimates value based on a comparison of financial statistics of the
Reorganized Debtors and Non-Debtor Affiliates with the financial statistics of
similar public companies using common variables such as revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA").
A key factor to this approach is the selection of companies with
relatively similar business and operational characteristics to the Reorganized
Debtors and Non-Debtor Affiliates. Criteria for selecting comparable companies
include, among other relevant characteristics, similar lines of business,
business risks, target market segments, growth prospects, maturity of
businesses, market presence, size, and scale of operations. The selection of
truly comparable companies is often difficult and subject to interpretation.
The Comparable Public Company Analysis includes companies similar to
the Reorganized Debtors and Non-Debtor Affiliates' two business segments:
Davison and Performance Chemicals.
The publicly traded companies deemed generally comparable to Davison
Chemicals, in some or all of the aforementioned factors are Albermarle Corp.,
Engelhard Corp., Great Lakes Chemical Corp., Johnson Matthey plc, and Lubrizol
Corp.
The publicly traded companies deemed generally comparable to
Performance Chemicals, in some or all of the aforementioned factors, are Crown
Holdings, Inc., ElkCorp, Ferro Corp., H.B. Fuller Corp., Lafarge North America
Inc., RPM International Inc., Silgan Holdings Inc., Texas Industries, Inc.,
Valspar Corp. and Vulcan Materials Co.
The Comparable Public Company Analysis determines the multiple of each
comparable company's current enterprise value divided by (i) its calendar year
2004 estimated revenue and EBITDA and (ii) its calendar year 2005 estimated
EBITDA. The calendar year 2004 estimated revenue and EBITDA, as well as the
calendar year 2005 estimated EBITDA, for comparable companies are based on
projections by equity research analysts of third-party financial institutions.
The calendar year 2004 enterprise value to revenue, and enterprise
value to EBITDA multiples for comparable companies are in the ranges of 0.8x -
1.1x and 7.5x - 9.0x,
36
EXHIBIT 99.1
respectively. Applied to the Reorganized Debtors and Non-Debtor Affiliates' 2004
estimated revenue of $2.236 billion and EBITDA of $298 million, respectively,
these multiples indicate a Core Business Value in a range of $2.2 billion to
$2.7 billion. The calendar year 2005 enterprise value to EBITDA multiple for
comparable companies ranges from 6.5x - 8.0x. Applied to the Reorganized Debtors
and Non-Debtor Affiliates' estimated 2005 EBITDA of $314 million, these
multiples indicate a Core Business Value in a range of $2.0 billion to $2.5
billion.
2.8.1.2 THE PRECEDENT TRANSACTION ANALYSIS
The precedent transaction analysis ("Precedent Transaction Analysis")
estimates value by examining selected public merger and acquisition
transactions. An analysis of a company's disclosed transaction value as a
multiple of various operating statistics provides valuation multiples for
companies in similar lines of business. Multiples for selected precedent
transactions were calculated based on the purchase price (including any debt
assumed) paid. These multiples were then applied to the key operating statistics
of the Reorganized Debtors and Non-Debtor Affiliates to determine the
reorganized value to a potential buyer.
Valuation conclusions cannot be based solely upon quantitative
results. The reasons for, and circumstances surrounding, each acquisition
transaction are specific to such acquisition, and there are inherent differences
between the businesses, operations and prospects of each. Qualitative judgments
must be made concerning the differences among the characteristics of these
reorganizations and transactions and other factors and issues, which could
affect the target's value. Therefore, each of the multiples based on precedent
transactions was evaluated and judgments were made as to their relative
significance in determining reorganized value.
Multiples of various financial results to the transaction values of
these companies were calculated and analyzed. Emphasis was placed on multiples
based upon revenue and EBITDA. On the basis of enterprise value as a multiple of
revenues, the precedent transactions indicated an approximate range of 1.1x -
1.3x. On the basis of enterprise value as a multiple of EBITDA, the precedent
transactions indicated an average of 7.5x - 9.5x. As discussed above, the
determination of these multiple ranges accounts for a variety of factors, both
quantitative and qualitative. In addition, due to the fact that the results of a
Precedent Transaction Analysis often reflect a control premium, or are impacted
by a competitive dynamic due to multiple bidders, the valuation multiples
indicate aspects of value not necessarily present in a reorganization. Applied
to the Reorganized Debtors and Non-Debtor Affiliates' 2004 estimated revenue of
$2.236 billion and EBITDA of $298 million, these multiples indicate a Core
Business Value in a range of $2.2 billion to $2.8 billion.
2.8.2 CALCULATION OF FULLY DILUTED REORGANIZED EQUITY VALUE
The Core Business Value is adjusted by the following amounts to
determine the fully diluted reorganized equity value of the Reorganized Debtors
and Non-Debtor Affiliates: (i) assumed insurance receivable, (ii) the present
value of the projected use of tax assets, (iii) non-core liabilities, (iv) net
debt, (v) proceeds from the exercise of assumed in-the-money options, and (vi)
share dilution as set forth in the summary in Section 2.8.2.6.
37
EXHIBIT 99.1
2.8.2.1 INSURANCE
According to management's estimate, the assumed insurance receivable
has a book value of $500 million based on the assumed asbestos liabilities.(13)
There exists significant variability around the ultimate amount and timing of
receipt of this amount.
2.8.2.2 TAX ASSETS
Tax assets result from prior losses, foreign taxes paid, and
deductions as a result of the implementation of the Plan. The future use of tax
assets is quantified based on projected annual tax savings. The present value of
the projected use of tax assets over a nine year period is calculated at a
discount range of approximately 13% to 23%, which represents levered cost of
equity. Estimated cost of equity was derived using the capital asset pricing
model, which assumes that the required equity return is a function of the
risk-free cost of capital and the correlation of a publicly traded stock's
performance to the return of the overall market. The analysis assumes a
risk-free rate of 4.2% based on the November 8, 2004 yield of the ten-year U.S.
Treasury Note. Levered beta of 1.19 for the Reorganized Debtors and Non-Debtor
Affiliates is based on (i) an average un-levered beta of 0.72 for the companies
identified in Section 2.8.1.1 herein (the Comparable Public Company Analysis)
and (ii) an assumed debt/equity ratio of approximately 50% as of the Effective
Date.
The present value of the projected use of tax assets is calculated in
the approximate range of $75 million to $120 million with a midpoint estimate of
$98 million. There exists significant variability around the ultimate value of
this asset and the tax asset remaining at the end of the measurement period
because it depends on, among other things, proforma capital structure and
limitations on the use of tax assets that could result from activities outside
of the control of the Reorganized Debtors and Non-Debtor Affiliates.
2.8.2.3 NON-CORE LIABILITIES
The projected book value of non-core liabilities, estimated as of
December 31, 2004, is approximately $487 million. This amount consists of the
following obligations: $190 million of post-retirement, pension benefits (not
including the qualified pension plan) and other employee liabilities, $107
million of unliquidated environmental Claims, $50 million of Priority Tax Claims
paid over time (unless there are obligations for Fresenius Indemnified Taxes in
which case they will be paid promptly in full in cash as they become due and
payable) and other tax contingencies, $37 million of other non-core accrued
liabilities, $3 million of capital leases, and $100 million for other
unliquidated Claims. The value of these non-core liabilities could be higher or
lower, depending on, among other things, the resolution of Claims, the timing of
certain payments, and the use of contingency.
- ----------
(13) For purposes of this analysis, asbestos liabilities are assumed to equal
the sum of (i) the maximum aggregate amounts that would satisfy the
conditions precedent in Section 7.6.1(v) and (w) of the Plan; plus (ii) an
estimate of Previously Settled/Adjudicated Asbestos Claims.
38
EXHIBIT 99.1
2.8.2.4 NET DEBT
The estimated net debt, as of December 31, 2004, is based on
management's projections of $800 million of debt and $300 million of cash.
Projected cash includes proceeds from the assumed exercise of in-the-money
options. Net debt could ultimately be higher or lower than this estimate,
depending on actual cash funding requirements for the Plan and free cash flow
generation before emergence. As presented in the Financial Information in
Exhibit 4 in the Exhibit Book, cash is projected to decline to $250 million in
2005, which is approximately the minimum level of operating cash required by the
Reorganized Debtors and the Non-Debtor Affiliates.
2.8.2.5 PROCEEDS OF OPTIONS
The Reorganized Debtors and Non-Debtor Affiliates have employee and
management options outstanding representing 8.2 million shares at a wide range
of strike prices. Based on the assumed fully diluted reorganization equity value
per share, options that would be in-the-money are assumed to be exercised. The
proceeds from the assumed exercise of in-the-money options are added to fully
diluted equity value and the shares issued are included in the calculation of
the fully diluted price per share. The proceeds from the assumed exercise of
in-the-money options are $66 million (6.3 million shares), $75 million (6.8
million shares) and $102 million (8.2 million shares), respectively, based on
the low, medium and high value range of fully diluted reorganization equity
value per share.
2.8.2.6 SUMMARY
Based on the above assumptions, the calculated fully diluted
reorganized equity value is a range of $1.779 billion to $2.260 billion at the
assumed Effective Date.
To calculate the fully diluted reorganized equity value per share,
fully diluted shares must be calculated by adding: (1) basic shares of Parent
Common Stock outstanding, (2) the shares of Parent Common Stock underlying
in-the-money options, as more fully described above; (3) the shares of Parent
Common Stock to be issued in respect of Class 9, equal to 15% of the Allowed
Class 9 Claims, which amount is assumed to represent approximately $149 million;
(4) the shares of Parent Common Stock expected to be issued to the Asbestos
Trust, which amount is assumed to represent approximately $498 million based on
the maximum aggregate amount that would satisfy the conditions precedent in
Section 7.16(v) of the Plan; and (5) the shares of Parent Common Stock
underlying the Warrants which are issued to the Asbestos Trust to fund assumed
Class 7 liability of $130 million based on the maximum aggregate amount that
would satisfy the conditions precedent in Section 7.6.1(w) of the Plan. Based on
the foregoing assumptions, the range of fully diluted shares varies with the
range of calculated equity values and is 127.8 million shares at the low end of
the reorganized equity value range and 112.7 million shares at the high end of
such range (a higher equity value implies that fewer shares would be required to
fund items (3), (4) and (5) above), with a midpoint estimate of 118.2 million
shares. The calculated fully diluted reorganized equity value per share is in
the approximate range of $13.92 to $20.06, with a midpoint estimate of $17.01.
The Reorganized Debtors and Non-Debtor Affiliates' fully diluted
reorganized equity value could be materially lower if the Asbestos PI-AO Claims
liability exceeds the $130 million
39
EXHIBIT 99.1
(plus expenses) assumed as the maximum estimated liability that would satisfy
the Asbestos PI-AO Claims. If all Warrants were immediately exercised by the
Asbestos Trust, fully diluted reorganized equity value per share would be in the
approximate range of $10.76 to $13.89, with a midpoint estimate of $12.37.
However, the theoretical dilution to equity value is not limited to the Warrants
exercisable by the Asbestos Trust, but also could be impacted by future payments
by Reorganized Grace.
The estimates of reorganized value do not purport to be appraisals,
liquidation values or estimates of the actual market value that may be realized
if assets are sold. The estimates of reorganized value, fully diluted
reorganized equity value, and fully diluted reorganized equity value per share
represent hypothetical values developed solely for purposes of the Plan and
should not be relied upon in making investment decisions to purchase or sell
Parent Common Stock at any time, now or in the future.
The estimates of reorganized value, fully diluted reorganized equity
value, and fully diluted reorganized equity value per share are highly dependent
upon achieving the future financial results set forth in the proforma and
prospective financial information as well as the realization of certain other
assumptions which are not guaranteed, in particular, assumptions regarding the
value of all Asbestos Claims and estimates presented herein regarding insurance,
tax and cash assets as well as net debt and other liabilities. Because such
estimates are inherently subject to uncertainties, neither the Debtors, the
Reorganized Debtors and Non-Debtor Affiliates, Blackstone, nor any other person
assumes responsibility for their accuracy.
The Parent Common Stock of Grace is traded on the New York Stock
Exchange (TICKER: GRA). The estimates of the range of fully diluted reorganized
equity value do not purport to be an estimate of the pre- or post-reorganization
trading value of the Parent Common Stock and the estimate of the fully diluted
reorganized equity value per share may not correlate with actual trading prices
on the New York Stock Exchange. The estimated values set forth herein represent
estimated reorganized values and estimated fully diluted reorganized equity
values and do not necessarily reflect values that could be attainable in public
or private markets. The values set forth herein do not consider market trading
characteristics, trading limitations possibly imposed on the Parent Common Stock
or perceptions in public or private markets about the Reorganized Debtors and
Non-Debtor Affiliates or the value of the Parent Common Stock. The trading value
of the Parent Common Stock, if any, may be materially different from the
estimates set forth in this Estimated Value of the Reorganized Debtors and
Non-Debtor Affiliates.
40
EXHIBIT 99.1
The table set forth below illustrates the number of shares to be distributed to,
or retained by, each class of Creditors or Holders of Equity Interests pursuant
to the Plan at the low, mid and high value of reorganized equity.
THE ACTUAL NUMBER OF SHARES TO BE DISTRIBUTED WILL BE BASED ON THE PRICE OF THE
PARENT COMMON STOCK MEASURED IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN.
(in millions)
Low Mid High
------ ------ ------
Fully Diluted Reorganized Equity Value (1) $1,779 $2,011 $2,260
====== ====== ======
Distribution of Shares
Shares issued to Class 6 and Class 8(2) 35.8 29.3 24.8
Shares underlying Warrants issued to Class 7 9.3 7.6 6.5(4)
Shares issued to Class 9(3) 10.7 8.7 7.4
Shares held by Holders of Equity Interests 65.8 65.8 65.8
Shares pursuant to management options (1) 6.3 6.8 8.2
------ ------ ------
Shares outstanding post-emergence 127.8 118.2 112.7
------ ------ ------
IN ADDITION TO THE WARRANTS SET FORTH IN THE TABLE ABOVE, WARRANTS SHALL BE
ISSUED TO CLASS 7 IN AN AMOUNT SUCH THAT, UPON THE PAYMENT OF THE SEALED AIR
PAYMENT AND THE DEBTORS' PAYMENT INTO THE ASBESTOS TRUST, THE PARENT COMMON
STOCK AND WARRANTS (IF EXERCISED) THAT MAKE UP THE DEBTORS' PAYMENT WOULD
CONSTITUTE A MAJORITY OF THE ISSUED AND OUTSTANDING VOTING SHARES OF THE
REORGANIZED PARENT. THE NUMBERS OF WARRANTS THAT MAY BE EXERCISED IS DEPENDENT
ON THE DIFFERENCE, IF ANY, BETWEEN THE ASBESTOS PI-AO CLASS FUND AND THE AMOUNT
OF CLASS 7 ALLOWED CLAIMS.
ADDITIONAL SHARES IF ALL ADDITIONAL WARRANTS WERE EXERCISED
Shares underlying Class 7 additional Warrants 37.6 44.4 50.1
----- ----- -----
Shares outstanding post-emergence 165.4 162.6 162.7
----- ----- -----
NOTES:
(1) Assumes the exercise of existing in-the-money management options.
(2) Based on amount requested in the Estimation Motion filed on November 13,
2004. As a condition precedent to confirmation of the Plan, the Court shall have
found that the aggregate of the Asbestos PI-SE Class Fund, the Asbestos PD Class
Fund and the Asbestos Trust Expenses Fund is not greater than $1.483 billion and
that the Asbestos PI-AO Class Fund is not greater than $130.0 million.
(3) Assumes the estimated amount of Allowed Claims for Class 9 is $1,175
million, including unliquidated liabilities, estimated at approximately $185
million, that would be Class 9 Claims if and when Allowed.
(4) In connection with $130 million Asbestos PI-AO Class Fund
3. THE CHAPTER 11 FILINGS AND RELATED CANADIAN PROCEEDINGS
3.1 OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Chapter 11 authorizes a debtor to reorganize its business for
its benefit and its stakeholders'
41
EXHIBIT 99.1
benefit, whether those stakeholders are its creditors or equity interest
holders. In addition to permitting a debtor to rehabilitate itself, chapter 11
also requires that any distributions to stakeholders ensure equality of
treatment for similarly situated creditors and similarly situated equity
interest holders.
Commencing a chapter 11 case creates an estate that comprises all of
the legal and equitable interests of the debtor as of the filing date. The
Bankruptcy Code provides that the debtor may continue to operate its business
and remain in possession of its property as a "debtor-in-possession."
The principal objective of a chapter 11 case is to consummate a plan
of reorganization. A plan of reorganization sets forth the means for satisfying
claims against and equity interests in a debtor. Confirmation of a plan of
reorganization by a bankruptcy court binds a debtor, any issuer of securities
thereunder, any person acquiring property under the plan and any creditor or
equity interest holder of that debtor to the terms of the plan. Subject to
certain limited exceptions, the confirmation order discharges a debtor from any
debt that arose prior to the date of confirmation of the plan, and substitutes
therefor the obligations specified in the confirmed plan.
3.2 SIGNIFICANT EVENTS DURING THE COURSE OF THE CHAPTER 11 CASES
Many pleadings have been filed with the Bankruptcy Court and District
Court during the course of the Chapter 11 Cases, and many hearings have been
conducted in connection with those pleadings.(14) In order to obtain a
comprehensive listing of the pleadings and events that have been filed in the
Chapter 11 Cases, the docket for each case should be consulted. The relevant
pleadings referenced below may be obtained and reviewed from the Bankruptcy
Court or District Court, as applicable. The following is a general description
of the more significant pleadings that have been filed during the Chapter 11
Cases:
3.2.1 FIRST DAY MOTIONS
3.2.1.1 RETENTION AND EMPLOYMENT OF PROFESSIONALS BY THE
DEBTORS
The Bankruptcy Court approved the Debtors' request to retain certain
professionals to represent them and assist them in connection with the Chapter
11 Cases on May 3, 2001. These professionals include: (a) Kirkland & Ellis LLP
and Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C. as bankruptcy
counsel (Docket Nos. 180 and 181, respectively), (b) The Blackstone Group L.P.
("Blackstone") as Financial Advisors (Docket No. 182), (c) Kekst & Company
Incorporated as public relations consultant (Docket No. 183), (d) R.R. Donnelley
& Sons Company as the notice agent (Docket No. 15), and (e) Wachtell, Lipton,
Rosen & Katz as special corporate counsel (Docket No. 184). The Debtors were
also authorized to retain and employ and compensate certain Professionals
utilized in the ordinary course of the Debtors' businesses (Docket No. 197).
- ----------
(14) All docket numbers refer to Case No. 01-1139 unless otherwise stated.
42
EXHIBIT 99.1
3.2.1.2 FINANCING AND CRITICAL TRADE MOTIONS
The Debtors filed their "Emergency Motion for Interim and Final Orders
under 11 U.S.C. Sections 105, 362, 363 and 364 Approving Post-Petition Financing
and Related Relief and Setting Final Hearing Pursuant to Bankruptcy Rule
4001(c)" (the "Financing Motion") (Docket No. 26) on the Petition Date whereby
the Debtors sought authority to enter into a post-petition credit agreement. The
Court granted the emergency relief and subsequently, on May 3, 2001, granted
final relief in connection with the Financing Motion (Docket No. 194). Pursuant
to the loan agreements, the Debtors have available up to $250,000,000 in
post-petition financing. The Court extended the Debtors' post-petition credit
facility on May 14, 2003 until the earlier of (1) April 1, 2006 or (2) the
Debtors' emergence from bankruptcy (Docket No. 3512).
The Debtors also were granted authority to pay in the ordinary course
of business the pre-petition claims of essential trade creditors up to the sum
of $4.5 million (Docket No. 195).
3.2.1.3 OPERATIONAL MOTIONS
The Debtors were granted authority to (1) pay certain pre-petition
obligations, including certain sales, use and franchise taxes, as well as
charges relating to shipping and most employee benefits and (2) maintain their
existing bank accounts, business forms, cash management systems, and
intercompany agreements (Docket Nos. 18 and 21 respectively). Additionally, the
Debtors sought, and the Court granted, authority to honor certain pre-petition
obligations to customers and otherwise continue in the ordinary course of
business certain customer programs and practices (Docket No. 19).
3.2.2 MOTIONS TO ASSUME PRE-PETITION EXECUTORY CONTRACTS AND
LEASES
On April 3, 2001, the Debtors moved the Court (Docket No. 20) for
authority to assume the existing employment contracts with the following key
employees: (1) Paul J. Norris (Chairman, President and Chief Executive Officer),
(2) David B. Siegel (Senior Vice President and General Counsel), (3) Robert M.
Tarola (Senior Vice President and Chief Financial Officer), (4) William M.
Corcoran (Vice President, Public and Regulatory Affairs), (5) Wayne T. Smith
(Vice President and General Manager of Grace Performance Chemicals), (6) Ann E.
MacDonald (Sales and Marketing Manager), and (7) Johnny P. Forehand, Jr. (Vice
President, Operations). The Court granted the Debtors' motion on June 22, 2001
(Docket No. 560).
The Debtors have also periodically sought and received authority from
the Court to assume and/or assign certain leases.
3.2.3 APPOINTMENT OF OFFICIAL COMMITTEES OF CREDITORS, THE
OFFICIAL EQUITY COMMITTEE AND THE FUTURE CLAIMS
REPRESENTATIVE
3.2.3.1 OFFICIAL COMMITTEES OF CREDITORS
3.2.3.1.1 UNSECURED CREDITORS' COMMITTEE
The Unsecured Creditors' Committee was formed on April 13, 2001 when
the United States Trustee issued and filed an amended notice of appointment of
the official committee of unsecured creditors (Docket No. 94). Subsequently, the
Unsecured Creditors' Committee sought
43
EXHIBIT 99.1
and received Bankruptcy Court approval to employ (a) Stroock & Stroock & Lavan
LLP, as counsel (Docket Nos. 177 and 340), (b) Duane, Morris & Heckscher LLP, as
local counsel (Docket Nos. 288 and 550), (c) FTI Pelicano Manzo, as financial
advisors (Docket Nos. 287 and 549), and (d) Capstone Corporate Recovery, LLC to
replace FTI Pelicano Manzo as financial advisors (Docket No. 5758) except with
respect to tax related services.
3.2.3.1.2 ASBESTOS PI COMMITTEE
The Asbestos PI Committee was formed on April 13, 2001 when the United
States Trustee issued and filed a notice of appointment of an official committee
of asbestos personal injury claimants (Docket No. 95). Subsequently, the
Asbestos PI Committee sought and received Bankruptcy Court approval to employ
(a) Legal Analysis Systems, Inc., as consultants (Docket No. 206), (b) Caplin &
Drysdale, Chartered, as counsel (Docket No. 208), (c) L. Tersigni Consulting,
P.C., as financial advisors (Docket No. 209), (d) Ashby & Geddes, P.A., as local
counsel for the period from April 12, 2001 through June 15, 2001 (Docket No.
697), and (e) Campbell & Levine, LLC, as local counsel beginning June 16, 2001
(Docket No. 698).
3.2.3.1.3 ASBESTOS PD COMMITTEE
The Asbestos PD Committee was formed on May 11, 2001 when the United
States Trustee issued and filed an amended notice of appointment of an official
committee of asbestos property damage claimants (Docket No. 252). Subsequently,
the Asbestos PD Committee sought and received Bankruptcy Court approval to
employ: (a) Bilzin Sumburg Dunn Baena Price & Axelrod LLP, as counsel (Docket
Nos. 298 and 551), (b) Ferry & Joseph, P.A., as local counsel (Docket Nos. 299
and 553), (c) Conway, Del Genio, Gries & Co., as financial advisor and
investment banker (Docket No. 1027), and (d) Hamilton, Rabinovitz & Aschuler,
Inc. (Docket Nos. 1568 and 1735) and W.D. Hilton, Jr. (Docket Nos. 1567 and
1736), as consultants.
3.2.3.2 OFFICIAL EQUITY COMMITTEE
The Equity Committee was formed on June 18, 2001 when the United
States Trustee issued and filed a notice of appointment of the official
committee of equity security holders (Docket No. 532). The Equity Committee
sought and received Bankruptcy Court approval to employ: (a) Kramer Levin
Naftalis & Frankel LLP, as counsel (Docket Nos. 787 and 985), (b) Klett Rooney
Lieber & Schorling, P.C., as co-counsel (Docket Nos. 1059 and 1275).
3.2.3.3 REPRESENTATIVE FOR FUTURE ASBESTOS CLAIMANTS
The Debtors filed an application for appointment of a legal
representative for the future Asbestos Claimants on April 19, 2004 (Docket No.
5460). The Court entered an order appointing David T. Austern as the Future
Claimants' Representative (Docket No. 5645). Federal Insurance Company, Royal
Indemnity Company, and the Asbestos PD Committee appealed the Court's order
appointing Mr. Austern. The Asbestos PD Committee subsequently withdrew its
appeal. The insurance companies' appeals are pending before the District Court.
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EXHIBIT 99.1
3.2.4 SECTION 341(A) MEETING OF CREDITORS
On May 18, 2001, the United States Trustee's office conducted the
meeting of creditors required by Bankruptcy Code Section 341(a). Representatives
of the Debtors, as well as the Debtors' counsel, appeared at the Section 341(a)
meeting and responded to inquiries from the U.S. Trustee and creditors.
3.2.5 SELECTED ADVERSARY PROCEEDINGS
3.2.5.1 STAY OF ASBESTOS-RELATED LITIGATION AGAINST VARIOUS
AFFILIATES
Contemporaneously with the filings of their Chapter 11 petitions, the
Debtors filed the adversary proceeding entitled W. R. Grace & Co., et al. v.
Margaret Chakarian, et al. and John Does 1-1000, Case No. A-01-771. A temporary
restraining order was initially entered on April 2, 2001 and on May 3, 2001, the
Court issued a preliminary injunction. On January 22, 2002, the Court entered an
"Order Granting Modified Preliminary Injunction" (Case No. A-01-771, Docket No.
