Exhibit 2.3
DRAFT SUBJECT TO COURT APPROVAL
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
)
In re: ) Chapter 11
)
) Case Nos. 02-40826 (CB), et al.
OGDEN NEW YORK SERVICES, INC., et al.,(1) )
) (Jointly Administered)
Debtors and Debtors In Possession. )
DISCLOSURE STATEMENT WITH RESPECT TO DEBTORS' JOINT PLAN
OF REORGANIZATION AND JOINT PLAN OF LIQUIDATION UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE
THIS PROPOSED DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT
FOR USE IN THE SOLICITATION OF ACCEPTANCES OF THE PLANS DISCLOSED PURSUANT TO
SECTION 1125(B) OF THE BANKRUPTCY CODE. ACCORDINGLY, THE FILING AND
DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS NOT INTENDED, NOR SHOULD
IT BE CONSTRUED, AS SUCH A SOLICITATION, NOR SHOULD THE
INFORMATION CONTAINED HEREIN BE RELIED UPON FOR ANY PURPOSE PRIOR TO A
DETERMINATION BY THE BANKRUPTCY COURT THAT THE PROPOSED DISCLOSURE STATEMENT
CONTAINS ADEQUATE INFORMATION. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED
UNTIL THE BANKRUPTCY COURT HAS APPROVED THIS DISCLOSURE STATEMENT. THIS
DISCLOSURE STATEMENT MAY BE REVISED TO REFLECT EVENTS THAT OCCUR AFTER THE DATE
HEREOF BUT PRIOR TO THE COURT'S APPROVAL.
Dated: September 8, 2003
CLEARY, GOTTLIEB, STEEN & HAMILTON JENNER & BLOCK, LLC
Deborah M. Buell (DB 3562) Vincent E. Lazar (VL 7320)
James L. Bromley (JB 5125) Christine L. Childers (CC 0092)
One Liberty Plaza One IBM Plaza
New York, New York 10006 Chicago, IL 60611
(212) 225-2000 (312) 222-9350
Counsel to Debtors and Debtors In Possession
- -----------------
(1) A complete list of the Debtors and Debtors In Possession is provided on
Exhibit G.
DISCLAIMER
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT (THE "DISCLOSURE
STATEMENT") AND APPENDICES HERETO RELATES TO CERTAIN DEBTORS' JOINT PLAN OF
REORGANIZATION (THE "REORGANIZATION PLAN") AND CERTAIN DEBTORS' JOINT PLAN OF
LIQUIDATION (THE "LIQUIDATION PLAN," AND TOGETHER WITH THE REORGANIZATION PLAN,
THE "PLANS") AND ARE INCLUDED HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF
EACH OF THE PLANS AND MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO
DETERMINE HOW TO VOTE ON EACH OF THE PLANS. NO PERSON MAY GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS, OTHER THAN THE INFORMATION AND REPRESENTATIONS
CONTAINED IN THIS DISCLOSURE STATEMENT, REGARDING THE PLANS OR THE SOLICITATION
OF ACCEPTANCES OF THE PLANS.
ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE
STATEMENT AND THE PLANS IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE
REORGANIZATION PLAN AND/OR THE LIQUIDATION PLAN. SUMMARIES OF THE PLANS AND
STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE REORGANIZATION PLAN AND/OR THE LIQUIDATION PLAN, OTHER EXHIBITS
ANNEXED OR REFERRED TO IN THE PLANS, RESPECTIVELY, AND THIS DISCLOSURE
STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY
AS OF THE DATE HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS
CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH 11
U.S.C. ss. 1125 AND RULE 3016(c) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE
AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER
LAWS GOVERNING DISCLOSURE OUTSIDE THE CONTEXT OF TITLE 11 OF THE UNITED STATES
CODE ss.ss. 101-1330 (THE "BANKRUPTCY CODE"). NEITHER THE SECURITIES TO BE
DISTRIBUTED NOR THE DISCLOSURE STATEMENT HAS BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC APPROVED OR DISAPPROVED OF THE ACCURACY OR ADEQUACY
OF THE STATEMENTS CONTAINED HEREIN.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND APPENDICES HERETO WILL NOT
CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY,
STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE IN SETTLEMENT
NEGOTIATIONS. THIS DISCLOSURE STATEMENT WILL NOT BE ADMISSIBLE IN ANY
NONBANKRUPTCY PROCEEDING NOR WILL IT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE
TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE REORGANIZATION AS TO HOLDERS OF
CLAIMS AGAINST, OR EQUITY INTERESTS IN THE DEBTORS.
NO PARTY IS AUTHORIZED TO PROVIDE TO ANY OTHER PARTY ANY INFORMATION
CONCERNING THE PLANS OTHER THAN THE CONTENTS OF THIS DISCLOSURE STATEMENT. THE
DEBTORS HAVE NOT AUTHORIZED ANY REPRESENTATIONS CONCERNING THE DEBTORS OR THE
VALUE OF THEIR PROPERTY OTHER THAN THOSE SET FORTH IN THIS DISCLOSURE STATEMENT.
HOLDERS OF CLAIMS AND EQUITY INTERESTS SHOULD NOT RELY ON ANY INFORMATION,
REPRESENTATIONS OR INDUCEMENTS MADE TO OBTAIN YOUR ACCEPTANCE OF THE PLANS THAT
ARE OTHER THAN, OR INCONSISTENT WITH, THE INFORMATION CONTAINED HEREIN AND IN
THE PLANS.
ADDITIONAL INFORMATION REGARDING THE DEBTORS (AS DEFINED HEREIN) IS
CONTAINED IN PUBLIC FILINGS WITH THE SEC.
ALTHOUGH DEBTORS HAVE USED THEIR BEST EFFORTS TO ENSURE THE ACCURACY OF
THE FINANCIAL INFORMATION PROVIDED IN THIS DISCLOSURE STATEMENT, THE FINANCIAL
INFORMATION CONTAINED IN, OR INCORPORATED BY REFERENCE INTO, THIS DISCLOSURE
STATEMENT HAS NOT BEEN AUDITED, EXCEPT, TO THE EXTENT INDICATED, THE FINANCIAL
STATEMENTS INCLUDED IN COVANTA ENERGY CORPORATION'S ANNUAL REPORT ON FORM 10-K.
THE PROJECTIONS PROVIDED IN THIS DISCLOSURE STATEMENT HAVE BEEN
PREPARED BY THE DEBTORS' MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALISTIC AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC,
COMPETITIVE, INDUSTRY, REGULATORY, MARKET AND FINANCIAL UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE DEBTORS' CONTROL. THE DEBTORS
CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THESE
PROJECTIONS OR TO THE DEBTORS' ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME
ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES
OCCURING SUBSEQUENT TO THE DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE
DIFFERENT FROM THOSE ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND
THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIALLY
ADVERSE OR MATERIALLY BENEFICIAL MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE
RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL
OCCUR.
SEE SECTION VIII OF THIS DISCLOSURE STATEMENT, "RISK FACTORS," FOR A
DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH
A DECISION BY A HOLDER OF AN IMPAIRED CLAIM OR IMPAIRED EQUITY INTEREST TO
ACCEPT THE PLANS.
SUMMARY OF THE REORGANIZATION PLAN AND THE LIQUIDATION PLAN
The following introduction and summary is a general overview only,
which is qualified in its entirety by, and should be read in conjunction with,
the more detailed discussions, information and financial statements and notes
thereto appearing elsewhere in this Disclosure Statement, the Reorganization
Plan and the Liquidation Plan. All capitalized terms not defined in this
Disclosure Statement have the meanings ascribed to such terms in the
Reorganization Plan and the Liquidation Plan, copies of which are annexed hereto
in Exhibits A and B.
This Disclosure Statement contains, among other things, descriptions
and summaries of provisions of the Reorganization Plan being proposed by the
Reorganizing Debtors(2) and Heber Debtors(3) and the Liquidation Plan being
proposed by the Liquidating Debtors4 (together, the "Debtors"), respectively, as
filed with the United States Bankruptcy Court for the Southern District of New
York (the "Court") on September 8, 2003. Certain provisions of the Plans, and
thus the descriptions and summaries contained herein, are the subjects of
continuing negotiations among the Debtors and various parties, have not been
finally agreed upon, and may be modified. The Debtors have reserved their rights
in the Plans to redesignate Debtors as Reorganizing Debtors, Heber Debtors or
Liquidating Debtors at any time prior to ten (10) days prior to the Confirmation
Hearing (as defined below). Holders of Claims or Equity Interests (each as
defined below) who are entitled to vote on the Reorganization Plan or
Liquidation Plan and who are affected by any such redesignation shall have five
(5) days from the notice of such redesignation to vote to accept or reject the
Reorganization Plan or the Liquidation Plan, as the case may be. The Debtors
also have reserved the right to withdraw prior to the Confirmation Hearing one
or more Debtors from the Reorganization Plan or the Liquidation Plan, as the
case may be, and to thereafter file a plan solely with respect to such Debtor.
The Debtors believe that the Debtors' creditors will receive
substantially greater and earlier recoveries under the Plans than those that
would be achieved in total liquidation or under an alternative plan and,
further, that any alternative to confirmation of the Plans, such as total
liquidation of the Debtors or attempts by another party in interest to file a
plan, could result in significant delays, litigation and costs. FOR THESE
REASONS, THE DEBTORS URGE YOU TO RETURN YOUR BALLOT ACCEPTING THE PLANS.
A. Overview
Covanta Energy Corporation ("Covanta") and its subsidiaries
(collectively, the "Subsidiaries" and together with Covanta, the "Company")
develop, construct, own and operate for others key infrastructure for the
conversion of waste-to-energy, independent power production and the treatment of
water and wastewater in the United States and abroad. The Company owns or
operates 62 power generation facilities, 46 of which are in the United States
and 16 of which are located outside of the United States. The Company's power
generation facilities use a variety of fuels, including municipal solid waste,
water (hydroelectric), natural gas, coal, geothermal fluid, wood waste, landfill
gas, heavy fuel oil and diesel fuel. Until September 1999, and under prior
management, the Company was also actively involved in the entertainment and
aviation services industries.
On April 1, 2002 (the "Initial Petition Date"), Covanta and 123 of its
domestic subsidiaries filed voluntary petitions for relief under chapter 11 of
the Bankruptcy Code in the Court. On December 16, 2002 (the "Interim Petition
Date"), and June 6, 2003 (the "Subsequent Petition Date," and with the Initial
Petition Date and the Interim Petition Date, the "Petition Dates") thirty-one
(31) additional subsidiaries filed their chapter 11 petitions for relief under
the Bankruptcy Code. In addition, four (4) subsidiaries that had filed petitions
on the Initial Petition Date have been sold as part of the Company's disposition
of non-core assets and are no longer owned by the Company, nor are they part of
the bankruptcy proceedings. The pending bankruptcy cases (the "Chapter 11
Cases") are being jointly administered under the caption "In re Ogden New York
Services, Inc., et al., Case Nos. 02-40826 (CB), et al."
- --------------
(2) A complete list of the Reorganizing Debtors is provided on Exhibit I to the
Reorganization Plan.
(3) The Heber Debtors are AMOR 14 Corporation, Covanta SIGC Energy, Inc.,
Covanta SIGC Energy II, Inc., Heber Field Company, Heber Geothermal Company
and Second Imperial Geothermal Company, L.P.
(4) A complete list of the Liquidating Debtors is provided on Exhibit I to the
Liquidation Plan.
Until September 1999, and under prior management, the Company was
actively involved in the entertainment and aviation services industries.
However, after extensive study and evaluation, the Company determined that most
of its earnings were generated by the energy business, that the entertainment
business was substantially over-leveraged and that the focus on the
entertainment and aviation businesses had not proven successful. Accordingly, in
September 1999, the Company adopted a restructuring strategy in which it would
concentrate on its core energy business while seeking to sell its aviation and
entertainment businesses. During 2000 and 2001, the Company divested multiple
entertainment and aviation assets and shed tens of millions of dollars of
overhead.
However, the Company required waivers of financial covenants under its
numerous credit agreements and new letter of credit facilities to be used by its
core energy business in the event of a downgrade by the credit rating agencies
below investment grade. The Company believed that, with a single master credit
agreement in place, it could seek access to the capital markets with which it
could raise equity or debt that, combined with additional cash from the sale of
its remaining entertainment and aviation assets, would meet its liquidity needs,
including the timely repayment of outstanding debentures maturing in 2002. By
the fall of 2000, the Company and its key banks reached an agreement in
principle on the terms of a new master credit facility that would include all
then-existing bank credit arrangements and a new revolving and letter of credit
facility. Due principally to difficult intercreditor issues to resolve, the new
Revolving Credit and Participation Agreement (the "Master Credit Facility") was
not executed until March 14, 2001, at which time the Company paid down all their
outstanding bank debt. With the Master Credit Facility in place, the Company
took steps to access the equity markets and continued to dispose of
entertainment and aviation assets. However, these efforts were thwarted in the
spring of 2001 by unanticipated events. The sale of the remaining assets from
the non-core businesses took longer and yielded less proceeds than anticipated.
The energy crisis in California (which led to the substantially delayed payment
to the Company of approximately $75 million by two California utilities) and the
perception that the independent power sector was overbuilt contributed to a
reduction in demand for energy company securities. The delayed payment by the
two California utilities also caused the Company to seek cash flow covenant
waivers under the Master Credit Facility in June 2001. These waivers were
granted, but in consideration for the waivers the Company lost the capacity
under the Master Credit Facility to obtain letters of credit that it had
intended to provide to third parties in the event of a downgrade in the
Company's credit rating. The Company's ability to access the capital markets was
further hampered first by a sharp downturn in capital markets for energy
companies in the middle of 2001, and subsequently by the events of September 11,
2001, which dampened the capital markets generally, and the collapse of Enron,
which brought the energy sector further investor disfavor.
In December 2002, the Company publicly stated that it needed further
covenant waivers and that it was encountering difficulties in achieving access
to short-term liquidity. This resulted in a downgrade of the Company's credit
rating below investment grade. Consequently, under its contracts for two
waste-to-energy facilities the Company became obligated to provide credit
support in the amount of $50 million for each project. On March 1, 2002, the
Company availed itself of a grace period to defer for 30 days the payment of
approximately $4.6 million of interest on its $100 million principal amount
9.25% Debentures due 2002 (the "9.25% Debentures").
In March 2002, substantial amounts of fees under the Master Credit
Facility came due, but could not be paid without violating cash maintenance
covenants under the facility. In addition, draw notices totaling approximately
$105.2 million were presented on two letters of credit issued on behalf of the
Company. Although the bank lenders honored such letters of credit, the Company
had insufficient liquidity to reimburse the bank lenders as required under the
Master Credit Facility. Furthermore, approximately $148.7 million of the 6%
Convertible Debentures and the 5.75% Convertible Debentures were to mature in
2002.
Ultimately, the Company concluded that the commencement of the Chapter
11 Cases was in the best interest of all creditors as the best means by which to
protect the value of the Company's core business, reorganize its capital
structure and complete the disposition of its remaining non-core entertainment
and aviation assets.
Since the Initial Petition Date, the Debtors have continued their
efforts to dispose of non-core businesses. With approval of the Court, the
Debtors have sold the remaining aviation fueling assets, their interests in
Casino Iguazu ("Casino Iguazu") and La Rural Fairgrounds and Exhibition Center
("La Rural Fairgrounds," and with Casino Iguazu, the "Argentine Assets") in
Argentina, their interests in the Corel Centre in Ottawa, Canada (the "Corel
Centre") and in the Team and other miscellaneous assets related to the
entertainment business. In addition, in order to enhance the value of the
Company's core business, on September 23, 2002, management announced a reduction
in non-plant personnel, closure of satellite development offices and reduction
in all other costs not directly related to maintaining operations at their
current high levels. As part of the reduction in force, waste-to-energy and
domestic independent power headquarters management were combined and numerous
other structural changes were instituted in order to improve management
efficiency.
B. Events Leading to the Plans
Over the course of these proceedings, the Debtors have held discussions
with the Creditors Committee, representatives of the Prepetition Lenders and DIP
Lenders (together, the "Secured Bank Lenders") and the 9.25% Debenture holders
with respect to possible capital and debt structures for the Debtors and the
formulation of the Plans. A central element of these discussions and related
negotiations, described further in Section VI.C.12, was the possibility for the
Debtors and their secured and unsecured creditors to develop a plan of
reorganization involving an employee stock ownership plan or "ESOP."
After extensive negotiations, significant progress was made toward
determining that an ESOP could provide a useful framework for a plan of
reorganization. In order to better determine the viability of an ESOP, the
Debtors appointed a committee originally consisting of three of Covanta's senior
managers (the "ESOP Committee"), whose purpose it was to investigate various
issues from the perspective of the ESOP and the employees of the Reorganized
Debtors. Upon further investigation, the ESOP Committee concluded that a more
definitive determination of the viability of an ESOP required the appointment of
an independent fiduciary to represent the ESOP and the interests of employees
who would participate in the ESOP in reviewing the terms of any proposed ESOP
transaction and subsequently deciding whether the ESOP should participate in
such a transaction. In addition, the ESOP Committee determined that it was
imperative that any proposed ESOP transaction be structured to comply with all
of the applicable fiduciary requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and that the representation of the
ESOP and its participants by an independent fiduciary would be essential to
ensuring such compliance.
After conducting interviews with a number of potential candidates, the
ESOP Committee decided to retain U.S. Trust Company, N.A. ("U.S. Trust"),
because of its extensive experience in providing specialized management,
fiduciary and consulting services with respect to the formation of ESOPs, to act
as independent fiduciary on behalf of the ESOP. The ESOP Committee thereafter
negotiated a form of agreement with U.S. Trust for the provision of fiduciary
services in connection with a potential ESOP (the "U.S. Trust Agreement"). On
July 1, 2003, the Court entered an order (Docket No. 1719) authorizing Covanta
to engage U.S. Trust, as well as retain Duff & Phelps ("D&P") as a financial
advisor to U.S. Trust, in connection with the potential ESOP transaction.
Pursuant to this order, Covanta, the ESOP Committee and U.S. Trust, effective as
of July 1, 2003, entered into the U.S. Trust Agreement.
Pursuant to the U.S. Trust Agreement, U.S. Trust is authorized to
review the terms of the Reorganization Plan and the proposed new corporate
structure of the Reorganized Debtors. As part of this review, U.S. Trust's
responsibilities are to (i) conduct appropriate due diligence on the Company and
the proposed ESOP, (ii) negotiate on behalf of the proposed ESOP the terms
governing the contribution of Reorganized Covanta's stock to the proposed ESOP
and (iii) determine, on behalf of the proposed ESOP, whether to accept a
proposed contribution of Reorganized Covanta's stock to the proposed ESOP. In
exercising these responsibilities, U.S. Trust will rely on the opinion of its
financial advisor, D&P, that the terms and conditions of the proposed
contribution are fair and reasonable to the ESOP from a financial point of view.
The Company has agreed to indemnify U.S. Trust for any losses, claims, damages
or liabilities, including reasonable attorneys' fees, arising in any manner in
connection with the provision of services or exercise of responsibilities under
the U.S. Trust Agreement, unless such losses, claims, damages or liabilities are
finally adjudged to have resulted from U.S. Trust's bad-faith, self-dealing,
breach of fiduciary duty, negligence or willful misconduct.
The fee structure of the U.S. Trust Agreement contemplates, in addition
to the reimbursement of reasonable expenses, a flat dollar fee of $300,000,
payable to U.S. Trust regardless of whether the Reorganization Plan is
consummated. The Company has already paid to U.S. Trust $150,000 as compensation
for the services it has performed and will continue to perform in connection
with the ESOP transaction. The final installment of $150,000 will be paid to
U.S. Trust when it is prepared to make a final decision regarding whether or not
to accept, on behalf of the ESOP, the proposed contribution of Reorganized
Covanta stock. In addition, the U.S. Trust Agreement contemplates the payment to
D&P of a reasonable fee, not to exceed $175,000, and reimbursement of reasonable
expenses, not to exceed $25,000, in connection with its rendering of the
financial opinion. No portion of the fee payable to U.S. Trust is contingent in
any way upon the consummation of the Reorganization Plan or an affirmative
decision by U.S. Trust to accept the proposed contribution. The ESOP Committee
believes the fee structure is a critical component of its efforts to ensure that
the ESOP transaction complies with the fiduciary requirements of ERISA.
U.S. Trust's decision with respect to whether or not to accept the
proposed contribution of Reorganized Covanta stock is crucial to the successful
restructuring of the Debtors. The consummation of the Reorganization Plan is
predicated on U.S. Trust's acceptance of the contribution on behalf of the ESOP.
There is no guarantee that U.S. Trust will decide that the acceptance of such
contribution is in the best interests of the ESOP and its participants. The
Debtors expect that U.S. Trust will be prepared to make its decision prior to
the approval of this Disclosure Statement. However, due to the nature of the
services to be performed by U.S. Trust in connection with the ESOP transaction,
as well as the potential delay that would result from further negotiations
between U.S. Trust and with the Debtors' various creditor constituencies, it is
possible that U.S. Trust will not be prepared to make its final decision until a
later time.
C. General Structure of the Plans
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of its creditors. Upon the filing of a petition for
relief under chapter 11, section 362 of the Bankruptcy Code provides for an
automatic stay of substantially all actions and proceedings against the debtor
and its property, including all attempts to collect claims or enforce liens that
arose prior to the commencement of its chapter 11 case.
The process of satisfying claims against and interests in the Debtors
is set forth in the Reorganization Plan and the Liquidation Plan. Confirmation
of the Plans by the Court makes the Plans binding upon the Debtors, any issuer
of securities under the Plans, any person or entity acquiring property under the
Plans and any creditor of or equity security holder in the Debtors, whether or
not such creditor or equity security holder (i) is impaired under or has
accepted the Plans or (ii) receives or retains any property under the Plans.
Subject to certain limited exceptions and other than as provided in the
Reorganization Plan itself or in the order confirming the Plans (the
"Confirmation Order"), the confirmation of the Reorganization Plan discharges
the Reorganizing Debtors and Heber Debtors from any debt that arose prior to the
Effective Date of the Reorganization Plan, substitutes therefor the obligations
specified under the confirmed Reorganization Plan, and terminates all rights and
interests of equity security holders except to the extent expressly provided
therein. The terms of the Reorganization Plan are based upon, among other
things, the Debtors' assessment of their ability to achieve the goals of their
Business Plan (as defined in Section VI.C.16 herein), make the distributions
contemplated under the Reorganization Plan and pay certain of their continuing
obligations in the ordinary course of the businesses of the Reorganizing
Debtors. In accordance with section 1141(d)(3) of the Bankruptcy Code, the
confirmation of the Liquidation Plan does not discharge the Liquidating Debtors
from any Claims asserted against them.
Under the Reorganization Plan and the Liquidation Plan, Claims against
and Interests in the Reorganizing Debtors, Heber Debtors and the Liquidating
Debtors, respectively, are divided into Classes according to their relative
seniority and other criteria. Each Reorganizing Debtor and Liquidating Debtor is
a proponent of the respective Plans within the meaning of section 1129 of the
Bankruptcy Code. The Reorganizing Debtors' Estates, Heber Debtors' Estates and
the Liquidating Debtors' Estates have been deemed consolidated solely for
purposes of administration, procedure and voting. By virtue of this deemed
consolidation, in some instances, claims against multiple Reorganizing Debtors,
Heber Debtors and Liquidating Debtors have been grouped together into single
Classes of Claims.
Except to the extent a Reorganizing Debtor, Liquidating Debtor or Heber
Debtor expressly assumes an obligation or liability of another Debtor, the Plans
will not operate to impose liability on the Reorganizing Debtors, Heber Debtors
and Liquidating Debtors for the Claims against any other Debtor or the debts and
other obligations of any other Debtor. From and after the Effective Date, each
Reorganizing Debtor and Heber Debtor will be separately liable for its own debts
and obligations arising on and after the Effective Date. Additionally, from and
after the Effective Date, each Liquidating Debtor will be separately liable for
its own debts and obligations arising on and after the Effective Date, although,
as most of the Liquidating Debtors are non-operating and there is no objective
to continue or engage in the conduct of a trade or business, except to the
extent reasonably necessary to, and consistent with the liquidating purpose of
the Liquidation Plan, the Liquidating Debtors do not anticipate that they will
incur any new debts or obligations on or after the Effective Date.
After careful review of the Debtors' current and projected operations,
estimated recoveries in a complete liquidation scenario, prospects as an ongoing
business, and the strategic Business Plan developed by management and discussed
more fully in Section VI.C.16, the Debtors have concluded that the recovery to
the Debtors' creditors will be maximized by the Reorganizing Debtors and Heber
Debtors' continued operation as a going concern and the Liquidating Debtors'
dissolution in accordance with applicable law. The Reorganizing Debtors and
Heber Debtors believe that their businesses and assets have significant value
that would not be realized in a complete liquidation. According to the
liquidation valuation analyses prepared by the Reorganizing Debtors and Heber
Debtors with the assistance of their financial advisors, the value of each of
the estates of the Reorganizing Debtors and Heber Debtors, respectively, is
considerably greater as a going concern than in a liquidation. For a complete
discussion of the liquidation value of the Reorganizing Debtors and Heber
Debtors, please refer to Exhibit E attached hereto. The Debtors believe that
this value is further enhanced by segregating the Liquidating Debtors, whose
assets are primarily non-core and unrelated to the core businesses of the
Reorganizing Debtors and Heber Debtors.
Accordingly, the Debtors believe that the structures of the
Reorganization Plan and the Liquidation Plan provide the best recoveries
possible for holders of Claims against the Debtors and strongly recommend that,
if you are entitled to vote, you vote to ACCEPT the Reorganization Plan and the
Liquidation Plan. The Debtors believe that any alternative to confirmation of
the Plans, such as complete liquidation or attempts by another party in interest
to file a plan, could result in significant delays, litigation and costs, as
well as significantly reduced recovery by creditors.
