Exhibit 99.5
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF KENTUCKY
(LEXINGTON DIVISION)
EASTERN DISTRICT OF KENTUCKY
IN RE: CHAPTER 11 PROCEEDING
LODESTAR ENERGY INC. ) CASE NOS. 01-50969 and
LODESTAR HOLDINGS, INC., ) 01-50972
)
DEBTORS. ) Jointly Administered
MOTION FOR AN ORDER PURSUANT TO BANKRUPTCY RULE 9019 APPROVING
SETTLEMENT WITH INDIANTOWN COGENERATION, L.P.
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The above-captioned debtors (the "Debtors"), by the duly authorized
Chapter 11 Trustee, William D. Bishop (the "Trustee"), through counsel, hereby
move the Court pursuant to Rule 9019 of the Federal Rules of Bankruptcy
Procedure and 11 U.S.C.ss.105 for entry of an order approving the settlement
outlined herein with Indiantown Cogeneration, L.P. ("Indiantown"). In support of
this Motion, the Trustee states as follows:
BACKGROUND
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1. On March 30, 2001, involuntary petitions were filed in this Court
against the Debtors under Chapter 11 of the Bankruptcy Code.
2. On April 27,2001, upon the consent of the Debtors to the relief
requested in the involuntary petitions, the Court entered an Order for Relief
Under Chapter II of the Bankruptcy Code in each of the above-captioned cases.
3. Several critical events have occurred in this case over the last
several months. The Debtors' last remaining officer, Mike Fransisco, resigned at
the end of January, and the Debtors have failed to file a chapter 11 plan or
conduct a meaningful sale of their assets. As a result of these events,
inter alia, the Court recently ordered the appointment of the
Trustee on or about January 31, 2003 (the “Trustee”).
4. The Trustee is in the process of attempting to liquidate the
Debtors' assets. One of the Debtors' most troubled assets is a post-petition
long-term coal supply contract with Indiantown, pursuant to which Lodestar
Energy, Inc. agrees to supply Indiantown with all of the fuel necessary to
operate its a 330-megawatt coal-fired power plant (the "Contract").
5. Although the Contract contains pricing that is above-market, it has
a "price re- opener" that permits the parties to terminate the Contract
effective as of midnight on October 1,2003 if the parties cannot reach agreement
on a new per-ton price of coal. In addition, Indiantown maintains that the
Debtors have defaulted under the Contract and that as a result, the Contract is
subject to termination in no less than 45 days. Indiantown also maintains that
it has the right to offset its damages as a result of such defaults against
outstanding invoices for coal delivered by the Debtors. Finally, Indiantown
maintains that it has the right to approve or disapprove of any assignee of the
Contract in accordance with the assignment provisions of the Contract. The
Trustee vigorously disputes these allegations and maintains that Indiantown is
in default under the Contract and liable for damages to the Debtors' bankruptcy
estate.
6. As a result of the foregoing considerations, and after weighing the
costs and likely prospects of any litigation between the parties, Indiantown and
the Trustee have negotiated a settlement, subject to this Court's approval, on
the following terms (the "Settlement"):
A. The Contract shall be absolutely and irrevocably terminated
effective as of March 31,2003;
B. The Debtors shall continue to perform under the Contract through
March 31, 2003 by loading for delivery to Indiantown substantially in accordance
with the loading and delivery schedules already provided by the Debtors to
Indiantown no more than four (4) trains containing an aggregate amount of no
more than 36,000 tons of coal meeting the specifications of the Contract;
C. Indiantown shall pay all currently outstanding invoices issued by
the Debtors for delivered coal, and all invoices rendered for coal to be
delivered under the Contract in accordance with this settlement, upon the
earlier of (i) the dates such invoices become due in accordance with their terms
and the ordinary course of dealings between the Debtors and Indiantown and (ii)
closing;
D. In addition, at closing, Indiantown shall make a settlement
payment to the Trustee, on behalf of Lodestar's bankruptcy estate, in the amount
of $l million (the "Settlement Payment");
E. From the Settlement Payment, the amount of $195,000.00 (the
"Escrowed Portion of the Settlement Payment") shall be placed into escrow with a
mutually agreeable escrow agent until (i) all outstanding invoices for which at
least one of the Debtors and Indiantown are potentially liable to a particular
post-petition creditor are resolved either by an enforceable agreement of such
parties or by an order of this Court and (ii) Indiantown receives a specific
release of its potential liability to that post-petition creditor in form and
substance reasonably acceptable to Indiantown. Immediately following the
satisfaction of the foregoing conditions, the Escrowed Portion of the Settlement
Payment shall be released from escrow and paid to the Trustee and/or such
post-petition creditor in accordance with the agreement between the Trustee and
such post-petition creditor or this Court's order;
F. At closing, Indiantown and the Trustee, on behalf of himself and
the Debtors' bankruptcy estates, shall exchange mutual general releases in form
and substance reasonably acceptable to the parties;
G. An order approving the settlement herein must be entered by the
Court no later than April 15,2003; and
H. Closing shall occur as soon as reasonably practicable after entry
of an order approving this settlement, but in no event later than April 15,2003.