87) which, among other things, enjoined the commencement or continuation of
certain actions against non-debtor third-parties, including actions: (1) that
arise from alleged exposure to asbestos, indirectly or directly, allegedly
caused by the Debtors, against (a) Fresenius, (b) Sealed Air, (c) Merrill Lynch,
(d) Credit Suisse First Boston, (e) certain of the Debtors' insurance carriers,
(f) Affiliates of the Debtors that are not filing entities for purposes of the
Chapter 11 Cases, or (g) present and former officers, directors and employees of
the Debtors; (2) for which there may be coverage under certain of the Debtors'
insurance policies; (3) brought against certain of the Debtors' insurance
carriers, which allege coverage for asbestos-related liabilities; or (4) against
current and former officers, directors or employees of the Debtors that arise
out of such officer's, director's or employee's employment or relationship with
the Debtors.
On February 4, 2002, certain Claimants filed a motion to clarify the
scope of the preliminary injunction or to modify the preliminary injunction
(Case No. A-01-771, Docket No. 86). Specifically, the Claimants sought entry of
an order stating that, to the extent their asserted causes of action against
Maryland Casualty Company ("MCC"), one of the Debtors' insurers, were based upon
MCC's own, independent tortious conduct, the preliminary injunction did not stay
such litigation. The Bankruptcy Court denied the motion for clarification (Case
No. A-01-771, Docket No. 96). The Claimants appealed the Bankruptcy Court's
decision to the District Court, and, on July 16, 2003, the District Court
vacated the Bankruptcy Court's order. MCC appealed the District Court's
decision, and, on October 28, 2004, the Third Circuit vacated the District
Court's order and affirmed the Bankruptcy Court's decision that the modified
preliminary injunction stayed the litigation with respect to MCC. As a result,
the Claimant's lawsuits against MCC are presently stayed pursuant to the
Debtors' modified preliminary injunction.
3.2.5.2 ENJOINING BOND PAYMENTS BY NATIONAL UNION
The Debtors filed the adversary proceeding entitled W. R. Grace &
Co.-Conn. v. National Union Fire Insurance Company of Pittsburgh, P.A., et al.,
Case No. 02-01657 (Bankr. D. Del.), on January 18, 2002, which sought to enjoin
National Union, the issuer of surety bonds to Grace, from making any payment
under the bonds in connection with two settlement protocols relating to certain
asbestos personal injury litigation. On May 13, 2002, the Court approved an
interim
45
EXHIBIT 99.1
settlement agreement, under which: (1) payment under one of the bonds was
permanently enjoined, (2) a single payment of $9,729,720.00 was authorized under
the second bond, (3) and a letter of credit draw by National Union in that same
amount, under a letter of credit obtained by the Debtors to secure the bonds,
was authorized. The Court retained jurisdiction concerning the remainder of this
dispute. National Union then paid $9,729,720.00, and it drew that same amount
from the Debtors' letter of credit.
On December 22, 2002, National Union filed a motion for summary
judgment and a corresponding brief in support of the motion, which sought a
declaratory judgment that the remaining Claims asserted by the Claimants were
not owed by National Union to the Claimants. Specifically, National Union
requested a determination that no further sums are due to the Claimants on
account of the "Aggregate Submission Provisions" of the settlement protocols. In
the alternative to summary judgment, National Union sought an order deferring
determination of amounts due under its surety bonds until the outcome of
procedures for defining "asbestos personal injury" had been established for the
Chapter 11 Cases.
The Claimants opposed the National Union Summary Judgment Motion, and
responded on September 10, 2003 by filing their own motion for summary judgment
and a related brief in support (Case No. 02-01657, Docket No. 39).
The Court heard the summary judgment motions on March 26, 2004. The
Court denied National Union's summary judgment motion. However, the Court held
that, pursuant to Bankruptcy Code Section 362, the Debtors have the right to
review all Claims (1) that were submitted pursuant to either settlement protocol
during the 60-day period prior to April 2, 2001 or (2) on, or after, April 2,
2001, to determine whether any of those Claims lack adequate qualifying
materials, as required in the applicable settlement protocol. Similarly, the
Court granted National Union the right to review all Claims that were submitted
at any time prior to April 2, 2001 (1) for which payment has not already been
made, and (2) for which the Debtors failed previously to formally object
pursuant to the provisions of the applicable settlement protocol. A formal order
has yet to be entered.
3.2.6 EXTENSION OF EXCLUSIVITY PERIOD AND TERMINATION OF
EXCLUSIVITY PERIOD
The Court has entered several orders extending the Debtors' exclusive
periods to file and solicit acceptances of a Chapter 11 plan. By order of the
Court entered on June 16, 2004 (Docket No. 5820), the Court had granted the
Debtors (i) an exclusive period to file a reorganization plan (or plans) through
November 24, 2004 and (ii) an exclusive solicitation period through and
including January 24, 2005. However, the Court had ordered that the Debtors file
their plan and disclosure statement no later than October 14, 2004. The Debtors
were prepared to file such plan and disclosure statement on October 14, 2004,
but at the request of the FCR, the Asbestos PI Committee and the Asbestos PD
Committee, sought a further extension to permit all parties to negotiate a
consensual plan. Elliot International, L.P. (a significant Holder of Parent
Common Stock) objected. On October 25, 2004 (Docket No. 6734), the Court
extended the Debtors' time to file a reorganization plan through November 15,
2004. A hearing currently is scheduled for January 24, 2005.
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EXHIBIT 99.1
3.2.7 MOTIONS TO LIFT THE AUTOMATIC STAY
Throughout the Chapter 11 Cases, various parties have filed motions to
lift the Debtors' automatic stay. The Debtors have successfully opposed efforts
to modify the stay where the respective Claims would be payable out of assets
that would otherwise be available for the payment of Claims. In certain
situations, the Debtors have consented to modifications of the stay to (1)
establish the amount of certain Claims, or (2) where the Claimants sought to
proceed only against the Debtors' insurance, and, in the Debtors' estimation,
any potential recovery from such insurance would not affect the amount of
insurance available to pay other Claimants.
3.2.8 CERTAIN POST-PETITION LITIGATION MATTERS
3.2.8.1 LITIGATION RELATED TO GRACE'S SAVINGS AND INVESTMENT
PLAN
In June 2004, a purported class action complaint was filed in U.S.
District Court for the District of Massachusetts against the Parent's Board of
Directors, certain current and former Grace officers and employees, and others,
relating to Grace's 401(k) Savings and Investment Plan (the "S&I Plan"). The
complaint alleges that the decline in the price of Parent Common Stock from July
1999 through February 2004 resulted in significant losses to S&I Plan
participants. The complaint further alleges that the defendants breached their
fiduciary duties under the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") by failing to sell or take other appropriate action with
regard to Parent Common Stock held by the S&I Plan during that period, and
failed to disclose to S&I Plan participants the risk of investing in Parent
Common Stock. The complaint seeks compensatory damages for the S&I Plan from the
defendants. The Bankruptcy Court stayed this action with respect to all
defendants through and including December 31, 2004.
On October 26, 2004, a purported class-action complaint was filed in
the U.S. District Court for the Eastern District of Kentucky, on behalf of
present and former participants in the S&I Plan, against W. R. Grace & Co., the
W. R. Grace Investment and Benefits Committee, the Parent's Board of Directors,
certain current and former Grace officers and employees, and others. The
complaint alleges that Grace and its investment advisors breached fiduciary
duties under ERISA by selling Parent Common Stock from the S&I Plan at a
"distressed price." The complaint further alleges that Grace breached fiduciary
duties under ERISA by hiring State Street Bank and Trust Company, the investment
manager for the S&I Plan that was retained by the Debtors in December 2003
(pursuant to a Court order authorizing such retention), to "rapidly liquidate"
all of the employees' Parent Common Stock investment at an "artificially low"
sales price. This case was stayed by agreement of the parties through and
including December 31, 2004. The Defendants currently have until January 31,
2005 to answer or otherwise plead.
Pursuant to Grace's Certificate of Incorporation and By-Laws, Grace is
required to indemnify its directors, officers and employees for any liability
arising out of either of these lawsuits. Grace also has certain contractual
indemnity obligations that may be triggered. However, Grace believes that the
allegations in both lawsuits are without merit and that any liability arising
therefrom would in any event be covered by its fiduciary liability insurance.
Pursuant to Section 8.7 of the Plan, the Debtors propose to (1)
provide their current and former directors, officers, and employees who are
defendants in the above-referenced S&I Plan
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EXHIBIT 99.1
lawsuits, with a full and complete release of all liability associated with any
such litigation, and (2) to indemnify such defendants for any costs and/or
expenses associated with any such litigation. However, to the extent that
plaintiffs in the lawsuits have valid Claims against the Debtors, their
pre-petition Claims will be treated as Class 9 General Unsecured Claims and
their post-petition Claims will be treated as Administrative Expense Claims
under the Plan.
The named Plaintiff in the Massachusetts lawsuit outlined above has
raised an objection to the releases provided by Section 8.7 of the Plan,
alleging that they go beyond the scope of permissible releases under applicable
law. The Debtors disagree. The parties reserve their rights with respect to the
release objections until the hearing on confirmation of the Plan.
3.2.8.2 THE SCOTTS COMPANY LITIGATION
On September 2, 2004, the Scotts Company ("Scotts"), a former Grace
vermiculite customer, filed an adversary proceeding in the Bankruptcy Court
seeking declaratory relief with respect to its entitlement under the Grace
liability insurance policies. Scotts alleges that it is currently defending 76
asbestos-related bodily injury cases (involving approximately 4,192 plaintiffs)
that were filed against Scotts after the Petition Date. Grace presently does not
have the information necessary to assess the potential impact these allegations
may have on its potential insurance recoveries.
3.2.8.3 MONTANA GRAND JURY INVESTIGATION
On October 29, 2004, Grace received a letter from the U.S. Attorney
for the District of Montana informing the company that it has been named as a
target of a federal grand jury investigation involving possible obstruction of
federal agency proceedings, violations of federal environmental laws, and
conspiring with others to violate federal environmental laws. This investigation
relates to Grace's former vermiculite mining and processing activities in Libby,
Montana. By designating Grace as a "target" of the investigation, the U.S.
Attorney is asserting that it has substantial evidence linking the company to
the commission of a crime. Grace understands that the investigation is at an
advanced stage and that it may be indicted during the first half of 2005, unless
a resolution of this matter can be reached with the U.S. Attorney within such
timeframe.
Several current and former senior level employees associated with
Grace's construction products business also have been named as targets of the
investigation. On November 15, 2004, the Bankruptcy Court granted Grace's
request to advance legal and defense costs to the employees, subject to a
reimbursement obligation if it is later determined that the employees did not
meet the standards for indemnification set forth under state corporate law
(Docket Nos. 6829 and 7143).
Grace is unable to assess whether the investigation, an indictment
resulting therefrom, or any resolution thereof or conviction resulting
therefrom, will have a material adverse effect on the results of operations or
financial condition of Grace or affect Grace's bankruptcy proceedings.
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EXHIBIT 99.1
3.2.9 MOTION FOR ENTRY OF CASE MANAGEMENT ORDER
The Debtors filed their motion seeking entry of a case management
order, establishment of bar date, approval of proofs of Claim forms, and
approval of notice program (the "Original CMO Motion") on June 27, 2001 (Docket
No. 586). The Original CMO Motion outlined the Debtors' proposal for resolution
of all of the various key issues facing the Debtors, including issues relating
to Asbestos PI Claims. The matter was fully briefed and set to be tried before
District Judge Farnan on November 21, 2001 when the Court of Appeals for the
Third Circuit reassigned the Chapter 11 Cases, along with the asbestos
bankruptcy cases of four other debtors pending in Delaware, to the Honorable
Judge Alfred M. Wolin.
Judge Wolin (1) retained the asbestos personal injury issues and the
fraudulent transfer lawsuit (described in detail in Section 2.5.2 in this
Disclosure Statement) and (2) referred all other matters to the Bankruptcy
Court. Judge Wolin first addressed the fraudulent transfer lawsuit. After
extensive briefing and negotiations, the matter was resolved in principle by the
parties in November of 2002 and will potentially result in the recovery of
approximately $1 billion for the Debtors' estates.
Judge Wolin did not immediately address the Debtors' potential
liability for asbestos personal injury. Instead, he had the parties re-brief
these issues and put the matter on hold pending resolution of the fraudulent
transfer lawsuit. On June 21, 2002, the Debtors filed a supplemental brief
regarding procedures for the litigation of the common personal injury liability
issues (Docket No. 2275). This supplemental brief provided a detailed summary of
the Debtors' proposal concerning (1) the level of impairment that should be
necessary for a party to assert an asbestos personal injury claim against the
Debtors' estates and (2) procedures for implementing, and the need for the
implementation of, a bar date covering asbestos personal injury claims. The
District Court never considered the matter. In lieu of the procedures outlined
in the Original CMO Motion, the Plan Documents establish a process for parties
to file Asbestos PI Claims against the Debtors' estates.
On November 24, 2004, the Debtors filed a motion with the District
Court requesting that it refer jurisdiction over the Debtors' amended motion for
entry of a CMO (Docket No. 7036). The District Court has ordered that all
objections and responses to the Debtors' motion be filed by January 5, 2005, the
Debtors' Reply to any objection or response be filed by January 12, 2005 and a
hearing on the Referral Motion be held on January 18, 2005 (Docket No. 7326).
3.2.10 DEBTORS' BAR DATE FOR ASBESTOS PD CLAIMS (EXCLUDING ZAI
CLAIMS), NON-ASBESTOS CLAIMS, AND ASBESTOS MEDICAL
MONITORING CLAIMS
By an order dated April 22, 2002, the Court established the March 2003
Bar Date as the last date for Filing proofs of Claim for all pre-petition Claims
relating to (1) Asbestos PD Claims (excluding ZAI Claims), (2) non-Asbestos
Claims (including all governmental Claims), and (3) Asbestos Medical Monitoring
Claims (Docket No. 1963). A bar date was not set for Asbestos PI Claims and ZAI
Claims.
Pursuant to the March 2003 Bar Date, approximately 15,438 proofs of
Claim were filed against the Debtors' estates. The Debtors believe that many of
the proofs of Claim are
49
EXHIBIT 99.1
illegitimate, duplicative, or otherwise grossly overstated in amount. The
Debtors currently are pursuing a series of omnibus Claims objections to deal
with many of these proofs of Claim.
3.2.11 THE ADR PROGRAM
On June 12, 2004, the Debtors filed a Motion for the entry of an order
establishing an alternative dispute resolution ("ADR") program to liquidate
certain pre-petition Claims that were submitted pursuant to the order setting
the March 2003 Bar Date. On November 9, 2004, the Court entered an order
approving the Debtors' ADR program, as amended to address concerns raised by the
Court and other parties. The ADR program establishes procedures for resolving
certain contested non-asbestos Claims through negotiation and then, if
necessary, through mediation.
3.2.12 THE JUDGE WOLIN MANDAMUS AND RECUSAL PROCEEDINGS
Certain creditors of Owens Corning Corporation moved to have Judge
Wolin recused from any further participation in the Owens Corning bankruptcy
cases that were pending before him in the District Court on October 10, 2003.
Shortly thereafter, certain creditors of the Debtors filed a similar motion. The
Third Circuit issued an order that stayed all matters before Judge Wolin in each
of the five asbestos cases before him, including matters pertaining to the
Debtors' Chapter 11 Cases, on October 30, 2003. The cases before Judge Wolin
remained stayed, pending resolution of the Wolin recusal matters. The Third
Circuit issued a Writ of Mandamus on May 17, 2004 which (1) ordered Judge Wolin
to recuse himself from the five asbestos cases before him, including the
Debtors' Chapter 11 Cases, and (2) lifted the stay of all matters before Judge
Wolin. The Honorable Ronald E. Buckwalter was assigned all matters in the
Chapter 11 Cases that were previously pending before Judge Wolin on May 27, 2004
(Docket No. 5652).
3.2.13 NEGOTIATIONS WITH THE VARIOUS COMMITTEES AND THE FCR
At various times during the course of the Chapter 11 Cases, the
Debtors have met with the FCR and representatives of the Asbestos PI Committee,
the Asbestos PD Committee, the Equity Committee and the Unsecured Creditors'
Committee and presented alternatives to the Plan in an effort to achieve a
consensual plan of reorganization. As a result of such meetings, in December
2004, the Equity Committee and the Unsecured Creditors' Committee agreed to
become Plan Proponents. However, the Debtors were unable to obtain the remaining
constituencies' agreement to the Debtors' Plan.
3.2.14 MOTION TO PROTECT TAX BENEFITS
In order to limit the trading of its shares to prevent a change in
control of the Parent for tax purposes, Grace filed a motion seeking an order to
require notice and waiting periods on transfers of Parent Common Stock to give
Grace time to review the purchases for tax purposes. The order imposes notice
requirements and potential restrictions on stock acquisitions by those persons
or entities that (i) currently own 4.75% or more of Parent Common Stock or (ii)
seek to acquire 4.75% or more of Parent Common Stock. A change in control of the
Parent would severely limit Grace's ability to use its net operating losses to
offset taxes on future income. Under the order, Grace has the right to object in
Bankruptcy Court to those persons or entities
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EXHIBIT 99.1
acquiring Parent Common Stock if the acquisition poses a material risk of
adversely affecting Grace's ability to use its net operating losses. The request
was granted on an interim basis on October 23, 2004 and a hearing on final
approval is scheduled for January 24, 2005.
3.3 THE CANADIAN PROCEEDINGS
3.3.1 GENERAL INFORMATION
Although Grace's Canadian operating subsidiary Grace Canada, Inc.
("Grace Canada") is not a Debtor, Grace believed that Grace Canada could
potentially become subject to asbestos-related Claims. Accordingly, the Debtors
sought and obtained ancillary relief in Canada with respect to Grace Canada.
On April 4, 2001, the Canadian Court granted Grace Canada an order
(the "Canadian Order"), pursuant to Section 18.6 of the Canadian Companies'
Creditors Arrangement Act, which, among other things (1) recognized the Chapter
11 Cases in Canada, (2) prohibited the commencement of any asbestos related
suits against Grace Canada, and (3) appointed Pierre Le Bourdais as Grace
Canada's Information Officer. The Information Officer is responsible for
submitting certain interim information reports concerning the Chapter 11 Cases
and Grace Canada to the Canadian Court.
3.3.2 NOTICE OF THE CANADIAN PROCEEDINGS
In accordance with the terms of the Canadian Order, Grace Canada
published notice of the Canadian proceedings in newspapers of national
circulation in Canada on each of April 11, 2001 and April 12, 2001. These
notices (1) advised Entities of the Chapter 11 Cases and the Canadian
proceedings, (2) stated that Grace Canada could seek further relief from the
Canadian Court to ensure fair and equal access for Canadians with Asbestos
Claims against Grace Canada, and (3) instructed any Entity who wished to be made
a party to the Canadian proceedings to contact counsel to Grace Canada. To date,
the only party who has requested to be added this service list is counsel
involved in the fraudulent transfer litigation.
3.3.3 QUARTERLY REPORTS
In accordance with the terms of the Canadian Order, the Information
Officer has filed thirteen (13) quarterly reports with the Canadian Court. These
reports have provided the Canadian Court with a description of matters affecting
Grace Canada, as well as provided a summary of all material events taking place
in the Chapter 11 Cases. Through these reports, the Information Officer has kept
the Canadian Court informed as to the Debtors' reorganization process.
3.3.4 COURT ORDERS IN THE CANADIAN PROCEEDINGS
Since the date of the Canadian Order, Grace Canada has appeared before
the Canadian Court on numerous occasions and has received approval or
recognition of a number of Orders granted in the United States in connection
with the Chapter 11 Cases. The following represents a summary of material
matters approved by the Canadian Court:
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EXHIBIT 99.1
3.3.4.1 ORDERS EXTENDING THE STAY OF PROCEEDINGS IN CANADA
The stay of proceedings granted in the Canadian Order was originally
set to expire on October 1, 2001. The Canadian Court has extended this deadline.
The current stay of proceedings will expire on April 1, 2005, unless extended
prior to that date.
3.3.4.2 RECOGNITION OF THE DEBTORS' MARCH 2003 BAR DATE
ORDER
On December 5, 2002, in order to give effect to the March 2003 Bar
Date Order, the Canadian Court ordered that the order setting the March 2003 Bar
Date be recognized and implemented in Canada in accordance with its terms.
3.3.4.3 THE CORPORATE REORGANIZATION ORDER
On April 14, 2004, Grace Canada applied for, and the Canadian Court
granted, an Order (the "Canadian Reorganization Order") approving a corporate
reorganization involving Grace Canada and certain of the Debtors. The proposed
reorganization contemplated, inter alia, that Grace Canada would acquire, for
valuable consideration, shares or debt in a number of the Debtors' Latin
American subsidiaries. The Canadian Reorganization Order was to be effective
subject to the filing of a certificate of the directors of Grace Canada that
they were satisfied that Grace Canada was receiving true value on a reasonable
and realistic basis in respect of the assets being acquired. Grace Canada has
now received the results of the appraisals for the property to be acquired and
is in the process of reviewing and considering the results. The certificate of
the directors of Grace Canada has not yet been filed and, accordingly, the
Canadian Reorganization Order is not yet effective.
3.3.5 POST-PETITION CANADIAN LAWSUITS
On October 25, 2004, Raven Thundersky and Rebecca Bruce filed a
complaint with the Queens' Bench for Winnipeg Centre against certain of the
Debtors, certain of the Debtors' former Canadian subsidiaries, the Attorney
General of Canada, and others. The complaint is styled as a purported
class-action and seeks recovery for alleged injuries suffered by any Canadian
resident as a result of Grace's marketing, selling, processing, manufacturing,
distriburing and/or delivering asbestos or asbestos-containing products in
Canada.
On October 29, 2004, a Motion for Authorization to Institute a Class
Action and to Obtain the Status of Representative was filed by the Association
des Consummateurs Pour la Qualite Dans La Construction and Jean-Charles Dextras
in the Superior Court for the Province of Quebec, District of Montreal. The
motion seeks authorization to institute a class-action lawsuit against Grace
Canada, Inc. and the Attorney General of Canada on behalf of (1) every person
who is the owner of a building insulated with vermiculite that was marketed
under the brand name Zonolite Attic Insulation and (2) every person (or their
heirs and successors, if applicable) who lives or has lived in a building
insulated with Zonolite Attic Insulation and who has suffered, is suffering or
will suffer from asbestosis, mesothelioma, or cancer of the lung.
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EXHIBIT 99.1
3.3.6 CANADIAN CLAIMS
Upon confirmation, Canadian Claims shall be transferred to the
Asbestos Trust along with all Asbestos Claims. Any Allowed Canadian Claims will
be paid by the Asbestos Trust.
4. SUMMARY OF THE PLAN(15)
4.1 OVERVIEW OF THE CHAPTER 11 PLAN
THE DISCUSSION OF THE PLAN SET FORTH BELOW IS MORE DETAILED THAN THE
EXECUTIVE SUMMARY CONTAINED IN ARTICLE 1 OF THIS DISCLOSURE STATEMENT, BUT IT IS
NOT A COMPLETE RECITATION OF THE TERMS OF THE PLAN. MOREOVER, CERTAIN KEY
ASPECTS OF THE PLAN ARE HIGHLIGHTED IN THE EXECUTIVE SUMMARY BUT ARE NOT
REPEATED IN THIS SECTION.
THE DEBTORS HAVE ATTEMPTED TO SUMMARIZE IN THIS DISCLOSURE STATEMENT,
THE KEY PROVISIONS OF THE PLAN, BUT SUCH A SUMMARY IS BY ITS VERY NATURE HIGHLY
SUBJECTIVE AND PRONE TO DISPUTE. THEREFORE, THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED PROVISIONS SET FORTH IN THE PLAN AND
THE EXHIBITS IN THE EXHIBIT BOOK, THE TERMS OF WHICH ARE CONTROLLING.
A TRUE AND CORRECT COPY OF THE PLAN IS ATTACHED AS EXHIBIT 1 IN THE
EXHIBIT BOOK. HOLDERS OF CLAIMS OR EQUITY INTERESTS AND OTHER INTERESTED PARTIES
ARE URGED TO READ THE PLAN AND THE EXHIBITS THERETO IN THEIR ENTIRETY SO THAT
THEY MAY MAKE AN INFORMED JUDGMENT CONCERNING THE PLAN.
4.2 PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSES AND PRIORITY
TAX CLAIMS
Article 2 of the Plan deals with unclassified Claims. In accordance
with Bankruptcy Code Section 1123(a)(1), Administrative Expense Claims and
Priority Tax Claims are not classified and are excluded from the Classes set
forth in Article 3 of the Plan. These Claims are not considered impaired and
they do not vote on the Plan because they are automatically entitled to specific
treatment provided for them in the Bankruptcy Code or upon such other less
favorable terms as may be mutually agreed upon between the Holder of such
unclassified Claim and the Reorganized Debtors or otherwise established pursuant
to an order of the Bankruptcy Court; provided, however, that each Holder of a
Claim which by operation of the Fresenius Settlement
- ----------
(15) The section number references in this Article 4 match up one-to-one with
the section numbers of the Plan. For example, Section 4.3.1 of this
Disclosure Statement correlates to Section 3.1 of the Plan; Section 4.5.1
of this Disclosure Statement correlates to Section 5.1 of the Plan.
53
EXHIBIT 99.1
Agreement is an obligation for Indemnified Taxes promptly shall be paid in full
in cash as such Fresenius Indemnified Taxes become due and payable.
The Debtors estimate the total of all Allowed Administrative Expense
Claims on the Effective Date to be approximately $138 million. This amount
consists of approximately $76 million expected to be paid on the Effective Date
or as soon as practicable thereafter (including $15 million of environmental
Claims, $3 million of accrued fees for letters of credit, $8 million of
post-petition special pension arrangements, and $50 million of other
administrative expenses, including professional fees, exit financing costs and
unknown contingencies), and approximately $62 million expected to be paid after
the Effective Date (including $35 million of environmental Claims and $27
million of other contracts). The Debtors estimate the total of all Allowed
Priority Tax Claims on the Effective Date to be approximately $232 million. Of
this amount, approximately $182 million is expected to be paid on or before the
Effective Date in settlement of assessed or asserted income tax claims and
approximately $50 million is expected to be paid over time in accordance with
the Plan.(16)
The remainder of Article 2 of the Plan delineates in detail the
treatment of these unclassified Claims, including treatment of liabilities
incurred in the ordinary course of business, fee applications by Professionals
and payment of interest to Holders of Priority Tax Claims paid out over time,
subject to the requirements of the Fresenius Settlement Agreement.