D. Restructuring of the Debtors
The Debtors filed the Reorganization Plan and the Liquidation Plan with
the Court on September 8, 2003. The Reorganization Plan is premised upon the
economic benefits to be derived from a framework for a restructuring of the
Debtors built around the establishment and implementation of an ESOP. By
establishing an ESOP to which Reorganized Covanta will contribute all of its
stock, the employees of the Reorganized Debtors, as participants in the ESOP,
will receive an equity interest in Reorganized Covanta that provides employees
an opportunity to profit from the value of Reorganized Covanta Common Stock. In
addition, the implementation of the ESOP and Reorganization Plan (which includes
reorganized Covanta electing S corporation status for federal income tax
purposes) is intended to result in the Debtors realizing a significant increase
in available after-tax cash flow through a substantial reduction in federal
income tax liabilities that will permit the Debtors to pay down their Allowable
Claims, thereby permitting the Reorganizing Debtors to emerge from bankruptcy
and permitting the Reorganizing Debtors to benefit the employees participating
in the ESOP. Furthermore, the feasibility of the Reorganization Plan is further
premised upon an ability to implement the Business Plan for the Reorganizing
Debtors. The Business Plan (as defined in Section VI.C.16 herein) and
accompanying financial projections through December 31, 2007, which include the
preliminary estimated effects of the required adoption of "fresh start"
accounting (the "Projections"), are described in detail in Section VI.C.16.
While the Company believes that the Business Plan and Projections are reasonable
and appropriate, they include a number of assumptions that may differ from
actual results and are subject to a number of risk factors. See Section VIII for
a discussion of such factors.
The Debtors expect to sell their interests in certain geothermal energy
projects (each project, a "Geothermal Project") in Heber, California (the
"Geothermal Debtor Equity").(5) The Debtors expect to effect such sale pursuant
to either Section 363 of the Bankruptcy Code or through a plan of reorganization
for the Heber Debtors (the "Heber Plan") to be filed with respect to the Debtor
entities to be sold, in either event contemplating selling the Geothermal Debtor
Equity on substantially similar economic terms. The Debtors expect to file a
Section 363 sale motion on or about September 8, 2003, and reserve the right to
- -----------------
(5) Non-debtor affiliates of the Debtors also expect to sell their interest in
certain geothermal energy projects operated by Mammoth Pacific, L.P., also
a non-debtor.
file the Heber Plan based on substantially similar economic terms to the
proposed Section 363 sale. Consummation of the the sale of Geothermal Debtor
Equity under either a Section 363 sale or the Heber Plan (either, the
"Geothermal Sale") would result in the transfer of ownership of certain
Reorganizing Debtors and Heber Debtors that own or lease the Geothermal Projects
to certain buyers. The Reorganization Plan is premised on the consummation of
the Geothermal Sale, as the proceeds of the Geothermal Sale will provide the
Reorganized Debtors with funds necessary to emerge from Chapter 11 protection.
Additionally, the Liquidation Plan provides for the complete
liquidation of the Liquidating Debtors. Substantially all of the Liquidation
Assets of the Liquidating Debtors have already been sold. The Debtors have
proposed that the Secured Bank Lenders and 9.25% Debenture Holders contribute
their Distributions, to which they would otherwise be entitled under the
Liquidation Plan (consisting of (i) the proceeds of certain postpetition asset
sales and (ii) certain other Claims of the Liquidating Debtors upon which the
Secured Bank Lenders and 9.25% Debenture Holders have a first priority secured
lien) to Reorganized Covanta. The Debtors further propose that up to $500,000 of
the Cash subject to the transfers described in the previous sentence be
transferred to the Operating Reserve, which shall be used by the Liquidating
Trustee to fund the implementation of the Liquidation Plan. The transfers
described above will assist the Reorganized Debtors in their reorganization.
Furthermore, to the extent that there are Liquidation Assets that have not
already been sold and/or transferred to Reorganized Covanta (the "Residual
Liquidation Assets"), the Liquidation Plan provides for the complete liquidation
and monetization (or abandonment, as the case may be) of such Residual
Liquidation Assets and the complete dissolution of the Liquidating Debtors
pursuant to applicable state law.
E. Compromises and Settlements Incorporated into the Plans
Under the Reorganization Plan and the Liquidation Plan, Claims and
Equity Interests are divided into Classes. The Distributions provided for under
the Plans are based upon the relative priorities and rights of members of those
respective Classes.
The Plans also embody the proposed compromise and settlement of claims
and causes of action among the creditors in certain Classes. The obligations of
Prepetition Borrowers (including Covanta and certain of its subsidiaries under
Tranche B of the DIP Facility) under the Master Credit Facility are expected to
be approximately $400 million (excluding undrawn letters of credit) together
with approximately $34 million in accrued and unpaid fees and interest. These
obligations were secured by a first priority lien on substantially all of the
Prepetition Borrowers' assets, to the extent permitted, and by a pledge of 100%
of the shares of most of Covanta's existing and future domestic subsidiaries,
and 65% of the shares of substantially all of Covanta's foreign subsidiaries
(the "Prepetition Collateral"). Pursuant to the order of the Court authorizing
the DIP Financing Facility (as defined below), the Debtors stipulated, among
other things, as to the priority, validity and enforceability of the liens and
security interests that had been granted to the Prepetition Lenders prior to the
commencement of the Chapter 11 Cases. Accordingly, the Prepetition Lenders are
entitled to payment in full of their Allowed Secured Claim up to the full value
of their security interest in the assets of the Prepetition Borrowers. However,
in connection with the negotiations undertaken in development of the Plans, the
Debtors have estimated the Prepetition Lenders' aggregate Allowed Secured Claim
in the amount of $434 million, including interest and fees, which amount is
subject to final allowance by the Court. In addition, distributions to the
Prepetition Lenders are subject to certain priorities vis-a-vis each other as a
result of the Intercreditor Agreement, among the Prepetition Lenders and the
Company, dated March 14, 2001, (the "Intercreditor Agreement"). Similarly, the
Debtors have estimated the 9.25% Debenture Holders' Allowed Secured Claims in
the aggregate amount of $105 million, which amount is subject to final allowance
by the Court.
The proposed settlement of the Loss Sharing Litigation will also be
incorporated into the Reorganization Plan and become effective on the
Reorganizing Debtors and Heber Debtors' emergence from Chapter 11. Under the
settlement, the current synthetic pooling arrangement (i.e. loss sharing under
the Intercreditor Agreement) will be replaced with an actual pooling of
exposures among the Canadian Loss Sharing Lenders and the Pooled Facility
Lenders.(6) This would be accomplished by the Pooled Facility Lenders purchasing
a ratable share of the funded exposures of the Canadian Loss Sharing Lenders
(and receiving a distribution on such amounts from the Reorganizing Debtors and
Heber Debtors under a Chapter 11 Plan).(7) The Canadian Loss Sharing Lenders, in
turn, would purchase a like amount of participations in the Tranche B Facility
of the DIP Credit Agreement and thereby reduce the Pooled Facility Lenders'
existing exposure under that facility and any replacement thereof.
- ----------------
(6) Capitalized terms in this paragraph not otherwise defined herein or in the
Reorganization Plan shall have the meaning set forth in the Prepetition
Credit Agreement.
(7) Based upon current projections, the Pooled Facility Lenders will purchase
approximately $14 million of the Canadian Loss Sharing Lenders' funded
debt. After giving effect to the purchase (and all prior loss sharing
payments), the remaining Tranche C Commitments (anticipated to be
approximately US $16 million at such time) will be terminated.
As described in more detail herein, as part of the overall negotiations
of the Reorganization Plan and the Liquidation Plan, the Debtors have proposed
that the Secured Bank Lenders and the 9.25% Debenture Holders contribute certain
Distributions to Reorganized Covanta. As further described herein, $500,000 of
the Distributions or proceeds described above will be used to fund the Operating
Reserve established under the Liquidation Plan. The Debtors believe that the
transfer of such Distributions and other Liquidation Assets will enhance the
value of Reorganized Covanta and inure to the benefit of the Secured Bank
Lenders and the 9.25% Debenture Holders via their Distributions under the
Reorganization Plan.
F. Treatment of Claims and Interests Under the Plans
Pursuant to the Plans, certain unclassified Claims, including
Administrative Priority Claims (other than the DIP Facility Claims and Claims
for compensation and reimbursement) and Priority Tax Claims, will receive
payment in Cash (i) on the later of the Effective Date or as soon as practicable
after such Claims are Allowed, or (ii) in installments over time (as permitted
by the Bankruptcy Code), or (iii) as agreed with the holders of such Claims. The
DIP Facility Claims, including those contingent claims relating to letters of
credit still outstanding, are included as Administrative Claims and will be paid
or otherwise satisfied on the Effective Date in accordance with Section 2.5 of
the Reorganization Plan by reinstatement of such contingent obligations under
the Reinstated L/C Facility or by replacement by the Exit Financing Facility.
While certain DIP Facility Claims will not be paid in full as a result of the
reinstatement of these contingent obligations under the Reorganization Plan,
acceptance of such treatment by a requisite majority of DIP Lenders, as provided
under the DIP Financing Facility, shall be binding on all DIP Lenders.
Additionally, the Plans provide that all entities seeking an award by the Court
of compensation for services rendered or reimbursement of expenses incurred
through and including the Confirmation Date under subsections 503(b)(2),
503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code shall file their
respective final applications for allowance of compensation for services
rendered and reimbursement of expenses incurred by the date that is forty-five
(45) days after the Effective Date.
All other Claims and Interests are classified separately in various
Classes in the Debtors' Chapter 11 Cases and will receive the distributions and
recoveries (if any) described in the relevant Plan. The following tables
summarize the classification and treatment under the Plans of the Claims and
Equity Interests and in each case, reflects the amount and form of consideration
that will be distributed in exchange for and in full satisfaction, settlement,
release and discharge of such Claims and Interests. The classification and
treatment for all Classes are described in more detail under Section VII of this
Disclosure Statement.
- --------------------------------------------------------------------------------------------------------------------
Class Reorganization Plan Liquidation Plan
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class 1 Allowed Priority Non-Tax Claims Allowed Priority Non-Tax Claims
Treatment of Class 1 Claims is summarized on Treatment of Class 1 Claims is summarized on
page xiii page xiii
- --------------------------------------------------------------------------------------------------------------------
Class 2 Allowed Project Debt Claims N/A
Treatment of Class 2 Claims is summarized on
page xiv
- --------------------------------------------------------------------------------------------------------------------
Class 2H Allowed Heber Secured Claims N/A
Treatment of Class 2H Claims is summarized on
page xiv
- --------------------------------------------------------------------------------------------------------------------
Class 3 Subclass 3A: Allowed Secured Bank Claims Class 3A: Allowed Liquidation Secured Claims
Subclass 3B: Allowed Secured 9.25% Debenture Class 3B: Allowed Secured CSFB Claim against Ogden
Claims FMCA
Treatment of Class 3 Claims is summarized on Treatment of Class 3 Claims is summarized on
page xvi page xvi
- --------------------------------------------------------------------------------------------------------------------
Class 4 Allowed Operating Company Unsecured Claims N/A
Treatment of Class 4 Claims is summarized on
page xix
- --------------------------------------------------------------------------------------------------------------------
Class 5 Allowed Covanta Energy Americas Unsecured N/A
Claims
Treatment of Class 5 Claims is summarized on
page xx
- --------------------------------------------------------------------------------------------------------------------
Class 6 Allowed Covanta Unsecured Claims N/A
Treatment of Class 6 Claims is summarized on
page xxi
- --------------------------------------------------------------------------------------------------------------------
Class 7 Allowed Heber Unsecured Claims Allowed Unsecured Liquidation Claims
Treatment of Class 7 Claims is summarized on Treatment of Class 7 Claims is summarized on
page xxiii page xxii
- --------------------------------------------------------------------------------------------------------------------
Class 8 Allowed Convenience Claims N/A
Treatment of Class 8 Claims is summarized on
page xxiv
- --------------------------------------------------------------------------------------------------------------------
Class 9 Intercompany Claims Intercompany Claims
Treatment of Class 9 Claims is summarized on Treatment of Class 9 Claims is summarized on
page xxv page xxv
- --------------------------------------------------------------------------------------------------------------------
Class 10 Subordinated Claims N/A
Treatment of Class 10 Claims is summarized on
page xxvii
- --------------------------------------------------------------------------------------------------------------------
Class 11 Equity Interests in Subsidiary Debtors Equity Interests in Liquidating Debtors
Treatment of Class 11 Claims is summarized on Treatment of Class 11 Claims is summarized on
page xxviii page xxvii
- --------------------------------------------------------------------------------------------------------------------
Class 12 Equity Interests in Covanta Huntington, N/A
Covanta Onondaga and DSS Environmental
Treatment of Class 12 Claims is summarized on
page xxix
- --------------------------------------------------------------------------------------------------------------------
Class 13 Old Covanta Stock Equity Interests N/A
Treatment of Class 13 Claims is summarized on
page xxx
- --------------------------------------------------------------------------------------------------------------------
Class 14 Equity Interests in the Heber Debtors N/A
Treatment of Class 14 Claims is summarized on
page xxxi
- --------------------------------------------------------------------------------------------------------------------
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[_______]
Class 1: Each holder of an Allowed Class 1 Claim shall
receive, in full settlement, release and
Allowed Priority Non-Tax discharge of its Class 1 Claim, either (i)
Claims Cash, on the Distribution Date, in an amount
equal to such Allowed Claim, or (ii) on such
other less favorable terms as the Reorganizing
Debtors and Reorganized Debtors and the holder
of an Allowed Priority Non-Tax Claim agree.
Class 1 Claims are Unimpaired, and the holders
of Allowed Class 1 Claims are not entitled to
vote to accept or reject the Reorganization
Plan.
Estimated Percentage Recovery: [_______]%
Treatment Under Liquidation Plan
--------------------------------
Estimated Allowed Claims: $[_______]
In full settlement, release and discharge of
its Class 1 Claim, each holder of an Allowed
Class 1 Claim in Class 1 shall receive Cash in
an amount equal to such Allowed Class 1 Claim
on the Initial Liquidation Distribution Date.
Class 1 Claims are Unimpaired, and holders of
Allowed Class 1 Claims are not entitled to vote
to accept or reject the Liquidation Plan.
Estimated Percentage Recovery: [________]%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 2: On the Effective Date, the legal, equitable and
contractual rights of the holders of Allowed
Allowed Project Class 2 Claims will be reinstated in full
Debt Claims satisfaction, release and discharge of their
respective Class 2 Claims and will remain
unaltered under the Reorganization Plan, except
as the Reorganizing Debtors and the holders of
Allowed Class 2 Claims may otherwise agree or
as such holders may otherwise consent.
Notwithstanding the foregoing, no contractual
provisions or applicable law that would entitle
the holder of an Allowed Class 2 Claim to
demand or receive payment of such Claim prior
to the stated maturity of such Claim, terminate
any contractual relationship or take such other
enforcement action (as may be applicable) from
and after the occurrence of a default that
occurred prior to the Effective Date shall be
enforceable against the Reorganized Debtors.
Class 2 Claims are Unimpaired, and the holders
of Allowed Class 2 Claims are not entitled to
vote to accept or reject the Reorganization
Plan.
Estimated Percentage Recovery: [________]%
Estimated Allowed Claims: $[________]
Class 2H: On the Effective Date, to the extent such
claims are not paid in full on or prior to the
Allowed Heber Effective Date, the legal, equitable and
Secured Claims contractual rights of the holders of Allowed
Class 2H Claims will be reinstated in full
satisfaction, release and discharge of their
respective Class 2H Claims and will remain
unaltered under the Reorganization Plan, except
as the Heber Debtors and the holders of Allowed
Class 2H Claims may otherwise agree or as such
holders may otherwise consent; provided,
however, that that the assets of the Heber
Debtors subject to Liens, Claims and
encumbrances of holders of Allowed Class 2H
Claims may be sold, subject to such Liens,
Claims and encumbrances, as part of the
Geothermal Sale contemplated by this
Reorganization Plan, and provided further that
to the extent an Allowed Class 2H Claim is paid
in full on or prior to the Effective Date, the
Liens, Claims and encumbrances securing such
claim shall be released and discharged
immediately upon such payment in full.
Notwithstanding the foregoing, no contractual
provisions or applicable law that would entitle
the holder of an Allowed Class 2H Claim to
demand or receive payment of such Claim prior
to the stated maturity of such Claim, termimate
any contractual relationship or take such other
enforcement action (as may be applicable) from
and after the occurrence of a default that
occurred prior to the Effective Date shall be
enforceable against the Reorganized Heber
Debtors.
Class 2H Claims are Unimpaired, and the holders
of Allowed Class 2H Claims are not entitled to
vote to accept or reject the Reorganization
Plan.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description
- -----------------
Class 3: Under the Reorganization Plan, Class 3 is
divided into two Subclasses for Distribution
Allowed Reorganized purposes: Subclass 3A consists of the Allowed
Covanta Secured Claims Secured Bank Claims and Subclass 3B consists of
Allowed Secured 9.25% Debenture Claims. Under
the Liquidation Plan, Class 3 is also divided
into two Subclasses for Distribution purposes:
Subclass 3A consists of the Allowed Secured
Bank Claims and the Allowed 9.25% Debenture
Claims and Subclass 3B consists of the Allowed
CSFB Claim.
Treatment Under Reorganization Plan
-----------------------------------
Estimated Allowed Claims: $[ ]
Subclass 3A: Holders of Allowed Subclass 3A Claims shall
receive the Subclass 3A Recovery in full
Allowed Reorganized settlement, release and discharge of their
Covanta Secured Claims-- aggregate Allowed Subclass 3A Claims. The
Secured Bank Claims Subclass 3A Recovery shall be distributed among
holders of Allowed Subclass 3A Claims as
follows:
First, in full settlement, release and
discharge of the Allowed Priority Bank
Claims, the Priority Bank Lenders shall
receive first, to the extent available as
part of the Subclass 3A Recovery, Excess
Distributable Cash in an amount equal to
the amount of such Allowed Priority Bank
Claims and thereafter New High Yield
Secured Notes in a principal amount equal
to the remaining amount of such Allowed
Priority Bank Claims;
Second, immediately after making the
Distribution on account of the Allowed
Priority Bank Claims, in full settlement,
release and discharge of Non-Priority
Subclass 3A Claims, the holders of Allowed
Non-Priority Subclass 3A Claims shall
receive a Pro Rata Subclass Share of the
remaining Subclass 3A Recovery where such
distribution shall consist of
Distributable Cash, New High Yield Secured
Notes and New Lender Warrants, which types
of Distributions may be further allocated
depending on whether the holder of a
Subclass 3A Claim is a New Facility
Lender, one of the Additional New Lenders
or a Non-Participating Lenders;
[Notwithstanding anything in the
Reorganization Plan to the contrary,
immediately prior to any Distribution to
holders of Subclass 3A Claims, the
settlement of the Loss Sharing Litigation
as described on Exhibit __ to the
Reorganization Plan shall be deemed
effective and implemented for purposes of
Distributions under the Reorganization
Plan.]
Subclass 3A Claims are Impaired, and the
holders of Allowed Claims in such Subclass are
entitled to vote to accept or reject the
Reorganization Plan. The members of Subclass 3A
shall vote together with members of Subclass 3B
as a single Class.
Estimated Percentage Recovery: [_______]%
Treatment Under Reorganization Plan
-----------------------------------
Estimated Allowed Claims: $[ ]
Subclass 3B: On the Distribution Date, holders of Allowed
Subclass 3B Claims shall receive the Subclass
Allowed Reorganized 3B Recovery in full settlement, release and
Covanta Secured discharge of their respective Allowed Subclass
Claims--9.25% Debenture 3B Claims. The Subclass 3B Recovery shall be
Claims distributed among holders of Allowed Subclass
3B Claims as follows:
First, in full settlement, release and
discharge of Allowed Subclass 3B Claims,
each holder of an Allowed Subclass 3B
Claim shall receive its Pro Rata Subclass
Share of Distributions of the Subclass 3B
Recovery; provided, however, that with
respect to the Subclass 3B Recovery, (i)
the New Facility Lenders in Subclass 3B,
if any, shall receive their Secured Value
Distribution first, to the extent
available, in the form of Distributable
Cash and thereafter in the form of New
High Yield Secured Notes; and (ii) the
members of the Additional New Lenders in
Subclass 3B shall receive their Secured
Value Distribution solely in the form of
New High Yield Secured Notes plus a Pro
Rata Subclass Share of the New Lender
Warrants; and provided further that the
Non-Participating Lenders in Subclass 3B
shall not receive any Distributable Cash
or any Distribution of New Lender
Warrants.
Second, in the event that the parties to
the 9.25% Adversary Proceeding reach a
settlement to their dispute, the
Distributions made to each holder of an
Allowed Subclass 3B Claim shall be subject
to adjustment and modification in
accordance with the provisions of such
settlement.
Subclass 3B Claims are Impaired, and the
holders of Allowed Claims in such Subclass are
entitled to vote to accept or reject the
Reorganization Plan. The members of Subclass 3B
shall vote together with the members of
Subclass 3A as a single Class.
Estimated Percentage Recovery [__________]%
Treatment Under Liquidation Plan
--------------------------------
Estimated Allowed Claims: $[____________]
Subclass 3A: In full settlement, release and discharge of
its Class 3A Claim, (I) (a) each holder of an
Allowed Liquidation Allowed Liquidation Secured Claim would be
Secured Claims--Secured entitled, absent the Secured Creditor
Bank Claims and 9.25% Direction, to receive on any Liquidation
Debenture Claims Distribution Date, such holder's Pro Rata Share
of the sum of any Net Liquidation Proceeds and
Liquidation Assets of the Liquidating Pledgor
Debtors existing, but not yet distributed on
such Liquidation Distribution Date and (b) on
the Effective Date, (i) such holder of a Class
3A Allowed Liquidation Secured Claim shall be
deemed to have received, on account of its
Subclass 3A Allowed Liquidation Secured Claim,
the Distribution it receives as a holder of a
Subclass 3A or Subclass 3B Claim under the
Reorganization Plan, as applicable, in full
satisfaction of its Subclass 3A Claim under the
Liquidation Plan and (ii) the Liquidating
Trustee and the Liquidating Debtors will
implement the Secured Creditor Direction and
(II) each holder of an Allowed Liquidation
Secured Claim shall be entitled to receive on
any Liquidation Distribution Date, such
holder's Pro Rata Share of any Net Liquidation
Proceeds of any Liquidating Pledgor Debtor's
Residual Liquidation Assets.
Subclass 3A Claims are Impaired and the holders
of Claims in such subclass are entitled to vote
to accept or reject the Liquidation Plan.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
Estimated Allowed Claim: $[____________]
Subclass 3B: On the Effective Date, or as soon thereafter as
practicable, Ogden FMCA shall cause to be
transferred, pursuant to Section 6.1(b) of the
Allowed Liquidation Liquidation Plan, to CSFB,
in its capacity as holder of the Allowed
Secured Claims--the CSFB Secured CSFB Claim,
the Bank Agreement Ogden FMCA Collateral, in
full Claim settlement, release and discharge of
its Class 3B Claim.
The Class 3B Claim is Impaired and the holder
of the Claim in such subclass is entitled to
vote to accept or reject the Liquidation Plan.
Estimated Percentage Recovery: [________]%
Class Description Treatment Under Reorganization Plan
Estimated Allowed Claims: $[________]
Class 4: On the Distribution Date, each holder of an
Allowed Class 4 Claim shall receive, in full
Allowed Operating settlement, release and discharge of its Class
Company Unsecured Claims 4 Claim, a Distribution of Reorganization Plan
Unsecured Notes in the aggregate principal
amount equal to the amount of its Allowed Class
4 Claim.
With respect to Allowed Class 4 Claims for and
to the extent which insurance is available,
such Class 4 Claims shall be paid in the
ordinary course of the Reorganizing Debtors'
business to the extent of such insurance, when
any such Claim becomes an Allowed Claim
insurance proceeds become available; provided,
however, that to the extent insurance is not
available or is insufficient, treatment of such
Allowed Class 4 Claims shall be as otherwise
provided for holders of Class 4 Claims.
Additionally, each holder of an Allowed Class 4
Claim shall have the option to elect to be
treated as a Class 4 Claim, in which case, at
the option of the Reorganizing Debtors, each
such holder of an Elective Convenience Claim
shall be entitled to receive either (A) payment
in Cash, in an amount equal to the lesser opf
$2,500 or 75% of such Allowed Class 4 Claim, or
(B) the Reorganization Plan Unsecured Notes
that such holder would otherwise have been
entitled to receive for its Allowed Class 4
Claim pursuant to the Reorganization Plan if
such holder had not made such an election.
Class 4 Claims are Impaired, and the holders of
Allowed Class 4 Claims are entitled to vote to
accept or reject the Reorganization Plan.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 5: On the Distribution Date, each holder of an
Allowed Class 5 Claim shall receive, in full
Allowed Covanta Energy satisfaction, release and discharge of its
Americas Unsecured Claims Class 5 Claim, a Distribution of Reorganization
Plan Unsecured Notes in the aggregate principal
amount equal to the amount of its Allowed Class
5 Claim.
Class 5 Claims are Impaired, and the holders of
Allowed Class 5 Claims are entitled to vote to
accept or reject the Reorganization Plan.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Treatment Under Reorganization Plan
Estimated Allowed Claims: $[________]
Class 6: On the Distribution Date, each holder of an
Allowed Class 6 Claim shall receive, in full
satisfaction, release and discharge of its
Allowed Covanta Class 6 Claim, (1) Reorganization Plan Warrants
Unsecured Claims representing 7 1/2% of the equity of
Reorganized Covanta, subject to any agreed upon
pro rata dilution imposed on all Reorganization
Plan Warrants, as required for ESOP purposes,
(2) 5% of the first $80 million of net cash
proceeds when realized from the sale of the
CPIH assets and which proceeds are distributed
to holders of Allowed Class 3 Claims , (3) 10%
of Reorganized CPIH Preferred Stock; provided,
however, that such Preferred Stock shall only
be entitled to distributions to the extent of
cash proceeds when realized from the sale of
the CPIH assets in excess of $90 million, (4)
the waiver by the Prepetition Lenders [and the
holders of the 9.25% Debentures] of (i) any
Deficiency Claim on account of the Allowed
Secured Bank Claim [and the Allowed Secured
Claim of the 9.25% Debentures] and (ii) the
subordination provisions contained in the
Convertible Subordinated Bonds, and (5) all
proceeds from any cause of action or claim of
the Reorganizing Debtors arising under sections
544, 545, 547, 548, 549 and 550 of the
Bankruptcy Code (the "Avoidance Actions"), and
the right to pursue any Avoidance Actions on
terms to be agreed upon with the Reorganizing
Debtors; provided that in no event shall such
Avoidance Actions or other actions include
claims or causes of action against any of the
Prepetition Lenders, DIP Lenders or the holders
of the 9.25% Debentures. In the event that the
parties to the 9.25% Adversary Proceeding reach
a settlement to their dispute, the
Distributions made to each holder of an Allowed
Class 6 Claim (other than a Class 6 Claim
consisting of a 9.25% Deficiency Claim or a
Prepetition Lender Deficiency Claim) shall be
subject to adjustment and modification in
accordance with the provisions of that
settlement. With respect to Allowed Class 6
Claims for and to the extent which insurance is
available, such Class 6 Claims shall be paid in
the ordinary course of the Reorganizing Debtors
business to the extent of such insurance, when
any such Claim becomes an Allowed Claim and
such insurance proceeds become available;
provided, however, that to the extent insurance
is not available or is insufficient, treatment
of such Allowed Class 6 Claims shall be as
otherwise provided in the Reorganization Plan.