JURISDICTION AND VENUE
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7. The Court has jurisdiction over this matter pursuant to 28
U.S.C.ss.ss.157 and 1334. Venue is appropriate in this matter in accordance with
28 U.S.C.ss.ss.1408 and 1409. This matter is a core proceeding as defined under
28 U.S.C.ss.157(b)(2).
NOTICE
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8. Copies of this Motion were served on all parties listed on the
official service list in this case, as amended. The Debtors believe that such
notice is good and sufficient and that no additional notice of this Motion by
publication or otherwise is necessary. Such notice complies with the provisions
of Rule 2002 of the Federal Rules of Bankruptcy Procedure and this Court's order
establishing notice procedures in these administratively consolidated cases on
February 8,2002.
RELIEF REQUESTED
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9. By this Motion, the Debtors seek the entry of an order pursuant
to Bankruptcy Rule 9019 approving the Settlement and authorizing the Chapter 11
Trustee to execute, deliver, and perform, on behalf of the Debtors' bankruptcy
estates, the obligations under a definitive agreement memorializing the
Settlement (the “Definitive Agreement”) that currently is being
negotiated by the parties and will be filed with the Court and served on all
parties prior to the hearing.
BASIS FOR RELIEF
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10. Under Rule 9019(a), the Bankruptcy Court is to determine whether
the proposed compromise is "fair and equitable," Prot. Comm. for Ind.
Stockholders of TMT Trailer Ferry. Inc. v. Anderson. 390 U.S. 414,424 (1968),
and "in the best interests of the estate." In re Amer. Reserve Corp.. 841 F.2d
159, 161 (7th Cir. 1987).
11. For the reasons set forth herein, the Debtors believe that
approval of the Settlement is fair and equitable and is in the best interests of
the Debtors, their creditors, their estates, and other parties in interest.
12. The Trustee believes that any litigation with Indiantown
regarding the Contract is likely to be protracted and expensive. In addition,
the outcome of any such litigation is highly uncertain. Moreover, any such
litigation is likely to eliminate the Trustee's ability to monetize the
above-market pricing of the Contract by assigning it to a third-party-that is,
if any such third-party can even be located and Indiantown's consent rights can
be resolved.
13. The Settlement, in contrast, provides the Debtors' bankruptcy
estates with an immediate infusion of $1 million and resolves all outstanding
claims by and against Indiantown. The Trustee believes that such a "clean break"
with Indiantown is in the best economic interest of the Debtors' bankruptcy
estates when compared with the alternatives and will in addition facilitate the
sale of the Debtors' remaining assets.
HEARING
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14. The Debtors respectfully request that this Motion be scheduled
for a hearing on April 4,2003, or such date thereafter as is convenient for the
Court prior to April 15,2003.
WHEREFORE, the Debtors respectfully request that this Court enter an
Order (i) approving the Settlement, (ii) authorizing the Trustee to execute,
deliver, and perform, on behalf of the Debtors’ bankruptcy estates, the
obligations under the Definitive Agreement, and (iii) granting such other and
further relief as the Court deems appropriate or just.
Respectfully submitted,
Bruce E. Cryder
Gregory R. Schaaf
GREENEBAUM DOLL & McDONALD PLLC
300 West Vine Street, Suite 1100
Lexington, Kentucky 40507
Telephone: (859)231-8500
Facsimile: (859)255-2742
COUNSEL FOR THE TRUSTEE
CERTIFICATE OF SERVICE
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I hereby certify that a true and correct copy of the foregoing
document was sent via first- class mail, postage prepaid, on the 21st day of
March, 2003 to all parties listed on the current Consolidated Service List.
/s/Gregory R. Schaaf
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