4.3 CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS
Article 3 of the Plan deals with classification and treatment of
Claims and Equity Interest.
4.3.1 SUMMARY
Claims and Equity Interests are classified for all purposes, including
voting, confirmation, and Distribution pursuant to the Plan and pursuant to
Bankruptcy Code Sections 1122 and 1123(a)(1), as follows:
4.3.1.1 CLASS 1. PRIORITY CLAIMS
Class 1 consists of all Priority Claims against the Debtors. Each
Holder of an Allowed Priority Claim shall be paid the Allowed Amount of its
Allowed Priority Claim either (i) in full, in cash, on the later of (A) the
Effective Date or as soon as practicable thereafter or (B) the date such
Priority Claim becomes an Allowed Priority Claim, or as soon as practicable
thereafter, or (ii) upon such other less favorable terms as may be mutually
agreed upon between the Holder of an Allowed Priority Claim and the Reorganized
Debtors. The Debtors estimate that there are no Allowed Priority Claims as of
the Effective Date. Class 1 is unimpaired. The Holders of the
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(16) Each of these figures in this Section 4.2 is consistent with the Debtors'
books and records and includes the Debtors' estimates for certain Claims
that are disputed, which Claims may ultimately be determined to be
significantly higher or lower.
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EXHIBIT 99.1
Allowed Priority Claims in Class 1 are deemed to have voted to accept the Plan
and, accordingly, their separate vote will not be solicited.
4.3.1.2 CLASS 2. SECURED CLAIMS
Class 2 consists of all Secured Claims against the Debtors. Each
Holder of an Allowed Secured Claim shall be paid the Allowed Amount of its
Allowed Secured Claim at the option of the Reorganized Debtors, either (i) in
full, in cash, on the later of (A) the Effective Date or as soon as practicable
thereafter or (B) the date such Secured Claim becomes an Allowed Secured Claim,
or as soon as practicable thereafter; (ii) upon such other less favorable terms
as may be mutually agreed upon between the Holder of an Allowed Secured Claim
and the Reorganized Debtors; (iii) by the surrender to the Holder or Holders of
any Allowed Secured Claim of the property securing such Claim; or (iv)
notwithstanding any contractual provision or applicable law that entitles the
Holder of a Secured Claim to demand or receive payment thereof prior to the
stated maturity from and after the occurrence of a default, by reinstatement in
accordance with Bankruptcy Code Section 1124(2)(A)-(D). Although certain
Claimants have asserted Secured Claims against the Debtors, including an
approximately $3.7 million Claim alleged by the Town of Acton, Massachusetts,
the Debtors estimate the total of all Allowed Secured Claims on the Effective
Date to be approximately $90,000 plus interest at the applicable rate, if any.
To the extent an asserted Secured Claim is Allowed as a Secured Claim, it will
be treated as a Secured Claim under the Plan. The Holders of the Allowed Secured
Claims in Class 2 are deemed to have voted to accept the Plan and, accordingly,
their separate vote will not be solicited.
4.3.1.3 CLASS 3. UNSECURED PASS-THROUGH EMPLOYEE RELATED
CLAIMS
Class 3 consists of all Unsecured Pass-Through Employee Related
Claims. The Plan leaves unaltered the legal, equitable, and contractual rights
to which each such Claim entitles the Holder of such Claim. The Debtors estimate
the total of all Allowed Unsecured Pass-Through Employee Related Claims on the
Effective Date to be approximately $190 million.(17) This amount includes
approximately $123 million of post-retirement benefits other than pensions
classified pursuant to Section 2.6.3.3, approximately $63 million of unfunded
special pension arrangements classified pursuant to Section 2.6.3.4, and
approximately $5 million of deferred compensation classified pursuant to Section
2.6.3.6.
All other Allowed Unsecured Pass-Through Employee Related Claims have
already been paid pursuant to first day orders of this Court or will be paid in
the ordinary course as they become due. Class 3 is unimpaired. The Holders of
the Unsecured Pass-Through Employee Related Claims in Class 3 are deemed to have
voted to accept the Plan and, accordingly, their separate vote will not be
solicited.
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(17) This figure is consistent with the Debtors' books and records and includes
the Debtors' estimates for certain Claims that are disputed, which Claims
may ultimately be determined to be significantly higher or lower.
55
EXHIBIT 99.1
4.3.1.4 CLASS 4. WORKERS' COMPENSATION CLAIMS
Class 4 consists of all Workers' Compensation Claims against the
Debtors. The Plan leaves unaltered the legal, equitable, and contractual rights
to which each such Claim entitles the Holder of such Claim. All Allowed Workers'
Compensation Claims have been paid pursuant to first day orders or will be paid
in the ordinary course as they become due. Class 4 is unimpaired. The Holders of
the Workers' Compensation Claims in Class 4 are deemed to have voted to accept
the Plan and, accordingly, their separate vote will not be solicited.
4.3.1.5 CLASS 5. INTERCOMPANY CLAIMS
Class 5 consists of all Intercompany Claims. The Plan leaves unaltered
the legal, equitable, and contractual rights to which each such Claim entitles
the Holder of such Claim. For proforma cash flow purposes, all Intercompany
Claims will have no impact upon the Plan as all payments under the Plan are
based upon the Debtors and Non-Debtor Affiliates as consolidated. Class 5 is
unimpaired. The Holders of Intercompany Claims in Class 5 are deemed to have
voted to accept the Plan and, accordingly, their separate vote will not be
solicited.
4.3.1.6 CLASS 6. ASBESTOS PI-SE CLAIMS
Class 6 consists of all Asbestos PI-SE Claims against the Debtors and
the Canadian Affiliates.
All Allowed Class 6 Claims shall be paid in full. All Allowed Class 6
Claims shall be processed and paid in accordance with the terms, provisions, and
procedures of the Asbestos Trust Agreement and the PI-SE TDP. All Allowed Class
6 Claims shall be paid by the Asbestos Trust out of the Asbestos PI-SE Class
Fund, which shall be funded solely by the Sealed Air Payment and the Parent
Common Stock component of the Debtors' Payment, if necessary. In accordance with
the terms of the Asbestos Trust Agreement and the PI-SE TDP, each Holder of an
Asbestos PI-SE Claim that is not a Canadian Claim shall complete an Asbestos PI
Questionnaire or Claims Materials, as applicable, and have the option to elect:
(A) the Litigation Option or (B) the Cash-Out Option; provided, however, that a
Holder of a Third Party Indemnification/Contribution Claim that is not a
Canadian Claim shall be conclusively presumed to have elected the Litigation
Option. In accordance with the terms of the Asbestos Trust Agreement and the
PI-SE TDP, each Holder of an Asbestos PI-SE Claim that is a Canadian Claim shall
complete an Asbestos PI Questionnaire or Claims Materials, as applicable, and
have the option to elect: (A) the Canadian Litigation Option or (B) the Cash-Out
Option; provided, however, that a Holder of a Third Party
Indemnification/Contribution Claim that is a Canadian Claim shall be
conclusively presumed to have elected the Canadian Litigation Option. Failure to
complete and return an Asbestos PI Questionnaire or Claims Materials, as
applicable, by the applicable deadline shall result in an automatic election of
the Litigation Option or the Canadian Litigation Option, as applicable.
Notwithstanding the foregoing, nothing shall prevent the Holder of an Asbestos
PI-SE Claim that has not yet been Allowed from agreeing with the Entity against
whom the Claim is asserted (or after the Effective Date, with the Asbestos
Trust) for such Claim to be liquidated and paid in an amount lower than if the
Claim were to be Allowed in the amount asserted. Claimants may assert their
Claims on the Asbestos PI Proof of Claim Form included with the Claims
Materials.
56
EXHIBIT 99.1
The sole recourse of the Holder of an Asbestos PI-SE Claim on account
of such Claim shall be to the PI-SE Account of the Asbestos Trust pursuant to
the provisions of the Asbestos Channeling Injunction, the Asbestos Trust
Agreement, and the PI-SE TDP.
The Bankruptcy Court, pursuant to the Estimation Motion, shall
determine the amount of the Asbestos PI-SE Claims. As a condition precedent to
confirmation of the Plan, the Court shall have found that the aggregate of the
Asbestos PI-SE Class Fund, the Asbestos PD Class Fund, and the Asbestos Trust
Expenses Fund is not greater than $1.483 billion.
Class 6 is unimpaired. The Holders of the Allowed Asbestos PI-SE
Claims in Class 6 are deemed to have voted to accept the Plan and, accordingly,
their separate vote will not be solicited.
4.3.1.7 CLASS 7. ASBESTOS PI-AO CLAIMS
Class 7 consists of all Asbestos PI-AO Claims against the Debtors and
the Canadian Affiliates.
All Allowed Class 7 Claims shall be paid in full. All Allowed Class 7
Claims shall be processed and paid in accordance with the terms, provisions, and
procedures of the Asbestos Trust Agreement and the PI-AO TDP. All Allowed Class
7 Claims shall be paid initially by the Asbestos Trust out of the Asbestos PI-AO
Class Fund which shall be funded by the Sealed Air Payment (to the extent any
funds remain after first funding the Asbestos PI-SE Class Fund, the Asbestos PD
Class Fund and the Asbestos Trust Expenses Fund) and the Warrants. After the
exhaustion of the Asbestos PI-AO Class Fund in its entirety, all Allowed PI-AO
Claims shall be paid in cash by the Asbestos Trust from funds to be paid to the
Asbestos Trust by the Reorganized Debtors, such funds being in addition to the
Debtors' Payment. In accordance with the terms of the Asbestos Trust Agreement
and the PI-AO TDP, each Holder of an Asbestos PI-AO Claim that is not a Canadian
Claim shall complete an Asbestos PI Questionnaire or Claims Materials, as
applicable, and have the option to elect: (A) the Litigation Option, (B) the
Registry Option, or (C) the Cash-Out Option; provided, however, that a Holder of
a Third Party Indemnification/Contribution Claim that is not a Canadian Claim
shall be conclusively presumed to have elected the Litigation Option. In
accordance with the terms of the Asbestos Trust Agreement and the PI-AO TDP,
each Holder of an Asbestos PI-AO Claim that is a Canadian Claim shall complete
an Asbestos PI Questionnaire or Claims Materials, as applicable, and have the
option to elect: (A) the Canadian Litigation Option, (B) the Registry Option, or
(C) the Cash-Out Option; provided, however, that a Holder of a Third Party
Indemnification/ Contribution Claim that is a Canadian Claim shall be
conclusively presumed to have elected the Canadian Litigation Option. Failure to
complete and return an Asbestos PI Questionnaire or Claims Materials, as
applicable, by the applicable deadline shall result in an automatic election of
the Litigation Option or the Canadian Litigation Option, as applicable.
Notwithstanding the foregoing, nothing shall prevent the Holder of an Asbestos
PI-AO Claim that has not yet been Allowed from agreeing with the Reorganized
Debtors for such Claim to be liquidated and paid in an amount lower than if the
Claim were to be Allowed in the amount asserted. Claimants may assert their
Claims on the Asbestos PI Proof of Claim Form included with the Claims
Materials.
57
EXHIBIT 99.1
The sole recourse of the Holder of an Asbestos PI-AO Claim on account
of such Claim shall be to the PI-AO Account of the Asbestos Trust pursuant to
the provisions of the Asbestos Channeling Injunction, the Asbestos Trust
Agreement, and the PI-AO TDP.
The Bankruptcy Court, pursuant to the Estimation Motion, shall
determine the amount of the Asbestos PI-AO Claims. As a condition precedent to
confirmation of the Plan, the Court shall have found that the Asbestos PI-AO
Class Fund is not greater than $130 million.
Class 7 is unimpaired. The Holders of the Allowed Asbestos PI-AO
Claims in Class 7 are deemed to have voted to accept the Plan and, accordingly,
their separate vote will not be solicited.
4.3.1.8 CLASS 8. ASBESTOS PD CLAIMS
Class 8 consists of all Asbestos PD Claims against the Debtors and the
Canadian Affiliates.
All Allowed Class 8 Claims shall be paid in full. All Allowed Class 8
Claims shall be processed and paid out of the Asbestos PD Class Fund (funded
solely by the Sealed Air Payment and the Parent Common Stock component of the
Debtors' Payment, if necessary) in accordance with the terms, provisions, and
procedures of the Asbestos Trust Agreement and the PD TDP. Notwithstanding the
foregoing, nothing shall prevent the Holder of an Asbestos PD Claim that has not
yet been Allowed from agreeing with the Entity against whom the Claim is
asserted (or after the Effective Date, with the Asbestos Trust) for such Claim
to be liquidated and paid in an amount lower than if the Claim were to be
Allowed in the amount asserted.
The sole recourse of the Holder of an Asbestos PD Claim on account of
such Claim shall be to the PD Account of the Asbestos Trust pursuant to the
provisions of the Asbestos Channeling Injunction, the Asbestos Trust Agreement,
and the PD TDP.
The Bankruptcy Court, pursuant to the Estimation Motion, shall
determine the amount of the Asbestos PD Claims. As a condition precedent to
confirmation of the Plan, the Court shall have found that the aggregate of the
Asbestos PI-SE Class Fund, the Asbestos PD Class Fund, and the Asbestos Trust
Expenses Fund is not greater than $1.483 billion.
Class 8 is unimpaired. The Holders of the Asbestos PD Claims in Class
8 are deemed to have voted to accept the Plan and, accordingly, their separate
vote will not be solicited.
4.3.1.9 CLASS 9. GENERAL UNSECURED CLAIMS
Class 9 consists of all General Unsecured Claims against the Debtors.
Each Holder of an Allowed General Unsecured Claim shall be paid the
Allowed Amount of its General Unsecured Claim on the GUC Distribution Date. Such
payment shall be either (i) in full, plus post-petition interest, such payment
to be 85% in cash and 15% in Parent Common Stock, such Parent Common Stock being
subject to, among other things, the transactions described in Section 7.2.2 of
the Plan, and the Management Stock Incentive Plan, or (ii) upon such other less
favorable terms as may be mutually agreed upon between the Holder of
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EXHIBIT 99.1
an Allowed General Unsecured Claim and the Reorganized Debtors. Notwithstanding
the foregoing, each Holder of a Claim which by operation of the Fresenius
Settlement Agreement is an obligation for Indemnified Taxes promptly shall be
paid in full in cash as such Fresenius Indemnified Taxes become due and payable.
Post-petition interest shall accrue from the Petition Date through the
date of payment and shall be (i) for the Holders of Claims under the Debtors'
pre-petition bank credit facilities, at a rate of 6.09% per annum, compounded
quarterly, (ii) for the Holders of Claims who, but for the Filing of the Chapter
11 Cases would be entitled under a contract or otherwise to accrue or be paid
interest on such Claim in a non-default (or non-overdue payment) situation under
applicable non-bankruptcy law, the rate provided in the contract between a
Debtor(s) and the Claimant or such rate as may otherwise apply under applicable
non-bankruptcy law, or (iii) for all other Holders of Class 9 Claims, at a rate
of 4.19% per annum (the federal judgment rate as of the Petition Date),
compounded annually.(18)
The Parent Common Stock paid to the Holders of Allowed General
Unsecured Claims in accordance with Section 3.1.9(b) of the Plan shall be valued
at the average of the closing prices on The New York Stock Exchange for the
trading days within the thirty (30) calendar days immediately preceding the GUC
Distribution Date. The trading price on the GUC Distribution Date could be
higher or lower than such average. The Parent Common Stock may be subject to
material price volatility and may trade up or down after the GUC Distribution
Date.
The Debtors estimate the total of all Allowed General Unsecured Claims
to be approximately $1,175 million as of September 30, 2004.(19) This amount
consists of $500 million of principal and approximately $121 million of accrued
interest under the Debtors' pre-petition bank credit facilities, approximately
$223 million of environmental Claims, approximately $14 million of amounts drawn
under drawn letters of credit (including accrued interest), $36 million of
accounts payable including accrued interest, $87 million of asbestos Claims
subject to pre-petition judgments or agreements (including accrued interest),
$10 million of
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(18) In consideration for the treatment provided to Class 9 Claims, the
Unsecured Creditors' Committee has agreed to be a Plan Proponent of the
Debtors' Amended Joint Plan filed on or about January 13, 2005 as the same
may be amended from time to time with the consent of the Unsecured
Creditors' Committee (the "Plan"). The Unsecured Creditors' Committee and
the Debtors have agreed that the Unsecured Creditors' Committee has the
right to withdraw as a Plan Proponent on the occurrence of any of the
following circumstances: (i) failure of the Court to approve the Disclosure
Statement incorporating the Plan no later than November 30, 2005; (ii)
determination by the Court that the Plan is not confirmable and the failure
to file an amended Plan within 60 days; (iii) determination by the Court
that the Debtors are insolvent; (iv) termination of the Debtors' exclusive
period; (v) withdrawal of the Plan by the Plan Proponents and the failure
of the Plan Proponents to file a new Plan within 60 days; or (vi) failure
of the Plan to become effective on or before January 1, 2007. This
agreement does not commit any member of the Unsecured Creditors' Committee
or any creditor to vote for the Plan. The parties intend to memorialize
their agreement in a plan support agreement. In consideration for the
treatment provided to Class 9 Claims, certain substantial Claimants have
also agreed to support the Plan.
(19) This figure is consistent with the Debtors' books and records and includes
the Debtors' estimates for certain Claims that are disputed, which Claims
may ultimately be determined to be significantly higher or lower.
59
EXHIBIT 99.1
insurance and other Claims, and $198 million of other unliquidated liabilities
(including $72 million of unliquidated environmental), which are conservatively
estimated to be Class 9 Claims when and if Allowed. These unliquidated
liabilities are not projected to be Allowed General Unsecured Claims at the
Effective Date.
Class 9 is impaired as Class 9 Claimants are to received 15% of the
Allowed Amount of their Claims in the form of stock, the value of which may be
volatile and cannot be guaranteed. The Debtors are soliciting the votes of
Holders of the General Unsecured Claims in Class 9 to accept or reject the Plan
in the manner and to the extent provided in the Confirmation Procedures Order.
4.3.1.10 CLASS 10. EQUITY INTERESTS IN THE PARENT
Class 10 consists of Equity Interests in the Parent. On the Effective
Date, Holders of Class 10 Equity Interests in the Parent shall retain such
interests; provided that such Equity Interests shall: (i) be subject, among
other things, to the transactions described in Section 7.2.2 of the Plan, and
the Management Stock Incentive Plan and (ii) be restricted as described in
Section 7.1.1 of the Plan. Class 10 is impaired. The Debtors are soliciting the
votes of Holders of the Allowed Equity Interests in the Parent in Class 10 to
accept or reject the Plan in the manner and to the extent provided in the
Confirmation Procedures Order.
4.3.1.11 CLASS 11. EQUITY INTERESTS IN THE DEBTORS OTHER
THAN THE PARENT
Class 11 consists of Equity Interests in the Debtors other than the
Parent. The Plan leaves unaltered the legal, equitable, and contractual rights
to which each such Equity Interest entitles the Holder of such Equity Interest.
Class 11 is unimpaired. The Holders of the Equity Interests in the Debtors other
than the Parent in Class 11 are deemed to have voted to accept the Plan and,
accordingly, their separate vote will not be solicited.(20)
4.3.2 EFFECT OF ASBESTOS PI CLAIMANT ELECTING VARIOUS OPTIONS
4.3.2.1 CASH-OUT OPTION
If an Asbestos PI Claimant elects the Cash-Out Option, (i) his
election is irrevocable, (ii) his Claim will be treated under the terms of the
PI-SE TDP or PI-AO TDP, as applicable, and (iii) he shall be precluded, pursuant
to the Asbestos Channeling Injunction, the Asbestos Insurance Entity Injunction
and the Released Matters Injunction, from seeking any further recovery against
an Asbestos Protected Party, any Asbestos Insurance Entity or any Entity
released under any provision of the Plan on account of such Claim.
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(20) The Equity Committee and the Debtors have agreed that the Equity Committee
has the right to withdraw as a Plan Proponent if the Plan does not become
effective on or before January 1, 2007.
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EXHIBIT 99.1
4.3.2.2 LITIGATION OPTION AND CANADIAN LITIGATION OPTION
If an Asbestos PI Claimant elects, or is deemed to elect, the
Litigation Option or the Canadian Litigation Option as applicable, (i) his Claim
will be litigated against the Asbestos Trust and (ii) he shall be precluded,
pursuant to the Asbestos Channeling Injunction, the Asbestos Insurance Entity
Injunction and the Released Matters Injunction, from seeking any further
recovery against an Asbestos Protected Party, any Asbestos Insurance Entity or
any Entity released under any provision of the Plan on account of such Claim.
4.3.2.3 REGISTRY OPTION
If an Asbestos PI-AO Claimant chooses the Registry Option, he shall
(i) register his name on the Registry, (ii) be precluded, pursuant to the
Asbestos Channeling Injunction, the Asbestos Insurance Entity Injunction and the
Released Matters Injunction, from seeking any further recovery against an
Asbestos Protected Party, any Asbestos Insurance Entity or any Entity released
under any provision of the Plan, (iii) have the statute of limitations be deemed
to be tolled to the extent that such Claimant becomes an Asbestos PI-SE Claimant
and (iv) be entitled to seek further recovery, in accordance with the provisions
of the Plan, against the Asbestos Trust if such Holder becomes an Asbestos PI-SE
Claimant.
4.4 MODIFICATION OR WITHDRAWAL OF THE PLAN
Article 4 of the Plan sets forth the Debtors' right to modify, amend
or withdraw the Plan, and/or the Plan Documents and the effect of any such
withdrawal.
4.5 PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS AND ASBESTOS CLAIMS
GENERALLY
4.5.1 OBJECTIONS TO CLAIMS (OTHER THAN ASBESTOS CLAIMS);
PROSECUTION OF DISPUTED CLAIMS
Section 5.1 of the Plan sets forth the right of the Debtors or
Reorganized Debtors, as applicable, the United States Trustee and any other
party-in-interest to object to the allowance of any Administrative Expense
Claims, Priority Tax Claims, Class 1 Claims, Class 2 Claims, Class 3 Claims,
Class 4 Claims, Class 5 Claims, and Class 9 Claims. It also delineates the ways
in which such objections may be resolved.
4.5.2 DISTRIBUTION ON ACCOUNT OF DISPUTED CLAIMS
Section 5.2 of the Plan provides for the timing and extent of
Distributions for Disputed Claims which become Allowed.
4.5.3 RESOLUTION OF ASBESTOS CLAIMS
Section 5.3 of the Plan sets forth the way in which Asbestos Claims
will be Allowed or Disallowed, and paid if Allowed. The Allowed Amount of
Asbestos Claims (except for Canadian Claims that are filed by Claimants (i) with
Asbestos PI Claims who elect the Canadian Litigation Option or (ii) with
Asbestos PD Claims) shall be determined in accordance with the Bankruptcy Code,
the Bankruptcy Rules, the applicable TDP, and the CMO. If any Asbestos
61
EXHIBIT 99.1
Claim becomes Allowed, it shall be satisfied from the Asbestos Trust in
accordance with the Asbestos Trust Agreement and the applicable TDPs.
The Allowed Amount of Canadian Claims that are filed by Claimants (i)
with Asbestos PI Claims who elect the Canadian Litigation Option or (ii) with
Asbestos PD Claims shall be determined in accordance with the Canadian
Litigation Procedure and the applicable TDP.
The Asbestos Trust shall have the sole right and authority to resolve
all Asbestos PI-SE Claims and Asbestos PD Claims. All Asbestos PI-SE Claims
whose Holders elect the Litigation Option or the Canadian Litigation Option, as
applicable, shall be litigated by, and at the expense of, the Asbestos Trust in
the name of the Asbestos Trust.
The Asbestos Trust shall also have the sole right and authority to
resolve all Asbestos PI-AO Claims to the extent the Holder of an Asbestos PI-AO
Claim elects the Registry Option or the Cash-Out Option.
If the Holder of an Asbestos PI-AO Claim elects the Litigation Option
or the Canadian Litigation Option, as applicable, the Reorganized Debtors shall
have the sole right and authority to resolve all such Asbestos PI-AO Claims. All
Asbestos PI-AO Claims whose Holders elect the Litigation Option or the Canadian
Litigation Option, as applicable, shall be litigated by the Reorganized Debtors
or the Canadian Affiliates, as applicable, in the name of the Asbestos Trust,
initially at the expense of the Asbestos Trust out of the Asbestos PI-AO Class
Fund as it is the estate that remains liable for funding of Asbestos PI-AO
Claims.
Any court proceeding related to the resolution of Canadian Claims
shall be resolved by the Canadian Court in the context of the Canadian
Proceedings.
The subsections of Section 5.3 of the Plan deal with:
o Making of an Election by Asbestos PI Claimants;
o Claims Materials for Asbestos PI Claimants;
o Information Obtained by the Asbestos Trust or Reorganized
Debtors Regarding Asbestos PI Claims; and
o Withdrawal of Claims.
4.6 ACCEPTANCE OR REJECTION OF THE PLAN
Article 6 of the Plan discusses which Classes are impaired and which
are not. Each Holder of a Claim or Equity Interest in an impaired Class is
entitled to vote to accept or reject the Plan to the extent and in the manner
provided in the Plan, the Confirmation Procedures Order and/or the Bankruptcy
Code.
Classes 1, 2, 3, 4, 5, 6, 7, 8 and 11 of Claims and Equity Interests
are unimpaired. Under Bankruptcy Code Section 1126(f), the Holders of Claims and
Equity Interests in such Classes are conclusively presumed to have voted to
accept the Plan.
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EXHIBIT 99.1
Section 6.4.1 of the Plan deals with confirmation in the event an
impaired Class rejects the Plan. Impaired Equity Interests and/or impaired
Classes of Claims that fail to accept the Plan may be "crammed down" in
accordance with Bankruptcy Code Section 1129(b). See also Section 7.2.1 of this
Disclosure Statement for further discussion.
Section 6.4.2 of the Plan provides that if the Plan fails to be
accepted by the requisite number and amount of the Holders of Claims and Equity
Interests required to satisfy Bankruptcy Code Sections 524(g) and 1129, then,
notwithstanding any other provision of the Plan to the contrary, the Debtors
reserve the right to amend the Plan.