The Committee and the Bondholders Committee
have reached a tentative settlement in
principle of the 9.25% Debentures Adversary
Proceeding. To achieve a consensual settlement,
final agreement and approval by the Bondholders
Committee remains subject to their approval of
the treatment of the 9.25% Debentures Claims
under the Reorganization Plan.
[Furthermore, the subordination provisions
contained in the Convertible Subordinated Bonds
shall be enforced against the holders of
Convertible Subordinated Bond Claims, such that
all Distributions that the holders of
Convertible Subordinated Bond Claims would
otherwise be entitled to receive under the
Reorganization Plan, shall instead be
Distributed on a pro rata basis the holders of
Allowed Class 6 Claims that are entitled to the
benefit of such subordination provisions.]
The Plans and this Disclosure Statement may be
modified after the date hereof in order to
conform them to the terms of this tentative
settlement.
Estimated Percentage Recovery: [_______]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 7:
Allowed Heber On the Distribution Date, each holder of an
Unsecured Claims Allowed Class 7 Claim shall receive, in full
satisfaction, release and discharge of its
Class 7 Claim, a Cash payment equal to the full
amount of its Allowed Class 7 Claim, on the
Distribution Date.
Class 7 Claims are Unimpaired and the holders
of Allowed Class 7 Claims are not entitled to
vote to accept or reject the Reorganization
Plan.
Treatment Under Liquidation Plan
Estimated Allowed Claims: $[____________]
Allowed Unsecured The holders of Class 7 Claims shall not be
Liquidation Claims and entitled to receive any Distribution under the
Allowed Insured Claims Liquidation Plan, provided, however, that with
respect to Allowed Class 7 Claims for and to
the extent to which insurance is available,
such Allowed Class 7 Claims shall be paid in
the ordinary course of the Liquidating Debtors'
business to the extent of such insurance, when
any such Claims become Allowed Claims and such
insurance proceeds become available; provided,
further, that to the extent that insurance is
not available or is insufficient, treatment of
such Allowed Class 7 Claim shall be as
otherwise provided in the Liquidation Plan.
Class 7 Claims are Impaired and the holders of
Allowed Claims in such Class are conclusively
presumed to reject the Liquidation Plan. The
votes of holders of Class 7 Claims will not be
solicited.
Estimated Percentage Recovery: [________]%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 8: On the Distribution Date, each holder of an
Allowed Class 8 Claim shall receive, in full
Allowed Convenience satisfaction, release and discharge of its
Claims Class 8 Claim, a paymentin Cash, in an amount
equal to seventy-five (75%) of the Allowed
amount of such Class 8 Claim.
Class 8 Claims are Impaired, and the holders of
Allowed Class 8 Claims are entitled to vote to
accept or reject the Reorganization Plan.
Estimated Percentage Recovery: 75%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Class 9 consists of all Intercompany Claims.
Class 9 is subdivided into three Subclasses for
Distribution purposes:
Class 9:
Subclass 9A consists of the Liquidating Debtors
Intercompany Claims Intercompany Claims; Subclass 9B consists of
the Reorganized Debtors Intercompany Claims;
and Subclass 9C consists of the Heber Debtors
Intercompany Claims. Treatment Under
Reorganization Plan
Estimated Allowed Claims: $[____________]
Subclass 9A: In full satisfaction, release and discharge of
each Liquidating Debtors Intercompany Claim,
Liquidating Debtors each such Liquidating Debtors Intercompany
Intercompany Claims Claim shall be deemed cancelled or waived in
exchange for the Reorganizing Debtors'
contribution of the Operating Reserve
Deficiency Amount, if any, to the Operating
Reserve.
Subclass 9B: In the sole discretion of the applicable
Reorganizing Debtor or Reorganized Debtor,
Reorganized Debtors Reorganizing Debtors Intercompany Claims shall
Intercompany Claims be either: (a) preserved and reinstated, (b)
released, waived and discharged, or (c)
contributed to the capital of the obligor
corporation.
Subclass 9C: In the full satisfaction, release and discharge
of each Heber Debtors Intercompany Claim, each
Reorganized Heber such Heber Debtors Intercompany Claim shall be
Debtors Intercompany deemed released, waived and discharged.
Claims
Class 9 Claims are Impaired and holders of
Allowed Class 9 Claims are conclusively
presumed to reject the Reorganization Plan. The
votes of the holders of Allowed Class 9 Claims
will not be solicited.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
Estimated Allowed Claims: $[____________]
On the Effective Date, all Intercompany Claims
shall be cancelled, annulled and extinguished.
Holders of such claims shall receive no
distributions in respect of Class 9 Claims.
Class 9 Claims are impaired and holders of
Allowed Class 9 Claims are conclusively
presumed to reject the Liquidation Plan. The
votes of the holders of Allowed Class 9 Claims
will not be solicited. Estimated Percentage
Recovery: [____________]%
Class Description Treatment Under Reorganization Plan
Estimated Allowed Claims: $[____________]
Class 10: As of the Effective Date, holders of Class 10
Claims shall not receive any Distributions or
Subordinated retain any property under the Reorganization
Plan Claims in respect of Class 10 Claims, in
full satisfaction, release and discharge of
such Claims.
Class 10 Claims are Impaired and holders of
Allowed Class 10 Claims in are conclusively
presumed to reject the Reorganization Plan. The
votes of holders of Allowed Class 10 Claims
will not be solicited.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 11: Holders of Equity Interests in Subsidiary
Debtors shall not receive any Distribution
Equity Interests in under the Reorganization Plan, except that any
Subsidiary Debtors such Equity Interest in a Subsidiary Debtor
shall continue to be held by the Reorganizing
Debtor that originally held such Equity
Interest, which Equity Interests shall be
evidenced by the existing capital stock,
partnership and/or membership interests.
Class 11 Equity Interests are Impaired and the
holders of Allowed Class 11 Equity Interests in
such Class are conclusively presumed to reject
the Reorganization Plan. The votes of holders
of Class 11 Equity Interests will not be
solicited.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
Estimated Allowed Claims: $[____________]
On the Effective Date, all Equity Interests in
the Liquidating Debtors shall not be entitled
to receive any Distributions under the
Liquidation Plan. Such Equity Interests shall
be cancelled, annulled and extinguished.
Class 11 Equity Interests are Impaired and the
holders of Equity Interests in such Class are
conclusively presumed to reject the Liquidation
Plan. The votes of holders of Equity Interests
in such Class will not be solicited.
Estimated Percentage Recovery: [________]%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 12: As of the Effective Date, holders of Equity
Interests in Covanta Huntington, Covanta
Equity Interests in Onondaga and DSS Environmental shall be
Covanta Huntington, reinstated, in full satisfaction, release, and
Covanta Onondaga and DSS discharge of any Allowed Class 12 Equity
Environmental(8) Interests.
Class 12 Equity Interests are Unimpaired and
the holders of Allowed Class 12 Equity
Interests are not entitled to vote to accept or
reject the Reorganization Plan.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
- --------------
(8) The treatment of Onondaga Equity Interests is subject to finalization and
implementation of the compromise with Onondaga County Resource Recovery
Agency described herein.
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Estimated Allowed Claims: $[____________]
Class 13: Holders of Allowed Equity Interests in Old
Covanta Stock shall not receive any
Old Covanta Stock Equity Distribution or retain any property under the
Interests Reorganization Plan in respect of Class 13
Equity Interests. All Class 13 Equity Interests
in Old Covanta Stock shall be cancelled,
annulled and extinguished, in full
satisfaction, release and discharge of any
Allowed Class 13 Equity Interests.
Class 13 Equity Interests are Impaired and
holders of Allowed Class 13 Equity Interests
are conclusively presumed to reject the
Reorganization Plan. The votes of holders of
Allowed Class 13 Equity Interests will not be
solicited.
Estimated Percentage Recovery: [________]%
Treatment Under Liquidation Plan
--------------------------------
N/A
Class Description Class 14 consists of all Equity Interests in
the Heber Debtors. Class 14 is subdivided into
Class 14: two Subclasses for Distribution purposes:
Subclass 14A consists of Equity Interests in
Equity Interests in the Covanta SIGC Energy I, Covanta SIGC Energy II,
Heber Debtors Heber Field Company and Heber Geothermal
Company; Subclass 14B consists of Equity
Interests in Amor 14 and Second Imperial
Geothermal Company. Treatment Under
Reorganization Plan
Estimated Allowed Claims: $[____________]
Subclass 14A: Holders of Allowed Class 14A Equity Interests
shall not receive any Distribution or retain
Equity Interests in Covanta any property under the Heber Reorganization
SIGC Energy I, Covanta SIGC Plan in respect of Class 14A Equity Interests.
Energy II, Heber Field All Class 14A Equity Interests shall be
Company and Heber cancelled, annulled and extinguished, in full
Geothermal Company satisfaction, release and discharge of any
Allowed Class 14A Equity Interests.
Subclass 14B:
Equity Interests in Amor 14 Holders of Allowed Class 14B Equity Interests
and Second Imperial shall not receive any Distribution under the
Geothermal Company Heber Reorganization Plan, except that any such
Equity Interests shall continue to be held by
the Heber Debtor or Reorganizing Debtor that
originally held such Equity Interests, which
Equity Interests shall continue to be evidenced
by the existing capital stock, partnership
and/or membership interests. Class 14 Equity
Interests are Impaired, and the holders of
Allowed Class 14 Equity Interests are
conclusively presumed to reject the
Reorganization Plan. The votes of holders of
Allowed Class 14 Equity Interests will not be
solicited.
Treatment Under Liquidation Plan
--------------------------------
N/A
G. Bar Dates and Schedules
On June 26, 2002, the Court entered an order (Docket No. 597) (the
"General Bar Date Order") establishing August 9, 2002 as the General Bar Date
(as defined therein) by which certain entities holding claims against Covanta
and the 123 subsidiaries that filed bankruptcy petitions on April 1, 2002 (the
"Original Debtors") arising prior to the Initial Petition Date must file proofs
of claim. The General Bar Date Order also established September 30, 2002 as the
last date by which governmental units (as defined in 11 U.S.C. ss. 101(27)) may
file proofs of claim. In addition to serving notice of the General Bar Date
Order on all scheduled creditors, the Debtors published notice of the General
Bar Date in The Wall Street Journal and the USA Today.
On September 20, 2002, the Court entered an order (Docket No. 938) (the
"Employee Bar Date Order") establishing November 15, 2002 (the "Employee Bar
Date") as the last date for filing claims against the Original Debtors by
current or former employees in respect of wages, salaries, commissions, vacation
pay, severance pay, sick leave pay, or benefits. Employees were provided notice
of the Employee Bar Date by mail.
On May 19, 2003, the Court entered an order (Docket No. 1535) (the
"Covanta Concerts Bar Date Order") establishing June 27, 2003 as the last date
for filing proofs of claims against Covanta Concerts Holdings, Inc. (the
"Covanta Concerts Bar Date"). The Debtors sent notice of the Covanta Concerts
Bar Date on all scheduled creditors of Covanta Concerts Holdings, Inc. The same
order established June 27, 2003 as the last date for holders of 6% Convertible
Subordinated Debentures Due 2002 and 5.75% Convertible Subordinated Debentures
Due 2002 (collectively, the "Convertible Debentures") to file proofs of claim
against Covanta Energy Corporation (the "Convertible Debentures Bar Date"). The
Debtors sent notice of the Convertible Debentures Bar Date to all registered
holders and other known holders of the Convertible Bonds and published a notice
of the same in the Financial Times of London and the Luxemburger Wort.
On June 30, 2003, the Court entered an order (Docket No. 1717) (the
"New Debtors Bar Date Order") establishing August 14, 2003 as the last date for
filing proofs of claim against the New Debtors (as defined herein) (such date,
the "New Debtors Bar Date"). Because the Court was closed on August 14 and
August 15, 2003 as a result of the blackout that affected the Northeast region
of the United States, the New Debtors' Bar Date was changed to August 18, 2003.
The New Debtors Bar Date Order also established December 5, 2003 as the last
date by which governmental units (as defined in 11 U.S.C. ss. 101(27)) may file
proofs of claim against the New Debtors. The Debtors sent notice of the New
Debtors' Bar Date to all known creditors of the New Debtors and published notice
of the same in The Wall Street Journal and USA Today.
A chart describing the various bar dates follows:
-----------------------------------------------------------------------
Description of Bar Date Applicable Bar Date
-----------------------------------------------------------------------
General Bar Date August 9, 2002
-----------------------------------------------------------------------
Government Bar Date September 30, 2002
-----------------------------------------------------------------------
Employee Bar Date November 15, 2002
-----------------------------------------------------------------------
First Amended Bar Date December 27, 2002
-----------------------------------------------------------------------
Second Amended Bar Date January 13, 2003
-----------------------------------------------------------------------
Covanta Concerts Bar Date June 27, 2003
-----------------------------------------------------------------------
Convertible Debentures Bar Date June 27, 2003
-----------------------------------------------------------------------
New Debtors Bar Date August 18, 2003
-----------------------------------------------------------------------
Third Amended Bar Date October 6, 2003
-----------------------------------------------------------------------
New Debtors Government Bar Date December 5, 2003
-----------------------------------------------------------------------
In accordance with the General Bar Date Order, which granted the
Debtors authority to amend the Original Debtors' schedules that were originally
filed on or about June 14, 2002 (Docket No. 590) (the "Original Schedules"), the
Debtors have filed several amendments to the Original Schedules. On November 22,
2002, the Original Debtors filed their first amendment to the Original Schedules
(Docket No. 1107) (the "First Amended Schedules"). The last date for filing
proofs of claim in respect of claims for the first time scheduled as contingent,
unliquidated or disputed on the First Amended Schedules was December 27, 2002
(the "First Amended Bar Date"). On December 11, 2002, the Original Debtors filed
their second amendment to the Original Schedules (Docket No. 1146) (the "Second
Amended Schedules"). The last date for filing proofs of claim in respect of
claims for the first time scheduled as contingent, unliquidated or disputed on
the Second Amended Schedules was January 13, 2003 (the "Second Amended Bar
Date"). On August 24 and 25, 2003, the Original Debtors filed the third
amendments to their Original Schedules (Docket Nos. 1886-2006) (the "Third
Amended Schedules"). The last date for filing proofs of claim in respect of
claims scheduled as contingent, unliquidated or disputed on the Third Amended
Schedules is October 6, 2003 (the "Third Amended Bar Date"). Finally, on June
22, 2003, the New Debtors filed schedules (the "New Debtor Schedules"). August
18, 2003 was the New Debtors Bar Date.
In total, approximately 4,457 proofs of claim in the aggregate amount
of approximately $12 billion were filed. The Debtors believe that many of the
proofs of claim are invalid, duplicative, untimely, inaccurate or otherwise
objectionable. The Debtors are in the process of reviewing such claims, and have
filed or are preparing omnibus objections to many of the proofs of claim.
Pursuant to the General Bar Date Order, and consistent with 11 U.S.C. ss.
502(b)(9), any proofs of claim filed after the applicable bar date shall be
disallowed as untimely unless and until such proofs of claim are deemed timely
filed by the Court after notice and hearing.
Table of Contents
Page
I. INTRODUCTION............................................................................................1
II. BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES......................................................1
A. Definitions....................................................................................1
B. Notice to Holders of Claims....................................................................1
C. Voting Record Date.............................................................................2
D. Solicitation Package...........................................................................2
E. General Voting Procedures, Ballots, and Voting Deadline........................................3
F. Special Voting Procedures for the Prepetition Lenders..........................................3
G. Special Voting Procedures for the 9.25% Debenture Holders......................................3
1. Beneficial Noteholders................................................................3
2. Nominees..............................................................................4
H. Voting Procedures fo Unknown Holders...........................................................4
I. Questions About Voting Procedures..............................................................4
J. Procedures for Voting Objections...............................................................5
K. Confirmation Hearing and Deadline for Objections to Confirmation...............................5
L. Additional Copies of Disclosure Statement and Plans............................................7
III. HISTORY OF THE DEBTORS' BUSINESS OPERATIONS.............................................................7
A. Overview of Business Operations................................................................7
1. Description of Principal Business Units...........................................7
2. Description of Geothermal Business................................................9
B. Other Aspects of Business Operations.......................................................10
1. Insurance........................................................................10
2. Environmental Matters............................................................11
3. Prepetition Legal Proceedings....................................................11
4. Employees; Labor Matters; Benefit Plans..........................................13
C. Recent Financial Results......................................................................19
IV. PREPETITION CAPITAL STRUCTURE OF THE DEBTORS...........................................................20
A. Prepetition Credit Facility...................................................................20
B. 9.25% Debentures due 2022.....................................................................21
C. Convertible Debentures........................................................................21
D. Project Debt..................................................................................22
E. Equity Bonds..................................................................................22
F. Equity .....................................................................................22
V. CORPORATE STRUCTURE OF THE DEBTORS.....................................................................22
A. The Debtors' Corporate Structure..............................................................22
B. Management of the Debtors.....................................................................22
VI. THE CHAPTER 11 CASES...................................................................................24
A. Events Leading Up to the Chapter 11 Cases.....................................................24
B. Need for Restructuring and Chapter 11 Relief..................................................24
C. Significant Events During the Bankruptcy Cases................................................25
1. Significant Court Orders.............................................................25
2. DIP Financing Facility...............................................................26
3. Adequate Protection..................................................................27
4. Assumption and Rejection.............................................................28
5. Appointment of Creditors Committee...................................................29
6. Exclusivity..........................................................................29
7. Discussions of Alternative Reorganization Plans......................................30
8. Sale of Geothermal Assets............................................................30
9. Sale of Non-Core Assets..............................................................30
10. Restructuring of Certain Energy Projects.............................................31
11. 9.25% Debenture Adversary Proceeding.................................................33
12. Agreements with the holders of Secured Claims........................................34
13. Proceedings Related to the Team, the Corel Centre and Arrowhead Pond.................35
14. Other Postpetition Litigation........................................................35
15. Summary of Claims Process, Bar Dates and Claims Filed................................38
16. Development and Implementation of the Business Plan..................................39
VII. SUMMARY OF THE PLANS...................................................................................41
A. Overall Structure of the Plans................................................................41
B. Classification and Treatment of Claims and Equity Interests...................................42
1. Treatment of Unclassified Claims.....................................................44
2. Unimpaired Classes of Claims.........................................................48
3. Impaired Classes of Claims and Interests.............................................48
4. Treatment of Classified Claims.......................................................48
C. Confirmability, Modification and Severability of the Plans....................................53
D. Certain Considerations with Respect to Treatment of Class 3 Secured Claims under the
Reorganization Plan...........................................................................53
1. The Subclass 3A Distribution.........................................................54
2. Voting Rights with Respect to Class 3 Distributions and the Settlement
Agreements...........................................................................54
E. Implementation of the Reorganization Plan.....................................................54
1. Continued Corporate Existence........................................................54
2. Exit Financing.......................................................................55
3. Reorganization Plan Notes and Reorganization Plan Equity Securities..................56
4. Corporate Restructuring..............................................................57
5. Revesting of Corporate Assets........................................................57
6. Directors and Officers of Group......................................................57
7. Certificate of Incorporation and Bylaws..............................................57
8. Employment, Retirement and Other Agreements..........................................57
9. Management Agreements................................................................59
10. Corporate Action.....................................................................59
11. Effective Date Payments and Post-Effective Date Financing............................59
12. New Common Stock, Plan Notes and Collateral Documents; Further Transactions..........59
13. Establishment of ESOP and Election of S Corp Status..................................59
14. Preservation of Causes of Action.....................................................61
15. Cancellation of Existing Equity Securities and Agreements............................61
16. Exclusivity Period...................................................................62
17. Deemed Consolidation for Procedural, Administrative and Voting Purposes..............62
F. Implementation of the Liquidation Plan........................................................62
1. The Secured Creditor Direction and the DIP Lender Direction..........................62
2. Funding of the Implementation of the Liquidation Plan................................63
3. Transfer of Liquidation Assets.......................................................63
4. Distribution of the Bank Agreement Ogden FMCA Collateral.............................63
5. Dissolution of the Liquidating Debtors...............................................63
6. The Liquidating Trustee..............................................................64
7. The Oversight Nominee................................................................67
G. Distributions and Disputed Claims under the Reorganization Plan...............................67
1. Time of Distributions................................................................67
2. Disbursing Agent.....................................................................67
3. Surrender of Securities or Instruments...............................................67
4. Delivery of Distributions............................................................68
5. DeMinimis Distributions..............................................................68
6. No Distribution on Disputed Claims...................................................68
7. Objections to Claims.................................................................68
8. No Distribution Pending Allowance....................................................68
9. Resolution of Disputed Claims and Equity Interests...................................69
10. Estimation of Certain Claims.........................................................69
11. Reserve Account for Disupted Claims..................................................69
12. Allowance of Disputed Claims.........................................................70
13. Release of Funds from Disputed Claims Reserve........................................70
14. Allowance of Certain Claims..........................................................70
H. Distributions and Disputed Claims under the Liquidation Plan..................................71
1. The Secured Creditor Direction and the DIP Lender Direction..........................71
2. Time of Distributions................................................................71
3. Order of Distributions...............................................................72
4. No Distribution Pending Allowance....................................................72
5. Resolution of Disputed Claims........................................................72
6. Estimation of Claims.................................................................72
7. Reserve Account for Disputed Claims..................................................73
8. Allowance of Disputed Claims.........................................................73
9. Allowance of Certain Claims..........................................................73
I. Treatment of Executory Contracts and Unexpired Leases; Bar Date for Rejection Damage
Claims .....................................................................................73
1. General Treatment....................................................................73
2. Cure of Defaults.....................................................................74
3. Approval of Assumption of Certain Executory Contracts................................75
4. Approval of Rejection of Executory Contracts and Unexpired Leases....................75
5. Bar Date for Filing Proofs of Claim Relating to Executory Contracts and
Unexpired Leases Rejected Pursuant to the Plans......................................75
6. Reservation of Rights Under Insurance Policies and Bonds.............................75
7. Survival of Debtors' Corporate Indemnities...........................................75
J. Effect of Confirmation........................................................................75
1. Revesting of Reorganization Assets...................................................75
2. Discharge under the Plans............................................................76
3. Release of Certain Parties under the Plans...........................................76
4. Exculpation..........................................................................76
5. Injunction under the Plans...........................................................77
6. Rights of Action.....................................................................78
K. Miscellaneous Matters.........................................................................78
1. Liability of the Liquidating Trustee............................................78
2. Limited Liability of the Oversight Nominee...........................................79
3. Setoffs..............................................................................79
4. Satisfaction of Subordination Rights.................................................79
5. Dissolution of the Creditors Committee...............................................79
6. Management of the Reorganized Debtors and Reorganized Heber Debtors..................80
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED..................................................................80
A. General Considerations........................................................................80
B. Certain Bankruptcy Considerations.............................................................80
C. Inherent Uncertainty of Financial Projections.................................................81
D. Sale of Geothermal Debtor Equity..............................................................81
E. Restructuring of WTE Projects.................................................................82
F. Dividends82
G. Impact of Interest............................................................................82
H. Access to Financing...........................................................................82
I. Claims Estimations............................................................................82
J. Environmental Regulation......................................................................83
K. Market for Securities.........................................................................83
L. Assumptions Regarding Value of Debtors' Assets................................................83
M. ESOP/S Corporation Tax Structure; Potential Disallowance of Tax Benefits......................83
1. Second Class of Stock............................................................83
2. IRS Scrutiny.........................................................................84
N. U.S. Trust Acceptance of ESOP Contribution....................................................84
O. Reorganized CPIH Preferred Shares; Certain Contractual Restrictions...........................84
P. International Political Risk..................................................................85
IX. RESALE OF SECURITIES RECEIVED UNDER THE REORGANIZATION PLAN............................................85
A. Issuance of New Equity........................................................................85
B. Subsequent Transfers of Reorganization Plan Notes.............................................85
X. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN......................................86
A. United States Federal Income Tax Consequences to the Reorganizing Debtors and Heber
Debtors .....................................................................................87
1. Taxation of Reorganized Covanta as an S corporation..................................87
2. Requirements for S corporation Election..............................................88
3. Second Class of Stock................................................................88
4. Qualified Subchapter S Subsidiaries ("QSub").........................................89
5. Cancellation of Indebtedness Income..................................................89
B. United States Federal Income Tax Consequences to the Holders of Claims of the
Reorganizing Debtors and Heber Debtors........................................................90
1. Consequences to Holders of Allowed Claims other than the Allowed Secured 9.25%
Debenture Claims ("Other Allowed Claims") who receive some combination of
Cash, Reorganization Plan Unsecured Notes, New CPIH Funded Debt, New CPIH
Preferred Stock, Reorganization Plan Warrants and New High Yield Secured Notes.......91
2. Consequences to Holders of Allowed Secured 9.25% Debenture Claims....................91
3. Holding and Disposing of New CPIH Preferred Stock, Reorganization Plan
Warrants and Reorganization Plan Notes...............................................92
C. Backup Withholding and Information Reporting..................................................94
XI. FEASIBILITY OF THE LIQUIDATION PLAN AND THE REORGANIATION PLAN AND THE BEST INTERESTS TEST.............94
A. Feasibility of the Plans......................................................................94
1. The Reorganization Plan..............................................................95
2. The Liquidation Plan.................................................................95
B. Acceptance of the Plans.......................................................................95
C. Best Interests Test...........................................................................96
D. Estimated Valuation of the Reorganized Debtors and Reorganized Heber Debtors..................96
E. Application of the Best Interests Test to the Liquidation Valuation Analysis and the
Valuation of the Reorganized Debtors and Reorganized Heber Debtors............................96
F. Confirmation Without Acceptance of All Impaired Classes: The `Cramdown' Alternative..........97
G. Conditions to Confirmation and/or Consummation of the Plans...................................98
1. Conditions to Confirmation...........................................................98
2. Conditions Precedent to the Effective Date of the Reorganization Plan................98
3. Conditions Precedent to the Effective Date of the Liquidation Plan...................99
H. Waiver of Conditions to Confirmation and/or Consummation of the Plans........................100
I. Retention of Jurisdiction....................................................................100
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLANS............................................102
A. Continuation of the Bankruptcy Case..........................................................102
B. Alternative Plans of Reorganization..........................................................102
C. Liquidation Under Chapter 7 or Chapter 11....................................................102
1. Liquidation of the Debtors under Chapter 7..........................................102
2. Liquidation of the Reorganizing Debtors and Heber Debtors under Chapter 11..........102
XIII. VOTING REQUIREMENTS...................................................................................103
A. Parties in Interest Entitled to Vote.........................................................104
B. Classes Impaired Under the Plan..............................................................104
1. Voting Impaired Classes of Claims and Interests.....................................104
2. Non-Voting Impaired Classes of Claims and Interests.................................105
3. Unimpaired Classes of Claims and Interests..........................................105
XIV. CONCLUSION............................................................................................105
A. Hearing on and Objections to Confirmation....................................................105
1. Confirmation Hearing................................................................105
2. Date Set for Filing Objections to Confirmation of the Plans.........................105
B. Recommendation...............................................................................105
GLOSSARY OF DEFINED TERMS.............................................................................107
EXHIBITS
- --------
Exhibit A Reorganization Plan
Exhibit B Liquidation Plan
Exhibit C1 Pro Forma Historical Financial Projections
Exhibit C2 Projected Financial Information
Exhibit D Reorganization Valuation Analysis
Exhibit E Liquidation Valuation Analysis
Exhibit F Historical Financial Results
Exhibit G List of Debtors and Debtors In Possession
DISCLOSURE STATEMENT WITH RESPECT TO
JOINT PLAN OF REORGANIZATION AND JOINT PLAN OF LIQUIDATION
OF COVANTA ENERGY CORPORATION AND ITS DEBTOR AFFILIATES,
DEBTORS AND DEBTORS IN POSSESSION
I. INTRODUCTION
The Debtors submit this Disclosure Statement pursuant to section 1125
of the Bankruptcy Code, for use in the solicitation of votes on the
Reorganization Plan and the Liquidation Plan which were filed with the Court on
September 8, 2003, copies of which are attached hereto as Exhibit A and Exhibit
B, respectively.