4.7 IMPLEMENTATION OF THE PLAN
4.7.1 CORPORATE GOVERNANCE OF THE PARENT AND THE OTHER DEBTORS
Section 7.1 of the Plan provides that the Certificates of
Incorporation or Articles of Incorporation, as applicable, of each of the
Debtors that is a corporation shall be amended as of the Effective Date. The
form of the Certificate of Incorporation or Articles of Incorporation shall be
filed as part of the Plan Supplement. The amended Certificates of Incorporation
or Articles of Incorporation, as applicable, of the Debtors shall, among other
things: (i) prohibit the issuance of nonvoting equity securities, (ii) as to any
classes of securities possessing voting power, provide for an appropriate
distribution of such power among such classes, including, in the case of any
class of equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the election of
directors representing such preferred class in the event of default in payment
of such dividends, (iii) include, in the case of the Parent, restrictions on the
transfer of the Parent Common Stock as necessary to protect the Reorganized
Debtors' tax position, and (iv) effectuate any other provisions of the Plan.
Section 7.1 of the Plan also deals with amendments to the Parent's
by-laws and the purchase of D&O and fiduciary liability tail coverage. The form
of the Parent's by-laws shall be filed as part of the Plan Supplement.
4.7.2 THE ASBESTOS TRUST
Section 7.2 of the Plan deals with the Asbestos Trust. It provides
generally for the creation and funding of the Asbestos Trust; transfer of
assets, Claims and Demands into the Asbestos Trust; appointment and termination
of the Trustee and the TAC; and other administrative matters.
4.7.2.1 CREATION OF THE ASBESTOS TRUST
Upon the entry of the Confirmation Order, effective as of the
Effective Date, the Asbestos Trust shall be created as a "qualified settlement
fund" in accordance with the Plan Documents.
The purpose of the Asbestos Trust shall be to, among other things: (i)
assume the liabilities of the Debtors and the Canadian Affiliates with respect
to all Asbestos Claims (whether now existing or arising at any time hereafter),
(ii) process, liquidate, pay and satisfy all Asbestos Claims in accordance with
the Plan, the Asbestos Trust Agreement, the respective
63
EXHIBIT 99.1
TDPs, the CMO, the Canadian Litigation Procedure and the Confirmation Order and
in such a way that provides reasonable assurance that the Asbestos Trust will
value and be in a position to pay, present and future Asbestos Claims and to
otherwise comply with Bankruptcy Code Section 524(g)(2)(B)(i); (iii) preserve,
hold, manage, and maximize the assets of the Asbestos Trust for use in paying
and satisfying Allowed Asbestos Claims; and (iv) otherwise carry out the
provisions of the Asbestos Trust Agreement and any other agreements into which
the Trustees have entered or will enter in connection with the Plan.
4.7.2.2 FUNDING OF THE ASBESTOS TRUST
Effective on the Effective Date and conditioned upon the fulfillment
of events enumerated in the Sealed Air Settlement Agreement, Cryovac, Inc. shall
fund the Sealed Air Payment into the Asbestos Trust in accordance with the Plan
and the provisions of the Sealed Air Settlement Agreement. Effective on the
thirty-first (31st) day after the Effective Date, the Parent shall transfer or
cause the transfer of the Debtors' Payment into the Asbestos Trust in accordance
with the Plan.
The Sealed Air Payment and that portion of the Debtors' Payment
consisting of the Parent Common Stock, to the extent necessary, shall first fund
the Asbestos PI-SE Class Fund, the Asbestos PD Class Fund and the Asbestos Trust
Expenses Fund. The remainder of the Sealed Air Payment, if any, and the Warrants
included as part of the Debtors' Payment shall fund the Asbestos PI-AO Class
Fund.
In addition, in the event that the proceeds of the sale of Parent
Common Stock following exercise of all of the Warrants are insufficient to pay
all Allowed Asbestos PI-AO Claims in full, the Reorganized Debtors shall pay the
Asbestos Trust in full and in cash for the benefit of the Holders of such
Claims, such payment to be made by the Reorganized Debtors on the first Business
Day of the next calendar quarter after the date upon which the Asbestos PI-AO
Claim becomes Allowed, unless the Claim becomes Allowed within fifteen (15)
Business Days before the first Business Day of such next calendar quarter, in
which case the payment date shall be the first Business Day of the next
succeeding calendar quarter.
4.7.2.3 SECTIONS 7.2.3 THROUGH 7.2.9 OF THE PLAN
Sections 7.2.3 through 7.2.9 of the Plan deal with:
o Transfer of assets into the Asbestos Trust;
o Transfer of Claims and Demands to the Asbestos Trust;
o Creation of Asbestos Trust sub-accounts;
o Appointment and termination of Trustees;
o Creation and termination of the TAC;
o The cooperation agreement between the Reorganized Debtors
and the Asbestos Trust;
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EXHIBIT 99.1
o Institution and maintenance of legal and other proceedings
by the Asbestos Trust; and
o The Reorganized Debtors' sole right and authority to resolve
Asbestos PI-AO Claims for which the Holder of such Asbestos
PI-AO Claim elects the Litigation Option or the Canadian
Litigation Option, as applicable.
4.7.3 PAYMENTS AND DISTRIBUTIONS UNDER THE PLAN
Section 7.3 of the Plan sets forth the mechanics of Asbestos Trust
payments and Plan Distributions. Among other things Section 7.3 provides that
payments to Holders of Allowed Asbestos Claims shall be made by the Asbestos
Trust in accordance with the Asbestos Trust Agreement, the respective TDPs, the
CMO and the Canadian Litigation Procedure as applicable. All Distributions or
payments required or permitted to be made under the Plan (other than to
Professionals) shall be made by the Reorganized Debtors in accordance with the
treatment specified for each such Holder as specified in the Plan (unless
otherwise ordered by the Bankruptcy Court).
4.7.4 DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED
DISTRIBUTIONS
Section 7.4 of the Plan provides that payments by the Asbestos Trust
to Holders of Allowed Asbestos Claims shall be made in accordance with the
Asbestos Trust Agreement and the respective TDPs, while other Distributions to
Holders of Allowed Claims shall be made at the address of the Holder of such
Claim as set forth on the Schedules, unless superseded by a new address, or as
set forth in a further writing, including a filed proof of Claim. Section 7.4 of
the Plan also provides for a mechanism to deal with undeliverable Distributions.
4.7.5 PAYMENTS UNDER THE PLAN
Section 7.5 of the Plan deals with the manner of payments under the
Plan and provides a mechanism to deal with fractional payments.
4.7.6 OCCURRENCE OF THE CONFIRMATION DATE
Section 7.6 of the Plan sets forth conditions precedent to
confirmation of the Plan. The Court must make all of the findings of fact and/or
conclusions of law listed in Section 7.6.1 before confirmation of the Plan.
Among other things, these findings of fact and/or conclusions of law relate to:
(1) the Court having found that the aggregate of the Asbestos PI-SE Class Fund,
the Asbestos PD Class Fund, and the Asbestos Trust Expenses Fund is not greater
than one billion, four hundred eighty three million dollars ($1,483,000,000),
(2) the Court having found the Asbestos PI-AO Class Fund is not greater than one
hundred thirty million dollars ($130,000,000), (3) compliance with all
applicable subsections of Bankruptcy Code Section 524(g), (4) effectiveness of
the Sealed Air Settlement Agreement and the Fresenius Settlement Agreement, (5)
a finding that the Reorganized Debtors have the ability to pay and satisfy in
the ordinary course of business all of their respective obligations and
liabilities as required by the Plan, the Sealed Air Settlement Agreement and the
Fresenius Settlement Agreement, (6) the unimpaired status of the classes of
Asbestos Claims, (7) the effectiveness of the various
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EXHIBIT 99.1
injunctions provided for in the Plan, (8) insurance matters, and (9) the lack of
preclusive effect of certain asbestos-related litigation.
Section 7.6.2 of the Plan requires certain orders - including the
Confirmation Order, the CMO and an order approving the Sealed Air Settlement
Agreement - all in form and substance acceptable to the Debtors be entered prior
to or in conjunction with Plan confirmation. The Confirmation Order and the
Sealed Air Settlement Agreement shall also be in a form and substance acceptable
to the other Plan Proponents. In addition, the Court shall have entered the
Estimation Order in form and substance acceptable to the Plan Proponents,
including the following findings:
o the Asbestos PI-SE Class Fund shall constitute the maximum
amount that shall be required to be paid in order to pay in
full all Allowed Asbestos PI-SE Claims;
o the Asbestos PD Class Fund shall constitute the maximum
amount that shall be required to be paid in order to pay in
full all Allowed Asbestos PD Claims; and
o the Asbestos Trust Expenses Fund shall constitute the
maximum amount that shall be required to be paid in order to
pay in full all expenses of the Asbestos Trust.
Assuming that other conditions precedent under the Plan are fulfilled,
the Debtors would be willing to have the Plan confirmed if the Court finds that
the aggregate of the Asbestos PI-SE Class Fund, the Asbestos PD Class Fund, and
the Asbestos Trust Expenses Fund is not greater than $1,483,000,000, and that
the Asbestos PI-AO Class Fund is not greater than $130,000,000. However, such
amounts do not represent the Debtors' estimate of their asbestos-related
liabilities. In fact, through the use of the estimation process provided for
under the Estimation Motion, the Debtors believe their actual asbestos-related
liabilities may be significantly lower.
4.7.7 CONDITIONS TO OCCURRENCE OF THE EFFECTIVE DATE
Section 7.7 of the Plan sets forth conditions precedent to the
Effective Date of the Plan, including entry of the Confirmation Order as
specified, entry of the Recognition Order approving or recognizing the
Confirmation Order, affirmation of the various injunctions specified in the
Plan, filing of the necessary corporate documents, obtaining the necessary exit
financing, and obtaining other various documents or agreements.
4.7.8 MANAGEMENT OF THE REORGANIZED DEBTORS
Section 7.8 of the Plan sets forth the post-confirmation governance of
the Reorganized Debtors, including specifications relating to the Board of
Directors of the Reorganized Parent.
4.7.9 CORPORATION ACTION
Section 7.9 of the Plan details corporate actions that must be taken
in connection with the Plan.
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EXHIBIT 99.1
4.7.10 EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS
Section 7.10 of the Plan authorizes each of the officers of the
Debtors and the Reorganized Debtors to execute, deliver, file, or record such
agreements or documents and to take such actions as may be necessary or
appropriate, for and on behalf of the Debtors and the Reorganized Debtors, to
effectuate the Plan.
4.7.11 ALLOCATION OF PLAN DISTRIBUTIONS BETWEEN PRINCIPAL AND
INTEREST
Section 7.11 of the Plan allocates Plan Distributions between
principal and interest.
4.7.12 NO SUCCESSOR LIABILITY
Section 7.12 of the Plan provides the following: except as otherwise
expressly provided in the Plan, the Debtors, the Reorganized Debtors, the
Asbestos PI Committee, the Asbestos PD Committee, the FCR, and the Asbestos
Protected Parties will not, pursuant to the Plan or otherwise, assume, agree to
perform, pay, or indemnify creditors or otherwise have any responsibilities for
any liabilities or obligations of the Debtors or any of the Debtors' past or
present Affiliates, as such liabilities or obligations may relate to or arise
out of the operations of or assets of the Debtors or any of the Debtors' past or
present Affiliates or any of their respective successors, whether arising prior
to, or resulting from actions, events, or circumstances occurring or existing at
any time prior to the Confirmation Date. Neither the Asbestos Protected Parties,
the Reorganized Debtors, nor the Asbestos Trust is, or shall be, a successor to
the Debtors or any of the Debtors' past or present Affiliates by reason of any
theory of law or equity, and none shall have any successor or transferee
liability of any kind or character, except that the Reorganized Debtors and the
Asbestos Trust shall assume the obligations specified in the Plan and the
Confirmation Order.
Except as otherwise expressly provided in the Plan, effective
automatically on the Effective Date, the Asbestos Protected Parties and their
respective Representatives shall be unconditionally, irrevocably and fully
released from any and all Claims and causes of action, including Claims and
causes of action arising under Chapter 5 of the Bankruptcy Code or similar
Claims or causes of action arising under state or any other law, including, if
applicable, claims in the nature of fraudulent transfer, successor liability,
corporate veil piercing, or alter ego-type claims, as a consequence of
transactions, events, or circumstances involving or affecting the Debtors or the
Canadian Affiliates (or any of their predecessors) or any of their respective
businesses or operations that occurred or existed prior to the Effective Date.
4.7.13 DEEMED CONSOLIDATION OF THE DEBTORS FOR PLAN PURPOSES ONLY
Section 7.13 of the Plan provides for the substantive consolidation of
the Debtors as follows: subject to the occurrence of the Effective Date, the
Debtors shall be deemed consolidated under the Plan for Plan purposes only. Each
and every Claim Filed or to be Filed against any of the Debtors shall be deemed
Filed against the deemed consolidated Debtors and shall be deemed one Claim
against and obligation of the deemed consolidated Debtors.
Such deemed consolidation, however, shall not (other than for purposes
related to funding Distributions under the Plan and as set forth above in
Section 7.13 of the Plan) affect:
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EXHIBIT 99.1
(i) the legal and organizational structure of the Debtors; (ii) any Encumbrances
that are required to be maintained under the Plan (A) in connection with
executory contracts or unexpired leases that were entered into during the
Chapter 11 Cases or that have been or will be assumed, (B) pursuant to the Plan,
or (C) in connection with any Exit Financing; (iii) the Sealed Air Settlement
Agreement; and (iv) the Fresenius Settlement Agreement.
Notwithstanding anything contained in the Plan to the contrary, the
deemed consolidation of the Debtors shall not have any effect on any of the
Claims (other than Asbestos Claims) being reinstated and left unimpaired under
the Plan, and the legal, equitable, and contractual rights to which the Holders
of any such Claims (other than Asbestos Claims) are entitled shall be left
unaltered by the Plan.
Such limited substantive consolidation will have no economic impact on
recovery to Claimants as the Debtors are paying all Claims in full. Forgiveness
of Intercompany Claims, therefore, would not result in an increased recovery to
the Debtors' creditors.
4.8 INJUNCTIONS, RELEASES AND DISCHARGE
Section 7.12 and Article 8 of the Plan work together to shield the
Debtors and certain other parties from any liability for any Claims dealt with
under the Plan.
Several parties have raised objections to the releases provided by
Section 8.7 and 8.4 Released Matters Injunction of the Plan, alleging that they
go beyond the scope of permissible releases under applicable law. The Debtors
disagree. The parties reserve their rights with respect to the release
objections until the hearing on confirmation of the Plan.
Article 8 of the Plan provides the following:
4.8.1 DISCHARGE
4.8.1.1 DISCHARGE OF THE DEBTORS AND RELATED DISCHARGE
INJUNCTION
The rights afforded in the Plan and the treatment of all Claims,
Demands and Equity Interests in the Plan shall be in exchange for and in
complete satisfaction, discharge, and release of all Claims, Demands and Equity
Interests of any nature whatsoever, including any interest accrued thereon from
and after the Petition Date, against the Debtors and the Debtors in Possession,
or their assets, properties, or interests in property. Except as otherwise
provided in the Plan, on the Effective Date, all Claims, Demands against, and
Equity Interests in the Debtors and the Debtors in Possession shall be
satisfied, discharged, and released in full. The Reorganized Debtors shall not
be responsible for any obligations of the Debtors or the Debtors in Possession
except those expressly assumed by the Reorganized Debtors pursuant to the Plan.
All Entities shall be precluded and forever barred from asserting against the
Debtors and the Reorganized Debtors, or their assets, properties, or interests
in property any other or further Claims or Demands based upon any act or
omission, transaction, or other activity, event, or occurrence of any kind or
nature that occurred prior to the Effective Date, whether or not the facts of or
legal bases therefor were known or existed prior to the Effective Date, except
as expressly provided in the Plan.
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EXHIBIT 99.1
With respect to any debts discharged by operation of law under
Bankruptcy Code Sections 524(a) and 1141, the discharge of the Debtors operates
as an injunction against the commencement or continuation of an action, the
employment of process, or an act, to collect, recover, or offset any such debt
as a personal liability of the Debtor, whether or not the discharge of such debt
is waived; provided, however, that the obligations of the Reorganized Debtors
under the Plan are not so discharged.
4.8.1.2 DISCHARGE OF LIABILITIES TO HOLDERS OF ASBESTOS
CLAIMS
The transfer to, vesting in, and assumption by the Asbestos Trust of
the Asbestos Trust Assets as contemplated by the Plan, among other things, shall
(i) discharge the Debtors, the Reorganized Debtors and their Representatives for
and in respect of all Asbestos Claims and (ii) discharge, release, and
extinguish all obligations and liabilities of the Asbestos Protected Parties and
Asbestos Insurance Entities for and in respect of all Asbestos Claims, subject
to the reservations listed in Section 8.3.2 in the Plan. On the Effective Date,
the Asbestos Trust shall assume the liabilities of the Debtors with respect to
all Asbestos Claims and shall pay the Allowed Asbestos Claims in accordance with
the Asbestos Trust Agreement and the appropriate TDPs.
4.8.1.3 DISALLOWED CLAIMS AND DISALLOWED EQUITY INTERESTS
On and after the Effective Date, the Debtors, the Reorganized Debtors
and their Representatives shall be fully and finally discharged of any liability
or obligation on a Disallowed Claim or Disallowed Equity Interest, and any order
creating a Disallowed Claim that is not a Final Order as of the Effective Date
solely because of an Entity's right to move for reconsideration of such order
pursuant to Bankruptcy Code Section 502 or Bankruptcy Rule 3008 shall
nevertheless become and be deemed to be a Final Order on the Effective Date.
4.8.1.4 NON-DISCHARGEABLE ERISA LIABILITY
The Parent is a controlled group member within the meaning of 29
U.S.C. Section 1301(a)(14) and may also be a contributing sponsor of one or more
ongoing, defined benefit pension plans to which Title IV of ERISA applies (the
"Pension Plans"). The Debtors intend, and the Plan contemplates, that the
Reorganized Debtors will continue to be the contributing sponsor of all the
Pension Plans that they currently sponsor. Each of the Pension Plans is a
defined benefit pension plan insured by the Pension Benefit Guaranty Corporation
("PBGC") under ERISA. The Pension Plans are subject to minimum funding
requirements of ERISA and Section 412 of the IRC. The PBGC believes the Pension
Plans to be underfunded on a termination basis. As of their April 2004 Form 4010
Filings with the PBGC, the Debtors Actuarial Information Certification indicates
the total unfunded status of the Pension Plans was $394.2 million as of December
31, 2003. An underfunded pension plan can terminate only in either a distress
termination or PBGC-initiated termination under Title IV of ERISA. Should the
Pension Plans terminate, the PBGC may assert claims for the underfunding, for
any unpaid minimum funding contributions owed the Pension Plan, and for any
unpaid premiums owed the PBGC. The PBGC further asserts that portions of those
claims would be entitled to priority status.
Nothing contained in the Plan, Confirmation Order, the Bankruptcy Code
(including Bankruptcy Code Section 1141), or any other document Filed in the
Chapter 11 Cases shall be
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EXHIBIT 99.1
construed to discharge, release or relieve the Debtors, or any other party, in
any capacity, from any liability or responsibility to the PBGC with respect to
the Pension Plans under any law, governmental policy, or regulatory provision.
The PBGC shall not be enjoined or precluded from enforcing such liability or
responsibility, as a result of any of the provisions of the Plan (including
those provisions providing for exculpation, satisfaction, release and discharge
of Claims), the Confirmation Order, the Bankruptcy Code (including Bankruptcy
Code Section 1141), or any other document Filed in the Chapter 11 Cases.
Notwithstanding the foregoing, neither the PBGC nor any other Entity shall
assert any liability or responsibility with respect to the Pension Plans under
any law, governmental policy or regulatory provisions against, and such
liability or responsibility shall not attach to, the Asbestos Trust or any of
the Asbestos Trust Assets.
4.8.2 THE ASBESTOS CHANNELING INJUNCTION
In order to supplement, where necessary, the injunctive effect of the
discharge provided by Bankruptcy Code Sections 1141 and 524(a) and as described
in Article 8 of the Plan, and pursuant to the exercise of the equitable
jurisdiction and power of the Court under Bankruptcy Code Sections 524(g) and
105(a), the Confirmation Order shall provide for issuance of the Asbestos
Channeling Injunction to take effect as of the Effective Date. On and after the
Effective Date, the sole recourse of the Holder of an Asbestos Claim on account
of such Claim shall be to the Asbestos Trust pursuant to the provisions of the
Asbestos Channeling Injunction and the appropriate TDPs and such Holder shall
have no right whatsoever at any time to assert its Asbestos Claim against the
Debtors, the Canadian Affiliates, the Reorganized Debtors, any other Asbestos
Protected Party, or any property or interest (including any Distributions made
pursuant to the Plan) in property of the Debtors, the Reorganized Debtors, or
any other Asbestos Protected Party. Without limiting the foregoing, from and
after the Effective Date, the Asbestos Channeling Injunction shall apply to all
present and future Holders of Asbestos Claims, and all such Holders permanently
and forever shall be stayed, restrained, and enjoined from taking any of the
following actions for the purpose of, directly or indirectly, collecting,
recovering, or receiving payment of, on, or with respect to any Asbestos Claims
other than from the Asbestos Trust in accordance with the Asbestos Channeling
Injunction and pursuant to the Asbestos Trust Agreement and the appropriate
TDPs, including:
(a) commencing, conducting, or continuing in any manner, directly or
indirectly, any suit, action, or other proceeding (including a
judicial, arbitration, administrative, or other proceeding) in
any forum against or affecting any Asbestos Protected Party, or
any property or interest in property of any Asbestos Protected
Party;
(b) enforcing, levying, attaching (including any prejudgment
attachment), collecting, or otherwise recovering by any means or
in any manner, whether directly or indirectly, any judgment,
award, decree, or other order against any Asbestos Protected
Party, or any property or interest in property of any Asbestos
Protected Party;
(c) creating, perfecting, or otherwise enforcing in any manner,
directly or indirectly, any Encumbrance against any Asbestos
Protected Party, or any property or interest in property of any
Asbestos Protected Party;
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EXHIBIT 99.1
(d) setting off, seeking reimbursement of, indemnification or
contribution from, or subrogation against, or otherwise recouping
in any manner, directly or indirectly, any amount against any
liability owed to any Asbestos Protected Party, or any property
or interest in property of any Asbestos Protected Party; and
(e) proceeding in any other manner with regard to any matter that is
subject to resolution pursuant to the Asbestos Trust, except in
conformity and compliance with the Asbestos Trust Agreement and
the appropriate TDPs.
Notwithstanding anything to the contrary above, this Asbestos
Channeling Injunction shall not enjoin the rights of Entities to the treatment
accorded them under Article 3 of the Plan, as applicable, including the rights
of Entities with Asbestos Claims to assert such Asbestos Claims in accordance
with the appropriate TDPs.
Except as otherwise expressly provided in the Plan, the Sealed Air
Settlement Agreement, or the Fresenius Settlement Agreement, nothing contained
in the Plan shall constitute or be deemed a waiver of any claim, right, or cause
of action that the Debtors, the Canadian Affiliates, the Reorganized Debtors, or
the Asbestos Trust may have against any Entity in connection with or arising out
of or related to any Asbestos Claim.
4.8.3 ASBESTOS INSURANCE ENTITY INJUNCTION
Pursuant to the exercise of the equitable jurisdiction and power of
the Court under Bankruptcy Code Section 105(a), the Confirmation Order shall
provide for issuance of the Asbestos Insurance Entity Injunction to take effect
as of the Effective Date.
4.8.3.1 INJUNCTION
(a) All Entities that have held or asserted, that hold or assert, or
that may in the future hold or assert any Claim, Demand, or cause
of action, against any Asbestos Insurance Entity, based upon,
relating to, arising out of, or in any way connected with any
Claim, Demand, Asbestos Insurance Rights, Asbestos Insurance
Policies, or Asbestos Insurance Settlement Agreements, whenever
and wherever arisen or asserted (including all Claims in the
nature of or sounding in tort, or under contract, warranty, or
any other theory of law, equity, or admiralty) shall be stayed,
restrained, and enjoined from taking any action for the purpose
of directly or indirectly collecting, recovering, or receiving
payments, satisfaction, or recovery with respect to any such
Claim, Demand, or cause of action, including:
(i) commencing, conducting, or continuing, in any manner,
directly or indirectly, any suit, action, or other
proceeding (including a judicial, arbitration,
administrative, or other proceeding) in any forum against or
affecting any Asbestos Insurance Entity, or any property or
interest in property of any Asbestos Insurance Entity;
(ii) enforcing, levying, attaching (including any
prejudgment attachment), collecting, or otherwise recovering
by any means or in any manner, whether directly or
indirectly, any judgment, award, decree,
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EXHIBIT 99.1
or other order against any Asbestos Insurance Entity, or any
property or interest in property of any Asbestos Insurance
Entity;
(iii) creating, perfecting, or otherwise enforcing in any
manner, directly or indirectly, any Encumbrance against any
Asbestos Insurance Entity, or any property or interest in
property of any Asbestos Insurance Entity;
(iv) setting off, seeking reimbursement of, indemnification
or contribution from, or subrogation against, or otherwise
recouping in any manner, directly or indirectly, any amount
against any liability owed to any Asbestos Insurance Entity,
or any property or interest in property of any Asbestos
Insurance Entity; and
(v) proceeding in any other manner with regard to any matter
that is subject to resolution pursuant to the Asbestos
Trust, except in conformity and compliance with the Asbestos
Trust Agreement, the appropriate TDPs, and the appropriate
Asbestos Insurance Settlement Agreements.
(b) The Reorganized Debtors shall have the sole and exclusive
authority at any time to terminate, reduce or limit the scope of,
the Asbestos Insurance Entity Injunction as it may apply to any
Asbestos Insurance Entity upon express written notice to that
Asbestos Insurance Entity; and
(c) The Asbestos Insurance Entity Injunction is not issued for the
benefit of any Asbestos Insurance Entity, and no Asbestos
Insurance Entity is or may become a third-party beneficiary of
the Asbestos Insurance Entity Injunction.
4.8.3.2 RESERVATIONS FROM THE ASBESTOS INSURANCE ENTITY
INJUNCTION
Notwithstanding anything to the contrary above, the Asbestos Insurance
Entity Injunction shall not enjoin:
(a) the rights of any Entity to the treatment accorded it under the
Plan;
(b) the rights of any of the Reorganized Debtors or the Non-Debtor
Affiliates, as the case may be, to prosecute any cause of action
or to assert any Claim, Demand, debt, obligation, or liability
for payment against any Entity, including any Asbestos Insurance
Entity, based on or arising from the Asbestos Insurance Rights
for the Debtors', Reorganized Debtors' or the Non-Debtor
Affiliates' benefit; and
(c) the rights of any of the Reorganized Debtors or the Non-Debtor
Affiliates, as the case may be, to receive any settlement, award,
payment of cash or other property of any kind whatsoever from any
Entity, including any Asbestos Insurance Entity, in satisfaction
of any Asbestos Insurance Rights that any of the Debtors, the
Reorganized Debtors or the Non-Debtor Affiliates, as the case may
be, may have against any of the foregoing.
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EXHIBIT 99.1
4.8.4 RELEASED MATTERS INJUNCTION
Pursuant to the exercise of the equitable jurisdiction and power of
the Court under Bankruptcy Code Section 105(a), the Confirmation Order shall
provide for issuance of the Released Matters Injunction to take effect as of the
Effective Date.
4.8.4.1 INJUNCTION
(a) All Entities that have held or asserted, that hold or assert, or
that may in the future hold or assert any Claim, Demand, or cause
of action, against any Entity released under any provision of the
Plan, shall be enjoined from taking any action for the purpose of
directly or indirectly collecting, recovering, or receiving
payments, satisfaction, or recovery on account of such released
matters, including:
(i) commencing, conducting, or continuing, in any manner,
directly or indirectly, any suit, action, or other
proceeding (including a judicial, arbitration,
administrative, or other proceeding) in any forum against or
affecting any Entity released under any provision of the
Plan, or any property or interest in property of any such
released Entity;
(ii) enforcing, levying, attaching (including any
prejudgment attachment), collecting, or otherwise recovering
by any means or in any manner, whether directly or
indirectly, any judgment, award, decree, or other order
against any Entity released under any provision of the Plan,
or any property or interest in property of any such released
Entity;
(iii) creating, perfecting, or otherwise enforcing in any
manner, directly or indirectly, any Encumbrance against any
Entity released under any provision of the Plan, or any
property or interest in property of any such released
Entity; and
(iv) setting off, seeking reimbursement of, indemnification
or contribution from, or subrogation against, or otherwise
recouping in any manner, directly or indirectly, any amount
against any liability owed to any Entity released under any
provision of the Plan, or any property or interest in
property of any such released Entity.
4.8.4.2 RESERVATIONS FROM THE RELEASED MATTERS INJUNCTION
Notwithstanding anything to the contrary above, the injunction
provided in Section 8.4.1 of the Plan shall not enjoin:
(a) the rights of any Entity to the treatment accorded it under the
Plan;
(b) the rights of any of the Reorganized Debtors or the Non-Debtor
Affiliates, as the case may be, to prosecute any cause of action
or to assert any Claim, Demand, debt, obligation, or liability
for payment against any Entity, including any Asbestos Insurance
Entity, based on or arising from the Asbestos Insurance
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EXHIBIT 99.1
Rights for the Debtors', Reorganized Debtors' or the Non-Debtor
Affiliates' benefit; and
(c) the rights any of the Reorganized Debtors or the Non-Debtor
Affiliates, as the case may be, to receive any settlement, award,
payment of cash or other property of any kind whatsoever from any
Entity, including any Asbestos Insurance Entity in satisfaction
of any Asbestos Insurance Rights that any of the Reorganized
Debtors or the Non-Debtor Affiliates, as the case may be, may
have against any of the foregoing.
4.8.5 INJUNCTIONS AND RELEASES RELATED TO THE SEALED AIR
INDEMNIFIED PARTIES AND THE FRESENIUS INDEMNIFIED PARTIES
As required by the Sealed Air Settlement Agreement, the Fresenius
Settlement Agreement and the Fresenius Settlement Order, the injunctions and
releases outlined in the Plan herein, including the Asbestos Channeling
Injunction and the Released Matters Injunction, and provided under Bankruptcy
Code Sections 105(a) and 524(g), shall absolutely and unequivocally extend to
and protect the Sealed Air Indemnified Parties and the Fresenius Indemnified
Parties.
4.8.6 TERM OF CERTAIN INJUNCTIONS AND AUTOMATIC STAY
4.8.6.1 INJUNCTIONS AND/OR AUTOMATIC STAYS IN EXISTENCE
IMMEDIATELY PRIOR TO CONFIRMATION
All of the injunctions and/or automatic stays provided for in or in
connection with the Chapter 11 Cases, whether pursuant to Bankruptcy Code
Sections 105, 362, or any other provision of the Bankruptcy Code or other
applicable law, in existence immediately prior to the Confirmation Date shall
remain in full force and effect until the injunctions set forth in the Plan
become effective, and thereafter if so provided by the Plan, the Confirmation
Order, or by their own terms. In addition, on and after the Confirmation Date,
the Reorganized Debtors may seek such further orders as they may deem necessary
or appropriate to preserve the status quo during the time between the
Confirmation Date and the Effective Date.
4.8.6.2 INJUNCTIONS PROVIDED FOR IN THE PLAN
Each of the injunctions provided for in the Plan shall become
effective on the Effective Date and shall continue in effect at all times
thereafter unless otherwise provided by the Plan. Notwithstanding anything to
the contrary contained in the Plan, all actions in the nature of those to be
enjoined by such injunctions shall be enjoined during the period between the
Confirmation Date and the Effective Date.
4.8.7 ADDITIONAL RELEASES AND INDEMNIFICATION
4.8.7.1 REPRESENTATIVES OF THE DEBTORS
4.8.7.1.1 RELEASE OF REPRESENTATIVES OF THE DEBTORS
For good and valuable consideration, the receipt and sufficiency of
which is acknowledged in the Plan, all Representatives of the Debtors and any of
the Non-Debtor
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EXHIBIT 99.1
Affiliates will be released, as of the Effective Date, from any and all Claims,
obligations, rights, suits, damages, causes of action, remedies, and liabilities
whatsoever, whether known or unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity, or otherwise, that any Entity would have been
legally entitled to assert in its own right (whether individually or
collectively) or on behalf of the Holder of any Claim or Equity Interest or
other Entity, based in whole or in part upon any act or omission, transaction,
agreement, event, or other occurrence taking place on or before the Effective
Date for Claims or liabilities resulting from their services as Representatives
of the Debtors or any of the Non-Debtor Affiliates to the extent such Claims or
liabilities relate to the business, operations, or management of any of the
Debtors or the Non-Debtor Affiliates prior to the Effective Date or any of the
matters referred to in Section 11.8 so long as, in each case such action, or
failure to act, did not constitute willful misconduct. Any act or omission taken
with the approval of the Bankruptcy Court will be conclusively deemed not to
constitute willful misconduct. This section is not intended to preclude a
governmental entity from enforcing its police and regulatory powers. These
releases are conditioned on the released Representatives giving a mutual
release, except that such Representatives are not releasing Claims with respect
to commercial obligations of the Debtors and the Non-Debtor Affiliates, any
Claims for indemnification in favor of the released Representatives, or Claims
for wages, fees, benefits, commissions and expenses. Further, these releases are
not intended to, and shall not, alter in any way the rights of the present
and/or former officers and/or directors of the Parent, or of any of the other
Debtors or Non-Debtor Affiliates, under the Parent's By-laws and/or Certificate
of Incorporation, or any of the other Debtors' or Non-Debtor Affiliates'
applicable by-laws and/or certificates of incorporation, whatever those rights,
if any, may be.
4.8.7.1.2 INDEMNIFICATION OF REPRESENTATIVES OF THE
DEBTORS AND NON-DEBTOR AFFILIATES
The Reorganized Debtors will defend, indemnify, and hold harmless to
the fullest extent permitted by applicable law, all Representatives of the
Debtors, and all Representatives of the Non-Debtor Affiliates, on and after the
Effective Date for all Claims, obligations, rights, suits, damages, causes of
action, remedies, and liabilities whatsoever that are purported to be released
pursuant to Section 8.7.1(a) in the Plan.
4.8.7.2 RELEASE OF SEALED AIR INDEMNIFIED PARTIES
Upon receipt of the Sealed Air Payment (i) the Debtors, the Asbestos
PD Committee and the Asbestos PI Committee shall execute and deliver the
Release; (ii) the Government Plaintiff shall execute and deliver the Government
Release; and (iii) the Asbestos PI Committee and the Asbestos PD Committee shall
deliver the Fresenius Release, all as provided for and defined in the Sealed Air
Settlement Agreement. In addition, each of the Non-Debtor Affiliates shall
irrevocably release, acquit, and forever discharge the Sealed Air Indemnified
Parties from any and all Asbestos Claims and any and all Claims, on the basis
of, arising from, or attributable to (in whole or in part, directly or
indirectly) the Fresenius Transaction, as that term is defined in the Sealed Air
Settlement Agreement, that have accrued or been asserted or that hereafter might
accrue or be asserted against the Sealed Air Indemnified Parties, and that each
Non-Debtor Affiliate shall not institute, participate in, maintain, maintain a
right to or assert against the Sealed Air Indemnified Parties, either directly
or indirectly, on its own behalf, derivatively, or on behalf of any other person
any and all Asbestos Claims, and any and all Claims on the basis of,
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EXHIBIT 99.1
arising from, or attributable to (in whole or in part, directly or indirectly)
the Fresenius Transaction, as that term is defined in the Sealed Air Settlement
Agreement.
The Debtors, the Reorganized Debtors and the Asbestos Trust shall
defend, indemnify, and hold harmless each of the Sealed Air Indemnified Parties
as provided in, and to the extent set forth in the Sealed Air Settlement
Agreement, and the indemnification provisions set forth in the Sealed Air
Settlement Agreement shall be binding on the Asbestos Trust with the same force
and effect as if the Asbestos Trust was a party to the Sealed Air Settlement
Agreement.
4.8.7.3 RELEASE OF FRESENIUS INDEMNIFIED PARTIES
Upon receipt of the Fresenius Payment, the Debtors, the Reorganized
Debtors, the Asbestos PI Committee and the Asbestos PD Committee will fully,
finally and forever release, relinquish and discharge each and every Fresenius
Indemnified Party from any and all Grace-Related Claims, as that term is defined
in the Fresenius Settlement Agreement, that the Debtors, the Reorganized
Debtors, the Asbestos PI Committee or the Asbestos PD Committee have asserted or
could have asserted in the Bankruptcy Court or any other forum against any of
the Fresenius Indemnified Parties and the release that is attached as Appendix B
to the Fresenius Settlement Agreement shall become effective. Upon receipt of
the Fresenius Payment, in addition to the more limited duties of indemnification
by the Debtors to the Fresenius Indemnified Parties under Article III of the
Fresenius Settlement Agreement, the Debtors and the Reorganized Debtors shall
indemnify, defend and hold harmless the Fresenius Indemnified Parties as
provided in and to the extent set forth in the Fresenius Settlement Agreement.
4.8.7.4 SPECIFIC RELEASES BY HOLDERS OF CLAIMS OR EQUITY
INTERESTS
Without limiting any other provisions of the Plan, each Holder of a
Claim or Equity Interest who votes in favor of the Plan or receives or retains
any property under the Plan shall be deemed to unconditionally have released the
Asbestos Protected Parties, the Asbestos Insurance Entities, the Unsecured
Creditors' Committee, the Asbestos PI Committee, the Asbestos PD Committee, the
Equity Committee and the FCR, and each party's Representatives, as of the
Effective Date from any and all Claims, obligations, rights, suits, damages,
causes of action, remedies, and liabilities whatsoever, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity,
or otherwise, that such Entity would have been legally entitled to assert in its
own right (whether individually or collectively), based in whole or in part upon
any act or omission, transaction, agreement, event, or other occurrence taking
place on or before the Effective Date in any way relating or pertaining to, the
Debtors or the Reorganized Debtors, the Chapter 11 Cases, or the negotiation,
formulation, and preparation of the Plan or any related agreements, instruments,
or other documents, so long as, in each case, such action or failure to act does
not constitute willful misconduct. Any act or omission taken with the approval
of the Bankruptcy Court will be conclusively deemed not to constitute willful
misconduct. This section is not intended to preclude a governmental entity from
enforcing its police and regulatory powers.
4.8.7.5 APPROVAL OF SEALED AIR SETTLEMENT AGREEMENT
The Confirmation Order shall constitute an order approving, as a
compromise and settlement pursuant to Bankruptcy Code Section 1123(b)(3)(A), the
release of Sealed Air, the
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EXHIBIT 99.1
respective releases of each of the Reorganized Debtors and the Asbestos Trust
contained in the Sealed Air Settlement Agreement, and the execution and delivery
of the Sealed Air Settlement Agreement which contains the foregoing releases.
The Confirmation Order shall also constitute an order assuming the 1998 Tax
Sharing Agreement as defined in the Sealed Air Settlement Agreement.
4.8.7.6 EFFECT OF THE FRESENIUS SETTLEMENT AGREEMENT, THE
FRESENIUS SETTLEMENT ORDER, AND THE SEALED AIR
SETTLEMENT AGREEMENT
Notwithstanding anything to the contrary in the Plan, any of the Plan
Documents, or the Confirmation Order, nothing in the Plan, any of the Plan
Documents or the Confirmation Order (including any other provisions that
purports to be preemptory or supervening) shall in any way operate to, or have
the effect of, impairing or limiting the legal, equitable or contractual rights
or obligations of the Sealed Air Indemnified Parties, the Fresenius Indemnified
Parties or the Debtors, the Reorganized Debtors and the Non-Debtor Affiliates,
respectively, pursuant to the Sealed Air Settlement Agreement, the Fresenius
Settlement Agreement or the Fresenius Settlement Order, as applicable, each of
which is expressly made a part of the Plan and incorporated in the Plan by
reference.
The Sealed Air Settlement Agreement, the Fresenius Settlement
Agreement and the Fresenius Settlement Order set forth certain preconditions to
the making of the Sealed Air Payment and/or the Fresenius Payment and the
Debtors intend by the Plan to fulfill each and every such precondition whether
expressly or impliedly outlined herein. Those preconditions include but are not
necessarily limited to the following:
o Releases by the Reorganized Debtors and the Non-Debtor
Affiliates;
o Releases by the Holders of certain Claims, including but not
limited to asbestos related Claims;
o Issuance of a permanent injunction under Bankruptcy Code
Section 105(a) and a channeling injunction under Bankruptcy
Code Section 524(g);
o Indemnification of the Fresenius Indemnified Parties and
Sealed Air Indemnified Parties by the Reorganized Debtors
and the Non-Debtor Affiliates;
o Dismissal of certain actions, including but not limited to
the Fraudulent Conveyance Adversary Proceeding, as outlined
in the Sealed Air Settlement Agreement, the Fresenius
Settlement Agreement and the Fresenius Settlement Order; and
o A Confirmation Order containing a determination that, as of
the Effective Date, the Reorganized Debtors have the ability
to pay and satisfy in the ordinary course of business their
respective obligations under the Sealed Air Settlement
Agreement and the Fresenius Settlement Agreement.
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EXHIBIT 99.1
4.9 CONTRACTS
Article 9 of the Plan sets forth provisions dealing with executory
contracts, unexpired leases, letters of credit, surety bonds, guaranties, and
certain indemnity agreements.
4.10 RETENTION OF JURISDICTION
Article 10 of the Plan provides that the Bankruptcy Court will retain
exclusive jurisdiction over any matter (i) arising under the Bankruptcy Code,
(ii) arising in or related to the Chapter 11 Cases or the Plan, or (iii) that
relates to the matters enumerated in Article 10 provided that the District Court
shall retain jurisdiction for such matters to which the automatic reference to
the Bankruptcy Court has been withdrawn and that the Canadian Court shall retain
jurisdiction for matters related to the litigation of Canadian Claims and the
hearing on the Recognition Order.
4.11 MISCELLANEOUS PROVISIONS
Article 11 of the Plan deals with a variety of miscellaneous matters
including:
o authority of the Debtors
o payment of statutory fees
o provisions that must be included in the Plan according to
the Fresenius Settlement Agreement and the Sealed Air
Settlement Agreement
o dissolution of the Unsecured Creditors' Committee, the
Asbestos PI Committee, the Asbestos PD Committee and the
Equity Committee
o continued retention of the Future Claimants' Representative
o headings
o governing law
o filing of additional documents
o compliance with tax requirements
o further assurances
o further authorizations
The more significant sections of Article 11 of the Plan are:
Section 11.3.1 of the Plan - Maintenance of Causes of Action: Nothing
in Section 11.3 of the Plan shall be deemed to be a transfer by the Debtors and
the Reorganized Debtors of any Claims, causes of action, or defenses relating to
assumed executory contracts or otherwise which are required by the Reorganized
Debtors to conduct their businesses in the ordinary course subsequent to the
Effective Date. Moreover, except as otherwise expressly contemplated by the
Plan, the Sealed Air Settlement Agreement, the Fresenius Settlement Agreement or
other Plan Documents, from and after the Effective Date, the Reorganized Debtors
shall have and retain any and all rights to commence and pursue any and all
Claims, causes of action, including the Retained Causes of Action, or defenses
against any parties, including Claimants and Holders of
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EXHIBIT 99.1
Equity Interests, whether such causes of action accrued before or after the
Petition Date, including those Retained Causes of Action listed on Exhibit 11 in
the Exhibit Book.
The Reorganized Debtors shall retain and may exclusively enforce any
and all such Claims, rights or causes of action, including Retained Causes of
Action, and commence, pursue and settle the causes of action in accordance with
the Plan. The Reorganized Debtors shall have the exclusive right, authority, and
discretion to institute, prosecute, abandon, settle, or compromise any and all
such claims, rights, and causes of action, including Retained Causes of Action,
without the consent or approval of any third party and without any further order
of the Court.
Section 11.3.2 of the Plan - Preservation of Causes of Action: The
Debtors are currently investigating whether to pursue potential causes of action
against any Claimants or Entities. The investigation has not been completed to
date, and, under the Plan, the Reorganized Debtors retain the right on behalf of
the Debtors to commence and pursue any and all Retained Causes of Action. The
potential causes of action currently being investigated by the Debtors, which
may, but need not, be pursued by the Debtors before the Effective Date or by the
Reorganized Debtors, after the Effective Date are described more fully in this
Disclosure Statement. In addition, there may be numerous Unknown Causes of
Action. The failure to list any such Unknown Causes of Action in the Plan, or on
Exhibit 11 in the Exhibit Book, is not intended to limit the rights of the
Reorganized Debtors to pursue any Unknown Cause of Action to the extent the
facts underlying such Unknown Cause of Action become fully known to the Debtors.
Section 11.3.3 of the Plan - Preservation of All Causes of Action not
Expressly Settled or Released: Unless a Claim or cause of action against a
Claimant or other Entity is expressly waived, relinquished, released,
compromised or settled in the Plan or any Final Order, the Debtors expressly
reserve such Claim or Retained Cause of Action (including any Unknown Causes of
Action) for later adjudication by the Reorganized Debtors, as applicable.
Therefore, no preclusion doctrine, including the doctrines of res judicata,
collateral estoppel, issue preclusion, claim preclusion, waiver, estoppel
(judicial, equitable, or otherwise) or laches shall apply to such Claims or
Retained Causes of Action upon or after the Confirmation Date or Effective Date
of the Plan based on this Disclosure Statement, the Plan or the Confirmation
Order, except where such Claims or Retained Causes of Action have been released
in the Plan or other Final Order. In addition, the Debtors, the Reorganized
Debtors, and the successor entities under the Plan expressly reserve the right
to pursue or adopt any Claim alleged in any lawsuit in which the Debtors are
defendants or an interested party, against any Entity, including the plaintiffs
or co-defendants in such lawsuits.
Any Entity to whom the Debtors have incurred an obligation (whether on
account of services, purchase or sale of goods or otherwise), or who has
received services from the Debtors or a transfer of money or property of the
Debtors, or who has transacted business with the Debtors, or leased equipment or
property from the Debtors should assume that such obligation, transfer, or
transaction may be reviewed by the Debtors or the Reorganized Debtors, and may,
if appropriate, be the subject of an action after the Effective Date, whether or
not (i) such Entity has filed a proof of Claim against the Debtors in the
Chapter 11 Cases; (ii) such Claimant's proof of Claim has been objected to;
(iii) such Claimant's Claim was included in the Debtors' Schedules; or (iv) such
Claimant's scheduled Claim has been objected to by the Debtors or has
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EXHIBIT 99.1
been identified by the Debtors as a Disputed Claim, a Contingent Claim, or an
Unliquidated Claim.
Section 11.4 of the Plan - Third-Party Agreements: The Distributions
to the various classes of Claims in the Plan will not affect the right of any
Entity to levy, garnish, attach, or employ any other legal process with respect
to such Distributions by reason of any claimed subordination rights or
otherwise. All of such rights and any agreements relating thereto will remain in
full force and effect.
Section 11.8 of the Plan - Exculpation: None of the Reorganized
Debtors, the Debtors, the Non-Debtor Affiliates, the Sealed Air Indemnified
Parties, the Fresenius Indemnified Parties, the Trustees of the Asbestos Trust,
the Asbestos Trust Advisory Committee, the Asbestos PI Committee, the Asbestos
PD Committee, the Unsecured Creditors' Committee, the Equity Committee, the FCR,
or any of their respective Representatives are to have or incur any liability to
any Entity for any pre- or post-Petition Date act or omission in connection
with, related to, or arising out of the negotiation of the Plan or the
settlement provided in the Sealed Air Settlement Agreement and the Fresenius
Settlement Agreement, the pursuit of confirmation of the Plan, the consummation
of the Plan or the settlement provided in the Sealed Air Settlement Agreement or
Fresenius Settlement Agreement, or the administration of the Plan or the
property to be distributed under the Plan so long as, in each case such action,
or failure to act, did not constitute willful misconduct. In all respects, they
will be entitled to rely upon the advice of counsel with respect to their duties
and responsibilities under the Plan. Any act or omission taken with the approval
of the Bankruptcy Court will be conclusively deemed not to constitute willful
misconduct. This section is not intended to preclude a governmental entity from
enforcing its police and regulatory powers.
Section 11.9 of the Plan - Title to Assets; Discharge of Liabilities:
Upon the transfer of the Sealed Air Payment into the Asbestos Trust, and the
transfer of the Debtors' Payment into the Asbestos Trust, each such transfer
shall be vested in the Asbestos Trust free and clear of all Claims, Equity
Interests, Encumbrances, and other interests of any Entity. Except as otherwise
provided in the Plan and in accordance with Bankruptcy Code Section 1123(b)(3),
on the Effective Date, title to all of the Debtors' assets and properties and
interests in property, including the Retained Causes of Action, shall vest in
the Reorganized Debtors free and clear of all Claims, Equity Interests,
Encumbrances, and other interests, and the Confirmation Order shall be a
judicial determination of discharge of the liabilities of the Debtors.
Section 11.10 of the Plan - Notices: Any notices, statements,
requests, and demands required or permitted to be provided under the Plan, in
order to be effective, must be: (i) in writing (including by facsimile
transmission), and unless otherwise expressly provided in the Plan, shall be
deemed to have been duly given or made (A) if personally delivered or if
delivered by facsimile or courier service, when actually received by the Entity
to whom notice is sent, (B) if deposited with the United States Postal Service
(but only when actually received), at the close of business on the third
business day following the day when placed in the mail, postage prepaid,
certified or registered with return receipt requested, or (C) one (1) Business
Day after being sent to the recipient by reputable overnight courier service
(charges prepaid) (but only when actually received) and (ii) addressed to the
appropriate Entity or Entities to whom such notice, statement, request or demand
is directed (and, if required, its counsel), at the address of
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EXHIBIT 99.1
such Entity or Entities set forth in the Plan (or at such other address as such
Entity may designate from time to time by written notice to all other Entities
listed below in accordance with Section 11.10 of the Plan).
Section 11.15 of the Plan - Exemption from Transfer Taxes: Pursuant to
Bankruptcy Code Section 1146(c), the issuance, transfer, or exchange of notes or
equity securities under the Plan, the creation of any mortgage, deed of trust,
or other security interest, the making or assignment of any lease or sublease,
or the making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan shall be exempt from all taxes as
provided in Bankruptcy Code Section 1146(c).
5. LIMITED SUBSTANTIVE CONSOLIDATION
On the Effective Date, each of the Debtors' estates will be
substantively consolidated pursuant to Bankruptcy Code Section 105(a) for the
limited purposes of allowance, treatment and Distribution under the Plan. As a
result of the substantive consolidation, on the Effective Date, all property,
rights and Claims of the Debtors will be deemed pooled for purposes of
allowance, treatment and Distributions under the Plan.
As set forth in Section 7.13 of the Plan, the Plan does not
contemplate the merger or dissolution of any Debtor which is currently operating
or which currently owns operating assets or the transfer between Debtors or
commingling of any assets of any Debtor. Such limited substantive consolidation
will not affect (other than for Plan voting, treatment and/or Distribution
purposes) (1) the legal and corporate structures of any Reorganized Debtor or
(2) Equity Interests in Debtors other than the Parent.
As a result of substantive consolidation, a Holder of Claims against
two or more of the Debtors arising from or relating to the same underlying debt
that would otherwise constitute Allowed Claims against two or more Debtors,
including Claims based on joint and several liability, contribution, indemnity,
subrogation, reimbursement, surety, guaranty, co-maker and similar concepts,
will have only one Allowed Claim on account of such Claims.
The Debtors believe that substantive consolidation is in the best
interests of the Debtors' estates and will promote a more expeditious and
streamlined distribution and recovery process for Claimants. In particular,
substantive consolidation of the Debtors' estates will result in (1) the deemed
consolidation of the assets and liabilities of the Debtors, (2) the deemed
elimination of multiple and duplicative creditor Claims and joint and several
liability Claims, and (3) the payment of Allowed Claims from a common pool of
assets. Substantive consolidation will relieve the Debtors from having to
litigate creditor Claims against multiple Debtors on the same liability, as only
one Claim will be deemed allowed and payable from one common pool of assets. The
Debtors estimate that there have been 1,032 duplicate proofs of Claim filed
against the Debtors' estates.