This Disclosure Statement sets forth certain information regarding the
Debtors' prepetition history, significant events that have occurred during the
Chapter 11 Cases, and the anticipated organization, operations and financing of
the Reorganizing Debtors and the Heber Debtors and the planned liquidation of
the Liquidating Debtors. This Disclosure Statement also describes the terms and
provisions of the Plans, including certain alternatives to the Plans, certain
effects of confirmation of the Plans, certain risk factors associated with
securities to be issued under the Plans, and the manner in which distributions
will be made under the Plans. In addition, this Disclosure Statement discusses
the confirmation process and the voting procedures that holders of Claims must
follow for their votes to be counted.
FOR A DESCRIPTION OF THE PLANS AND VARIOUS RISKS AND OTHER FACTORS
PERTAINING TO THE PLANS AS THEY RELATE TO HOLDERS OF CLAIMS AND EQUITY
INTERESTS, PLEASE SEE SECTION VII (SUMMARY OF THE PLANS) AND SECTION VIII
(CERTAIN RISKS TO BE CONSIDERED).
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF
THE PLANS, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATED TO THE PLANS,
CERTAIN EVENTS IN THE CHAPTER 11 CASES, AND CERTAIN FINANCIAL INFORMATION.
ALTHOUGH THE DEBTORS BELIEVE THAT SUCH SUMMARIES ARE FAIR AND ACCURATE, SUCH
SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT
OF SUCH DOCUMENTS OR STATUTORY PROVISIONS. FACTUAL INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE DEBTORS' MANAGEMENT EXCEPT WHERE
OTHERWISE SPECIFICALLY NOTED. THE DEBTORS DO NOT WARRANT OR REPRESENT THAT THE
INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS WITHOUT
ANY MATERIAL INACCURACY OR OMISSION.
II. BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES
A. Definitions
Except as otherwise provided herein, capitalized terms not otherwise
defined in this Disclosure Statement have the meanings ascribed to them in the
Reorganization Plan and the Liquidation Plan. In addition, all references in
this Disclosure Statement to monetary figures refer to United States currency,
unless otherwise expressly provided.
B. Notice to Holders of Claims
This Disclosure Statement is being transmitted to certain holders of
Claims for the purpose of soliciting votes on the Reorganization Plan and the
Liquidation Plan and to others for informational purposes. The purpose of this
Disclosure Statement is to provide adequate information to enable the holder of
a Claim to make a reasonably informed decision with respect to the
Reorganization Plan and the Liquidation Plan prior to exercising the right to
vote to accept or reject either of such Plans.
By order entered on October [__], 2003, the Court approved this
Disclosure Statement as containing information of a kind and in sufficient and
adequate detail to enable holders of Claims that are entitled to vote on the
Reorganization Plan and/or the Liquidation Plan to make an informed judgment
with respect to acceptance or rejection of each respective Plan. THE COURT'S
APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF
THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN
ENDORSEMENT OF EITHER PLAN BY THE COURT.
ALL HOLDERS OF CLAIMS ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT
AND ITS APPENDICES CAREFULLY AND IN THEIR ENTIRETY, AND IF NECESSARY CONSULT
WITH COUNSEL, BEFORE DECIDING TO VOTE EITHER TO ACCEPT OR TO REJECT THE
REORGANIZATION PLAN OR THE LIQUIDATION PLAN. This Disclosure Statement contains
important information about the Reorganization Plan and the Liquidation Plan,
considerations pertinent to acceptance or rejection of each Plan and
developments concerning the Chapter 11 Cases.
THIS DISCLOSURE STATEMENT AND THE OTHER MATERIALS INCLUDED IN THE
SOLICITATION PACKAGE ARE THE ONLY DOCUMENTS AUTHORIZED BY THE COURT TO BE USED
IN CONNECTION WITH THE SOLICITATION OF VOTES ON THE REORGANIZATION PLAN AND THE
LIQUIDATION PLAN. No solicitation of votes may be made except after distribution
of this Disclosure Statement and no person has been authorized to distribute any
information concerning the Debtors or the Plans other than the information
contained herein.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY
ITS NATURE FORWARD-LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS AND PROJECTIONS
THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS. Except with
respect to the Projections set forth in Exhibit C2 attached hereto and except as
otherwise specifically and expressly stated herein, this Disclosure Statement
does not reflect any events that may occur subsequent to the date hereof and
that may have a material impact on the information contained in this Disclosure
Statement. The Debtors do not intend to update the Projections for the purposes
hereof; thus, the Projections will not reflect the impact of any subsequent
events not already accounted for in the assumptions underlying the Projections.
Further, the Debtors do not anticipate that any amendments or supplements to
this Disclosure Statement will be distributed to reflect such occurrences.
Accordingly, the delivery of this Disclosure Statement does not under any
circumstance imply that the information herein is correct or complete as of any
time subsequent to the date hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND HAS NOT BEEN
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
C. Voting Record Date
The record date for determining which holders of Claims are entitled to
vote on the Plans is [September 27, 2003] (the "Voting Record Date").
D. Solicitation Package
Accompanying this Disclosure Statement are, among other things, copies
of (1) the Reorganization Plan (Exhibit A); (2) the Liquidation Plan (Exhibit
B); (3) Pro-Forma Historical Financial Information (Exhibit C1); (4) the
Projections (Exhibit C2); (5) the Reorganization Valuation Analysis of the
Reorganizing Debtors and Heber Debtors (Exhibit D); (6) the Liquidation
Valuation Analysis of the Liquidating Debtors (Exhibit E); (7) selected
historical financial data for the Company (Exhibit F); (8) the notice of, among
other things, the time for submitting Ballots to accept or reject the
Reorganization Plan or the Liquidation Plan, the date, time and place of the
hearing to consider the confirmation of the Plans and related matters, and the
time for filing objections to the confirmation of the Plans (the "Confirmation
Hearing Notice"); and (9) if you are entitled to vote, one or more Ballots (and
return envelopes, without postage,) to be used by you in voting to accept or to
reject the Reorganization Plan or the Liquidation Plan.
Depending on the Class to which you belong under either the
Reorganization Plan or Liquidation Plan, you will receive this Disclosure
Statement (along with the respective Plan and, as applicable, certain of the
exhibits hereto described above) or a shorter version of this Disclosure
Statement comprising of the section herein entitled "Summary of the
Reorganization Plan and the Liquidation Plan" on pages i to xxxiii (the
"Short-Form Disclosure Statement"). Holders of Claims or Interests in Classes 1,
3 (including Subclasses 3A and 3B), 4, 5, 6, 7, 8 and 12 under the
Reorganization Plan and holders of Claims or Interests in Classes 1, 3
(including Subclasses 3A and 3B) and 7 under the Liquidation Plan will receive
this Disclosure Statement (along with the respective Plan and, if entitled to
vote, respective Ballots). Holders of Claims or Interests in Classes 2, 2H, 10
and 13 of the Reorganization Plan will receive the Short-Form Disclosure
Statement (along with the Reorganization Plan). In addition, all parties in the
Debtors' most recent notice list filed with the Court will receive this
Disclosure Statement (along with the Plans and certain exhibits). Holders of
Claims or Interests in Classes 9, 11 and 14 under the Reorganization Plan and
Classes 9 and 11 under the Liquidation Plan will not receive either this
Disclosure Statement or the Short-Form Disclosure Statement (or any exhibits
thereto, including the Plans).
The Confirmation Hearing Notice will be sent to all known holders of
Claims against or Interests in the Debtors' estates as of the Voting Record
Date, as well as to all parties in the Debtors' most recent notice list filed
with the Court.
E. General Voting Procedures, Ballots, and Voting Deadline
After carefully reviewing the Reorganization Plan and the Liquidation
Plan, this Disclosure Statement, and (if you are entitled to vote) the detailed
instructions accompanying your Ballot, please indicate your acceptance or
rejection of a Plan by checking the appropriate box on the enclosed Ballot.
Please complete and sign your original Ballot (copies will not be accepted) and
return it in the envelope provided. You must provide all of the information
requested by the appropriate Ballot(s). Failure to do so may result in the
disqualification of your vote on such Ballot(s). The description of the voting
procedures contained in this Disclosure Statement represents a summary of the
procedures approved by the Court. Each entity entitled to vote should refer to
the detailed voting instructions accompanying your Ballot.
Each Ballot has been coded to reflect the Class of Claims or Interests
it represents. Accordingly, in voting to accept or reject the Reorganization
Plan and/or the Liquidation Plan, you must use only the coded Ballot(s) sent to
you with this Disclosure Statement.
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY
COMPLETED AS SET FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS ON
THE BALLOT AND ACTUALLY RECEIVED NO LATER THAN [NOVEMBER 18, 2003 AT 4:00 P.M.]
(PREVAILING EASTERN TIME) (THE "VOTING DEADLINE") BY BANKRUPTCY SERVICES, LLC,
757 THIRD AVENUE, THIRD FLOOR, NEW YORK, NEW YORK 10017. BALLOTS RECEIVED AFTER
SUCH TIME WILL NOT BE COUNTED, EXCEPT AS OTHERWISE PERMITTED BY ORDER OF THE
COURT. BALLOTS SHOULD NOT BE DELIVERED DIRECTLY TO THE DEBTORS, THE COURT, THE
CREDITORS COMMITTEE OR COUNSEL TO THE DEBTORS OR THE CREDITORS COMMITTEE.
F. Special Voting Procedures for the Prepetition Lenders
The votes of the Prepetition Lenders are being solicited directly from
each Prepetition Lender, not from the Agent Banks on behalf of the Prepetition
Lenders. Accordingly, Prepetition Lenders must submit their own Ballots. The
Agent Banks will not vote on behalf of the Prepetition Lenders.
G. Special Voting Procedures for the 9.25% Debenture Holders
1. Beneficial Noteholders
(a) Any beneficial 9.25% Debenture Holder who holds 9.25% Debentures in
its own name as of the Voting Record Date should vote on the Plans by completing
and signing the enclosed Ballot and returning it directly to Bankruptcy
Services, LLC, at the address set forth in Section II.H herein so that it is
RECEIVED on or before the Voting Deadline.
(b) Any beneficial 9.25% Debenture Holder who holds 9.25% Debentures in
a "street name" through a nominee as of the Voting Record Date should vote on
the Plans through such nominee by following these instructions:
(i) Use the Ballot for holders of Claims in Subclass 3B of the
Reorganization Plan and/or Subclass 3A of the Liquidation Plan, as
appropriate;
(ii) Complete and sign the Ballot in accordance with the instructions
on the Ballot; and
(iii) Return the Ballot to your nominee as promptly as possible in
sufficient time to allow such nominee to process your Ballot, complete
a master ballot, and return such master ballot to the balloting agent
by the Voting Deadline.
Any Ballot returned to a nominee by a beneficial 9.25% Debenture Holder
will not be counted until such nominee properly completes and delivers to the
balloting agent a master ballot that reflects the votes of the beneficial 9.25%
Debenture Holder.
A beneficial 9.25% Debenture Holder who holds through more than one
nominee may receive more than one Ballot. In that case, the beneficial 9.25%
Debenture Holder should execute a separate Ballot for each block of 9.25%
Debentures that it holds through any nominee and return the Ballot to the
respective nominee that holds the 9.25% Debentures in record name.
A beneficial 9.25% Debenture Holder who holds some of its 9.25%
Debentures through a nominee and some of its 9.25% Debentures in its own name as
the record holder should follow the procedures in subsection G.1(a) above to
vote the 9.25% Debentures held in its own name and the procedures in subsection
G.1(b) above to vote the 9.25% Debentures held by the nominee(s).
2. Nominees
Any Person (other than a beneficial owner) who is the registered holder
of 9.25% Debentures should vote on behalf of the beneficial holder of such 9.25%
Debentures by (a) immediately distributing a copy of this Disclosure Statement
and accompanying materials (including appropriate Ballots) to all beneficial
9.25% Debenture Holders for whom it holds 9.25% Debentures; (b) promptly
collecting all such Ballots from the beneficial 9.25% Debenture Holders; (c)
compiling and validating the votes of all its beneficial holders on one or more
master ballots; and (d) transmitting the master ballot(s) to Bankruptcy
Services, LLC at the address set forth in Section II.H herein so that they are
RECEIVED on or before the Voting Deadline.
H. Voting Procedures for Unknown Holders
With respect to all holders of impaired Claims against and impaired
Interests in the Debtors' estates who are entitled to vote on either the
Reorganization Plan or the Liquidation Plan, but that cannot be identified or
located by the Debtors, the Debtors will post copies of this Disclosure
Statement, the Short-Form Disclosure Statement, the Reorganization Plan and the
Liquidation Plan on Covanta's website at www.covantaenergy.com (Corporate
Restructuring), and will publish notice of the Confirmation Hearing in the WALL
STREET JOURNAL (National Edition) and USA TODAY (National Edition), once no
later than 15 business days after entry of the order approving this Disclosure
Statement and the Short-Form Disclosure Statement. Upon being contacted by
holders who previously could not be identified or located, the Debtors will
promptly provide each such holder with copies of either this Disclosure
Statement or the Short-Form Disclosure Statement (and relevant exhibits
thereto), as appropriate, after such holder has adequately evidenced its Claim
against or Interest in the Debtors' estates.
I. Questions About Voting Procedures
If (1) you have any questions about (a) the procedure for voting your
Claim or Interest, (b) the packet of materials that you have received, or (c)
the amount of your Claim or Interest or (2) you wish to obtain, at your own
expense, unless otherwise specifically required by Federal Rule of Bankruptcy
Procedure 3017(d), an additional copy of the Reorganization Plan, the
Liquidation Plan, this Disclosure Statement, the Short-Form Disclosure Statement
or any appendices or exhibits to such documents please contact:
Bankruptcy Services, LLC
757 Third Ave, Third Floor
New York, NY 10017
Telephone: 646-282-2500
Facsimile: 646-282-2501
NO INQUIRIES CONCERNING VOTING PROCEDURES SHOULD BE DIRECTED TO COUNSEL
TO THE DEBTORS, THE UNITED STATES TRUSTEE, THE AGENTS TO THE PREPETITION LENDERS
AND DIP LENDERS, THE INFORMAL COMMITTEE OF THE HOLDERS OF THE 9.25% DEBENTURES
OR THE CREDITORS COMMITTEE.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT
THE REORGANIZATION AND/OR LIQUIDATION PLAN, SEE SECTION [XIII] (VOTING
REQUIREMENTS).
J. Procedures for Voting Objections
Any objections to Claims for purposes of voting to accept or reject the
Plans must be filed on or before [October 20, 2003] at 4:00 p.m. (prevailing
Eastern time) or as otherwise provided by the Court. If such an objection is
timely filed, the Ballot for the holder of such Claim will not be counted in
accordance with Federal Rule of Bankruptcy Procedure 3018(a), unless temporarily
allowed by the Court for voting purposes after notice and hearing.
In the event that an objection is filed, or the Debtors have scheduled
a Claim as zero, disputed, unliquidated or contingent in the Schedules and the
affected creditor believes that it should be entitled to vote on a Plan, then
such creditor must serve on the Debtors and file with the Court a motion for an
order pursuant to Federal Rule of Bankruptcy Procedure 3018(a) ("Rule 3018(a)
Motion"), seeking temporary allowance of such Claim for voting purposes. A Rule
3018(a) Motion must be filed and served, with evidence in support thereof, on or
before [November 10, 2003] at 4:00 p.m. (Prevailing Eastern Time) (the "Rule
3018(a) Motion Deadline"). With regard to any timely Rule 3018(a) Motion, the
Debtors will have until [November 17, 2003] at 4:00 p.m. (prevailing Eastern
time) to file a response. A hearing regarding timely filed Rule 3018(a) Motions,
if any, will be held on [November 19, 2003] at 2:00 p.m. (prevailing Eastern
time).
K. Confirmation Hearing and Deadline for Objections to Confirmation
Pursuant to section 1128 of the Bankruptcy Code and Federal Rule of
Bankruptcy Procedure 3017(c), the Court has scheduled the Confirmation Hearing
for December 3, 2003, at 2:00 p.m. (prevailing Eastern time) before the
Honorable Cornelius Blackshear, United States Bankruptcy Judge, at the United
States Bankruptcy Court for the Southern District of New York, Alexander
Hamilton Custom House, One Bowling Green, New York, NY 10004-1408 (the
"Confirmation Hearing"). The Confirmation Hearing may be adjourned from time to
time by the Court without prior notice except for the announcement of the
adjournment date made at the hearing or at any subsequently adjourned hearing.
The Court has directed that the discovery cut-off date relating to confirmation
of the Plans will be [November 12, 2003 at 4:00 p.m. (prevailing Eastern time)]
and that objections, if any, to confirmation of either Plan be filed with the
Clerk of the Court and served so that they are RECEIVED on or before [November
18, 2003, at 4:00 p.m.] (prevailing Eastern time) (the "Confirmation Objection
Deadline") by:
Counsel for the Debtors
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attn: Deborah M. Buell, Esq.
James L. Bromley, Esq.
and
Jenner & Block, LLC
One IBM Plaza
Chicago, IL 60611-7603
Attn: Vincent E. Lazar, Esq.
Christine L. Childers, Esq.
Office of the United States Trustee
Office of the United States Trustee
US Department of Justice
Southern District of New York
33 Whitehall Street, 21st Floor
New York, NY 10004
Attn: Brian Masumoto, Esq.
Counsel to the Agents of the Debtors' prepetition and DIP lenders
O'Melveny & Myers LLP
30 Rockefeller Plaza
New York, NY 10112
Attn: Sandeep Qusba, Esq.
Counsel to the Trustee for the holders of the 9.25% Debentures
Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, MN 55402-1498
Attn: Christopher Lenhart, Esq.
Counsel for the Informal Committee of the holders of the 9.25%
Debentures
Akin Gump Strauss Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Attn: Fred S. Hodara, Esq.
Counsel for the Official Committee of Unsecured Creditors
Arnold & Porter
399 Park Avenue
New York, New York 10022
Attn: Daniel M. Lewis, Esq.
Michael J. Canning, Esq.
Responses or objections, if any, to confirmation of the Plans: (a)
shall be in writing; (b) shall state the name and address of the objector and
its interest in the Debtors; (c) shall state, if appropriate, the amount and
nature of the objector's Claim or Interest; (d) shall state the grounds for the
responses or objections and the legal basis therefor; (e) shall reference with
specificity the text of the Plan(s) to which the responses or objections are
made, and shall provide proposed language changes or insertions to the Plan(s)
to resolve the responses or objections. If a response or objection to the
confirmation of the Plan(s) is not timely filed and served before the
Confirmation Objection Deadline, the responding or objecting party shall be
barred from objecting to confirmation of the Plans and be precluded from being
heard at the Confirmation Hearing.
L. Additional Copies of Disclosure Statement and Plans
Additional copies of the Disclosure Statement, the Short-Form
Disclosure Statement and the Plans may be obtained from the Debtors' website at
http://www.covantaenergy.com (Corporate Restructuring).
III. HISTORY OF THE DEBTORS' BUSINESS OPERATIONS
A. Overview of Business Operations
1. Description of Principal Business Units
Covanta is a holding company whose Subsidiaries, among other
activities, develop, construct, own and operate key infrastructure for the
conversion of waste-to-energy, independent power production and the treatment of
water and wastewater in the United States and abroad. The Company's power
generation facilities use a variety of fuels, including municipal solid waste,
water (hydroelectric), natural gas, coal, geothermal fluid, wood waste, landfill
gas, heavy fuel oil and diesel fuel.
Prior to September 1999, the Company conducted its business through
operating groups in three principal business units: Energy, Entertainment and
Aviation. In September 1999, the Company adopted a plan to discontinue its
Entertainment and Aviation operations, pursue the sale or other disposition of
these businesses, pay down corporate debt and concentrate on businesses
previously conducted through its Covanta Energy Group, Inc. (f/k/a Ogden Energy
Group, Inc.) subsidiary. As of the date hereof, the Company's plan to sell
discontinued businesses has been largely completed, apart from the disposition
of businesses associated with the Arrowhead Pond of Anaheim arena in Anaheim,
California ("Arrowhead Pond"). Arrowhead Pond will be dealt with pursuant to the
terms of the Liquidation Plan.
Currently, the Company's principal business units are Domestic Energy
and Water, International Energy and Other.
(a) Domestic Energy and Water Business
The Company's domestic business is composed of the design, construction
and long-term operation of key infrastructure for municipalities and others in
waste-to-energy, independent power production and water and waste water.
(1) Waste-to-Energy Projects
The Company's largest operations are in waste-to-energy ("WTE")
projects, and it currently operates 26 WTE projects, the majority of which were
developed and structured contractually as part of competitive procurements
conducted by municipal entities. The waste-to-energy plants combust municipal
solid waste as a means of environmentally sound disposal and produce energy that
is typically sold as electricity to utilities and other electricity purchasers.
The Company processes approximately five percent of the municipal solid waste
produced in the United States and therefore represents a vital part of the
nation's solid waste disposal industry.
The essential purpose of the Company's WTE projects is to provide waste
disposal services, typically to municipal clients who sponsored the projects
("Client Communities"). Generally, waste-to-energy projects provide these
services pursuant to long term service contracts ("Service Agreements"). The
electricity or steam is sold pursuant to long-term power purchase agreements
("PPAs") with local utilities or industrial customers, with one exception, and
most of the resulting revenues reduce the overall cost of waste disposal
services to the Client Communities. Each Service Agreement is different to
reflect the specific needs and concerns of the Client Community, applicable
regulatory requirements and other factors. The terms of the Service Agreements
are each 20 or more years, with the majority now in the second half of the
applicable term.
Financing for the Company's domestic WTE projects is generally
accomplished through tax-exempt and taxable revenue bonds issued by or on behalf
of the Client Community. If the facility is owned by a Covanta subsidiary, the
Client Community loans the bond proceeds to the subsidiary to pay for facility
construction and pays to the subsidiary amounts necessary to pay debt service.
For such facilities, project-related debt is included as "project debt (short
and long term)" in the Company's consolidated financial statements. Generally,
such debt is secured by the revenues pledged under the respective indentures and
is collateralized by the assets of Covanta's subsidiary and with the only
recourse to Covanta being related to construction and operating performance
defaults.
The domestic market for the Company's WTE services has largely matured
and is heavily regulated. Other than expansion opportunities for existing
projects in connection with which the Company's municipal clients have
encountered significantly increased waste volumes without corresponding
competitively-priced landfill availability, new opportunities for domestic
projects are expected to be scarce for the foreseeable future.
(2) Water and Wastewater Projects
The Company's water and wastewater ("Water") operations, composed of
desalinization, wastewater treatment and purification plants, are its newest
business. The Water operations are conducted through wholly-owned subsidiaries
which design, construct, maintain, and operate Water treatment facilities and
distribution and collection networks for municipalities in the United States.
Currently, the Company operates and maintains eight Water facilities in
New York, has designed and built and now operates and maintains a water
treatment facility and associated transmission and pumping equipment in Alabama
and is completing a desalinization project on behalf of the Tampa Bay Water
Authority in Florida.
(3) Independent Power Projects
Since 1989, the Company has been engaged in developing, owning and/or
operating twenty independent power production ("IPP") facilities utilizing a
variety of energy sources including water (hydroelectric), natural gas, coal,
geothermal fluid, landfill gas, heavy fuel oil and diesel fuel. The electrical
output from each facility, with one exception, is sold to local utilities. The
Company's revenue from the IPP facilities is derived primarily from the sale of
energy and capacity. The Heber Debtors' businesses are in connection with the
ownership and operation of the Geothermal Projects, which are IPP facilities
that convert geothermal fluid into energy. For further discussion of the Heber
Debtors' IPP facilities, see Section III.A.2 herein.
The regulatory framework for selling power to utilities from
independent power facilities (including waste-to-energy facilities) after
current contracts expire is in flux, given the energy crisis in California in
2000-2001 and the over-capacity of generation at the present time. Various
states and Congress are considering a wide variety of changes to regulatory
frameworks, but none has been established definitively at present.