Substantive consolidation is an equitable doctrine that permits the
Court to merge the assets and liabilities of affiliated entities so that the
combined assets and liabilities are treated as though held by one entity. It is
well established that Bankruptcy Code Section 105(a), which provides, in
pertinent part, that the "court may issue any order, process, or judgment that
is necessary or
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EXHIBIT 99.1
appropriate to carry out the provisions of this title," empowers a bankruptcy
court to authorize substantive consolidation. The Bankruptcy Code also
contemplates consolidation in aid of reorganization. See 11 U.S.C. Section
1123(a)(5).
The Debtors have reviewed in detail the factors relevant to
substantive consolidation and believe that the facts in the Chapter 11 Cases
warrant substantive consolidation. Substantive consolidation is appropriate
because Grace-Conn. is the only Debtor that has substantial business, revenues
and assets. The Debtors believe that the facts supporting substantive
consolidation of the Debtors based on Debtors' corporate and management
structure include, but are not limited to, the following: (i) the Parent is the
ultimate parent and Grace-Conn. is the operating parent company for the other
Debtors as well as for the Non-Debtor Affiliates, and Grace-Conn. directly or
indirectly owns 100% of the Capital Stock of almost all of the Debtors; (ii)
almost all of the directors and officers of the Debtors are directors, officers
and/or employees of Grace-Conn.; (iii) under internal Grace guidelines, most
major non-ordinary course transactions by the Debtors must be approved by the
Parent's Board of Directors or members of senior management as well as by the
other Debtors' Boards of Directors; (iv) the Debtors file consolidated federal
tax returns, and joint or combined tax returns in a number of states; and (v)
the Debtors and the Non-Debtor Affiliates prepare and file consolidated
financial statements and SEC filings.
Substantive consolidation is also appropriate because Grace-Conn.
manages the Debtors and Non-Debtor Affiliates, performs substantially all work
related to the other Debtors and their assets, and pays substantially all their
expenses. The Debtors believe that the facts supporting substantive
consolidation of the Debtors based on Debtors' business operations include, but
are not limited to, the following: (i) Grace-Conn. owns substantially all of the
assets, conducts substantially all of the business, and realizes substantially
all of the revenues and earnings of the Debtors; (ii) most of the Debtors are
corporations whose assets were sold and whose operations were terminated before
the Petition Date; (iii) some of the Debtors own real property and immaterial
amounts of other property, but only a few Debtors conduct any business or have
their own employees or bank accounts; (iv) substantially all the administrative
work done with respect to the Debtors (for example, maintenance of property,
sale of assets, payment of taxes and other governmental fees and charges,
accounting and legal services) are provided by Grace-Conn. employees; and (v)
with the exception of a few Debtors with cash on hand or revenue from business
operations, leases, sales of property or intercompany loans, substantially all
the expenses of the Debtors are paid by Grace-Conn.
Based upon the foregoing, the Debtors believe that the Parent and all
of the other Debtors should be consolidated for Plan purposes.
6. VOTING AND CONFIRMATION PROCEDURES
6.1 VOTING PROCEDURES
The voting procedures summarized in this Article 6 were established in
the Confirmation Procedures Order. You should carefully read the Confirmation
Procedures Order. It establishes, among other things: (1) the deadlines,
procedures and instructions for voting to accept or reject the Plan, (2) the
applicable standards for tabulating Ballots and Master Ballots, (3) the deadline
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EXHIBIT 99.1
for filing objections to confirmation of the Plan, and (4) the date and time of
the Confirmation Hearing.
The Confirmation Procedures Order should be referred to if you have
any questions concerning the procedures described herein. If there are any
inconsistencies or ambiguities between this Disclosure Statement and the
Confirmation Procedures Order, the Confirmation Procedures Order will control.
6.1.1 VOTING INSTRUCTIONS AND DEADLINE
If one or more of your Claims and/or Equity Interests is in a voting
Class, you have obtained, or the Debtors' Voting Agent has sent, you one or more
Ballot(s) and/or Master Ballot(s) with return envelopes (WITHOUT POSTAGE
ATTACHED) for voting to accept or reject the Plan. The Plan Proponents urge you
to accept the Plan by completing, signing and returning the enclosed Ballot(s)
in the return envelope(s) (WITH POSTAGE AFFIXED BY YOU) to the Voting Agent as
follows:
IF BY HAND DELIVERY/COURIER: IF BY U.S. MAIL:
Bankruptcy Management Corporation Bankruptcy Management Corporation
1330 E. Franklin Avenue P.O. Box 913
El Segundo, CA 90245 El Segundo, CA 90245-0913
Attn: Grace Voting Agent Attn: Grace Voting Agent
o TO BE COUNTED, THE VOTING AGENT MUST RECEIVE YOUR COMPLETED
BALLOT AND/OR MASTER BALLOT NO LATER THAN 4:00 P.M., EASTERN
TIME, ON [__________], 2005 (THE "VOTING DEADLINE"). IF THE COURT
EXTENDS OR WAIVES THE PERIOD DURING WHICH VOTES WILL BE ACCEPTED
BY THE DEBTORS, THE TERM "VOTING DEADLINE" FOR SUCH SOLICITATION
SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH SOLICITATION IS
EXTENDED.
o ANY EXECUTED BALLOT OR COMBINATION OF BALLOTS REPRESENTING CLAIMS
OR EQUITY INTERESTS IN THE SAME CLASS HELD BY THE SAME HOLDER
THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE
PLAN OR THAT INDICATES BOTH AN ACCEPTANCE AND REJECTION OF THE
PLAN SHALL NOT BE COUNTED.
o ANY BALLOT OR MASTER BALLOT RECEIVED AFTER THE VOTING DEADLINE
SHALL NOT BE COUNTED.
Detailed voting instructions are printed on and/or accompany each
Ballot and/or Master Ballot. Any unsigned Ballot or Master Ballot, or any Ballot
or Master Ballot without an original signature, including any Ballot or Master
Ballot received by facsimile or other electronic means, or any Ballot or Master
Ballot with only a photocopy of a signature, will not be counted. Any Ballot or
Master Ballot that is properly completed and timely received will not be counted
if such Ballot or Master Ballot was sent in error to, or by, the voting party,
because the voting party did
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EXHIBIT 99.1
not have a Claim or Equity Interest that was entitled to be voted in the
relevant voting Class as of the Voting Record Date.
Whenever a Holder of a Claim or Equity Interest casts more than one
Ballot or Master Ballot voting the same Claim prior to the Voting Deadline, the
last valid Ballot or Master Ballot physically received by the Voting Agent prior
to the Voting Deadline will be deemed to reflect the voter's intent and thus
will supersede and replace any prior cast Ballot(s) or Master Ballot(s) and any
prior cast Ballot(s) or Master Ballot(s) will not be counted. The Debtors,
without notice, subject to contrary order of the Court, may waive any defect in
any Ballot or Master Ballot at any time, either before or after the close of
voting. Such determinations will be disclosed in the voting report and any such
determination by the Debtors will be subject to de novo review by the Court.
6.2 CONFIRMATION PROCEDURES
6.2.1 CONFIRMATION HEARING
Bankruptcy Code Section 1128(a) requires the Bankruptcy Court, after
notice, to hold a hearing on confirmation of the Plan. Bankruptcy Code Section
1128(b) provides that any party-in-interest may object to confirmation of the
Plan.
The Bankruptcy Court has set the Confirmation Hearing for [____:____
___. m.], Eastern Time on [________, 2005], in the United States Bankruptcy
Court, 824 Market Street, Wilmington, Delaware 19801. The Confirmation Hearing
may be adjourned, from time to time, without notice, other than an announcement
of an adjourned date at such hearing or an adjourned hearing, or by posting such
continuance on the Bankruptcy Court's docket.
6.2.2 OBJECTIONS TO CONFIRMATION OF THE PLAN
Any objections to confirmation of the Plan must be in writing (with
proposed changes to the Plan being marked for changes, i.e., blacklined against
the Plan), and must be filed with the Clerk of the Bankruptcy Court with a copy
to the Bankruptcy Court's chambers, together with a proof of service thereof,
and served on counsel for the Debtors and the Office of the United States
Trustee ON OR BEFORE [________________] at 5:00 P.M., Eastern Time. Bankruptcy
Rule 3020 governs the form of any such objection.
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EXHIBIT 99.1
COUNSEL ON WHOM OBJECTIONS MUST BE SERVED ARE:
COUNSEL FOR THE DEBTORS: COUNSEL FOR THE UNITED STATES TRUSTEE:
Kirkland & Ellis LLP Office of the United States Trustee
200 E. Randolph Drive 844 N. King Street, Second Floor
Chicago, Illinois 60601 Wilmington, Delaware 19801
Attn: Jonathan Friedland Attn: Frank Perch
Ryan B. Bennett
and
COUNSEL FOR EQUITY COMMITTEE:
Kirkland & Ellis LLP Kramer Levin Naftalis & Frankel LLP
777 South Figueroa Street, 37th Floor 919 Third Avenue
Los Angeles, California 90017 New York, NY 10022
Attn: Bennett L. Spiegel Attn: Phillip Bentley
Lori Sinanyan Gary M. Becker
CO-COUNSEL FOR THE DEBTORS: COUNSEL FOR UNSECURED CREDITORS'
Pachulski, Stang, Ziehl, Young, Jones & COMMITTEE:
Weintraub P.C. Stroock & Stroock & Lavan LLP
919 North Market Street, 16th Floor 180 Maiden Lane
P.O. Box 8705 New York, NY 10038-4982
Wilmington, Delaware 19899-8705 (courier 19801) Attn: Lewis Kruger
Attn: Laura Davis Jones Arlene Krieger
David W. Carickhoff, Jr. Kenneth Pasquale
COUNSEL FOR ASBESTOS PD COMMITTEE: COUNSEL FOR ASBESTOS PI COMMITTEE:
Bilzin Sumberg Baena Price & Axelrod LLP Caplin & Drysdale, Chartered
200 South Biscayne Blvd., Suite 2500 One Thomas Circle NW, Suite 1100
Miami, FL 33131-2336 Washington, D.C. 20005
Attn: Scott L. Baena Attn: Peter Van N. Lockwood
Jay Sackalo
COUNSEL FOR FUTURE CLAIMANTS' REPRESENTATIVE:
Swidler, Berlin, Shereff, Friedman LLP
The Washington Harbour
3000 K Street, NW, Suite 300
Washington, DC 20007
Attn: Roger Frankel
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED UPON COUNSELS FOR
THE DEBTORS, THE UNSECURED CREDITORS' COMMITTEE AND THE EQUITY COMMITTEE AND
PROPERLY FILED WITH THE BANKRUPTCY COURT, IT WILL NOT BE CONSIDERED BY THE
BANKRUPTCY COURT.
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EXHIBIT 99.1
6.2.3 QUESTIONS ABOUT THE DISCLOSURE STATEMENT, PLAN, OR BALLOTS
AND MASTER BALLOTS
You may address any questions you have about this Disclosure
Statement, the Plan or your Ballot(s) to general bankruptcy counsel for the
Debtors:
Jonathan P. Friedland
Ryan B. Bennett
Kirkland & Ellis LLP
200 E. Randolph Drive
Chicago, Illinois 60601
Tel.: (312) 861-2000
Fax: (312) 861-2200
7. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
7.1 BANKRUPTCY CODE Section 1129 GENERALLY
At the Confirmation Hearing, the Court will determine whether the
confirmation requirements of Bankruptcy Code Section 1129 have been satisfied.
If so, the Court will enter the Confirmation Order. The Debtors believe that the
Plan satisfies or will satisfy the applicable requirements for confirmation, as
follows:
o The Plan complies with the applicable provisions of the
Bankruptcy Code. See 11 U.S.C. Section 1129(a)(1).
o The Debtors, as proponents of the Plan, have complied with the
applicable provisions of the Bankruptcy Code. See 11 U.S.C.
Section 1129(a)(2).
o The Plan has been proposed in good faith and not by any means
forbidden by law. See 11 U.S.C. Section 1129(a)(3).
o Any payment made or promised by the Debtors, or by an Entity
acquiring property under the Plan, for services or for costs and
expenses in or in connection with the Chapter 11 Cases, or in
connection with the Plan and incident to the Chapter 11 Cases,
has been disclosed to the Court, and any such payment made before
the confirmation of the Plan is reasonable, or if such payment is
to be fixed after confirmation of the Plan, such payment is
subject to the approval of the Court as reasonable. See 11 U.S.C.
Section 1129(a)(4).
o The Debtors have disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as
a director, officer, or voting trustee of the Debtors, and the
appointment to, or continuance in, such office of such
individual, is consistent with the interests of Claimants and
Equity Holders and with public policy, and the Debtors have
disclosed the identity of any insider that will be employed or
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EXHIBIT 99.1
retained by the Reorganized Debtors, and the nature of any
compensation for such insider. See 11 U.S.C. Section 1129(a)(5).
o With respect to each Class of impaired Claims or Equity
Interests, either each Holder of a Claim or Equity Interest of
such Class has accepted the Plan, or will receive or retain under
the Plan on account of such Claim or Equity Interest property of
a value, as of the Effective Date of the Plan, that is not less
than the amount that such Holder would so receive or retain if
the Debtors were liquidated on such date under chapter 7 of the
Bankruptcy Code; or if Bankruptcy Code Section 1111(b)(2) applies
to the Claims of such Class, each Holder of a Claim will receive
or retain under the Plan on account of such Claim property of a
value, as of the Effective Date of the Plan, that is not less
than the value of such Holder's interest in the Debtors' estates'
interest in the property that secures such Claims. See 11 U.S.C.
Section 1129(a)(7).
o Each Class of Claims or Equity Interests that is entitled to vote
on the Plan has either accepted the Plan or is not Impaired under
the Plan, or the Plan can be confirmed without the approval of
each voting Class pursuant to section 1129(b) of the Bankruptcy
Code. (See Disclosure Statement Sections 7.7.1 & 7.2.1.) See 11
U.S.C. Section 1129(a)(8).
o Except to the extent that the Holder of a particular Claim has
agreed to a different treatment of such Claim and subject to the
Fresenius Settlement Agreement, the Plan provides that Allowed
Administrative Expense Claims and Allowed Priority Claims will be
paid in full on the Effective Date, or as reasonably practicable
thereafter, and that Allowed Priority Tax Claims will receive, on
account of such Allowed Claims, payment in full on the Effective
Date or as reasonably practicable thereafter, or deferred cash
payments plus interest, over a period not exceeding six years
after the date of assessment of such Claim, of a value, as of the
Effective Date, equal to the Allowed amount of such Claim. See 11
U.S.C. Section 1129(a)(9).
o At least one Class of impaired Claims has accepted the Plan,
determined without including any acceptance of the Plan by any
insider holding a Claim of such Class. See 11 U.S.C. Section
1129(a)(10).
o Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of
the Debtors or any successor to the Debtors under the Plan,
unless such liquidation or reorganization is proposed in the
Plan. See 11 U.S.C. Section 1129(a)(11).
o The Plan must provide that the quarterly fees required under 28
U.S.C. Section 1930 have been paid or that they will be paid on
the Effective Date of the Plan. See 11 U.S.C. Section
1129(a)(12).
o The Plan must provide for the continuation after the Effective
Date of payment of all retiree benefits (as that term is defined
in Bankruptcy Code Section 1114) at the level established
pursuant to Bankruptcy Code Section 1114(e)(1)(B) or Section
1114(g), at any time
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EXHIBIT 99.1
prior to confirmation of the Plan, for the duration of the period
the Debtor has obligated itself to provide such benefits. See 11
U.S.C. Section 1129(a)(13).
Bankruptcy Code Section 524(g) further provides that, in order for the
Asbestos Channeling Injunction to be enforceable, the Plan must provide for a
section 524(g) trust that will, among other things:
o assume the liabilities of a debtor which at the time of entry of
the order for relief has been named as a defendant in personal
injury, wrongful death, or property damage actions seeking
recovery for damages allegedly caused by the presence of, or
exposure to, asbestos or asbestos-containing products; see
Bankruptcy Code Section 524(g)(2)(B)(i)(I)
o be funded in whole or in part by the securities of one (1) or
more debtors involved in the Plan and by the obligation of such
debtor or debtors to make future payments, including dividends;
see Bankruptcy Code Section 524(g)(2)(B)(i)(II)
o own, or by the exercise of rights granted under the Plan would be
entitled to own if specified contingencies occur, a majority of
the voting shares of -
o each such debtor;
o the parent corporation of each such debtor; or
o a subsidiary of each such debtor that is also a debtor; see
Bankruptcy Code Section 524(g)(2)(B)(i)(III) and
o is to use its assets or income to pay Claims and Demands; see
Bankruptcy Code Section 524(g)(2)(B)(i)(IV).
The Debtors believe that the Plan satisfies all of the statutory
requirements of Bankruptcy Code Sections 1129 and 524(g).
7.2 VOTE REQUIRED FOR CLASS ACCEPTANCE
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by holders of two-thirds in dollar amount and more than one-half
in number of the claims of that class which actually cast ballots for acceptance
or rejection of the plan, i.e., acceptance takes place only if two-thirds in
amount and a majority in number of the holders of claims in a given class
actually voting cast their ballots in favor of acceptance. The Bankruptcy Code
defines acceptance of a plan by a class of equity interest holders as acceptance
by holders of two-thirds in amount of the interests of that class which actually
cast ballots for acceptance or rejection of the plan.
Bankruptcy Code Section 524(g) further provides that any separate
class or classes of the claimants whose claims are to be addressed by a section
524(g) trust must vote, by at least 75 percent of those voting, in favor of the
plan.
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EXHIBIT 99.1
If a plan is confirmed, then holders of Claims against, or equity
interests in, the debtor, whether voting or non-voting and, if voting, whether
accepting or rejecting the Plan, are bound by the terms of the plan, including
any injunction(s) under Bankruptcy Code Sections 524(g) and/or 105(a).
7.2.1 CRAMDOWN
Generally, under the Bankruptcy Code, a plan of reorganization must be
approved by each impaired class of creditors. The Court, however, may confirm a
plan that has not been approved by each impaired class if at least one impaired
class accepts the plan by the requisite vote and the Court determines that the
plan "does not discriminate unfairly" and is "fair and equitable" with respect
to each class that is impaired and has not accepted the plan. This is often
referred to as "cramming down" on a Class.
A plan of reorganization does not discriminate unfairly within the
meaning of the Bankruptcy Code if each dissenting class is treated equally with
other classes of equal rank. The phrase "fair and equitable" has different
meanings depending on whether it is being used with respect to the treatment of
secured Claims, unsecured Claims and equity interests.
As set forth in Bankruptcy Code Section 1129(b)(2), the condition that
a plan of reorganization be fair and equitable with respect to a class includes
the following requirements:
(A) With respect to a class of secured claims, the plan provides--
(i) (I) 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
(II) that each holder of a claim of such class receive 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;
(ii) for the sale, subject to section 363(k) of this title, of
any property that is subject to the liens securing such claims,
free and clear of such liens, with such liens to attach to the
proceeds of such sale, and the treatment of such liens on
proceeds under clause (i) or (iii) of this subparagraph; or
(iii) for the realization by such holders of the indubitable
equivalent of such claims.
(B) With respect to a class of unsecured claims--
(i) 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
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EXHIBIT 99.1
(ii) 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.
(C) With respect to a class of interests--
(i) The plan provides that each holder of an interest of such
class receive or retain on account of such interest property of a
value, as of the effective date of the plan, equal to the
greatest of the allowed amount of any fixed liquidation
preference to which such holder is entitled, any fixed redemption
price to which such holder is entitled, or the value of such
interest; or
(ii) The holder of any interest that is junior to the interests
of such class will not receive or retain under the plan on
account of such junior interest any property.
In the event one or more Classes of impaired Claims or Equity
Interests rejects the Plan, the Debtors reserve the right to proceed with
confirmation pursuant to Bankruptcy Code Section 1129(b), and the Court will
determine, at the Confirmation Hearing, whether the Plan is fair and equitable
and does not discriminate unfairly against any rejecting impaired Class of
Claims or Equity Interests.
7.3 FEASIBILITY OF THE PLAN
To confirm the Plan, the Court must find that confirmation of the Plan
is not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtors. This requirement is imposed by
Bankruptcy Code Section 1129(a)(11) and is referred to as the "feasibility"
requirement. The Debtors believe that they will be able to timely perform all
obligations described in the Plan and, therefore, that the Plan is feasible.
The Debtors filed their original Schedules and Statements of Financial
Affairs on June 1, 2001 (the "SOFA"). The Debtors filed amendments and
supplements to the SOFA on August 19, 2001, September 3, 2002 and February 11,
2003.
The Debtors have filed Monthly Operating Reports since the Petition
Date and the Parent regularly files form 10-Ks, 10-Qs, and 8-Ks with the SEC
which are available at www.grace.com or www.sec.gov. Summary Financial
Information of Grace for the fiscal years ended December 31, 2001, December 31,
2002 and December 31, 2003 is included in the Exhibit Book as part of the
Financial Information. This summary Financial Information reflects, on a
consolidated basis, the activities of the Debtors and certain Non-Debtor
Affiliates.
To demonstrate the feasibility of the Plan, the Debtors have prepared
the proforma and prospective financial information for the Reorganized Debtors
and the Non-Debtor Affiliates that is outlined in Exhibit 4 in the Exhibit Book,
with such information presented on a consolidated basis for the fiscal years
2004, 2005 and 2006 taking into account the anticipated financial impact of the
Plan. Claimants are advised to review these documents to fully understand the
assets and liabilities of the Reorganized Debtors and the Non-Debtor Affiliates.
The
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EXHIBIT 99.1
Reorganized Debtors and the Non-Debtor Affiliates have used their books and
records, knowledge and experience, and opinions of accountants and counsel to
provide the financial and other business-related information set forth in this
Disclosure Statement.
As explained more fully in Article 5 herein, each of the Debtors'
estates will be substantively consolidated pursuant to Bankruptcy Code Section
105(a) for the limited purposes of allowance, treatment and distributions under
the Plan. As a result of the substantive consolidation, on the Effective Date,
all property, rights and Claims of the Debtors will be deemed pooled for
purposes of allowance, treatment and Distributions under the Plan.
The Financial Information has been prepared in conformity with U.S.
generally accepted accounting principles ("GAAP") consistent with those
currently utilized by Grace in the preparation of its consolidated financial
statements except as otherwise noted. However, the proforma and prospective
financial information has not been audited by registered independent public
accountants.
The proforma and prospective financial information are based upon a
variety of assumptions subject to significant business, economic and competitive
uncertainties, contingencies and risks, many of which are beyond the control of
the Debtors. Consequently, the proforma and prospective financial information
should not be regarded as a representation or warranty by the Debtors or by any
other Entity that the proforma or prospective financial information or measures
will be realized. Such information should not be relied upon in making any
investment decisions with respect to Parent Common Stock or otherwise. Actual
results may vary materially from those presented and the variations may be
adverse.
7.4 BEST INTERESTS TEST
Bankruptcy Code Section 1129(a)(7) requires that even if a plan is
accepted by a class of creditors or equity interest holders, the Bankruptcy
Court must nonetheless determine that the plan is in the "best interests" of any
class of creditors or equity interest holders that are impaired by the plan. The
"best interests" test requires that the Bankruptcy Court find either that (i)
all members of an impaired class have accepted the plan or (ii) the plan will
provide the holder of a Claim or Equity Interest in such class a distribution of
a value, as of the effective date of the plan, that is at least equal to what
such holder would receive in a hypothetical liquidation of the debtor under
Chapter 7 of the Bankruptcy Code.
The Best Interests Analysis, which can be found in Exhibit 3 in the
Exhibit Book, was prepared by the Debtors with the assistance of Blackstone and
is based on numerous assumptions and estimates. The Best Interests Analysis
shows that Holders of General Unsecured Claims would receive an estimated
Distribution of 55% to 93% on their Claims under a Chapter 7 liquidation while
such Holders would receive an estimated 100% Distribution under Chapter 11. The
Unsecured Creditors' Committee, based on assumptions and estimates certain of
which differ from those of the Debtors and their professionals, estimates that
proceeds realized in a hypothetical Chapter 7 liquidation may be greater than
those presented in the Best Interests Analysis, and in the high scenario, might
result in net proceeds exceeding those necessary to pay a 100% Distribution to
the Holders of Allowed General Unsecured Claims.
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EXHIBIT 99.1
7.5 INFORMATION ABOUT CORPORATE GOVERNANCE, OFFICERS, AND DIRECTORS
OF THE REORGANIZED DEBTORS, AND THE MANAGEMENT OF THE DEBTORS
7.5.1 CORPORATE GOVERNANCE; LIMITATION OF DIRECTOR LIABILITY
The Certificate of Incorporation or Articles of Incorporation, as
applicable, of each of the Debtors that is a corporation will be amended as of
the Effective Date to among other things, (i) prohibit the issuance of nonvoting
equity securities as required by Bankruptcy Code Section 1123(a)(6), and be
subject to further amendment as permitted by applicable law, (ii) as to any
classes of securities possessing voting power, provide for an appropriate
distribution of such power among such classes, including, in the case of any
class of equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the election of
directors representing such preferred class in the event of default in payment
of such dividends, (iii) include, in the case of the Parent, restrictions on the
transfer of Parent Common Stock as necessary to protect the Reorganized Debtors'
tax position, and (iv) effectuate any other provisions of the Plan. The amended
Certificates of Incorporation or Articles of Incorporation, as applicable, will
be filed with the Secretary of State or equivalent official in their respective
jurisdictions of incorporation on or prior to the Effective Date and be in full
force and effect without any further amendment as of the Effective Date.
The restrictions on stock transfers in order to protect the
Reorganized Debtors' tax position will include a three (3) year prohibition,
waivable by the Parent's Board of Directors, on (i) any Entity other than the
Asbestos Trust acquiring after the Effective Date an amount of shares of the
Parent Common Stock that would cause such Entity to become a Holder of 4.75% or
more of the Parent Common Stock, and (ii) any Entity that as of the Effective
Date holds 4.75% or more of the Parent Common Stock from increasing its
ownership of the Parent Common Stock. In addition, any Parent Common Stock held
by the Asbestos Trust will not be transferable for a period of at least three
(3) years after the Effective Date. Other restrictions will apply with respect
to the Warrants held by the Asbestos Trust, including a prohibition on the
Asbestos Trust exercising an amount of Warrants greater than 50% of its total
Warrants for a period of at least three (3) years after the Effective Date.