(b) International Energy Business
As with its domestic business, the Company conducts its international
energy businesses through wholly-owned subsidiaries. Internationally, the
largest element of the Company's energy business is its 26.25% ownership in, and
operation of the 470 MW (net) pulverized coal-fired electrical generating
facility in Quezon Province, The Philippines. The Company has interests in other
fossil-fuel generating projects in Asia, a waste-to-energy project in Italy and
two small hydroelectric projects in Costa Rica. In general, these projects
provide returns primarily from equity distributions and, to a lesser extent,
operating fees. The projects sell the electricity and steam they generate under
long-term contracts or market concessions to utilities, governmental agencies
providing power distribution, creditworthy industrial users, or local
governmental units. In select cases, such sales of electricity and steam may be
provided under short-term arrangements as well. Similarly, the Company seeks to
obtain long-term contracts for fuel supply from reliable sources.
The ownership and operation of facilities in foreign countries entails
significant political and financial uncertainties and other structuring issues
that typically are not involved in such activities in the United States. Key
international risk factors include government-sponsored efforts to renegotiate
contracts, unexpected changes in electricity tariffs, conditions in financial
markets, currency exchange rates, currency repatriation restrictions, currency
convertibility, changes in laws and regulations and political, economic or
military instability, civil unrest and expropriation. Such risks have the
potential to cause substantial delays or material impairment to the value of the
project being developed or business being operated.
(c) Other Businesses
On December 31, 2001, the Company sold the major portion of its
aviation fueling business. The sale included all of the Company's aviation
fueling operations at 19 airports in the United States, Canada and Panama. On
March 28, 2002, the Company sold its interests in a power plant and an operating
and maintenance contractor based in Thailand. Since the Initial Petition Date,
the Debtors, with the approval of the Court, have sold or otherwise disposed of
its interests in the Argentine Assets, its interests in the Corel Centre and the
Team, the remaining aviation fueling and fuel facility management business
related to three airports operated by the Port Authority of New York and New
Jersey (the "Aviation Fueling Assets"), and other miscellaneous assets related
to the entertainment businesses. To date, the Company still holds entertainment
assets relating to the businesses associated with the Arrowhead Pond.
2. Description of Geothermal Business
Certain Reorganizing Debtors and Heber Debtors are in the business,
either directly or indirectly, of owning and/or operating Geothermal Projects,
each of which extracts and converts geothermal fluids into energy in Southern
California. Such Debtors and Geothermal Projects include:
o SIGC Parties: Covanta Energy Americas, Inc. (the "SIGC
Seller") owns equity interests (collectively, the "SIGC Interests") in
Covanta SIGC Energy, Inc. ("SIGC Energy I") and Covanta SIGC Energy
II, Inc. ("SIGC Energy II"), which entities, in turn, collectively own
all equity interests in Heber AMOR 14 Corporation ("AMOR," and with
SIGC Energy I and SIGC Energy II, the "Heber Debtor Holding
Companies") and all the partnership interests in Second Imperial
Geothermal Company, L.P. (the "SIGC Project Company");(9) The SIGC
Project Company is the sole lessee of a nominal 48-megawatt geothermal
electric power plant (the "SIGC Project"), which is operated by
Covanta SIGC Geothermal Operations, Inc. (the "SIGC Operator"). The
output of the facility is sold under a long term PPA with the Southern
California Edison Company ("SCE").
- -----------------
(9) SIGC Energy I indirectly owns, through its wholly-owned subsidiary AMOR, a
74.999% general partnership interest and a 0.001% limited partnership
interest in SIGC Project Company. Covanta SIGC Energy II, Inc. directly
owns a 24.999% general partnership interest and a 0.001% limited
partnership interest in SIGC Project Company.
o HGC Parties: Heber Loan Partners ("HGC One Seller"), ERC
Energy, Inc. ("HGC Two Seller") and ERC Energy II, Inc. ("HGC Three
Seller," and collectively, the "HGC Sellers") own partnership
interests (collectively, the "HGC Interests") in Heber Geothermal
Company (the "HGC Project Company"). The HGC Project Company owns a
nominal 52-megawatt geothermal electric plant (the "HGC Project"),
which is operated by the Covanta Imperial Power Service, Inc. (the
"HGC Operator"). The output of the HGC Project is sold under a long
term PPA with the SCE.
o HFC Parties: Covanta Heber Field Energy, Inc. ("HFC One
Seller") and Heber Field Energy II, Inc. ("HFC Two Seller," and with
the SIGC Seller, the HGC Sellers and HFC One Seller, the "Heber
Sellers") own partnership interests (collectively, the "HFC
Interests") in Heber Field Company (the "HFC Project Company," and
together with SIGC Project Company and HGC Project Company, the "Heber
Debtor Project Companies"). The HFC Project Company owns a geothermal
fluid facility (the "HFC Project"), which is operated by Covanta
Geothermal Operations, Inc. (the "HFC Operator," and with the SIGC
Operator and HGC Operator, the "Debtor Operators"). The HFC Project is
adjacent to and supplies geothermal fluid to both HGC and SIGC
Projects in connection with their respective facilities. HFC Project
Company is the lessee of more than 200 royalty leases, which make up
the Heber Known Geothermal Resource Area. HFC Project Company's rights
in the leases and the geothermal leases themselves are valid so long
as geothermal brine is produced. A royalty is paid to the geothermal
lease lessors each month.
In addition, Covanta Power Pacific, Inc., a non-debtor affiliate
("CPPI"), owns equity interests (collectively, the "MP Interests") in non-debtor
affiliates Pacific Geothermal Company and Mammoth Geothermal Company, which
entities, in turn, collectively own 50% of the partnership interests in Mammoth
Pacific, L.P. (the "MP Project Company," and together with the Heber Debtor
Project Companies, the "Project Companies"). The MP Project Company owns a
nominal 40-megawatt geothermal electric power plant, comprised of three plants
(the "MPLP Facilities"). The MPLP Facilities are located on the eastern slopes
of the Sierra Nevada Mountains at Casa Diablo Hot Springs in California. The
MPLP Facilities have contractual rights to the geothermal fluid resource for a
term not less than the term of the PPAs. All three MPLP Facilities sell energy
and capacity to SCE under long term PPAs and have recently entered into PPA
amendments calling for a five-year fixed-price for the energy sold. Covanta
Power Plant Operations, also a non-Debtor subsidiary, provides management
services to MPLP on a cost-reimbursement basis.
Geothermal Debtor Equity is comprised of the SIGC Interests, HGC
Interests and HFC Interests.
B. Other Aspects of Business Operations
1. Insurance
The Company maintains certain insurance policies essential to the
continued operations of the Company. The terms of these policies are
characteristic of insurance policies typically maintained by corporate entities
that are similar in size and nature to the Company. A summary of the Company's
policies and coverage are as follows:
Commercial General Liability Insurance and Excess Liability Insurance
includes coverage for third party liability and contractual liability coverage
resulting from negligence of the insured.
Property Insurance includes all-risk coverage on a replacement cost
basis for physical damage to all buildings and equipment including boilers and
machinery, owned, leased or otherwise under the control of the Company; and
includes coverage for business interruption and extra expenses likely to be
incurred in the event of a property loss.
Automobile Liability Insurance is provided for all owned, non-owned and
hired automobiles with coverage for both bodily injury and property damage in
compliance with the laws of the jurisdiction in which the vehicle is licensed.
Workers' Compensation Insurance provides coverage for all employees
throughout the United States in accordance with the laws of each state in which
the Company conducts its business.
Directors and Officers Liability Insurance provides coverage for both
Directors and Officers liability for wrongful acts actually or allegedly caused
by the insured subject to standard exclusions.
Political Risk Insurance provides coverage for the Company's equity
investments in certain of its international projects.
The company also maintains crime insurance and fiduciary liability
insurance on certain of its foreign locations.
2. Environmental Matters
Covanta's business activities in the United States are pervasively
regulated pursuant to federal, state and local environmental laws. Federal laws,
such as the Clean Air Act and Clean Water Act, and their state counterparts,
govern discharges of pollutants to air and water. Other federal, state and local
laws comprehensively govern the generation, transportation, storage, treatment
and disposal of solid and hazardous waste, and also regulate the storage and
handling of petroleum products (such laws and the regulations thereunder,
"Environmental Regulatory Laws").
The Environmental Regulatory Laws and other federal, state and local
laws, such as the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA" or "Superfund") (collectively, "Environmental
Remediation Laws") make Covanta potentially liable on a joint and several basis
for any onsite or offsite environmental contamination which may be associated
with the Company's activities and the activities at sites, including landfills
which the Company's subsidiaries have owned, operated or leased or at which
there has been disposal of residue or other waste handled or processed by such
subsidiaries or at which there has been disposal of waste generated by the
Company's activities. Some state and local laws also impose liabilities for
injury to persons or property caused by site contamination. Some Service
Agreements provide for indemnification of the operating subsidiaries from some
such liabilities. In addition, other subsidiaries involved in landfill gas
projects have access rights to landfills pursuant to certain leases at landfill
sites which permit the installation, operation and maintenance of landfill gas
collection systems. A portion of these landfill sites is and has been a
federally-designated "Superfund" site. Each of these leases provide for
indemnification of the Company subsidiary from some liabilities associated with
these sites.
The Environmental Regulatory Laws require that many permits be obtained
before the commencement of construction and operation of waste-to-energy,
independent power and water and wastewater projects, and further require that
permits be maintained throughout the operating life of the facility. There can
be no assurance that all required permits will be issued or re-issued, and the
process of obtaining such permits can often cause lengthy delays, including
delays caused by third-party appeals challenging permit issuance. Failure to
meet conditions of these permits or of the Environmental Regulatory Laws and the
corresponding regulations can subject an operating subsidiary to regulatory
enforcement actions by the appropriate governmental unit, which could include
fines, penalties, damages or other sanctions, such as orders requiring certain
remedial actions or limiting or prohibiting operation. To date, Covanta has not
incurred material penalties, been required to incur material capital costs or
additional expenses, nor been subjected to material restrictions on its
operations as a result of violations of environmental laws, regulations or
permits.
3. Prepetition Legal Proceedings
The following discussion regarding legal proceedings purports only to
identify those legal proceedings commenced prior to the Initial Petition Date
that the Debtors, in their reasonable judgment, considered prepetition to be
material in nature, unless otherwise noted. Covanta's Form 10-K Annual Report
for the fiscal year ended December 31, 2002, accessible on
http://investors.covantaenergy.com, also contains information about these legal
proceedings.
On June 8, 2001, the EPA named Ogden Martin Systems of Haverhill, Inc.,
now known as Covanta Haverhill, Inc., as one of 2,000 potentially responsible
parties ("PRPs") at the Beede Waste Oil Superfund Site, Plaistow, New Hampshire
(the "Site") in connection with alleged waste disposal by PRPs on the Site. The
EPA alleges that the costs of response actions completed or underway at the Site
total about $17 million and estimates that the total cost of cleanup of the Site
will be about $65 million. Covanta is participating in PRP group discussions
towards settlement of the EPA's claims. Covanta's share of liability, if any,
cannot be determined at this time as a result of uncertainties regarding the
source and scope of contamination, the large number of PRPs and the varying
degrees of responsibility among various classes of PRPs. Covanta Haverhill,
Inc., is not a Debtor.
On April 9, 2001, Ogden Ground Services, Inc. ("Ogden Ground") and
Ogden Aviation, Inc., together with approximately 250 other parties, were named
by Metropolitan Dade County, Florida (the "County") as PRPs, pursuant to CERCLA,
RCRA and state law, with respect to an environmental cleanup at the Miami Dade
International Airport. The County alleges that it has expended over $200 million
in response and investigation costs and expects to spend an additional $250
million to complete necessary response actions. The lawsuit is currently subject
to a tolling agreement between PRPs and the County. Covanta's share of
liability, if any, cannot be determined at this time because of uncertainties
regarding the source and scope of the contamination, the large number of PRPs
and the varying degrees of responsibility among various classes of PRPs.
Covanta's liability, if any, arises from its agreement to indemnify various
transferees of its divested airport operations with respect to certain known and
potential liabilities that may arise out of such operations, and in certain
instances to remain liable for certain potential liabilities that were not
assumed by the transferee. Ogden Ground has been sold, and the transferee of its
businesses is subject to Covanta's indemnification agreement. The Debtors
believe that the indemnity of Ogden Ground's transferee, as well as any other
such indemnity, are prepetition unsecured obligations. Ogden Aviation, Inc. is a
Liquidating Debtor and the above matter is expected to have no impact on the
Reorganized Company (as defined herein).
On May 25, 2000 the California Regional Water Quality Control Board,
Central Valley Region (the "Board"), issued a cleanup and abatement order to
Pacific-Ultrapower Chinese Station ("Chinese Station"), a general partnership in
which one of Covanta's subsidiaries owns 50%. The order is in connection with
Chinese Station's neighboring property owner's use of ash generated by Chinese
Station's Jamestown, California power plant. Chinese Station completed the
cleanup in mid-2001 and submitted its Clean Closure Report to the Board on
November 2, 2001. The Board and other state agencies continue to investigate
alleged civil and criminal violations associated with the management of the
material. Chinese Station believes it has valid defenses, and a petition for
review of the order is pending. Settlement discussions in this matter are
underway. Chinese Station and Covanta's subsidiary that owns a partnership
interest in Chinese station are not Debtors.
On January 4, 2000 and January 21, 2000, United Air Lines, Inc.
("United") and American Airlines, Inc. ("American"), respectively, named Ogden
New York Services, Inc. ("Ogden New York"), in two separate lawsuits filed in
the Supreme Court of the State of New York, which have been consolidated for
joint trial. The lawsuits seek judgment declaring that Ogden New York is
responsible for petroleum contamination at airport terminals formerly or
currently leased by United and American at New York's Kennedy International
Airport. United seeks approximately $1.9 million in certain costs and legal
expenses, as well as certain declaratory relief, against Ogden New York and four
airlines, including American. American seeks approximately $74.5 million in
certain costs and legal fees from Ogden New York and United. Covanta disputes
the allegations and believes that the damages sought are overstated in view of
the airlines' responsibility for the alleged contamination and that Covanta has
defenses under its respective leases and Port Authority permits. Ogden New York
is a Liquidating Debtor, and as a result, the such Debtor's Chapter 11 filing
has stayed the matters, which are expected to have no impact on the Reorganized
Company (as defined herein).
On December 23, 1999, an aviation subsidiary of Covanta was named as a
third-party defendant in an action filed in the Superior Court of the State of
New Jersey alleging that the aviation subsidiary generated hazardous substances
at a reclamation facility known as the Swope Oil and Chemical Company Site.
Third-party plaintiffs seek contribution and indemnification from the aviation
subsidiary and over 90 other third parties, as PRPs, for costs incurred and to
be incurred in the cleanup. This action was stayed pending the outcome of first-
and second-party claims. The aviation subsidiary's share of liability, if any,
cannot be determined at this time because of uncertainties regarding the source
and scope of contamination, the large number of PRPs and the varying degrees of
responsibility among various classes of PRPs. This matter is expected to have no
impact on the Reorganized Company (as defined herein).
In 1985, Covanta, a Reorganizing Debtor, sold its interests in several
manufacturing subsidiaries, some of which allegedly used asbestos in their
manufacturing processes, and one of which was Avondale Shipyards, now a
subsidiary of Northrop Grumman Corporation. Some of these former subsidiaries
have been and continue to be parties to asbestos-related litigation. In 2001,
Covanta was named a party, with 45 other defendants, to one such case. Before
the Debtor's bankruptcy filing, Covanta had filed for its dismissal from the
case, which is now stayed directly against Covanta by the Chapter 11 Cases.
Also, eleven proofs of claim seeking unliquidated amounts have been filed
against Covanta in the Chapter 11 Cases based on what appears to be purported
asbestos-related injuries that may relate to the operations of former Covanta
subsidiaries. Covanta believes that these claims lack merit and plans to object
vigorously to such claims.
4. Employees; Labor Matters; Benefit Plans
(a) Employees
As of April 1, 2002, the Company employed approximately 3,200 full-time
employees worldwide, of which approximately 2,900 were employed in the United
States. As of September 1, 2003, the Company employed approximately 2,400
full-time employees worldwide, of which approximately 2,000 were employed in the
United States. The reduction in force was generally the result of the Company's
sale of various non-core assets, as well as the Company's decision in September
2002, within its core energy business, to reduce the number of non-plant
personnel and close satellite development offices in order to enhance its value.
As part of this reduction in force, waste-to-energy, water and domestic
independent power headquarters management were combined and numerous other
structural changes were instituted to improve management efficiency.
Of the Company's employees in the United States, approximately 20% are
unionized. Currently, the Company is a party to eight (8) collective bargaining
agreements: three (3) of these agreements are scheduled to expire in 2004, one
(1) in 2005 and one (1) in 2006. With respect to the remaining three (3)
agreements, each of which has recently expired, the Company is currently in
negotiations with the applicable collective bargaining representatives and the
Company currently expects to reach agreement with each such representative to
extend each such agreement on its current or similar terms. In addition, the
Company is currently negotiating with a collective bargaining representative
regarding the terms of a collective bargaining agreement with respect to certain
of the Company's employees at the Edison Bataan Cogeneration facility in the
Philippines.
(b) Defined Benefit Pension Plans
(1) The Covanta Energy Pension Plan
The Debtors maintain the Covanta Energy Pension Plan (the "Pension
Plan") for certain of their employees. The Pension Plan is a tax-qualified
defined benefit pension plan covered by Title IV of ERISA, pursuant to which
benefits are payable upon a participant's retirement from the Debtors,
disability, or death. Based on the plan's most recent actuarial report, the
Pension Plan is currently underfunded by approximately $24 million. The Debtors
intend to continue the Pension Plan after the Effective Date and to administer
and operate the Pension Plan in accordance with its terms and the applicable
provisions of ERISA and the Internal Revenue Code of 1986, as amended (the
"IRC"), including the minimum funding standards of ERISA and the IRC and to pay
all insurance premiums payable to the Pension Benefit Guaranty Corporation (the
"PBGC"), a wholly-owned United States government corporation that administers
the defined benefit pension plan termination insurance program under Title IV of
ERISA. The Projections include a reasonable estimate of the cash contributions
necessary for the Reorganized Debtors to satisfy their minimum funding
obligations under ERISA.
(2) The Service Employees International Union Pension
Trust for Employees of Allied Plant Maintenance Company, Inc. Defined Benefit
Pension Plan
Ogden Plant Maintenance Company, Inc. (formerly known as Allied Plant
Maintenance Company, Inc.), a non-Debtor, sponsors the Service Employees
International Union Pension Trust for Employees of Allied Plant Maintenance
Company, Inc. Defined Benefit Pension Plan (the "SEIU Pension Plan") for certain
of its employees represented by the Service Employees International Union Local
22. The SEIU Pension Plan is a tax-qualified defined benefit pension plan
covered by Title IV of ERISA, pursuant to which benefits are payable upon a
participant's retirement. No active employees of the Company currently
participate in the SEIU Pension Plan. The SEIU Pension Plan was "frozen,"
effective as of July 7, 1995, and no service since that date has been recognized
for any purpose thereunder. At such time, all participants became 100% vested in
their accrued benefits. The SEIU Pension Plan is currently underfunded by
approximately $560,000, based on the plan's most recent actuarial report.
Currently, the Debtors intend to continue to maintain the SEIU Pension Plan
after the Effective Date as a frozen plan and to meet their obligations to such
plan under ERISA and the IRC and to the PBGC.
(c) Defined Contribution Retirement Plans
(1) The Covanta Energy Savings Plan
The Debtors maintain the Covanta Energy Savings Plan (the "Savings
Plan") for certain of their employees. The Savings Plan is a defined
contribution retirement plan intended to be qualified under Section 401 of the
IRC. Under the Savings Plan, the Debtors make pre-tax salary deferral
contributions (from 1% to 20% of a participant's pay for each pay period) on
behalf of each participant at such participant's election. In addition, the
Debtors match 100% of a participant's contributions up to the first 3% of such
participant's pay for the payroll period and 50% of a participant's contribution
up to the next 2% (in excess of 3% but not more than 5%) of such participant's
pay for the relevant payroll period. Each participant determines how his or her
contributions are invested amongst the available investment alternatives. The
Debtors intend to continue the Savings Plan after the Effective Date and to meet
their obligations with respect to the plan under ERISA and the IRC.
(2) The Resource Recovery 401(k) Plan
The Debtors maintain the Resource Recovery 401(k) Plan (the "Resource
401(k) Plan") for certain of their employees. The Resource 401(k) Plan is a
defined contribution retirement plan intended to be qualified under Section 401
of the IRC. Pursuant to the Resource 401(k) Plan, the Debtors make pre-tax
salary deferral contributions (from 1% to 15% of a participant's pay for each
period) on behalf of each participant at such participant's election. In
addition, the Debtors match 100% of a participant's contribution up to the first
3% of such participant's pay for the payroll period and have discretion to make
additional contributions to participants' accounts. Each participant determines
how his or her contributions are invested amongst the available investment
alternatives. Currently, both employee and employer contributions to the
Resource 401(k) Plan are "frozen" and participants are not accruing any
additional benefits. The Debtors currently intend to merge the outstanding
Resource 401(k) Plan account balances into the Savings Plan and expect to have
any requisite Internal Revenue Service (the "IRS") approval to do so in the near
future.
(3) The Covanta Energy Group Security Fund
The Debtors maintain the Covanta Energy Group Security Fund (the
"Security Fund") for certain of their union employees, who are not eligible to
participate in the Savings Plan, at the (i) Marion waste-to-energy facility in
Marion County, Oregon; (ii) Hennepin waste-to-energy facility in Hennepin
County, Minnesota; (iii) Bristol waste-to-energy facility in Bristol,
Connecticut and (iv) New Martinsville, West Virginia Hydro Facility. Currently,
the Security Fund has one hundred nineteen (119) participants. The Security Fund
is a defined contribution retirement plan intended to be qualified under Section
401 of the IRC. Pursuant to the Security Fund, the Debtors make pre-tax salary
deferral contributions (from 1% to 15% of a participant's pay for each period)
on behalf of each participant at such participant's election. In addition, the
Debtors generally contribute five cents per hour to each participant's account
for all hours worked by such participant (in some instances, such contributions
are limited to a standard 40 hour work week). Each participant determines how
his or her contributions are invested amongst the available investment
alternatives. The Debtors intend to continue the Security Fund after the
Effective Date and to meet their obligations with respect to the plan under
ERISA and the IRC.
(4) The Hennepin Money Purchase Plan
The Debtors maintain the Hennepin Money Purchase Plan (the "Hennepin
Plan") for certain eligible union employees at the Hennepin waste-to-energy
facility. Currently, the Hennepin Plan has seventy-five (75) participants. The
Hennepin Plan is a defined contribution retirement plan intended to be qualified
under Section 401 of the IRC. Pursuant to the Hennepin Plan, the Debtors make
annual contributions equal to an adjustable percentage of the compensation of
all participants. The Hennepin Plan does not provide for employee contributions.
Each participant determines how contributions made on his or her behalf are
invested amongst the available investment alternatives. The Debtors intend to
continue the Hennepin Plan after the Effective Date and to meet their
obligations with respect to the plan under ERISA and the IRC.
(5) The Metropolitan 401(k) Plan
The Debtors have satisfied all outstanding obligations arising under
the Metropolitan 401(k) Plan. No benefits are currently accruing under the
Metropolitan 401(k) Plan and, as a result, the plan currently has no assets. The
Debtors are in the process of formally terminating the Metropolitan 401(k) Plan.
(6) The Resource Recovery Pension Plan
The Debtors maintain the Resource Recovery Pension Plan (the "Resource
Pension Plan") for certain eligible employees of Ogden Resource Recovery Support
Services, Inc. The Resource Pension Plan is a defined contribution retirement
plan intended to be qualified under Section 401 of the IRC. Pursuant to the
Resource Pension Plan, the Debtors make annual contributions at a rate of 3% of
the compensation of all participants. The Resource Pension Plan does not provide
for employee contributions. Each participant determines how contributions made
on his or her behalf are invested amongst the available investment alternatives.
The Resource Pension Plan was amended, effective December 31, 2001, to freeze
the plan and employer contributions were discontinued accordingly at such time.
Since December 31, 2001, participants have not accrued any new benefits under
the Resource Pension Plan. The Debtors currently intend to continue the Resource
Pension Plan and to meet their obligations with respect to the plan under ERISA
and the IRC.
(7) The Ogden Environmental and Energy Services 401(k)
Plan
The Debtors maintain the Ogden Environmental and Energy Services 401(k)
and Profit Sharing Plan (the "Energy Services 401(k) Plan"). The Energy Services
401(k) Plan was "frozen" on November 17, 2000 and currently, no active employees
participate therein. The Debtors are currently in the process of terminating the
Energy Services 401(k) Plan and distributing outstanding participant account
balances thereunder.
(d) The Supplementary Benefit Plan of Ogden Projects, Inc.
Since the 1980s, Ogden Projects, Inc. (now known as Covanta Projects,
Inc.), a Debtor, has sponsored the Supplementary Benefit Plan of Ogden Projects,
Inc. (the "Supplementary Plan") which provides for supplemental pension benefits
and profit sharing and employer-matching contributions to eligible employees of
the Company's energy business. The Supplementary Plan is an unfunded,
non-qualified plan. Eligible employees are those employees who participate in a
certain pension plan (the Pension Plan) and profit sharing plan (the Savings
Plan) maintained by Covanta Projects, Inc. each of which is intended to be
qualified under Section 401 of the IRC (together, the "Qualified Plans"). As of
the Supplementary Plan's latest valuation date there were fifty-six (56)
participants. The purpose of the Supplementary Plan is to equalize the pension
benefit and contribution formula applicable to the employees participating in
the Qualified Plans whose pension benefits and allocated profit sharing or
employer contributions are limited as a result of certain IRC provisions.
Pursuant to the Supplementary Plan, participants are paid retirement
benefits in an amount equal to the excess of the retirement benefits that would
have been paid to such participants under the Pension Plan in the absence of the
limitations of Section 415 of the IRC on the amount of benefits that may be
provided under tax-qualified plans over the retirement benefits actually paid
under the Pension Plan. Retirement benefits payable under the Supplementary Plan
are determined at the same time and in the same manner as the retirement
benefits payable under the Pension Plan and will be payable in a single cash
lump sum. Such benefits are payable at retirement to eligible participants
beginning at age 55 (depending on length of service).
With respect to profit sharing and excess employer contributions made
pursuant to the Supplementary Plan, the committee administering the Savings
Plan, in the ordinary course of business, determines annually the total
percentage of an employee's compensation that is eligible for Company
contributions under the Savings Plan. The Company then makes an annual
contribution (not to exceed such pre-established percentage), either in the form
of a profit-sharing or employer matching contribution to the Savings Plan for
each eligible employee based upon the performance of the Company's energy
business for that year and subject to the limitations imposed by the IRC on the
maximum amount of an employee's compensation that may be taken into account when
making such contributions. Pursuant to the profit sharing and Company match
components of the Supplementary Plan, an employee whose allocated contributions
under the Savings Plan are limited as a result of the IRC are paid, in cash, the
amount by which the percentage of annual contributions authorized by the
committee exceeds the amounts that are actually allocated to such employee's
account under the Savings Plan. Distributions with respect to the profit sharing
and Company match components of the Supplementary Plan are made to participants
on an annual basis.
By order of the Court dated September 18, 2002 (Docket No. 932), the
Debtors obtained authorization to continue to make all payments necessary to
satisfy in full all obligations owing to eligible employees under the
Supplementary Plan. Accordingly, the Debtors have continued to fulfill such
obligations and currently intend to continue the Supplementary Plan following
the Effective Date.
(e) Additional Non-Qualified Pension Plans
Certain of the Debtors sponsor certain pension plans for eligible
employees that are not intended to be qualified under the IRC (collectively, the
"Non-Qualified Plans"). The Non-Qualified Plans include (i) the Resource
Recovery Senior Management Pension Plan (the "Resource Plan"), which is
sponsored by Covanta Energy Services, Inc. (f/k/a Ogden Resource Recovery
Support Services, Inc.), (ii) the Ogden Select Savings Plan (the "Select Plan"),
which is sponsored by Ogden Services Corporation and (iii) the Ogden Energy
Select Savings Plan (the "Energy Select Plan") which is sponsored by Covanta
Energy Group. Inc. Each of the Non-Qualified Plans is a defined contribution
plan and is maintained as a "top-hat" plan for purposes of ERISA, exempt from
substantially all of ERISA's requirements. The assets of each of the
Non-Qualified Plans are held in grantor trusts (typically known as "rabbi
trusts") structured to permit the deferral of income tax on participants'
benefits under the Non-Qualified Plans.
Pursuant to an order of the Court dated September 18, 2002 (Docket No.
938), the Debtors obtained authorization to honor and pay in full all
obligations under the Non-Qualified Plans as such obligations have become due or
will become due during the Chapter 11 Cases.
(1) The Resource Plan
There are a total of two hundred twelve (212) participants in the
Resource Plan. Two hundred five (205) of these participants are currently
employed by the Company, while the remaining seven (7) are former employees
currently receiving benefit distributions. Pursuant to the terms of the Resource
Plan, Covanta Energy Services, Inc. is responsible for making annual
contributions for the benefit of each participant equal to 3% of such
participant's annual base pay. All contributions to the Resource Plan are
currently held in a grantor trust administered by T. Rowe Price, the current
assets of which are valued at approximately $1.6 million. The Resource Plan was
frozen on December 31, 2001 and no contributions have been made to it since that
date. The Debtors intend to continue the Resource Plan after the Effective Date.
(2) The Select Plan
The purpose of the Select Plan is to enable eligible employees to
enhance their retirement security by permitting them to elect to defer receipt
of a portion of their compensation to a later date or event. The Select Plan was
"frozen" in 1999 and no new contributions have been made to the plan since.
Since September 18, 2002, all participants in the Select Plan have received
final distribution of their account balances and, consequently, the Company has
no outstanding obligations thereunder. The Company is currently in the process
of formally terminating the Select Plan.
(3) The Energy Select Plan
The purpose of the Energy Select Plan is to enable eligible employees
to enhance their retirement security by permitting them to elect to defer
receipt of a portion of their compensation (from 1% to 10% of their annual
compensation and up to 100% of any discretionary profit sharing payment they
receive) to a later date or event. A total of approximately twenty-five (25)
active or former employees participate in the Energy Select Plan. Approximately
twenty (20) of these employees are actively employed by Covanta Energy Group,
Inc., while the remaining five (5) are not actively employed by the Company but
are currently entitled to payment of deferred vested benefits. Deferral
contributions to the Energy Select Plan remain in a grantor trust administered
by T. Rowe Price, the assets of which are currently valued at approximately
$765,000. The Energy Select Plan was frozen on December 31, 2001 and no
contributions have been made to it since that date. The Debtors intend to
continue the Energy Select Plan after the Effective Date.
(f) The Key Employee Retention Plan (the "KERP")
On September 18, 2002, the Court approved an order (Docket No. 932),
approving the Company's Key Employee Retention Plan, consisting of the Key
Employee Severance Plan (the "Severance Plan"), the Special Retention Bonus Plan
(the "Retention Plan") and the Long-Term Incentive Plan (the "LTIP").
(1) The Severance Plan
At the time of its Court approval, seventy-four (74) employees of the
Debtors, including key executives, were eligible to participate in the Severance
Plan. A participant whose employment terminates Without Cause or for Mutual
Benefit (as those terms are defined in the KERP) following the Initial Petition
Date are eligible to receive a severance benefit pursuant to the Severance Plan.
In addition, to receive payment of severance benefits under the Severance Plan,
a participant is required to sign a general release of claims against the
Company (other than claims for indemnification under indemnification agreements,
the Company's Certificate of Incorporation or By-Laws or applicable law and
claims for accrued benefits under the Company's employee benefit plans) and
comply with certain additional covenants including confidentiality covenants,
non-solicitation and non-disparagement covenants and litigation support
commitments.
Cash severance benefits are paid in a single lump sum payment. The
amount of benefit depends upon the participant's position and ranges from (i)
the greater of (x) 50% of a participant's base salary and (y) two (2) weeks'
base salary per year of service (not to exceed fifty-two (52) weeks) to (ii)
200% of a participant's base salary (a benefit for which only the CEO of the
Company is eligible). A participant in the Severance Plan is also entitled to
receive continued medical and dental coverage, provided that such participant
pays the regular employee co-payments, for the period corresponding to the
percentage of salary payable as cash severance benefits, subject to an eighteen
(18) month cap. A participant's right to continue to receive medical or dental
coverage ceases immediately if such participant is offered or becomes eligible
for coverage under a medical or dental plan of any subsequent employer. In
addition, payments under the Severance Plan are to be reduced if the aggregate
amount paid to a participant triggers the federal excise tax on parachute
payments.
(2) The Retention Plan
At the time of its Court approval, seventy-two (72) employees,
including key executives, were eligible to participate in the Retention Plan.
Under the Retention Plan, eligible employees will receive a base award under
certain limited circumstances, from an aggregate pool of $3.6 million, equal to
a percentage of base salary, ranging from 10% to 75% depending upon the
employee's position. Awards have, and will continue to, become vested and
payable in three installments as described below, subject in each case to the
participant's continued employment with the Company until the applicable vesting
date. The first installment of 33.3% of the awards vested and was paid to
participants on or about September 30, 2002. The second installment of 33.3% of
the awards becomes vested and payable on the earlier of (i) September 30, 2003
and (ii) the consummation of the Reorganization Plan. The remaining 33.4% of the
awards will become vested and payable on the date of the consummation of the
Reorganization Plan. In the event a participant's employment with the Company is
terminated by the Company Without Cause or by the participant for Mutual
Benefit, or due to the participant's death or disability, a pro rata share of
such participant's unpaid award would become immediately vested and payable,
unless the unpaid portion is the full, final installment, in which case the
remaining portion of the award is payable on the date of the consummation of the
Reorganization Plan. In the event of any other termination prior to a vesting
date, the unpaid portion of any award is forfeited.
(3) The LTIP
The LTIP covers six (6) senior executives and up to two (2) additional
key management employees selected by the Compensation Committee of Covanta's
Board of Directors, based on the advice of Covanta's chief executive officer
(the "CEO"). The LTIP was implemented to provide incentives to Covanta's senior
management to remain with the Debtors throughout the reorganization process and
to devote all of their attention and energy to the preservation of the value of
the business and assets of the Debtors during the chapter 11 proceedings. Under
the LTIP, a participant is entitled to receive payment of his award only if such
participant's employment with the Company is terminated by the Company Without
Cause or by the participant for Mutual Benefit prior to the one-year anniversary
of the date of entry of the Court's order confirming the Reorganization Plan and
provided such participant executes a general waiver and release of all claims
under all prepetition agreements, other than claims for indemnification under
indemnification agreements, Covanta's Certificate of Incorporation or By-Laws or
applicable law and claims for accrued benefits under Covanta's employee benefit
plans. Pursuant to the LTIP, an eligible participant who satisfies these
conditions will generally be entitled to receive a cash payment upon the
termination of such participant's employment and a general release by the
Company of all claims against such participant.
The amount of any cash payment to a participant in satisfaction of his
or her LTIP award varies depending upon such participant's position, and is
generally equal to 150% to 200% of the sum of such participant's (i) salary and
(ii) "average bonus" (calculated pursuant to the terms of the LTIP as the sum of
(x) the average annual bonus paid to the participant for the two fiscal years
immediately preceding the participant's termination and (y) 30% of such
participant's salary), minus any amounts the participant is entitled to receive
pursuant to the Severance Plan. The maximum aggregate payout under the LTIP is
approximately $8.1 million.
(g) The Broad Based Severance Plan
On September 18, 2002, the Court approved the Company's Broad-Based
Severance Plan (the "Broad Severance Plan") for rank-and-file employees. By
establishing and implementing the Broad Severance Plan, the Debtors formalized
their prior severance practice (subject to certain modifications) in order to
establish clear guidelines and to encourage the retention of employees during
the Chapter 11 Cases.
The Broad Severance Plan authorizes the Company to make severance
payments to certain eligible full-time employees whose employment with the
Company is terminated involuntarily without Cause (as defined in the Broad
Severance Plan) in connection with a job or department elimination, office
closing, reduction in force or other appropriate circumstances as determined by
the administrator of the Broad Severance Plan. An employee whose employment with
the Company is terminated for any other reason is not eligible for severance
benefits under the Broad Severance Plan. In addition, any full-time employee
who, as of the date of such employee's termination (i) is party to any
severance, termination, employment or other agreement with the Company that
provides for severance benefits or benefits of a similar nature to severance
benefits under any circumstances, (ii) is eligible to participate in or
otherwise covered under any other plan or arrangement of the Company, such as
the KERP, that provides for severance benefits or benefits of a similar nature
to severance benefits under any circumstances or (iii) is covered by any
collective bargaining agreement in connection with his or her employment with
the Company, is ineligible to participate in the Broad Severance Plan.
In order for an eligible employee to receive severance benefits
pursuant to the Broad Severance Plan, he or she must execute and deliver a
general release of all claims against the Company. The severance benefit payable
to an employee pursuant to the Broad Severance Plan is equal to continued
payment of such employee's base salary (as defined in the Broad Severance Plan)
for a number of calendar weeks equal to the greater of (i) the product of (x)
two (2) multiplied by (y) each year of service completed by such employee prior
to his or her date of termination and (ii) four (4) weeks, provided that the
salary pay continuation period shall in no event exceed twenty-six (26) weeks.
In addition, participants receive continued medical and dental coverage,
provided that such participants pay the regular employee co-payments, for the
period the cash severance benefits are payable. A participant's right to
continue to receive medical or dental coverage ceases immediately if such
participant is offered or becomes eligible for coverage under a medical or
dental plan of any subsequent employer.
The Debtors intend to continue the Broad Severance Plan after the
Effective Date.
(h) Retiree Medical Programs
In 1992, the Company, pursuant to a resolution of its Board of
Directors, terminated its then existing post-retirement medical, dental and life
insurance coverage on a going-forward basis, but grandfathered the coverage of
those individuals who were generally either then (i) retired, (ii) eligible for
early retirement or (iii) specifically designated by the Board of Directors as
eligible to continue to receive such post-retirement coverage. Currently, the
Company provides post-retirement medical, and in certain cases, dental and life
insurance coverage to a small population of its retired employees and only two
(2) active employees are eligible to receive post-retirement benefits in the
future.
Throughout the course of these Chapter 11 Cases, the Company has
generally provided two different levels of post-retirement medical, dental and
life insurance coverage depending upon the beneficiary's position. Former senior
executives of the Company, commonly referred to as "core retirees" because of
the senior positions they held with the Company, (as well as their eligible
dependents) are entitled to coverage that generally covers the full cost of
reasonable and customary medical, dental and vision care expenses (the "Core
Retiree Program"). In certain instances, core retirees are required to pay a
contribution for such coverage equal to the contributions for active senior
executives. Upon attainment of age 65, the Core Retiree Program becomes
coordinated with Medicare, which becomes the primary insurer. Typically the
Company will reimburse participants for their Medicare Part B premiums. Certain
core retirees are also entitled to life insurance coverage that is commonly
equal to two (2) times such retiree's annual base salary and bonus.
Certain other retirees of the Company (as well as their eligible
dependents) are entitled to coverage that generally covers a portion of the cost
for medical, and in some instances dental, expenses (the "Non-Core Retiree
Program," and together with the Core Retiree Program, the "Retiree Medical
Programs") at the same levels as for similarly situated active employees. Such
retirees are generally responsible for paying a monthly contribution for
coverage under the Non-Core Retiree Program, the amount of which is reviewed
periodically by the Company and remains subject to change to reflect increased
costs of such coverage. Upon attainment of age 65, the Non-Core Retiree Program
is coordinated with Medicare, which becomes the primary insurer. Certain
retirees who participate in the Non-Core Retiree Program are also entitled to
varying levels of term life insurance coverage.
The Company is in the process of adjusting certain of the
post-retirement medical benefits it currently provides to retirees pursuant to
the Core Retiree Program. Please see Section VII.E.8. hereof for a discussion of
such adjustments, as well as the Debtors' general intentions with respect to the
Retiree Medical Programs and life insurance coverage following the Effective
Date.
(i) Employment Agreements
Pursuant to applicable provisions of the Bankruptcy Code, the Plans
currently contemplate the rejection of all existing prepetition employment
agreements.
(j) Workers' Compensation Program
The Debtors currently maintain workers' compensation programs in all
states in which they operate pursuant to the applicable requirements of local
law to provide employees with workers' compensation coverage for claims arising
from or related to their employment with the Debtors. Until October 2002,
Debtor's workers' compensation program was part of a larger insurance program
that has been in place since August 1985 (the former workers' compensation
program). Under the former workers' compensation program, the insurer provided
coverage to workers asserting claims arising from or related to their employment
by Debtors or former affiliates of these Debtors. Through payment agreements
between Debtor and the insurer, Debtor reimbursed the insurer for certain
amounts as required by the terms of the policies. The Debtor's obligation to
reimburse these amounts was secured through letters of credit and a bond. In
October 2002, Debtor's workers' compensation program changed. The current
workers' compensation program is secured by cash and a letter of credit.
The current workers' compensation program expires in October 2003.
Debtors are currently considering renewal options. At all times, Debtors will
maintain workers' compensation coverage for claims as required by applicable
state law.
C. Recent Financial Results
Set forth in Exhibit F are the following selected historical financial
statements for the Company: (i) audited statements of consolidated operations
and comprehensive loss for the years ended December 31, 2002, 2001 and 2000 and
unaudited statements of consolidated operations and comprehensive loss for the
six and three month periods ended June 30, 2003 and 2002; (ii) audited
consolidated balance sheets as of December 31, 2002 and 2001 and unaudited
consolidated balance sheets as of June 30, 2003; (iii) audited statements of
shareholders' equity (deficit) for the years ended December 31, 2002, 2001 and
2000 and unaudited statements of shareholders' equity (deficit) for the
six-month period ended June 30, 2003; and (iv) audited statements of
consolidated cash flows for the years ended December 31, 2002, 2001 and 2000 and
unaudited statements of consolidated cash flows on a consolidated basis for the
six-month periods ended June 30, 2003 and 2002.
The notes that accompany the financial statements attached were
replicated from the Form 10-K Annual Report for the period ended December 31,
2002 and the Form 10-Q Quarterly Report for the period ended June 30, 2003.
Covanta filed a voluntary petition for reorganization relief under
chapter 11 of the Bankruptcy Code in April 2002. Since that time, the Company's
consolidated financial statements, including those attached hereto in Exhibit F,
have been prepared in accordance with The American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"), on a going concern
basis. Continuing as a going concern contemplates continuity of operations,
realization of assets, and payment of liabilities in the ordinary course of
business. The accompanying consolidated financial statements appropriately do
not reflect adjustments that might result if the Company is unable to continue
as a going concern.
SOP 90-7 requires the segregation of liabilities subject to compromise
by the Court as of the bankruptcy filing date, and identification of all
transactions and events that are directly associated with the reorganization of
the Company. Accordingly, all prepetition liabilities believed to be subject to
compromise have been segregated in the consolidated balance sheet and classified
as liabilities subject to compromise, at the estimated amount of allowable
claims. Liabilities not believed to be subject to compromise are separately
classified as current and non-current. Revenues, expenses, including
professional fees, realized gains and losses, and provisions for losses
resulting from the reorganization are reported separately.
In addition, pursuant to SOP 90-7, the accounting for the effects of
the reorganization will occur once the Plans are confirmed by the Court and
there are no remaining contingencies material to completing the implementation
of the respective Plans. These "fresh start" accounting principles pursuant to
SOP 90-7 provide, among other things, for the Company to determine the value to
be assigned to the equity of the reorganized Company as of a date selected for
financial reporting purposes. Accordingly, the accompanying consolidated
financial statements do not reflect: (a) the requirements of SOP 90-7 for fresh
start accounting; (b) the realizable value of assets on a liquidation basis or
their availability to satisfy liabilities; (c) aggregate prepetition liability
amounts that may be allowed for unrecorded claims or contingencies, or their
status or priority; (d) the effect of any changes to the Debtors' capital
structure or in the Debtors' business operations as the result of an approved
plan of reorganization or liquidation; or (e) adjustments to the carrying value
of assets (including goodwill and other intangibles) or liability amounts that
may be necessary as the result of future actions by the Court.
IV. PREPETITION CAPITAL STRUCTURE OF THE DEBTORS
Prior to the Initial Petition Date, the Company's capital structure
consisted primarily of: its common stock and its Series A Cumulative Convertible
Preferred Stock (which was listed on the New York Stock Exchange under the
ticker symbol COV); letters of credit issued under the Master Credit Facility,
of which approximately $105.2 million had been funded; $100 million of 9.25%
Debentures due 2022; $63.7 million of 5.75% Convertible Debentures due 2002; $85
million of 6% Convertible Debentures due 2002; and project-level debt consisting
primarily of revenue bonds.
A. Prepetition Credit Facility
The Company entered into the Master Credit Facility with its bank group
on March 14, 2001. The Master Credit Facility provided the Company with a credit
line of approximately $799 million, which consisted of a $146 million secured
revolving loan and coverage for $633 million in letter of credit exposure, and
coverage for other contingent liabilities, principally in connection with
various entertainment and energy facilities.
The Master Credit Facility was secured by a first priority lien on
substantially all of the assets of Covanta and substantially all of the assets
of its existing and future domestic subsidiaries, and by a pledge of 100% of the
shares of substantially all of Covanta's existing and future domestic
subsidiaries, and 65% of the shares of substantially all of Covanta's foreign
subsidiaries.
In conjunction with the Master Credit Facility, the Company also
entered into the Intercreditor Agreement with the "pooled" lenders participating
fully in the Master Credit Facility and certain "opt-out" lenders who elected
not to participate in the Master Credit Facility, but agreed to extend the
maturity dates of their facilities and to conform relevant financial covenants
to those under the Master Credit Facility. The Intercreditor Agreement, among
other things, set forth certain priorities amongst the lenders and established
certain arrangements including loss sharing arrangements and ratable paydowns
among the various lenders.
As of the Initial Petition Date, approximately $105.2 million of funded
debt with respect to two funded letters of credit was outstanding under the
Master Credit Facility, as well as approximately $518 million in contingent
letters of credit. After the Initial Petition Date, an additional $125.1 million
of the letters of credit were drawn and $76.1 million of claims arose in
connection with other contingent liabilities covered by the Master Credit
Facility. On May 15, 2002, pursuant to the Final DIP Order (defined below),
$240.8 million of the outstanding letters of credit were replaced with letters
of credit issued under the DIP Financing Facility (defined below). The Master
Credit Facility was scheduled to mature on May 31, 2002.
B. 9.25% Debentures due 2022
In March 1992 the Company issued and sold $100 million in aggregate
principal amount of the 9.25% Debentures. The 9.25% Debentures were issued
pursuant to an Indenture dated as of March 1, 1992 between Ogden Corporation and
The Bank of New York, as Trustee. Wells Fargo is the current Trustee for the
9.25% Debentures.
The proceeds from the 9.25% Debentures were used to reduce outstanding
indebtedness and for general corporate purposes.
On May 15, 2002, pursuant to the Final DIP Order (Docket No. 311), the
Debtors, the Prepetition Lenders, and the Informal Committee of 9.25% Debenture
Holders stipulated that the claims of the holders of 9.25% Debentures were
secured claims. On August 6, 2002, the Creditors Committee filed an adversary
proceeding challenging the status of the liens securing the 9.25% Debentures.
For a more detailed discussion of the adversary proceeding, see Section VI.D.11.
C. Convertible Debentures
In 1987, the Company issued and sold $85 million in aggregate principal
amount of 6% convertible subordinated debentures due June 1, 2002 (the "6%
Convertible Debentures"). The 6% Convertible Debentures were registered and sold
in a public offering. They were issued in bearer form (the "6% Convertible
Bearer Debentures") and in fully registered form (the "6% Convertible Registered
Debentures"). The 6% Convertible Bearer Debentures are dated June 18, 1987 and
each 6% Convertible Registered Debentures is dated the date of its
authentication. Deutsche Bank Trust Company is the fiscal agent for all the 6%
Convertible Debentures pursuant to a fiscal agency agreement dated June 1, 1987.
The proceeds from the 6% Convertible Debentures were used to reduce outstanding
indebtedness and for general corporate purposes. The 6% Convertible Debentures
are convertible into Covanta common stock at the rate of one share for each
$39.077 principal amount of debentures, and are redeemable at Covanta's option
at 100% of face value.
In 1987, the Company issued and sold $75 million in aggregate principal
amount of 5.75% convertible subordinated debentures due October 20, 2002 (the
"5.75% Convertible Debentures"). The 5.75% Convertible Debentures were
registered and sold in a public offering. They were issued in bearer form (the
"5.75% Convertible Bearer Debentures") and in fully registered form (the "5.75%
Convertible Registered Debentures"). The 5.75% Convertible Bearer Debentures are
dated October 20, 1987 and each 5.75% Convertible Registered Debentures is dated
the date of its authentication. Deutsche Bank Trust Company is the fiscal agent
for all the 5.75% Convertible Debentures, pursuant to a fiscal agency agreement
dated October 15, 1987. The proceeds from the 5.75% Convertible Debentures were
used for general corporate purposes. The 5.75% Convertible Debentures are
convertible into Covanta common stock at the rate of one share for each $41.772
principal amount of debentures, and are redeemable at Covanta's option at 100%
of face value. Prior to 1998, the Company purchased on the open market and
subsequently cancelled $11.3 million of the 5.75% convertible debentures.
D. Project Debt
The project debt associated with the financing of the Company's
waste-to-energy facilities is generally arranged by the relevant municipality
through the issuance of tax-exempt and taxable revenue bonds. For those
waste-to-energy facilities owned by an operating subsidiary of the Company, the
relevant municipality generally is obligated to pay amounts to Covanta's
operating subsidiary sufficient to cover debt service on project debt.
Generally, such project debt is secured by the revenues pledged under the
respective indentures and is collateralized by the assets of Covanta's operating
subsidiary and otherwise provides no recourse to Covanta, subject to
construction and operating performance guarantees and commitments.
E. Equity Bonds
Certain non-project tax-exempt bonds (the "Equity Bonds") in the
aggregate amount of approximately $126 million were issued by five separate
Debtor subsidiaries to Covanta. Covanta arranged for liquidity and credit
support for each Equity Bond in the form of letters of credit that were issued
under the Master Credit Facility. Shortly after the Initial Petition Date, the
obligations under each of the Equity Bonds were accelerated and the bondholders
were paid with the proceeds of draws on the applicable letters of credit. The
amount of those draws represents prepetition secured debt of the Company.
F. Equity
Covanta had 49,827,651 shares of common stock and 33,049 shares of
Series A cumulative convertible preferred stock outstanding as of June 30, 2002.
The Company's shares were traded on the New York Stock Exchange under the symbol
"COV" until April 1, 2002. The removal from listing and registration on the New
York Stock Exchange became effective at the opening of the trading session of
May 17, 2002 pursuant to the order of the SEC.
V. CORPORATE STRUCTURE OF THE DEBTORS
A. The Debtors' Corporate Structure
Covanta is the parent holding company of the 150 debtor subsidiaries.
Together with the Company's non-debtor subsidiaries, the Debtors develop,
construct, own and operate for others key infrastructure for the conversion of
waste-to-energy, independent power production and the treatment of water and
wastewater in the United States and abroad. Of the entities that have filed as
Debtors, 88 will be reorganized pursuant to the Reorganization Plan and 63 will
be liquidated pursuant to the Liquidation Plan. The Reorganization Plan
distinguishes between four categories of Debtors under such Plan: Covanta, the
ultimate parent company; Operating Company Debtors, which are entities that own
operating assets that will remain part of the Reorganizing Debtors' business
after the Effective Date; Intermediate Holding Company Debtors which own no
assets other than stock of the Operating Company Debtors; and the Heber Debtors,
who own, directly or indirectly, certain businesses in connection with the
Geothermal Projects.