7.5.2 MANAGEMENT COMPENSATION AND INCENTIVE PROGRAM
Pursuant to Bankruptcy Code Section 1129(a)(5), the Debtors will
disclose, prior to the Confirmation Hearing, the identity of any individuals
proposed to serve, after confirmation of the Plan, as a director or officer of
the Reorganized Debtors and, if that person is an insider, the nature of any
compensation for such insider. The Debtors recently announced that Paul J.
Norris will step down as Chief Executive Officer effective May 31, 2005, but
will remain on the Board of Directors as non-executive chairman. A.E. Festa,
currently the Debtors' President and Chief Operating Officer, will succeed
Norris as Chief Executive Officer.
Currently, the total compensation package that the Debtors' directors,
officers and key employees receive includes base salary, annual bonus
opportunities, long-term cash incentives and other benefits. Certain officers
and employees are also beneficiaries of a key employee retention program.
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EXHIBIT 99.1
It is anticipated that the total compensation for the Debtors'
directors, officers and key employees after confirmation of the Plan will
continue to include base salary, annual bonus and long term stock and cash
incentives and other benefits in accordance with the ordinary business policies
of the Debtors.
The Debtors anticipate that the value of long term incentive awards
issued after the Effective Date will be consistent with the Debtors' past
practices. The Debtors expect that such awards, which have been payable 100% in
cash during the Chapter 11 Cases, will be payable, at least partially, in
restricted stock or stock options of the Reorganized Parent, in accordance with
a Management Stock Incentive Plan, the key terms of which are presently being
finalized but will be disclosed prior to solicitation of votes on the Plan. Such
compensation is included in the projections and accordingly incorporated into
the fully diluted reorganized equity value as further described in Section 2.8
of this Disclosure Statement.
7.5.3 TAIL COVERAGE POLICIES FOR OFFICERS AND DIRECTORS
Pursuant to the Section 7.1.3 of the Plan, the Reorganized Debtors
will obtain sufficient tail coverage for a maximum period of six years under
both directors' and officers' insurance policies and fiduciary liability
policies, which will cover the Debtors, as well as the Debtors' current and
former officers, directors, and employees. The Debtors have determined that this
insurance is necessary to protect the releases provided in the Plan. Further,
pursuant to Section 8.7.1 of the Plan, the Reorganized Debtors have an
obligation to indemnify these parties for certain payments covered by the tail
insurance. Therefore, without such insurance, if the Debtors' current and/or
former directors, officers and/or employees were sued after the Effective Date,
the Reorganized Debtors could be required to satisfy such indemnification
claims.
8. IMPORTANT CONSIDERATIONS AND RISK FACTORS
8.1 GENERAL
The following provides a summary of various important considerations
and risk factors associated with the Plan. However, it is not exhaustive. In
considering whether to vote for or against the Plan, Holders of Claims or Equity
Interests should read and carefully consider the factors set forth below, as
well as all other information set forth or otherwise referenced in this
Disclosure Statement.
8.2 CERTAIN BANKRUPTCY AND MASS TORT LAW CONSIDERATIONS
8.2.1 PARTIES IN INTEREST MAY OBJECT TO THE DEBTORS'
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Bankruptcy Code Section 1122 provides that a plan of reorganization
may place a class or an equity interest in a particular class only if such claim
or equity interest is substantially similar to the other claims or equity
interests in such class. The Debtors believe that the classification of Claims
and Equity Interests under the Plan complies with the requirements set forth in
the Bankruptcy Code because the Debtors created eleven classes of Claims and
Equity Interests, each encompassing Claims or Equity Interests that are
substantially similar to the other Claims or Equity Interests in each such
class. For example, Class 1 comprises all Claims accorded priority
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EXHIBIT 99.1
in right to payment under Bankruptcy Code Section 507(a) other than Priority Tax
Claims or Administrative Claims. There can be no assurance, however, that the
Bankruptcy Court will reach the same conclusion.
8.2.2 A DELAY IN PLAN CONFIRMATION MAY DISRUPT GRACE'S OPERATIONS
AND HAVE POTENTIAL ADVERSE EFFECTS OF PROLONGED
CONFIRMATION PROCESS
A prolonged confirmation process could adversely affect the Debtors'
relationships with their customers, suppliers, and employees, which, in turn,
could adversely affect the Debtors' competitive position, financial condition,
and results of operations. Such developments could, in turn, adversely affect
the price of the Parent Common Stock, and hence the value to Holders of Equity
Interests and the value of assets available to satisfy Holders of Allowed
Claims.
8.2.3 THE DEBTORS MAY NOT BE ABLE TO SECURE CONFIRMATION OR
CONSUMMATION OF THE PLAN
There can be no assurance that the Plan will be accepted by the
required number of Claimants who hold a sufficient amount of Claims and Equity
Interests. Although the Debtors believe that the Plan will satisfy all
requirements necessary for Confirmation, there can be no assurance that the
Bankruptcy Court will reach the same conclusion. Moreover, there can be no
assurance that modifications of the Plan will not be required for confirmation
or that such modifications would not necessitate the resolicitation of votes.
There is no assurance that the Court will approve the Plan as satisfying the
requirements of Bankruptcy Code Section 1129. Notwithstanding Court approval, it
is possible that the Plan may not be consummated because of other external
factors that may adversely affect the implementation of the Plan.
8.2.4 THERE IS A RISK OF POST-CONFIRMATION DEFAULT
At the Confirmation Hearing, the Court will be required to make a
judicial determination that the Plan is feasible, but that determination does
not serve as any guarantee that there will not be any post-confirmation
defaults. The Debtors believe that the cash flow generated from operations and
insurance proceeds will be sufficient to meet Reorganized Grace's operating
requirements, its obligations under the Exit Financing, and other
post-confirmation obligations under the Plan. Reorganized Grace's projected
operating cash flow is set forth in the Debtors' prospective financial
information that is included as Exhibit 4 in the Exhibit Book.
8.2.5 THE DEBTORS MAY OBJECT TO THE AMOUNT OR CLASSIFICATION OF A
CLAIM
Except as otherwise provided in the Plan and the Final DIP Order
(Docket No. 194), the Debtors reserve the right to object to the amount or
classification of any Claim or Equity Interest deemed Allowed under the Plan.
The estimates set forth in this Disclosure Statement cannot be relied on by any
Holder of a Claim or Equity Interest where such Claim or Equity Interest is
subject to an objection. Any Holder of a Claim may not receive its specified
share of the estimated distributions described in this Disclosure Statement.
8.2.6 THE POTENTIAL IMPACT OF PENDING ASBESTOS LEGISLATION IS
UNCERTAIN
Legislation currently is pending before the United States Congress
that, if enacted, could affect the rights and obligations of companies with
asbestos liabilities. The exact terms of the
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EXHIBIT 99.1
legislation are still the subject of negotiation, however, and it is uncertain
how, if at all, such legislation would impact the Debtors, Holders of Claims,
Holders of Equity Interests, or any other parties that may be affected by the
Chapter 11 Cases.
8.2.7 EXEMPTION FROM REGISTRATION REQUIREMENTS OF APPLICABLE
FEDERAL SECURITIES LAWS MAY NOT BE AVAILABLE
There are several securities law considerations that parties should
bear in mind. These are discussed at length in Article 11 of this Disclosure
Statement.
8.3 FACTORS AFFECTING THE DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS
AFTER THE EFFECTIVE DATE
8.3.1 THE DEBTORS DISCLAIM ACCURACY OF FINANCIAL INFORMATION
PROVIDED
Although the Debtors have used their reasonable best efforts to ensure
the accuracy of the financial information provided in this Disclosure Statement,
some of the financial information contained in this Disclosure Statement has not
been audited and is based upon an analysis of data available at the time of the
preparation of the Plan and this Disclosure Statement. While the Debtors believe
that such financial information fairly reflects the financial condition of the
Debtors, the Debtors are unable to warrant or represent that the information
contained herein and attached hereto is without inaccuracies.
The Unsecured Creditors' Committee and the Equity Committee, and their
respective legal and financial advisors, have not taken any independent action
to verify the accuracy or completeness of the financial or other information
included in this Disclosure Statement, including any financial projections, and
expressly disclaim any representation or warranty, express or implied,
concerning the accuracy or completeness thereof.
8.3.2 VARIANCE FROM THE PROFORMA AND PROSPECTIVE FINANCIAL
INFORMATION
The Debtors' management currently believes that (i) the proforma
financial information included as Exhibit 4 in the Exhibit Book is a reasonable
presentation of the accounting effects of the Plan, as if the Plan were in
effect at the end of, and for, the periods presented; and (ii) the prospective
financial information included in the Exhibit Book is a reasonable estimate of
the collective future of the Reorganized Debtors and the Non-Debtor Affiliates.
Unanticipated events and circumstances occurring subsequent to the preparation
of the Reorganized Debtors' and the Non-Debtor Affiliates' collective proforma
and prospective financial information may affect the actual accounting effects
of the Plan and/or the actual financial results of Reorganized Grace. Although
the Debtors' management believes that the accounting effects of the Plan
reflected in Reorganized Grace's proforma financial information, and the
performance reflected in Reorganized Grace's prospective financial information,
are reasonable and attainable, some or all of the estimates may differ from
actual results, and the actual proforma effects, and/or the actual future
financial results, may be materially worse than the estimated effects and
results.
In particular, the proforma and prospective financial information
included in the Exhibit Book are each based upon numerous assumptions regarding
(1) the confirmation and consummation of the Plan in accordance with its terms,
(2) the anticipated future performance of
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EXHIBIT 99.1
Reorganized Grace, (3) the tax consequences of the Plan, (4) general business
and economic conditions, (5) certain other matters, many of which are beyond the
control of the Debtors. There is no assurance that such assumptions will prove
to be valid. The effect of any variance from the proforma and prospective
financial information may be material and adverse.
8.3.3 RISK THAT AMOUNTS OF ALLOWED CLAIMS WILL EXCEED THE
DEBTORS' PROJECTIONS
The Allowed Amount of Administrative Expense Claims, Priority Tax
Claims, and Claims in Class 1, Class 2, Class 3, Class 4, Class 5, and Class 9
could be more than projected, which, in turn, would impair the value of Parent
Common Stock.
8.3.4 RISK REGARDING THE SOLVENT INSURANCE CARRIERS
Grace's ultimate recovery of insurance proceeds may be effected by the
financial status of the remaining solvent insurance carriers and the number,
nature and amount of individual Allowed Asbestos Claims.
8.4 FACTORS AFFECTING THE PARENT COMMON STOCK
The Parent Common Stock is traded on the New York Stock Exchange
(Ticker: GRA). Pursuant to the provisions of the Plan, that common stock will
not be cancelled and will remain outstanding (although Equity Interests will be
impaired by the issuance of additional shares and Warrants, and will thus be
entitled to vote on the Plan).
The estimate of the range of the reorganized equity value set forth in
Section 2.8 (Estimated Value of the Reorganized Debtors and Non-Debtor
Affiliates) of this Disclosure Statement or elsewhere in the Plan Documents does
not purport to be an estimate reflective of the pre- or post-reorganization
trading value of the Parent Common Stock. The estimate reflective of the range
of the fully diluted reorganized equity value per share ascribed herein, or
elsewhere in the Plan Documents, may or may not correlate with the actual
trading price (if any) of Parent Common Stock on the New York Stock Exchange. It
represents hypothetical reorganized values based on numerous assumptions. The
estimated values set forth herein do not necessarily reflect values that could
be attainable in public or private markets, and do not consider market trading
characteristics, trading limitations possibly imposed on the Parent Common
Stock, or perceptions in public or private markets about the Reorganized Debtors
and/or Non-Debtor Affiliates that may affect the trading price of Parent Common
Stock.
Holders' interests in the Parent Common Stock are subject to dilution
by, among other things, additional shares of Parent Common Stock issued under
the Plan and possible exercise of the Warrants issued under the Plan, and may be
further impacted by future payments by Reorganized Grace.
8.4.1 THE REORGANIZED DEBTORS MAY NOT BE ABLE TO ACHIEVE
PROJECTED FINANCIAL RESULTS
The Reorganized Debtors may not be able to meet their projected
financial results or achieve the revenue or cash flow that they have assumed in
projecting future business prospects. If the Reorganized Debtors do not achieve
these projected revenue or cash flow levels, they may
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EXHIBIT 99.1
lack sufficient liquidity to continue operating as planned after the Effective
Date. The Debtors' financial projections represent management's view based on
current known facts and hypothetical assumptions about the Reorganized Debtors'
future operations. However, the Projections set forth herein do not guarantee
the Reorganized Debtors' future financial performance.
8.4.2 THE REORGANIZED DEBTORS MAY NOT BE ABLE TO MEET
POST-REORGANIZATION DEBT OBLIGATIONS AND FINANCE ALL
OPERATING EXPENSES, WORKING CAPITAL NEEDS AND CAPITAL
EXPENDITURES
To the extent the Reorganized Debtors are unable to meet their
projected financial results or achieve projected revenues and cash flows, the
Reorganized Debtors may be unable to service their debt obligations as they come
due or to meet the Reorganized Debtors' operational needs. Such a failure may
preclude the Reorganized Debtors from developing or enhancing their products,
taking advantage of future opportunities, growing their business or responding
to competitive pressures.
8.4.3 CERTAIN TAX IMPLICATIONS OF THE DEBTORS' BANKRUPTCY AND
REORGANIZATION MAY INCREASE THE TAX LIABILITY OF THE
REORGANIZED DEBTORS
Holders of Claims should carefully review Article 10 (Federal Income
Tax Consequences of the Plan) to determine how the tax implications of the Plan
and these Chapter 11 Cases may adversely affect the Reorganized Debtors.
Holders of Claims should also be aware that if, as described in
Section 2.5.2 (Fraudulent Transfer Litigation), the IRS successfully asserts
that the Sealed Air Payment gives rise to taxable income to the Debtors without
any offsetting deductions, the NOLs available to the Reorganized Debtors would
be substantially reduced. Any such reduction in NOLs could adversely impact the
Reorganized Debtors' cash flow and thus, the value of the Parent Common Stock.
8.5 FACTORS ASSOCIATED WITH THE BUSINESS
There are many business factors that create risks for the Debtors'
current business operations, as well as Reorganized Grace's future operations.
These risks include the following:
o loss of senior management and other key employees;
o greater than expected liabilities for environmental
remediation;
o a decline in worldwide oil consumption or the development of
new methods of oil refining;
o increases in the price of raw materials and energy costs;
o consolidation of major customers, which could increase
customer purchasing power, thereby putting pressure on
operating profits;
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EXHIBIT 99.1
o inability to gain customer acceptance, or slower than
anticipated acceptance, of new products or product
enhancements;
o changes in environmental regulations or societal pressures
that make Grace's business operations more costly or that
change the types of products used by customers, especially
petroleum-based products;
o slower than anticipated economic advances in less developed
countries;
o foreign currency devaluations in developing countries or
other adverse changes in currency exchange rates (in
particular, the U.S. dollar to Euro exchange rate);
o technological breakthroughs rendering a product, a class of
products, or a line of business obsolete;
o inability to adapt to continuing technological improvements
or operating strategies by competitors or customers;
o inability to adapt to other improvements made by direct or
indirect competitors;
o acquisition (through theft or other unlawful means) or use
by others of Grace's proprietary technology and other
know-how; and
o an adverse change in relations with employees and/or labor
unions.
8.5.1 REORGANIZED GRACE MAY NOT OBTAIN POST-CONFIRMATION
FINANCING
The Plan envisions that Reorganized Grace will obtain Exit Financing.
There is no guarantee that Reorganized Grace will be able to obtain such Exit
Financing, or obtain it on the terms contemplated by the proforma and
prospective financial information.
8.6 FACTORS AFFECTING THE ASBESTOS TRUST
8.6.1 RISK THAT THE ASBESTOS TRUST WILL NOT BE ABLE TO PAY ALL
ALLOWED CLAIMS
Even if the Plan is confirmed and consummated, Claimants and Holders
of Equity Interests should be aware of certain risks associated with
confirmation and the ability of the Debtors to perform under the Plan. The Plan
provides that the Asbestos Trust will pay all Allowed Asbestos Claims. The Plan
further provides that the Asbestos Trust will be funded by: (1) $512.5 million
in cash, plus interest thereon from December 21, 2002 until the Effective Date,
at a rate of 5.5% per annum compounded annually, paid by Cryovac Inc., (2) 9
million shares of Sealed Air Common Stock (subject to antidilution adjustments
outlined in the Sealed Air Settlement Agreement), (3) Parent Common Stock in an
amount to be determined, and (4) Warrants exercisable for additional Parent
Common Stock, which, together with the Parent Common Stock being issued under
the Plan, could represent up to an aggregate of 50.1% of the voting shares of
the Parent. There is no guarantee that the value of Sealed Air Common Stock or
Parent Common Stock will not decline such that the Asbestos Trust will not be
able to pay all
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EXHIBIT 99.1
Allowed Asbestos Claims, as provided in the Plan. Finally, the amount of Allowed
Asbestos Claims could be significantly more than estimated by the Court.
8.6.2 RISK OF APPOINTING DIFFERENT TRUSTEES FOR THE ASBESTOS
TRUST
At the Confirmation Hearing, the Debtors will request that the Court
appoint certain individuals to be designated prior to the Confirmation Hearing
as the three initial Trustees of the Asbestos Trust. However, the Court may
reject one or more of the proposed Trustees. If the Court rejects the nomination
of a Trustee, another person would need to be designated, which may delay the
Effective Date of the Plan. The selection of different Trustees also could
impact administration of the Asbestos Trust.
8.7 RISK THAT THE INFORMATION IN THIS DISCLOSURE STATEMENT MAY BE
INACCURATE
The statements contained in this Disclosure Statement are made by the
Debtors as of the date hereof, unless otherwise specified herein, and the
delivery of this Disclosure Statement after that date does not imply that there
has not been a change since that date in the information set forth herein. The
Debtors may subsequently update the information in this Disclosure Statement,
but they have no duty to update this Disclosure Statement unless ordered to do
so by the Court. Further, the proforma and prospective financial information
contained herein, unless otherwise expressly indicated, is unaudited. Finally,
neither the SEC nor any other governmental authority has passed upon the
accuracy or adequacy of this Disclosure Statement, the Plan, or any Exhibits in
the Exhibit Book.
This financial information contains certain statements that are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to a number of
assumptions, risks and uncertainties, many of which are beyond the control of
the Debtors, including the implementation of the Plan, existing and future
governmental regulations, the continuing availability of sufficient borrowing
capacity or other financing to fund operations, currency exchange rate
fluctuations, natural disasters, terrorist actions or acts of war, operating
efficiencies, labor relations, actions of governmental bodies and other market
and competitive conditions. Holders of Claims and/or Equity Interests are
cautioned that the forward-looking statements speak as of the date made and are
not guarantees of future performance. Actual results or developments may differ
materially from the expectations expressed or implied in the forward-looking
statements and the Debtors undertake no obligation to update any such
statements.
9. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Plan Proponents believe that the Plan affords the Holders of
Claims and Equity Interests the potential for the greatest realization on their
Claims and Equity Interests and, therefore, is in the best interest of such
Holders. If the Plan is not confirmed, however, the theoretical alternatives
include (1) continuation of the pending Chapter 11 Cases, (2) alternative plans
of reorganization, or (3) liquidation of the Debtors under chapter 7 of the
Bankruptcy Code.
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EXHIBIT 99.1
9.1 CONTINUATION OF THE CHAPTER 11 CASES
If the Debtors remain in Chapter 11 and the Plan, as currently
proposed, is not confirmed within the time period projected, the Debtors could
continue to operate their businesses and manage their properties as Debtors in
Possession. However, the value of assets and cash flow could be affected by the
expenses of operating under Chapter 11 of the Bankruptcy Code for a further
extended period of time. Such delay may significantly reduce the recoveries
received by Claimants and Equity Interest Holders under any future plan of
reorganization.
9.2 ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, it is possible that any other party in
interest in the Chapter 11 Cases could attempt to formulate and propose a
different plan or plans on such terms as they may desire. Such alternative plan
would still have to meet the requirements of confirmation. The Debtors believe
that the Plan proposed by the Debtors provides the best potential return to both
the Debtors' Claimants and Equity Interest Holders.
9.3 CHAPTER 7 LIQUIDATION
Bankruptcy Code Section 1129(a)(7) requires that even if a plan is
accepted by a class of creditors or equity interest holders, the Bankruptcy
Court must nonetheless determine that the plan is in the "best interests" of any
class of creditors or equity interest holders that are impaired by the plan. The
"best interests" test requires that Bankruptcy Court find either that (i) all
members of an impaired class have accepted the plan or (ii) the plan will
provide the holder of a Claim or Equity Interest in such class a distribution of
a value, as of the effective date of the plan, that is at least equal to what
such holder would receive in a hypothetical liquidation of the debtor under
Chapter 7 of the Bankruptcy Code.
In a hypothetical liquidation of the Debtors under Chapter 7, a
trustee would be elected or appointed to liquidate the assets of the Debtors and
the Non-Debtor Affiliates. This "liquidation value" would consist primarily of
the proceeds from a sale of the assets of the Debtors and Non-Debtor Affiliates.
The amount of the liquidation value available would be distributed first to
secured Claimants, to the extent of the value of their collateral. Thereafter,
any remaining funds would be distributed in accordance with the priorities of
the Bankruptcy Code. The estimate of liquidation value available to Claimants
and Equity Interest Holders would be further reduced by (i) the costs and
expenses incurred as a result of the Chapter 7 liquidation, and (ii)
Administrative Expense Claims and Priority Claims incurred in the Chapter 11
Cases allowed in the Chapter 7 case.
The Best Interests Analysis requires estimates of the net proceeds
that may be generated as a result of a hypothetical Chapter 7 liquidation. Any
such liquidation would necessarily take place in the future under circumstances
that cannot be predicted; the amount of such proceeds is therefore highly
speculative and could be significantly impacted as a result of the uncertainty
that exists as to whether a Chapter 7 trustee could sell the assets free and
clear of any Claims that could be asserted against the Debtors. The amount of
proceeds available from the liquidation of other assets is an estimate that
assumes conditions that may not be present at the time of the Chapter 7
liquidation.
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EXHIBIT 99.1
The Debtors' liquidation analysis is included as a component of the
"Best Interests Analysis," attached as Exhibit 3 in the Exhibit Book, was
prepared by the Debtors with the assistance of Blackstone. Reference is made to
the Best Interests Analysis for estimates of liquidation value, costs and
expenses and claims amounts, and for a description of the procedures followed,
the factors considered, and the assumptions made in preparing the analysis. In
preparing the Best Interests Analysis, the Debtors have projected a range for
the Amount of Allowed Claims based on a review of their Schedules and Filed
proofs of claim. No order or finding has been entered estimating or fixing the
amount of Claims. The actual amount of Claims against the estate could vary
significantly from the Debtors' estimates. For all of the foregoing reasons, the
actual net proceeds available to Holders of Allowed General Unsecured Claims and
Holders of Equity Interests in the Parent could vary materially from the amounts
in the Best Interests Analysis. The Best Interests Analysis can be found in
Exhibit 3 in the Exhibit Book and shows that Holders of General Unsecured Claims
would receive an estimated Distribution of 55% - 93% on their Claims under a
Chapter 7 liquidation while such Holders would receive an estimated 100%
Distribution under Chapter 11. The Unsecured Creditors' Committee, based on
assumptions and estimates certain of which differ from those of the Debtors and
their professionals, estimates that proceeds realized in a hypothetical Chapter
7 liquidation may be greater than those presented in the Best Interests
Analysis, and in the high scenario, might result in net proceeds exceeding those
necessary to pay a 100% Distribution to the Holders of Allowed General Unsecured
Claims.
The Plan Proponents believe that the Plan complies with the best
interests test, as Creditors and Holders of Equity Interests in the Parent are
expected to receive under the Plan a distribution that is at least as much as
they would receive in a hypothetical liquidation under Chapter 7 of the
Bankruptcy Code.
10. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income tax
consequences of the Plan to the Debtors, the Reorganized Debtors, the Asbestos
Trust, the Holders of Claims and the Holders of Equity Interests based upon the
IRC, judicial authorities and current administrative rulings and practices now
in effect, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such change could be retroactively
applied in a manner that could adversely affect the Debtors, the Reorganized
Debtors, the Asbestos Trust, Holders of Claims and Holders of Equity Interests.
In particular, some of the consequences discussed herein are based on United
States Department of Treasury regulations or IRS notices that have been proposed
but not finalized, which regulations are particularly susceptible to change at
any time.
The tax consequences of certain aspects of the Plan are uncertain due
to the lack of applicable legal authority and may be subject to administrative
or judicial interpretations that differ from the discussion below. The Debtors
have not requested a tax ruling from the IRS. However, there can be no assurance
that the treatment set forth in the following discussion will be accepted by the
IRS. Further, the federal income tax consequences to the Debtors, the
Reorganized Debtors, the Asbestos Trust, and Holders of Claims and/or Equity
Interests may be affected by matters not discussed below. For example, the
following discussion does not address state, local or foreign tax considerations
that may be applicable; further, it does not address the
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EXHIBIT 99.1
tax consequences of the Plan to certain types of Holders of Claims or Equity
Interests, creditors and stockholders (including foreign persons, financial
institutions, life insurance companies, tax-exempt organizations and taxpayers
who may be subject to the alternative minimum tax) who may be subject to special
rules not addressed herein.
The discussion set forth below is included for general information
only. The Debtors and their counsel and financial advisors are not making any
representations regarding the particular tax consequences of confirmation and
consummation of the Plan, nor are they rendering any form of legal or tax advice
on such tax consequences. The tax laws applicable to corporations in bankruptcy
are extremely complex, and the following summary is not exhaustive. Holders of
Claims and/or Equity Interests are strongly urged to consult their tax advisors
regarding tax consequences of the Plan, including U.S. federal, state and local,
and foreign tax consequences.