B. Management of the Debtors
The current management team of Covanta is comprised of highly capable
and seasoned professionals with substantial experience. The following contains
brief background descriptions and lists the members of Covanta's management team
as of September 8, 2003:
Name Position
- ---- --------
Scott G. Mackin President and Chief Executive Officer
Bruce W. Stone Senior Vice President, Business Development and Construction
Jeffrey R. Horowitz Senior Vice President, General Counsel and Secretary
Anthony J. Orlando Senior Vice President, Business and Financial Management
John M. Klett Senior Vice President, Domestic Operations
William J. Keneally Senior Vice President and Chief Accounting Officer
Paul B. Clements Senior Vice President, International Business Management and Operations
B. Kent Burton Senior Vice President Policy and International Government Relations
Stephen M. Gansler Senior Vice President, Human Resources
Louis M. Walters Vice President and Treasurer
Timothy J. Simpson Vice President, Associate General Counsel
Seth Myones Vice President, Business Management, Covanta Waste to Energy, Inc.
Scott G. Mackin has served as President and Chief Executive Officer of
Covanta since September 1999. Prior thereto he served as Executive Vice
President of Covanta from January 1997 to September 1999 and as President and
Chief Operating Officer of Covanta Energy Group, Inc., a Covanta subsidiary,
since January 1991. Mr. Mackin joined the Company in 1986.
Bruce W. Stone was named Senior Vice President, Business Development
and Construction in March 2003. From January 2001 until March 2003, Mr. Stone
served as Covanta's Executive Vice President and Chief Administrative Officer.
Previously, Mr. Stone served as Executive Vice President and Managing Director
of Covanta Energy Group, Inc., a Covanta subsidiary, a position he held starting
in January 1991. Mr. Stone joined the Company in 1975.
Jeffrey R. Horowitz was named Senior Vice President, General Counsel
and Secretary of Covanta in August 2001. From June 2001 to August 2001, Mr.
Horowitz served as Senior Vice President for Legal Affairs and Secretary and
prior to that time as Executive Vice President, General Counsel and Secretary of
Covanta Energy Group, Inc, a Covanta subsidiary. Mr. Horowitz joined the Company
in 1991.
Anthony J. Orlando was named Senior Vice President, Business and
Financial Management in March 2003. From January 2001 until March 2003, Mr.
Orlando served as Covanta's Senior Vice President, Waste to Energy. Previously
he served as Executive Vice President of Covanta Energy Group, Inc., a Covanta
subsidiary. Mr. Orlando joined the Company in 1987.
John M. Klett was named Senior Vice President, Domestic Operations in
March 2003. Prior thereto he served as Executive Vice President of Covanta Waste
to Energy, Inc. for more than ten years, during which time he has been
responsible for all Covanta Waste to Energy, Inc. facility operations and
maintenance. Mr. Klett joined the Company in 1986.
William J. Keneally was named Senior Vice President and Chief
Accounting Officer of Covanta in April, 2002. Mr. Keneally joined the Company in
2002.
Paul B. Clements was named Senior Vice President, International
Business Management and Operations in March 2003. From January 2001 until March
2003, Mr. Clements served as Covanta's Senior Vice President, Independent Power
Operations. Mr. Clements previously served as Executive Vice President of
Covanta Energy Group, Inc., and President of Covanta Energy West, Inc., both of
which are Covanta subsidiaries. Mr. Clements joined the Company in 1988.
B. Kent Burton has served as Senior Vice President - Policy and
International Government Relations of Covanta since May 1999. From May 1997 to
May 1999 he served as Vice President - Policy and Communications of Covanta and
prior thereto he served as Senior Vice President of the Covanta Energy Group,
Inc., a Covanta subsidiary, in political affairs and lobbying activities. Mr.
Burton joined the Company in 1997.
Stephen M. Gansler was named Senior Vice President, Human Resources of
Covanta in March 2003. Mr. Gansler joined the Company in 2001 and served as Vice
President, Human Resources of Covanta from March 2001 to March 2003. Mr. Gansler
joined the Company in 2001.
Louis M. Walters was named Vice President and Treasurer of Covanta in
2001. Mr. Walters served as Treasurer of Covanta Energy Group, Inc. from January
2000 to 2001. Mr. Walters joined the Company in 2000.
Timothy J. Simpson has served as Vice President, Associate General
Counsel and Assistant Secretary of Covanta Energy Corporation since June 2001.
Prior thereto he served as Senior Vice President, Associate General Counsel and
Assistant Secretary of Covanta Energy Group, Inc., a Covanta subsidiary. Mr.
Simpson joined the Company in 1992.
Seth Myones has served as Vice President, Business Management, of
Covanta Waste to Energy, Inc., a Covanta subsidiary, since September 2001. From
1994 through September 2001, Mr. Myones served as Vice President of several
subsidiaries in the Company's waste-to-energy business. Mr. Myones joined the
Company in 1989.
VI. THE CHAPTER 11 CASES
A. Events Leading Up to the Chapter 11 Cases
Prior to September 1999, Covanta had incurred very substantial
obligations to financial institutions for letters of credit, including
particularly obligations relating to the Corel Centre and Arrowhead Pond
(together, the "Arenas"). In February 2000, while it was working to sell its
aviation and entertainment assets, the Company also began to negotiate with its
lenders. The Company had approximately $140 million of funded debt, as well as
exposure to significant additional contingent liabilities arising from the
outstanding letters of credit. By the third quarter of 2000, it reached
agreement on principal terms with its key lenders. However, delays ensued in
completing the Master Credit Facility, principally due to complicated
intercreditor issues pertaining to certain liabilities, including certain of
those in connection with its entertainment businesses. In March 2001, the
Company paid the funded debt in full and completed and entered into the Master
Credit Facility, in which, among other things, it agreed to maintain stated
liquidity levels and to discharge or otherwise provide for its obligations with
its banks by May 31, 2002. The Company planned thereafter to seek debt or equity
financing from the capital markets in 2001and to complete the sales of its
remaining entertainment and aviation businesses.
At the time the Master Credit Facility was executed, Covanta believed
that it would be able to meet the liquidity covenants in the Master Credit
Facility, timely discharge its obligations on maturity of the Master Credit
Facility and repay or refinance the Convertible Debentures from cash generated
by operations, the proceeds from the sale of its non-core businesses and access
to the capital markets.
Shortly after the Master Credit Facility was executed, however, the
State of California's energy crisis escalated. As of March 31, 2001, Covanta had
outstanding approximately $74 million of gross accounts receivable from the
California electric utilities, including Pacific Gas & Electric Company, which
filed for bankruptcy on April 6, 2001. The delay in payment of these receivables
forced the Company to request waivers from the banks from cash flow covenants.
These were granted in consideration of the elimination of access to letters of
credit for the Company's core operations in the event of a credit rating agency
downgrade below investment grade. In addition, beginning in June 2001, there was
a growing belief in the equity markets that the power industry was substantially
overbuilt, that demand for new facilities would drop and that energy prices
would erode. These factors, along with reductions in energy prices in various
regions of the United States, contributed to a downturn in the market for new
issues of energy company securities.
B. Need for Restructuring and Chapter 11 Relief
In mid-to-late 2001, Covanta began a wide-ranging review of strategic
alternatives given the very substantial maturities of debt in 2002. To this end,
in the last six months of 2001 and the first quarter of 2002, Covanta sought
potential minority equity investors, conducted a broad-based solicitation for
indications of interest in acquiring Covanta among potential strategic and
financial buyers and investigated a combined private and public placement of
equity securities. These efforts were made more difficult by the December 2,
2001 bankruptcy filing by Enron Corporation (with certain of its subsidiaries
and affiliates), at the time the largest energy company in the United States in
terms of market capitalization. The Enron bankruptcy, although caused by very
different factors than those impacting Covanta, highlighted the significant
downturn in the energy sector during 2001, with a significant negative effect on
the credit and equity markets for energy companies. Although Covanta had been
seeking either to be acquired or to obtain a sizable equity investment, equity
investment, no potential acquirer or investor was prepared at that time to
commit to a transaction, in particular given the sizable financial obligations
regarding the Company's remaining entertainment operations. Furthermore, the
sale of certain non-core assets was progressing more slowly and yielding
substantially less proceeds than had been anticipated.
On December 21, 2001, in connection with a further amendment to the
Master Credit Facility, Covanta issued a press release stating its need for
further covenant waivers and that it was encountering difficulties achieving
access to short-term liquidity. Following this release, Covanta's debt rating by
Moody's and Standard & Poor's was reduced below investment grade on December 27,
2001 and January 16, 2002, respectively. These downgrades further adversely
impacted Covanta's access to capital markets. They also triggered Covanta's
contingent obligations to provide $100 million in additional letters of credit
in connection with two waste-to-energy projects, and the draw during March of
2002 of approximately $105.2 million in letters of credit related to the Centre
and the Team. In addition, Covanta was facing the maturity of the 6% Convertible
Debentures in June 2002 and the 5.75% Convertible Debentures in October 2002. On
March 1, 2002, Covanta availed itself of the 30-day grace period provided under
the terms of the 9.25% Debentures, and did not make the interest payment due at
that time.
On April 1, 2002, Covanta and 123 of its domestic subsidiaries filed
their respective voluntary petitions for reorganization under the Bankruptcy
Code in the Court. Since April 1, 2002, thirty-one (31) additional subsidiaries
have filed petitions for reorganization under Chapter 11 of the Bankruptcy Code.
In addition, four (4) subsidiaries involved in the aviation fueling business
that had filed petitions on April 1, 2002 were sold as part of the Company's
disposition of non-core assets, are no longer owned by the Company and the
bankruptcy cases filed by these four (4) entities have been dismissed. While the
Debtors are authorized to operate in the ordinary course of business,
transactions out of the ordinary course of business require Court approval. In
addition, the Court has supervised the Debtors' retention of attorneys,
accountants, financial advisors and other professionals as required by the
Bankruptcy Code.
An immediate effect of the filing of the Debtors' bankruptcy petitions
was the imposition of the automatic stay under section 362(a) of the Bankruptcy
Code which, with limited exceptions, enjoined the commencement or continuation
of all collection efforts by creditors, the enforcement of liens against
property of the Debtors and the continuation of litigation against the Debtors.
This relief provided the Debtors with the "breathing room" necessary to assess
and reorganize its business. The automatic stay remains in effect, unless
modified by the Court or applicable law, until the Effective Date of the Plans.
C. Significant Events During the Bankruptcy Cases
1. Significant Court Orders
The Debtors have obtained numerous orders from the Court that are
intended to enable the Debtors to operate in the normal course of business
during the Chapter 11 Cases. Among other things, these orders authorize: (i) the
retention of professionals to represent and assist the Reorganizing Debtors,
Heber Debtors and the Liquidating Debtors in these Chapter 11 Cases, (ii) the
use and operation of the Debtors' consolidated cash management system during the
Chapter 11 Cases in substantially the same manner as it was operated prior to
the commencement of the Chapter 11 Cases, (iii) the payment of prepetition
employee salaries, wages, health and welfare benefits, retirement benefits and
other employee obligations, (iv) the payment of prepetition obligations to
certain critical vendors to aid the Debtors in maintaining the operation of
their businesses, (v) the use of cash collateral and the grant of adequate
protection to creditors in connection with such use, (vi) the adoption of
certain employee benefit plans, including a key employee retention plan and a
broad-based severance plan, and (vii) the obtaining of postpetition financing.
2. DIP Financing Facility
In connection with their bankruptcy petitions, the Debtors entered into
a Debtor In Possession Credit Agreement with the DIP Lenders as of April 1, 2002
(as amended from time to time, the "DIP Financing Facility"). On April 5, 2002,
the Court issued an interim order (Docket No. 65), approving the DIP Financing
Facility and on May 15, 2002, a final order approving the DIP Financing Facility
(Docket No. 311) (the "DIP Final Order"). Following significant litigation, on
August 2, 2002, the Court issued an order (Docket No. 733), that overruled
objections by holders of minority interests in two Debtor limited partnerships
who disputed the inclusion of the limited partnerships in the DIP Financing
Facility. Although the holders of such interests at one of the limited
partnerships appealed the order, they reached an agreement with the Company that
in effect deferred the appeal. The DIP Financing Facility's current terms are
described below.
The DIP Financing Facility consisted initially of a $48.2 million
tranche to be utilized for cash borrowings, subject to availability within
advance limits in effect from time to time and the issuance of new letters of
credit ("Tranche A") and an approximately $240.8 million tranche to be used
solely to continue, replace, reissue or renew certain outstanding letters of
credit from the Master Credit Facility ("Tranche B"). The DIP Financing Facility
is secured by all of the Company's domestic assets not subject to liens of
others, 100% of the stock of most of Covanta's domestic subsidiaries and 65% of
the stock of certain of its foreign subsidiaries. Obligations under the DIP
Financing Facility were granted senior status to other prepetition secured
claims and the DIP Financing Facility became the operative debt agreement with
Covanta's bank lenders. Currently the DIP Financing Facility expires on October
1, 2003. The Debtors expect the maturity date to be extended through April 1,
2004.
(a) First Amendment to Intercreditor Agreement
In conjunction with the DIP Financing Facility, the Company also
entered into an amendment of the Intercreditor Agreement with the DIP Lenders
and certain other lenders (the "Intercreditor Amendment"), dated as of April 1,
2002. The Intercreditor Amendment, among other things, included new definitions
and conforming changes corresponding to the DIP Financing Facility and the
chapter 11 filings, and modified certain arrangements and formulas established
with respect to distribution of the collateral to various lenders and lender
groups.
(b) First Amendment to DIP Financing Facility
On April 1, 2002, the Debtors and the DIP Lenders entered into an
amendment to the DIP Financing Facility (the "First Amendment") that provided
for, among other things, the designation of the letters of credit associated
with the Equity Bonds as "Non-Rolled Tranche B Letters of Credit," and as such,
prepetition secured obligations. The First Amendment also provided for the
designation of obligations concerning the loss sharing arrangements under the
Intercreditor Amendment, which were initially considered Tranche A obligations,
as "Tranche C Obligations" and as such, prepetition obligations. The DIP
Lenders' commitment amount under Tranche A was reduced to reflect such
designation.
(c) Second Amendment to DIP Financing Facility
On May 10, 2002, the Debtors and the DIP Lenders entered into the
second amendment to the DIP Financing Facility (the "Second Amendment") that
provided for, among other things, the approval of the monthly budget and the
Final Borrowing Order of the Court.
(d) Third Amendment to DIP Financing Facility
On October 4, 2002, the Debtors and the DIP Lenders entered into the
third amendment to the DIP Financing Facility (the "Third Amendment") that
provided for, among other things, reduction of the advance limit for cash
borrowings to $14 million, approval for the payment of the expenses and fees
incurred by the official committee of creditors. The Third Amendment also
provided for certain insurance premium financing arrangements, for the
commencement of voluntary bankruptcy proceedings by Ogden Spain, S.A., for the
liquidation of Ogden Entertainment Services of Spain and for the approval of
certain designated non-material asset sales. Certain modifications to the
agreements relating to the Tampa Bay Water Project were also allowed under the
Third Amendment, as were reductions in the "Advance Limits" schedule to the DIP
Financing Facility, providing the monthly limitations of the amounts available
for borrowing under Tranche A.
(e) Fourth Amendment to DIP Financing Facility
On December 10, 2002, the Debtors and the DIP Lenders entered into the
fourth amendment to the DIP Financing Facility (the "Fourth Amendment") that
provided for, among other things, approval of certain transactions relating to
the cancellation of the $5.3 million letter of credit issued by Covanta to
support certain obligations at the MCI Center, a multi-purpose arena located in
Washington D.C. The Fourth Amendment also provided for the acknowledgement of
the superior priority of a tax lien by Lake County, Florida on property held by
Covanta Lake, and for the release of prepetition liens upon the sale of the
remaining Aviation Fueling Assets, and for additional investments in the Trezzo
(Italy) Waste-to Energy Project.
(f) Fifth Amendment to DIP Financing Facility
On December 18, 2002, the Debtors and the DIP Lenders entered into the
fifth amendment to the DIP Financing Facility that provided for, among other
things, approval of the participation of the Debtors in a tax transaction
relating to the Team. (This tax transaction was never completed.)
(g) Sixth Amendment to DIP Financing Facility
On March 25, 2003, the Debtors and the DIP Lenders entered into the
sixth amendment to the DIP Financing Facility (the "Sixth Amendment") that
provided for, among other things, the extension of the termination date of the
DIP Financing Facility through October 1, 2003 (the Company expects this date to
be further extended through April 1, 2004). The Sixth Amendment provided for a
reduction in the "Tranche A Letter of Credit Sublimit" from $14,200,000 to
$12,200,000. It also allowed for the release of prepetition liens upon the sale
of the Island Power Corporation and permitted Covanta to engage in certain tax
related restructurings.
(h) Seventh Amendment to DIP Financing Facility
On May 23, 2003, the Debtors and the DIP Lenders entered into the
seventh amendment to the DIP Financing Facility that provided for, among other
things, approval for the restructuring of the obligations relating to the
Hennepin waste-to-energy project and to permit amendments to the corresponding
Tranche A and Tranche B Letters of Credit.
(i) Eighth Amendment to DIP Facility
On August 25, 2003, the Debtors and the DIP Lenders entered into the
eighth amendment to the DIP Financing Facility that provided for, among other
things, approval of the sale of the Corel Centre.
3. Adequate Protection
In addition to the various provisions discussed above, the Final DIP
Order provides that, in respect of only the Prepetition Liens, the Prepetition
Lenders are granted adequate protection in the event that there is any
postpetition diminution in the value of their respective interests the
Prepetition Collateral resulting from (i) the Debtors' granting of priming liens
on and security interests in the Prepetition Collateral in favor of the DIP
Agents and DIP Lenders, (ii) the Debtors use of the Prepetition Lenders' cash
collateral, the use of the Prepetition Collateral (other than the cash
collateral), and (iii) the imposition of the automatic stay. Such adequate
protection consists of the following:
(a) The Prepetition Agents and the Prepetition Lenders are granted valid,
perfected and non-voidable replacement security interests in and liens upon (the
"Replacement Liens") all property of each of the Debtors, and all proceeds and
products thereof. The Replacement Liens are subject to certain carve-outs; the
liens granted pursuant to the Final DIP Order to the DIP Agents to secure the
obligations of the Debtors under the DIP Financing Facility, valid, enforceable,
perfected and non-voidable liens and security interests that existed on the
Initial Petition Date (other than the Prepetition Liens and the Project
Replacement Liens); and each estate's interest in the proceeds of any avoidance
action pursuant to sections 544 to 550 of the Bankruptcy Code.
(b) The Prepetition Agents and the Prepetition Lenders are granted superpriority
claims with priority over all administrative expenses ordered pursuant to the
Bankruptcy Code, other than fees and expenses arising under section 726(b) of
the Bankruptcy Code which are less than $1 million in aggregate. Such
superpriority status is subject only to the superpriority claims granted to DIP
Agents and DIP Lenders in respect of the obligations of the Debtors under the
DIP Financing Facility; each estate's interest in the proceeds of any avoidance
action pursuant to sections 544 to 550 of the Bankruptcy Code; and certain
carve-outs.
(c) The Debtors are authorized and directed to pay in cash on a monthly basis
all reasonable accrued fees and all costs, charges and expenses of Akin, Gump,
Strauss, Hauer & Feld, L.L.P and Raymond James & Co. (subsequently replaced by
Jeffries & Co.), in their respective capacity as advisors to the informal
committee of Debenture Holders and Wells Fargo Bank Minnesota, N.A., in its
capacity as indenture trustee for the 9.25% Debentures and Dorsey & Whitney, in
its capacity as counsel to the Indenture Trustee, in connection with the Chapter
11 Cases, on the same terms and conditions that apply to the DIP Lenders.
In addition, by order dated May 13, 2002, General Electric Capital
Corporation and certain of its affiliates (collectively "GECC") was granted
adequate protection in the event that there is any postpetition diminution in
the value of its interests in property (including cash collateral) used by the
Debtors post-petition. Among other things, GECC generally was granted valid,
perfected and non-voidable replacement security interests in and liens upon all
property of each of the Debtors in which GECC held a security interest
pre-petition, subject to certain carve-outs; the Debtor Heber Field Company was
required to make monthly payments to GECC consisting of (i) all interest owed to
GECC under its pre-petition agreements with GECC, and (ii) 33.33% of monthly
cash flow in excess of certain operating and other expenses; the Debtor Second
Imperial Geothermal Company, L.P. was required to make most payments required
under its pre-petition agreements with GECC (with certain limited exceptions);
and the Debtors were authorized and directed to reimburse GECC for its
reasonable legal expenses.
4. Assumption and Rejection
As debtors in possession, the Debtors have the right, subject to Court
approval and certain other limitations, to assume or to reject executory
contracts and unexpired leases. Contracts or leases that are assumed may be
assigned to a third party as provided under the Bankruptcy Code.
During these Chapter 11 Cases, the Debtors obtained several orders of
the Court either assuming, or assuming and assigning, certain executory
contracts and unexpired leases. For example, in connection with the sale of the
Aviation Fueling Assets, on December 18, 2002, the Court entered an order
(Docket No. 1203), assigning certain contracts and leases relating to that
business to Allied Aviation Holdings, Inc., the purchaser of the Aviation
Fueling Assets. Pursuant to the order approving the sale, the Debtors were
relieved of any liability for breach of any such assigned contract, whether
occurring before or after such assignment.
The Court has also entered orders authorizing the rejection of certain
contracts. For example, the Debtors rejected the lease relating to its former
headquarters at 2 Penn Plaza in New York, New York and rejected a number of
contracts related to a construction project in Nevada.
The treatment of contracts or leases that have not been assumed or
rejected by order of the Court as of the date hereof, is discussed in Section 9
of the Reorganizing Plan and Section 8 of the Liquidating Plan. Reorganizing
Covanta and certain other Reorganizing Debtors listed on Schedule 9.1A of the
Reorganization Plan, on the Effective Date all executory contracts and unexpired
leases shall be deemed rejected other than those executory contracts or
unexpired leases that are specifically designated as assumed on the Rejecting
Debtors' Schedule of Assumed Contracts and Leases (to be filed prior to the
Confirmation Hearing), or as otherwise provided in Section 9.1(a) of the
Reorganization Plan. For the Heber Debtors and the Reorganizing Debtors listed
on Schedule 9.1B of the Reorganization Plan, on the Effective Date all executory
contracts and unexpired leases shall be deemed assumed other than those
executory contracts or unexpired leases that are specifically designated as
rejected on the Assuming Debtors' Schedule of Rejected Contracts and Leases (to
be filed prior to the Confirmation Hearing), or as otherwise provided in Section
9.1(b) of the Reorganization Plan.
For Liquidating Debtors, on the Effective Date all executory contracts
and unexpired leases shall be deemed rejected other than those executory
contracts or unexpired leases that are specifically designated on Schedule 8 of
the Liquidation Plan, or as otherwise provided in Section 8 of the Liquidation
Plan.
5. Appointment of Creditors Committee
On April 9, 2002 the United States Trustee for the Southern District of
New York appointed an Official Committee of Unsecured Creditors (the "Creditors
Committee") in accordance with the applicable provisions of the Bankruptcy Code.
The Creditors Committee is represented by Arnold & Porter. The Creditors
Committee's financial advisor is Houlihan Lokey Howard and Zukin. The Creditors
Committee currently consists of the following members:
Federal Insurance Company
c/o Chubb & Son
15 Mountain View Road
Warren, NJ 07059
Attn: Richard E. Towle V.P. and Manager
Broad Street Resources, Inc.
66 Society Street
Charleston, SC 29401
Attn: John J. Kruse
The General Electric Company
(GE Power Systems Division)
1 River Road
Schenectady, NY 12345
Attn: Anthony Walsh
Pacific Enterprises Energy Management Services
101 Ash Street
San Diego, CA 92101
Attn: Anthony L. Molnar
Boiler Tube Co. of America
506 Charlotte Highway
Lyman, SC 293656
Attn: John McCauley
Prescott Group Capital Management, LLC
1924 South Utica
Suite 1120
Tulsa, OK 74104
Attn: Philip Frohlien, Jeff Watkins
6. Exclusivity
Pursuant to an order entered on March 27, 2003 (Docket No. 1391), the
Court extended the Debtors' exclusivity period during which the Debtors may file
a plan of reorganization (the "Exclusivity Period") through July 31, 2003 and
the exclusive right to solicit acceptances thereto through September 23, 2003.
On July 16, 2003 the Court entered an order (Docket No. 1746), extending the
Exclusivity Period to and including August 14, 2003 with the exclusive right to
solicit acceptances thereto through September 23, 2003. At a hearing before the
Court on August 13, 2003, the Court extended the Exclusivity Period to and
including September 4, 2003. On September 8, 2003, the Court entered an order
(Docket No. 2055) extending the Exclusivity Period to and including September
10, 2003.
7. Discussions of Alternative Reorganization Plans
Contemporaneously with the commencement of the Chapter 11 Cases, the
Company executed a non-binding letter of intent with the investment firm of
Kohlberg Kravis Roberts & Co. ("KKR"). KKR pursuant to which KKR would acquire
the Company. After conducting further due diligence, KKR made a further proposal
in the third quarter of 2002, substantially along the lines of the letter of
intent. The Company sought to negotiate this proposal with KKR to improve its
terms for all creditors. Since KKR's proposal was contingent upon the Company's
secured bank creditors providing new debt upon emergence, KKR conducted
negotiations primarily with the Company's secured bank creditors. In February
2003, KKR reduced the value of its offer and, consequently, the Debtors believe
that KKR's revised proposal would have resulted in recoveries that are inferior
to what creditors would obtain in the proposed Plans. KKR, the Company and the
secured bank creditors have terminated discussions, although KKR has expressed a
continuing interest in the Company should other structures not be achieved.
In addition, in June and July 2003, the Debtors engaged in initial,
non-binding discussions with another potential investor concerning a potential
investment in the Company pursuant to a plan of reorganization. Following
several weeks of due diligence and discussions involving the Debtors, the
potential investor and the creditor constituencies, it was determined that the
potential transaction would not be pursued because the Secured Bank Lenders and
potential investor could not agree on arrangements for providing liquidity for
the Company post-emergence.
8. Sale of Geothermal Assets
The Reorganization Plan presumes the sale of the Geothermal Debtor
Equity, and the use of certain of the proceeds of the Geothermal Sale as part of
the funding for the Reorganizing Debtors' emergence from Chapter 11 protection.