Except where essential to the context, references to the "Debtors" in
Article 10 herein refer to both the Debtors and the Reorganized Debtors,
collectively.
10.1 FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
10.1.1 GENERAL DISCUSSION
In general, the Debtors do not expect to incur any substantial tax
liability as a result of implementation of the Plan, and do not expect to
realize any significant amount of cancellation of indebtedness income. Upon
consummation of the Plan, the Debtors expect to have an NOL available to offset
future taxable income. The amount of that NOL is uncertain at this point, but is
currently estimated to be approximately $348 million as of December 31, 2003. As
discussed in Section 10.1.2 below, this NOL should be increased by the tax
deductions received by the Debtors upon consummation of the Plan, which
deductions should be based on the value of the consideration transferred by the
Debtors in satisfaction of their tort, environmental and other liabilities. The
actual amount of the NOL available to the Debtors after consummation of the Plan
will depend on the value of those deductions, as well as the outcome of certain
unresolved past tax liabilities and the mechanism by which the Debtors finance
their bankruptcy emergence. As discussed in Section 2.5.3.2 of this Disclosure
Statement, approximately one-third of the NOLs are currently subject to
challenge by the IRS. The utilization of those NOLs may also be subject to
certain annual limitations, as discussed in more detail below.
In order to ensure that the Debtors' NOL will continue to be available
following emergence from bankruptcy, certain restrictions will be placed upon
transfers of Parent Common Stock. In particular, without the consent of the
Parent for a period of three years after emergence from bankruptcy, any Entity
(other than the Asbestos Trust) who currently owns or controls more than 4.75%
of the Parent Common Stock will be prohibited from increasing its ownership
percentage, and any Entities (other than the Asbestos Trust) who do not own any
Parent Common Stock or own or control less than 4.75% of the Parent Common
Stock, will be prohibited from increasing their ownership percentage of the
Parent Common Stock to an amount equal to or greater than 4.75%. Further, the
Asbestos Trust will be prohibited from selling the Parent Common Stock
contributed to the Asbestos Trust for a period of three years after the
Effective Date.
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EXHIBIT 99.1
Certain restrictions will also be imposed on the exercise of the
Warrants that the Debtors will contribute to the Asbestos Trust. The amount of
Warrants that the Asbestos Trust will be able to exercise, for a period of three
years after emergence, will be limited to approximately 1/2 of the Asbestos
Trust's total Warrants. In addition, the Debtors will have the right, as
necessary to protect the utilization of their NOLs, and to purchase Warrants
from the Asbestos Trust for their fair market value, in lieu of permitting the
exercise of such Warrants.
In connection with obtaining adequate capital to fund its operations
upon emergence from bankruptcy, the Debtors may be required to take capital as a
dividend from certain of its foreign subsidiaries. The receipt of these
dividends would be taxable to the Debtors for U.S. income tax purposes, and
could therefore have an adverse impact on the Debtors' tax planning. In
addition, the Debtors or their Non-Debtor Affiliates may be forced to pledge
some or all of their foreign assets as security in order to obtain Exit
Financing, which may be treated as a deemed dividend for U.S. income tax
purposes. Either of these actions could result in the Debtors being forced to
realize a significant charge to earnings.
10.1.2 DEDUCTION OF AMOUNTS TRANSFERRED TO SATISFY ASBESTOS
CLAIMS
The tax treatment of transfers of property by the Debtors to the
Asbestos Trust will vary depending on the characterization of the trust, e.g.,
as a "grantor trust" as defined by Section 671 et seq. of the IRC, or as a
"qualified settlement fund" ("QSF") as defined by Treasury Regulation Section
1.468B-1 et seq. The Debtors currently expect that the Asbestos Trust will be
treated as a QSF for federal income tax purposes, meaning that the Debtors
should be entitled to an immediate deduction for the fair market value of any
property contributed by the Debtors to the Asbestos Trust.
Any transfer of Parent Common Stock by the Debtors to the Asbestos
Trust should be deductible by the Debtors in an amount equal to the fair market
value of such stock. No gain or loss should be recognized by the Debtors with
respect to this stock. The transfer of cash, if any, to the Asbestos Trust
should be deductible by the Debtors in an amount equal to the amount of such
cash.
The IRS has not provided any specific guidance as to whether the
transfer of Warrants to the Asbestos Trust will constitute the transfer of
property that gives rise to an immediate deduction. The Debtors expect to take
the position that the transfer of Warrants to the Asbestos Trust does not
constitute the transfer of property, and that only the exercise of the Warrants
will constitute a deductible transfer. If so, the Debtors will be entitled to a
deduction equal to the fair market value of the Parent Common Stock upon
exercise, less the exercise price of such Warrants. The IRS may, however, later
disagree with that conclusion and take the position that the transfer of the
Warrants themselves constitutes the transfer of property. In that case, the
Debtors' tax deduction would be accelerated and the amount of such deduction may
be materially different.
10.1.3 CANCELLATION OF DEBT INCOME
Under the IRC, a taxpayer generally recognizes gross income to the
extent that indebtedness of the taxpayer is cancelled for less than the amount
owed by the taxpayer, subject to certain judicial or statutory exceptions. The
most significant of these exceptions with respect
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EXHIBIT 99.1
to the Debtors is that taxpayers who are operating under the jurisdiction of a
federal bankruptcy court are not required to recognize such income. In that
case, however, the taxpayer must reduce its tax attributes, such as its NOLs,
general business credits, capital loss carryforwards, and tax basis in assets,
by the amount of the cancellation of indebtedness income ("CODI") avoided.
The Debtors do not expect to realize any significant CODI upon
consummation of the Plan, since the Debtors expect that Claimants entitled to
Distributions under the Plan will receive an amount of consideration that should
equal the total amount of their Claims (including accrued but unpaid interest).
In order to ensure that Claimants receive full consideration for their Claims,
the value of the Parent Common Stock transferred to the Claimants will be
determined based on the average of the closing prices of such stock on the
trading days during the 30 days beginning on the Effective Date.
10.1.4 NET OPERATING LOSSES
As a result of existing NOLs and additional deductions that will be
generated by the resolution of tort, environmental and other claims upon
emergence from bankruptcy, the Debtors expect to have an NOL after emerging from
bankruptcy. The amount of the NOL may be reduced somewhat by any CODI realized
upon emerging from bankruptcy, although as stated above the Debtors do not
expect that there will be CODI realized upon emergence.
The extent to which the Debtors will be able to utilize their NOL
after emerging from bankruptcy will depend on Section 382 of the IRC, which
generally imposes an annual limitation on a corporation's use of its NOLs (and
may limit a corporation's use of certain built-in losses if such built-in losses
are recognized within a five-year period following an "ownership change," as
defined below) if a corporation undergoes an ownership change. This discussion
describes the limitation determined under Section 382 of the IRC in the case of
an ownership change as the "Section 382 Limitation." The annual Section 382
Limitation on the use of pre-change losses (the NOLs and built-in losses
recognized within the five year post-ownership change period) in any
"post-change year" is generally equal to the product of the fair market value of
the loss corporation's outstanding stock immediately before the ownership change
multiplied by the long-term tax-exempt rate in effect for the month in which the
ownership change occurs. The long-term tax-exempt rate is published monthly by
the IRS and is intended to reflect current interest rates on long-term
tax-exempt debt obligations. It is presently approximately 4.5%. Section 383 of
the IRC applies a similar limitation to capital loss carryforwards and tax
credits. As discussed below, however, a special exception from these rules may
apply in the case of a corporation that experiences an ownership change as the
result of a bankruptcy proceeding.
In general, an ownership change occurs when the percentage of the
corporation's stock owned by certain "5 percent shareholders" increases by more
than 50 percentage points in the aggregate over the lowest percentage owned by
them at any time during the applicable "testing period" (generally, the shorter
of (a) the 36-month period preceding the testing date or (b) the period of time
since the most recent ownership change of the corporation). Although the Debtors
will be giving Parent Common Stock under the Plan to certain of its Claimants,
the Debtors are not certain whether the amount of such Parent Common Stock will
be sufficient to constitute an ownership change under Section 382 of the IRC.
Consequently, the Debtors do not know
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EXHIBIT 99.1
whether their ability to utilize their NOL following emergence from bankruptcy
will be subject to the Section 382 Limitation.
The uncertainty regarding whether an ownership change will occur is
increased by the presence of the Warrants in the Asbestos Trust. As the Asbestos
Trust exercises Warrants over the three-year period following emergence from
bankruptcy, it is possible that the combination of such exercises, coupled with
certain other transactions that occurred prior to emergence from bankruptcy or
that may occur after bankruptcy emergence, could give rise to an ownership
change within the meaning of Section 382 of the IRC. However, the existence of
such ownership change may not give rise to any limitation on the Debtors'
ability to use their NOLs. In particular, Section 382(l)(5) of the IRC provides
a special rule applicable in the case of a bankruptcy reorganization (the
"Section 382(l)(5) Exception"). If a corporation qualifies for the Section
382(l)(5) Exception, the annual Section 382 Limitation will not apply to the
corporation's NOL on account of an ownership change occurring as a result of the
bankruptcy reorganization. The Section 382(l)(5) Exception does, however,
require that the corporation's NOL and credit carryovers be computed without
taking into account the aggregate amount of all interest deductions in respect
of debt exchanged for the corporation's stock during the three prior taxable
years and the portion of the current taxable year ending on the date of the
ownership change.
A corporation will qualify under the Section 382(l)(5) Exception if
the corporation's pre-bankruptcy shareholders and holders of certain debt
("Qualifying Debt") own at least 50% of the stock of the corporation after the
bankruptcy reorganization, and the corporation does not "elect out" of the
Section 382(l)(5) Exception. Qualifying Debt is a claim which (i) was held by
the same creditor for at least 18 months prior to the bankruptcy filing or (ii)
arose in the ordinary course of a corporation's trade or business and has been
owned, at all times, by the same creditor. Indebtedness will be treated as
arising in the ordinary course of a corporation's trade or business if such
indebtedness is incurred by the corporation in connection with the normal, usual
or customary conduct of the corporation's business. While not free from doubt,
the Debtors expect that Asbestos Claims will qualify as Qualifying Debt, and
that the stock acquired by the Asbestos Trust upon exercise of the Warrants will
be treated as stock acquired in exchange for Qualifying Debt within the meaning
of the Section 382(l)(5) Exception. In addition, any debt held by a creditor who
receives an amount of stock representing less than 5.0% of the equity interests
in the Debtors upon emerging from bankruptcy will also be treated as Qualifying
Debt, unless such creditor actively participated in formulating the Debtors'
bankruptcy plan and in doing so made it clear to the Debtors that its debt was
not Qualified Debt.
If an ownership change occurs and the Debtors do not qualify for the
Section 382(l)(5) Exception, the Debtors would then be subject to an annual
Section 382 Limitation. Under Section 382(l)(6) of the IRC, if a corporation is
otherwise not eligible for the Section 382(l)(5) Exception (or if it elects out
of Section 382(l)(5)), then the annual Section 382 Limitation is calculated by
taking into account the increase in equity value resulting from the issuance of
equity upon emergence in exchange for debt claims.
The Debtors expect at this point that, if an ownership change occurs,
it would be likely that the Debtors would qualify for a Section 382(l)(5)
Exception. However, Section 382 of the IRC provides that if a company that
utilizes the Section 382(l)(5) Exception undergoes another
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EXHIBIT 99.1
ownership change within two years, that company's NOL is reduced to zero. For
that reason, the Parent Common Stock, upon emergence, will be subject to certain
transfer restrictions in order to ensure that another ownership change does not
occur after emergence. Those restrictions were discussed above under Section
10.1.1 (General Discussion). The general effect of these restrictions is to
ensure that no Entity acquires an amount of Parent Common Stock after emerging
from bankruptcy that would cause such Entity to hold more than 4.75% of the
Parent's equity value, without the consent of the Parent's Board of Directors,
and to ensure that no stockholder who owns more than 4.75% of the Parent's
equity value after emergence buys additional Parent Common Stock. The amount of
Warrants that the Asbestos Trust will be able to exercise within the three years
after emergence will also be limited to an amount equal to approximately 50% of
the Asbestos Trust's total Warrants.
These transfer restrictions will generally not impose any limitations
on a Claimant or other Entity that holds less than 4.75% of the Parent Common
Stock after emergence to either buy or sell stock on the open market, so long as
such purchase or sale does not cause the Claimant or other Entity to then hold
more than 4.75% of the Parent Common Stock.
10.2 FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS AND THE
ASBESTOS TRUST
10.2.1 HOLDERS OF ASBESTOS CLAIMS
To the extent that payments from the Asbestos Trust to Claimants
constitute damages received by such Claimants on account of personal injuries,
such payments should not constitute gross income to such Claimants, except to
the extent that such payments are attributable to medical expense deductions
allowed under Section 213 of the IRC for a prior taxable year.
To the extent that payments from the Asbestos Trust to Claimants
constitute compensatory damages for destruction or damage to property, and such
payments do not exceed the Claimant's tax basis in its property, such payments
should not be included in taxable income. Instead, such payments would be
treated as a return of capital to such Claimant, reducing the Holder's tax basis
in the property. Any amounts received in excess of the Claimant's tax basis
should be treated as gain from the disposition of the property, and would
therefore give rise to capital gain assuming that the Claimant held such
property as a capital asset.
10.2.2 TREATMENT OF THE ASBESTOS TRUST
The Debtors expect that the Asbestos Trust will be a QSF for federal
income tax purposes. As a QSF, the Asbestos Trust will be subject to a separate
entity level tax on its income at the maximum rate applicable to trusts and
estates. In determining the taxable income of the Asbestos Trust, (a) any
amounts contributed to the Asbestos Trust will not be treated as taxable income,
(b) any sale, exchange or distribution of property by the Asbestos Trust will
result in the recognition of gain or loss in an amount equal to the difference
between the fair market value of the property on the date of the sale, exchange
or distribution and the adjusted tax basis of such property, (c) interest income
and dividend income will be treated as taxable income, and (d) administrative
costs (including state and local taxes) will be deductible. In general, the
adjusted tax basis of property received by the Asbestos Trust will be its fair
market value at the time of receipt. As discussed above, the Debtors believe
that the transfer of
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EXHIBIT 99.1
Warrants to the Asbestos Trust will not be treated as a transfer of property
until such time as the Warrants are exercised. For that reason, the Debtors
believe that the Asbestos Trust will not recognize any income or gain upon
exercise of the Warrants. This result is not free from doubt, however, and it is
possible that the IRS would take the position that the exercise of such Warrants
should be treated as taxable income or gain to the Asbestos Trust.
10.2.3 CONSEQUENCES TO HOLDERS OF GENERAL UNSECURED CLAIMS
Pursuant to the Plan, each Holder of a General Unsecured Claim will
receive, in full satisfaction and discharge of its Allowed Claim, a combination
of cash and Parent Common Stock. The federal income tax consequences of the Plan
to a Holder of a General Unsecured Claim depend, in part, on whether such Claim
constitutes a "security" for federal income tax purposes.
Whether an instrument constitutes a "security" is determined based on
all the facts and circumstances, but most authorities have held that the length
of the term of a debt instrument is an important factor in determining whether
such instrument is a security for federal income tax purposes. These authorities
have indicated that a term of less than five years is evidence that the
instrument is not a security, whereas a term of ten years or more is evidence
that it is a security. There are numerous other factors that could be taken into
account in determining whether a debt instrument is a security, including the
security for payment, the creditworthiness of the obligor, the subordination or
lack thereof to other creditors, the right to vote or otherwise participate in
the management of the obligor, convertibility of the instrument into an equity
interest of the obligor, whether payments of interest are fixed, variable or
contingent, and whether such payments are made on a current basis or accrued.
In general, the Debtors believe that the General Unsecured Claims do
not qualify as "securities" for federal income tax purposes. If a debt
instrument constituting a surrendered Allowed General Unsecured Claim is not
treated as a security, the Holder of such a Claim should be treated as
exchanging its Allowed General Unsecured Claim for Parent Common Stock and cash
in a fully taxable exchange. The Holder of an Allowed General Unsecured Claim
who is subject to fully taxable exchange treatment should recognize gain or loss
equal to the difference between (i) the fair market value of the Parent Common
Stock as of the Effective Date plus the cash received that is not allocable to
accrued interest, and (ii) the Holder's basis in the debt instrument
constituting the surrendered Allowed General Unsecured Claim. Such gain or loss
should be capital in nature (subject to the "market discount" rules described
below) and should be long-term capital gain or loss if the debt constituting the
surrendered Allowed General Unsecured Claim were held for more than one year. To
the extent that a portion of the Parent Common Stock or cash received in the
exchange is allocable to accrued interest, the Holder may recognize ordinary
income. See Section 10.2.3.1 (Accrued Interest). A Holder's tax basis in the
Parent Common Stock received should equal the fair market value of the Parent
Common Stock as of the date received. A Holder's holding period for the Parent
Common Stock should begin on the day following the Effective Date.
10.2.3.1 ACCRUED INTEREST
To the extent that any amount received by a Holder of a surrendered
Allowed Claim under the Plan is attributable to accrued interest that was not
previously included in the Holder's
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gross income, such amount should be taxable to the Holder as interest income.
Conversely, a Holder of a surrendered Allowed Claim may be able to recognize a
deductible loss (or, possibly, a write-off against a reserve for worthless
debts) to the extent that any accrued interest on the debt instruments
constituting such Claim was previously included in the Holder's gross income but
was not paid in full by Debtors. Such loss may be ordinary, but the tax law is
unclear on this point.
The extent to which the consideration received by a Holder of a
surrendered Allowed Claim will be attributable to accrued interest on the debts
constituting the surrendered Allowed Claim is unclear. Pursuant to the Plan, all
Distributions in respect of any Allowed Claim will be allocated first to the
principal amount of such Claim, to the extent otherwise permitted and as
determined for federal income tax purposes, and thereafter to the remaining
portion of such Claim, if any. However, there can be no assurance that the IRS
will respect this allocation.
10.2.3.2 MARKET DISCOUNT
Under the "market discount" provisions of Sections 1276 through 1278
of the IRC, some or all of the gain realized by a Holder of a debt instrument
constituting an Allowed Claim who exchanges the debt instrument for other
property on the Effective Date may be treated as ordinary income (instead of
capital gain), to the extent of the amount of "market discount" on the debt
instruments constituting the surrendered Allowed Claim.
In general, a debt instrument is considered to have been acquired with
"market discount" if its Holder's adjusted tax basis in the debt instrument is
less than (i) the sum of all remaining payments to be made on the debt
instrument, excluding "qualified stated interest" or, (ii) in the case of a debt
instrument issued with an original-issue discount, its adjusted issue price, by
at least a de minimis amount (equal to 0.25 percent of the sum of all remaining
payments to be made on the debt instrument, excluding qualified stated interest,
multiplied by the number of remaining whole years to maturity).
Any gain recognized by a Holder on the taxable disposition of
surrendered debts (determined as described above) that had been acquired with
market discount should be treated as ordinary income to the extent of the market
discount that accrued thereon while such debts were considered to be held by the
Holder (unless the Holder elected to include market discount in income as it
accrued).
10.2.4 CONSEQUENCES TO HOLDERS OF EQUITY INTERESTS
Pursuant to the Plan, each Holder of an Allowed Equity Interest in the
Debtors will retain their Allowed Equity Interest, subject to dilution on
account of, among other things, Parent Common Stock issued (i) under the
Management Stock Incentive Plan, (ii) to other Holders of Allowed Claims, or
(iii) to the Asbestos Trust upon exercise of Warrants. Holders of Allowed Equity
Interests will therefore recognize neither gain nor loss with respect to the
reorganization. Such Holders will retain their existing tax basis and holding
period in their Allowed Equity Interests.
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EXHIBIT 99.1
10.3 BACKUP WITHHOLDING
Debtors will withhold any amounts required by law to be withheld from
payments of interest and dividends and will comply with all applicable reporting
requirements of the IRC.
11. SECURITIES IMPLICATIONS OF THE PLAN
11.1 THE ISSUANCE OF SECURITIES PURSUANT TO THE PLAN
The Debtors will be relying on an exemption from registration under
the Securities Act and applicable provisions of applicable state securities or
"blue sky" laws with respect to the issuance of shares of the Parent Common
Stock pursuant to the Plan.
The Debtors intend to rely upon the exemption from the registration
requirements of the Securities Act (and of equivalent state securities or "blue
sky" laws) provided by Bankruptcy Code Section 1145(a)(1). Generally, Bankruptcy
Code Section 1145(a)(1) exempts the offer and sale of securities pursuant to a
plan of reorganization from the registration requirements of the Securities Act
and equivalent state securities and "blue sky" laws if the following conditions
are satisfied (1) the securities are issued by a debtor (or its affiliate or
successor) or plan sponsor under a plan of reorganization, (2) the recipients of
the securities hold a claim against, and interest in, or a claim for an
administrative expense against, the debtor, and (3) the securities are issued
entirely in exchange for the recipient's claim against or interest in the
debtor, or are issued "principally" in such exchange and "partly" for cash or
property. The Debtors believe that the exchange of the Parent Common Stock for
Claims satisfies such requirements.
The Parent Common Stock issued to Holders of Claims pursuant to the
Plan may be resold by such Entities without restriction unless, as more fully
described below, any such Holder is deemed to be an "underwriter" with respect
to such securities, as defined in Bankruptcy Code Section 1145(b)(1). Generally,
Bankruptcy Code Section 1145(b)(1) defines an "underwriter" as any party who (1)
purchases a claim against, or equity interest in, the debtor in a bankruptcy
case, with a view towards the distribution of any security to be received in
exchange for such claim or equity interest, (2) offers to sell securities issued
under a bankruptcy plan on behalf of the holders of such securities, (3) offers
to buy securities issued under a bankruptcy plan from parties receiving such
securities, if the offer to buy is made with a view towards distribution of such
securities, or (4) is an "issuer," as such term is defined in Section 2(11) of
the Securities Act.
The reference contained in Bankruptcy Code Section 1145(b)(1)(D) to
Section 2(11) of the Securities Act would include as "underwriters" all parties
who, directly or indirectly, through one or more intermediaries, control, are
controlled by, or are under common control with, an issuer of securities.
"Control" (as such term is defined in Rule 405 of Regulation C under the
Securities Act) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a party, whether
through the ownership of voting securities, by contract, or otherwise.
Accordingly, an officer or director of a reorganized debtor (or its affiliate or
successor) under a plan of reorganization may be deemed to "control" such debtor
(and therefore be an underwriter for purposes of Bankruptcy Code Section 1145),
particularly if such management position is coupled with the ownership of a
significant percentage of the
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EXHIBIT 99.1
debtor's (or affiliate's or successor's) voting securities. In addition, the
legislative history of Bankruptcy Code Section 1145 suggests that a creditor
with at least 10% of the securities of a debtor could be deemed a "control"
person.
Holders may, under certain circumstances, be able to sell their
securities pursuant to the safe harbor resale provisions of Rule 144 under the
Securities Act. Generally, Rule 144 provides that if certain conditions are met
(e.g. one-year holding period with respect to "restricted securities," volume
limitations, manner of sale, availability of current information about the
issuer, etc.), specified persons who (1) resell "restricted securities" or (2)
resell securities which are not restricted but who are "affiliates" of the
issuer of the securities sought to be resold, will not be deemed to be
"underwriters" as defined in Section 2(11) of the Securities Act. Under
paragraph (k) of Rule 144, the aforementioned conditions to resale will no
longer apply to restricted securities sold for the account of a Holder who is
not an affiliate of the Debtors at the time of such resale and who has not been
such during the three-month period next preceding such resale, so long as a
period of at least two years has elapsed since the later of (1) the Effective
Date and (2) the date on which such holder acquired his or its securities from
an affiliate of the Debtors. The SEC has taken the position in no-action letters
that the holding period requirement set forth in Rule 144(d) is not applicable
to holders of securities issued pursuant to Bankruptcy Code Section 1145.
Under Bankruptcy Code Section 1145(a)(4), stockbrokers are required to
deliver a copy of this Disclosure Statement (and supplements hereto, if any, if
ordered by the Court) at or before the time of delivery of securities issued
under the Plan to their customers for the first 40 days after the Effective
Date. This requirement specifically applies to trading and other aftermarket
transactions in such securities.
The foregoing summary discussion is general in nature and has been
included in this Disclosure Statement solely for information purposes. The Plan
Proponents do not make any representations concerning, and do not provide an
opinion or advice with respect to, the securities law and bankruptcy law matter
described above. The Plan Proponents encourage each Entity who is to receive
Parent Common Stock pursuant to the Plan to consider carefully and consult with
their own legal advisor(s) with respect to such (and any related) matters in
view of the uncertainty concerning the availability of exemptions from the
registration requirements of the Securities Act and equivalent state securities
and "blue sky" laws to a recipient of Parent Common Stock, who may be deemed to
be an "underwriter" (within the meaning of Bankruptcy Code Section 1145(B)(1)
and/or an "affiliate of" or a person who exercised "control" over Grace under
applicable federal and state securities laws.
12. CONCLUSION AND RECOMMENDATION
Your vote on the Plan is important. The Plan Proponents strongly
recommend that you vote in favor of the Plan.
The Plan Proponents believe that confirmation and implementation of
the Plan is preferable to any of the alternatives described herein because the
Plan will provide the greatest recoveries to Holders of Claims and Equity
Interests. Nonacceptance of the Plan may result in protracted delays,
uncertainty, substantial additional administrative costs, a chapter 7
liquidation,
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EXHIBIT 99.1
or the confirmation of another less favorable Chapter 11 plan. These
alternatives may not provide for distribution or retention of as much value to
Holders of Allowed Claims and/or Equity Interests as does the Plan. Further, the
Plan Proponents believe that the Plan, as a whole, is in the best interests of
all of their Claimants and Holders of Equity Interests. THEREFORE, THE PLAN
PROPONENTS RECOMMEND THAT ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO
VOTE ON THE PLAN SUPPORT CONFIRMATION OF THE PLAN AND VOTE TO ACCEPT THE PLAN.
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EXHIBIT 99.1
Dated: January 13, 2005
Respectfully submitted,
W. R. GRACE & CO., ET AL.
(on behalf of the Debtors and Debtors In
Possession)
By:
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Name: David B. Siegel
Title: Senior Vice President,
General Counsel &
Chief Restructuring Officer
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