As discussed above, the Debtors contemplate effecting the Geothermal Sale either
by a Section 363 sale or through the Heber Plan, pursuant to which the Debtors
would sell the Geothermal Debtor Equity. The Heber Plan would involve (a) the
sale of the Geothermal Debtor Equity, and transfer of ownership of the Heber
Debtor Holding Companies and the Heber Debtor Project Companies, to the eventual
buyers; (b) the continuation of first-priority lien of GECC on certain of the
assets of the Heber Debtor Holding Companies and the Heber Debtor Project
Companies after consummation of the Geothermal Sale, leaving unimpaired GECC;
(c) the agreement of the DIP Lenders to reduced distributions on their claims
against the Heber Debtors in full satisfaction of such claims; (d) distributions
to all creditors other than GECC according to the priority scheme under the
Code; and (e) distribution of all remaining proceeds of the Geothermal Sale to
the Reorganizing Debtors. These features of a Heber Plan would preserve and
enhance the value of the Reorganizing Debtors' continuing operations by allowing
for necessary financing of exit costs, and benefit creditors.
9. Sale of Non-Core Assets
During these Chapter 11 Cases, the Debtors have disposed of a number of
non-core assets that are not necessary to the Reorganizing Debtors and Heber
Debtors' ongoing businesses.
Pursuant to an order of the Court (Docket No. 832), on August 29, 2002,
Debtor Ogden Central and South America, Inc. sold its interests in Casino
Iguazu.
In addition, pursuant to an order of the Court (Docket No. 1127), on
December 3, 2002, Ogden Central and South America, Inc. and Ogden Services
Corporation, each Debtors in these Chapter 11 Cases, closed the sale of all
issued and outstanding shares of capital stock in Ogden Argentina S.A., thereby
disposing of the Company's interest in the La Rural Fairgrounds.
On December 31, 2002, pursuant to an order by the Court (Docket No.
1203), the Company sold its remaining Aviation Fueling Assets, consisting of
fueling operations at the three major New York City area airports. As part of
this sale, PA Aviation Fuel Holdings, Inc., one of the Debtors in these Chapter
11 Cases, sold all of the issued and outstanding shares of capital stock in the
following four entities: Ogden Aviation Service Company of New Jersey, Inc.,
Ogden Aviation Service Company of New York, Inc., LaGuardia Fuel Facilities
Corporation and Newark Automotive Fuel Facilities Corporation (collectively, the
"Allied Acquired Companies"). Pursuant to the order approving the sale, the
bankruptcy cases of the Allied Acquired Companies were dismissed. In addition,
as part of the sale, Ogden New York Services, Inc. sold substantially all of its
assets and business operations and certain obligations and liabilities relating
thereto. Ogden New York Services retained certain environmental liabilities
relating to the John F. Kennedy International Airport, as more fully described
in the order approving the sale.
On August 5, 2003 Covanta assumed an Amended Option and Usufruct
Agreement pertaining to AA 2000, an Argentine airport, which is by and between
Eduardo Eurnekian and Ogden Corporation in an attempt to transfer Ogden's equity
to Eurnekian or designee in exchange for a cash payment to Covanta for
approximately $2,500,000. The assumption of the Amended Option and Usufruct
Agreement was approved by the Court on July 24, 2003.
Please see Section VI.C.12 for a discussion of the disposition
proceedings in connection with the Team and Arenas.
10. Restructuring of Certain Energy Projects
The Chapter 11 Cases have provided the Reorganizing Debtors with the
opportunity to reevaluate operations, including those within their core business
segments, to determine which projects will contribute positively to their
restructuring efforts. As part of this review, the Reorganizing Debtors have
engaged in negotiations with various municipalities and other parties in
interest with the goal of enhancing financial performance or reducing risk
associated with certain of its projects.
The Reorganizing Debtors and contract parties have reached agreement
with respect to, or are in the process of discussing, material restructuring of
their mutual obligations in connection with five (5) WTE projects, as further
summarized below (the Reorganizing Debtors also are involved in material
litigation with respect to two (2) additional WTE facilities, described in
Section VI.C.14 below). Each of these restructurings has been or will need to be
approved by the Court, and the executory contracts related thereto will be
modified and assumed, pursuant to the Reorganization Plan or otherwise approved
by separate order of the Court. However, with several of these projects, aspects
of the potential restructurings remain subject to conditions subsequent and
there can be no guarantee that all these conditions will be satisfied on or
before the Effective Date. As a result, the Reorganizing Debtors have expressly
reserved their rights, in the event that such conditions subsequent fail to
occur on or before the Effective Date, to reject the executory contracts
associated therewith, to designate certain Debtors currently identified as
Reorganizing Debtors as Liquidating Debtors, or to withdraw the applicable Plan
solely as to such Debtor's estates.
(a) Hennepin County, Minnesota
On June 11, 2003, the Debtors received Court approval to restructure
certain agreements relating to the Debtors' WTE project at Hennepin, Minnesota.
The key elements of the restructuring are: (i) the purchase by Hennepin County
of the ownership interests of GECC in the operating facility, (ii) the
termination of certain leases, the existing Service Agreement and certain
financing and other agreements; (iii) entry into a new Service Agreement,
guarantee and security agreement, which, among other things, reduces the
County's payment obligations to the Company's operating subsidiary under the
Service Agreement and requires the Company's operating subsidiary to provide a
letter of credit in an amount not less than that provided to GECC; (iv) the
refinancing of bonds issued in connection with the development and construction
of the project; and (v) assumption and assignment to Hennepin County of certain
interests in the project's electricity sale agreement. The restructuring was
completed on July 8, 2003.
(b) Union County, New Jersey
On June 19, 2003, Debtor Covanta Union, Inc. ("Covanta Union") received
Court approval to restructure certain agreements relating to the Debtors' WTE
project at Rahway, Union County, New Jersey (the "Union Facility"), and to
settle certain disputes with the Union County Utilities Authority (the "Union
Authority") related to Covanta Union's operation of the Union Facility. The
restructuring facilitates the Union Authority's implementation of a solid waste
flow control program and accounts for the impact of recent court decisions upon
the agreements between Covanta Union and the Union Authority. Key elements of
the restructuring include: (i) modifying the existing project agreements between
Covanta Union and the Union Authority and (ii) executing a settlement agreement
and a release and waiver with the Union Authority resolving disputes that had
arisen between Covanta Union and the Union Authority regarding unpaid fees.
(c) Warren County, New Jersey
The Debtor Covanta Warren Energy Resource Co., Limited Partnership
("Covanta Warren") and the Pollution Control Financing Authority of Warren
County ("Warren Authority") have been engaged in discussions and negotiations
for an extended period of time concerning a potential restructuring of the
parties' rights and obligations under various agreements related to Covanta
Warren's operation of a WTE facility located in Oxford Township, Warren County,
New Jersey (the "Warren Facility"). Those negotiations were in part precipitated
by a 1997 federal Court of Appeals decision invalidating certain of the State of
New Jersey's waste-flow laws, which resulted in significantly reduced revenues
for the Warren Facility. Since 1999, the State of New Jersey has been
voluntarily making all debt service payments with respect to the project bonds
issued to finance construction of the Warren Facility, and Covanta Warren has
been operating the Warren Facility pursuant to a letter agreement with the
Warren Authority which modifies the existing Service Agreement for the Warren
Facility.
Although discussions continue, to date Covanta Warren and the Warren
Authority have been unable to reach an agreement to restructure the contractual
arrangements governing Covanta Warren's operation of the Warren Facility. In the
event the parties are unable to timely reach agreement upon and consummate a
restructuring of the contractual arrangements governing Covanta Warren's
operation of the Warren Facility, the Debtors may, among other things, elect to
litigate with counterparties to certain agreements with Covanta Warren, assume
or reject one or more executory contracts related to the Warren Facility,
recharacterize Covanta Warren as a Liquidating Debtor, and/or withdraw Covanta
Warren as a Reorganizing Debtor and subsequently file a separate plan of
reorganization for Covanta Warren. In such an event, creditors of Covanta Warren
may not receive any recovery on account of their claims. The Debtors are not
able to determine at this time whether a failure to timely consummate a
restructuring transaction with respect to Covanta Warren would impair the other
Debtors' ability to confirm and consummate the Plans, or the terms of any exit
financing available to such other Debtors.
(d) Onondaga County, New York
Shortly before the Initial Petition Date, the Onondaga County Resource
Recovery Agency ("OCRRA") purported to terminate the Service Agreement between
OCRRA and Covanta Onondaga, LP ("Covanta Onondaga") based upon Covanta's failure
to provide a letter of credit following its downgrade by rating agencies.
Covanta Onondaga challenged that purported termination by OCRRA. The dispute
between Covanta Onondaga and OCRRA concerning that termination, as well as
disputes concerning which court would decide that dispute, led to contentious
litigation in state court and several bankruptcy, district and appellate federal
courts.
The Debtors have been engaged in lengthy negotiations with the OCRRA
and certain bondholders and limited partners in connection with a WTE facility
that the Debtors operate in Onondaga County, New York (the "Onondaga Facility").
The parties have reached a non-binding agreement to provide for the continued
operation of the Onondaga Facility, to restructure the debt related to the
Onondaga Facility, and to resolve their disputes. The proposed restructuring
will provide for the continued operation of the Onondaga Facility by Covanta
Onondaga, as well as numerous modifications to agreements relating to the
Onondaga Facility, including: (i) the restructuring of the bonds issued to
finance development and construction of the Onondaga Facility; (ii) reduction in
the amount of the service fee payable to Covanta Onondaga; (iii) elimination of
the requirement that Covanta provide letter of credit support, and a reduction
in the maximum amount of the parent company guarantee; and (iv) material
amendments to the agreements between Covanta Onondaga's third party limited
partners and the other Debtors. The parties are in the process of documenting
the agreement and seeking several necessary approvals including the approval of
the Court for the modifications to the necessary agreements to implement the
restructuring.
In the event the parties are unable to timely consummate the
restructuring described above, the Debtors may, among other things, elect to
litigate with counterparties to certain agreements with Covanta Onondaga, assume
or reject one or more executory contracts related to the Onondaga Facility,
recharacterize Covanta Onondaga as a Liquidating Debtor, and/or withdraw Covanta
Onondaga as a Reorganizing Debtor and subsequently file a separate plan of
reorganization for Covanta Onondaga. In such an event, creditors of Covanta
Onondoga may not receive any recovery on account of their claims. The Debtors
are not able to determine at this time whether a failure to timely consummate a
restructuring transaction with respect to Covanta Onondoga would impair the
other Debtors' ability to confirm and consummate the Plans, or the terms of any
exit financing available to such other Debtors.
(e) City of Tulsa, Oklahoma
The Debtor Covanta Tulsa, Inc. ("Covanta Tulsa") operates a WTE
facility located in Tulsa, Oklahoma (the "Tulsa Facility") pursuant to a Service
Agreement with the Tulsa Authority for Recovery of Energy ("Tulsa Authority")
which expires in 2007. Covanta leases the facility from the CIT Group/Capital
Finance, Inc. ("CIT") under a long-term lease presently expiring in 2012 (the
"CIT Lease"). Covanta Tulsa and CIT have been engaged in negotiations to
restructure the contractual arrangements between Covanta Tulsa and CIT related
to Covanta Tulsa's operation of the Tulsa Facility.
To date Covanta Tulsa and CIT have been unable to reach an agreement to
restructure such contractual arrangements. In the event Covanta Tulsa is unable
to timely reach agreement upon and consummate a restructuring of its agreements
with CIT, the Debtors may, among other things, assume or reject one or more
executory contracts related to the Tulsa Facility, recharacterize Covanta Tulsa
as a Liquidating Debtor, and/or withdraw Covanta Tulsa as a Reorganizing Debtor
and subsequently file a separate plan of reorganization for Covanta Tulsa. In
such an event, creditors of Covanta Tulsa may not receive any recovery on
account of their claims. The Debtors are not able to determine at this time
whether a failure to timely consummate a restructuring transaction with respect
to Covanta Tulsa would impair the other Debtors' ability to confirm and
consummate the Plans, or the terms of any exit financing available to such other
Debtors.
11. 9.25% Debenture Adversary Proceeding
On May 15, 2002, pursuant to the Final DIP Order, the Debtors, the
Prepetition Lenders and the Informal Committee of 9.25% Debenture Holders (the
"Bondholders Committee") stipulated that the 9.25% Debenture Holders were
secured parties. The Final DIP Order includes a provision reserving the
Creditors Committee's right to challenge the secured status of the 9.25%
Debenture Holders.
On August 6, 2002, pursuant to 11 U.S.C. ss.ss. 1103(c)(5) and 1109(b),
the Creditors Committee commenced an adversary proceeding against Wells Fargo
Bank Minnesota, N.A. ("9.25% Indenture Trustee"), as trustee (Adv. No. 02-3004)
(the "9.25% Adversary Proceeding"), challenging the secured status of the 9.25%
Debenture Holders. The Bondholders Committee was later added as a
defendant-intervenor. The Debtors have not been named as parties in the 9.25%
Adversary Proceeding.
Among other things, the Creditors Committee's complaint (as amended)
alleges that the applicable provisions of the Indenture, dated as of March 1,
1992 (the "9.25% Indenture"), under which the debentures were issued that would
otherwise trigger Covanta Energy Corporation's obligation to grant a lien to
secure the 9.25% Debenture Holders has never been satisfied. The complaint also
alleges that the 9.25% Debenture Holders never properly entered into a security
agreement or perfected their lien. Furthermore, the complaint alleges that to
the extent any lien was granted, it was granted during the 90 days prior to the
Initial Petition Date and is therefore avoidable as a preferential transfer
under 11 U.S.C. ss. 547.
On October 22, 2002, the 9.25% Indenture Trustee filed a motion (Docket
No. 3), to dismiss the Creditors Committee's complaint, arguing that the
Creditors Committee did not have standing to prosecute the 9.25% Adversary
Proceeding, on the basis of United States Supreme Court's decision in Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000). The Court
denied the motion to dismiss. The 9.25% Indenture Trustee has filed an appeal of
the Court's decision. The appeal is currently pending before [______].
As requested by the Debtors and as ordered by the Court (Docket No.
41), on May 7, 2003, the parties to the 9.25% Adversary Proceeding commenced a
mediation that resulted in an agreement in principle to settle the 9.25%
Adversary Proceeding. The parties are working to finalize that agreement in a
stipulation that will be submitted to the Court. This potential settlement could
affect the ultimate percentage recovery of the 9.25% Debenture Holders and the
holders of Allowed Class 6 Claims.
12. Agreements with the holders of Secured Claims
Throughout the course of these proceedings, the Debtors have engaged in
extensive discussions with the Agent Banks, the Secured Bank Lenders and the
9.25% Debenture Holders regarding the treatment of their Allowed Secured Claims
and the overall resolution of these Chapter 11 Cases. In particular, the Debtors
and these parties are currently discussing, and expect to enter into, the
following proposed agreements that have been incorporated into the
Reorganization Plan and the Liquidation Plan:
(a) In order to facilitate the ongoing operations of the Reorganized
Debtors, the Reorganization Plan contemplates that the DIP Lenders will agree to
the reinstatement of certain letters of credit that had been issued pursuant to
Tranche B of the DIP Financing Facility in the aggregate face amount of $176
million.
(b) Certain of the Secured Bank Lenders and the 9.25% Debenture Holders
would enter into the Exit Financing Agreements that will provide in the
aggregate commitments for the issuance of additional letters of credit in an
amount up to $87 million and new revolving lines of credit in an aggregate
amount of up to $50 million for purposes of further supporting the Reorganizing
Debtors' ongoing business operations.
(c) The Debtors have estimated the Prepetition Lenders' aggregate
Allowed Secured Claim in the amount of $434 million, including interest and
fees, which amount is subject to final allowance by the Court. As explained in
more detail below, the Prepetition Lenders would accept a Distribution under the
Reorganization Plan while waiving any Distribution under the Liquidation Plan.
Similarly, the Debtors have estimated the 9.25% Debenture Holders' Allowed
Secured Claims in the aggregate amount of $105 million, which amount is subject
to final allowance by the Court. As explained in more detail below, the 9.25%
Debenture Holders would accept a Distribution under the Reorganization Plan
while waiving any Distribution under the Liquidation.
(d) Additionally, the Liquidation Plan currently contemplates that the
holders of Class 3A Claims under the Liquidation Plan waive their right to any
Distributions under the Liquidation Plan, and instead are deemed to direct that
such Distributions (comprised of certain Liquidation Proceeds and other Claims)
be contributed to Reorganized Covanta. More specifically, under this
formulation, the Secured Bank Lenders, in their capacity as Prepetition Lenders,
and the 9.25% Debenture Holders, would be deemed to direct that (i) the
Distribution of Liquidation Proceeds to which they would otherwise be entitled,
and (ii) certain other Liquidation Assets, on which they have a lien, be
transferred to Reorganized Covanta. Similarly, as further part of this
contemplated compromise, the Secured Bank Lenders, in their capacity as DIP
Lenders, would be deemed to direct that certain Liquidation Assets or Collateral
held by the Liquidating Non-Pledgor Debtors, upon which the DIP Lenders have a
first priority lien and otherwise are entitled to the proceeds of under the
Liquidation Plan, also be contributed to Reorganized Covanta, in lieu of the
receipt by the DIP Lenders of any Distributions under the Liquidation Plan. Up
to $500,000 of the Liquidation Proceeds described above will be used to fund the
implementation of the Liquidation Plan. Ultimately, the acceptance of the
Distributions of the secured parties listed above under the Reorganization Plan
and waiver of their Distributions under the Liquidation Plan will ultimately
enhance the value of Reorganized Covanta and inure to the benefit of such
secured parties via their Distributions under the Reorganization Plan.
(e) In connection with the Intercreditor Agreement, certain of the
Prepetition Lenders were entitled to receive priority recoveries and ratable
paydowns with respect to their Claims against the Debtors (the "Priority Bank
Claims"). In order to account for the priority rights arising under the
Intercreditor Agreement, the Reorganization Plan includes certain provisions
that relate solely to the Distribution among holders of Subclass 3A Claims.
Specifically, as a first step in making a Subclass 3A Distribution, the
Reorganization Plan provides that the holders of Allowed Priority Bank Claims
will receive first, to the extent available, Excess Distributable Cash, and
thereafter New High Yield Secured Notes in an amount equal to the Allowed
Priority Bank Claims in full settlement, release and discharge of such Claims.
After payment in full of these Priority Bank Claims, the Reorganization Plan
then provides that the holders of Allowed Non-Priority Subclass 3A Claims shall
receive a Distribution consisting of a Pro Rata Share of the remaining Subclass
3A Recovery.
(f) Under the proposed settlement of the Loss Sharing Litigation, the
current synthetic pooling arrangment (i.e. loss sharing under the Intercreditor
Agreement) will be replaced with an actual pooling of exposures among the
Canadian Loss Sharing Lenders and the Pooled Facility Lenders.
13. Proceedings Related to the Team, the Corel Centre and Arrowhead Pond
(a) The Team and the Corel Centre
On January 9, 2003, the Ottawa Senators Hockey Club Corporation and
certain of its affiliates (the "Team") filed for protection with the Ontario
Superior Court of Justice (the "Canadian Court") and was granted protection
under Canada's Companies' Creditors Arrangement Act ("CCAA").
PricewaterhouseCoopers Inc. was appointed as monitor under the CCAA insolvency
proceedings and is supervising endeavors to sell the Team's franchise under the
direction of the Ontario Superior Court of Justice. On April 25, 2003, the
monitor entered into an asset purchase agreement with Capital Sports &
Entertainment Inc. ("CSE") pursuant to which CSE agreed to purchase the Team's
franchise and certain related assets, which the Canadian Court approved on May
9, 2003. On May 27, 2003, upon a motion by Covanta as senior secured creditor to
Palladium Corporation ("Palladium"), the Canadian Court appointed Ernst & Young
Inc. as interim receiver of Palladium, the owner of the Corel Centre. On June 4,
2003, the interim receiver entered into an asset purchase agreement with Capital
Sports Properties Inc. ("CSP"), an affiliate of CSE, pursuant to which CSP
agreed to purchase the Corel Centre and certain related assets, which the
Canadian Court approved on June 20, 2003. The transactions to purchase the Team
and the Corel Centre were consummated on August 26, 2003. Upon closing, the
Company received approximately CDN$27.5 million and obtained releases from
certain guarantees provided to lenders to the Team.
(b) Arrowhead Pond
Since 1999, Covanta has been soliciting potential buyers for the
management rights to the Arrowhead Pond. Several different parties had expressed
initial interest, with some parties submitting bids that were later withdrawn;
however, no final agreement has yet been reached with any party. Covanta
continues to pursue options for the sale of the management rights to the
Arrowhead Pond.
14. Other Postpetition Litigation
(a) Lake County, Florida
In late 2000, Lake County, Florida ("Lake County") commenced a lawsuit
in Florida state court against Covanta Lake, Inc. ("Covanta Lake") relating to
the WTE facility operated by Covanta in Lake County, Florida (the "Lake
Facility"). In the lawsuit, the County sought to have its Service Agreement with
Covanta Lake declared void and in violation of the Florida Constitution. That
lawsuit was stayed by the commencement of the Chapter 11 Cases. Lake County
subsequently filed a proof of claim seeking in excess of $70 million from
Covanta Lake and Covanta.
After several months of negotiations that failed to produce a
settlement between Covanta Lake and Lake County, on June, 20, 2003, Covanta Lake
filed a motion with the Court (Docket No. 1627), seeking entry of an order (i)
authorizing Covanta Lake to assume, effective upon confirmation of a plan of
reorganization for Covanta Lake, its Service Agreement with Lake County, (ii)
finding no cure amounts due under the Service Agreement, and (iii) seeking a
declaration that the Service Agreement is valid, enforceable and constitutional,
and remains in full force and effect. Contemporaneously with filing the motion,
an adversary complaint was filed asserting that Lake County is in arrears to
Covanta Lake in the amount of more than $8.5 million.
Lake County has filed an answer to Covanta Lake's complaint, and
expedited discovery is underway. The Court is scheduled to conduct a trial with
respect to both the motion to assume and the adversary proceeding in November
2003, although certain aspects of the litigation may be decided prior to that
trial.
In the event the parties are unable to consensually resolve their
differences, and depending upon (among other things) the timing, nature and
outcome of the litigation with Lake County, the Debtors may determine to, among
other things, assume or reject one or more executory contracts related to the
Lake Facility, recharacterize Covanta Lake as a Liquidating Debtor, and/or
withdraw Covanta Lake as a Reorganizing Debtor and subsequently file a separate
plan of reorganization for Covanta Lake. In such an event, creditors of Covanta
Lake may not receive any recovery on account of their claims. The Debtors are
not able to determine at this time whether a failure to resolve the litigation
or timely consummate a restructuring transaction with respect to Covanta Lake
would impair the other Debtors' ability to confirm and consummate the Plans, or
the terms of any exit financing available to such other Debtors.
(b) Onondaga County, New York
Prior to the Initial Petition Date, Covanta Onondaga commenced
litigation challenging an effort by OCRRA to terminate its Service Agreement
with Covanta Onondaga. Subsequent to the Initial Petition Date, Covanta Onondaga
sought to remove that litigation from New York state court to the Court. On
August 13, 2002 the U.S. District Court (NDNY) granted OCRRA's motion to remand
the matter to state court and denied Covanta Onondaga's motion to transfer the
matter to the Court. After Covanta Onondaga sought a ruling from the Court that
the automatic stay applied to the state court litigation, OCRRA obtained another
order from the U.S. District Court (NDNY) enjoining Covanta Onondaga and the
Court from ruling on Covanta Onondaga's request (which order Covanta Onondaga
appealed), and then sought in late 2002 a ruling from the state court declaring
that its termination of the Service Agreement had been effective. The U.S. Court
of Appeals for the Second Circuit eventually enjoined OCRRA from proceeding with
the state court litigation pending disposition of Covanta Onondaga's appeal, and
reversed the District Court's injunction in January 2003. The Court thereafter
ruled that OCRRA's efforts in state court violated the automatic stay, and
enjoined OCRRA from proceeding further with such efforts. OCRRA filed requests
with the Court asking that the automatic stay be lifted to permit the state
court action to proceed, which requests were twice denied. OCRRA has appealed
all of these Court orders, and those appeals are now pending. The appeals have
been stayed pending the parties' tentative settlement, described in Section
IV.C.9 above.
As noted in Section IV.C.9 above, in the event the parties are unable
to timely consummate the restructuring described therein, the Debtors may, among
other things, elect to litigate with counterparties to certain agreements with
Covanta Onondaga, assume or reject one or more executory contracts relating to
the Onondaga Facility, recharacterize Covanta Onondaga as a Liquidating Debtor,
and/or withdraw Covanta Onondaga as a Reorganizing Debtor and subsequently file
a separate plan of reorganization for Covanta Onondaga. The Debtors are not able
to determine at this time whether a failure to timely consummate the Covanta
Onondaga restructuring transaction described in Section IV.C.9 above would
impair the other Debtors' ability to confirm and consummate the Plans, or the
terms of any exit financing available to such other Debtors.
(c) Allied Aviation Litigation
In December 2001, Ogden Allied Maintenance Corporation and Covanta
entered into an agreement with Allied Aviation Holdings Corporation ("Allied")
and others by which Allied acquired the Company's aviation fueling businesses.
In December 2002, Ogden New York Services, Inc., PA Aviation Fuel Holdings,
Inc., and Covanta entered into an agreement by which Allied acquired the
Debtors' Aviation Fueling business. Following the acquisitions, disputes arose
between the Company and Allied.
In the adversary entitled Covanta Energy Corp. et al., v. Allied
Aviation Holdings Corp. et al., Adv. No. 03-3008 (CB) the Debtors assert, among
other things, that Allied (i) has come into possession of tax refunds in excess
of $2 million (Canadian) that are the property of the Debtors' estates, (ii) has
received certain payments relating to the operations of Ogden New York Services,
Inc. in excess of $850,000 that are the property of the Debtors' estates, (iii)
has not reimbursed the Debtors for certain transition services, (iv)has failed
to indemnify the Debtors for certain costs, and (v) has failed to provide
coverage for certain retirees in breach of its contractual obligations. Allied
has filed an answer to the Debtors' complaint, asserting that the Debtors
breached certain agreements, and also filed a motion to dismiss the Debtors'
complaint, claiming that the matters alleged in the complaint must be mediated
and arbitrated, pursuant to the parties' agreements, rather than litigated
before the Court. On August 27, 2003, the Court ordered that the parties mediate
their dispute. The Debtor does not believe that the outcome of the litigation
will not have a material impact upon the Debtors' ability to confirm and
consummate the Plans.
(d) Town of Babylon, New York
The Town of Babylon, New York (the "Town") filed a proof of claim
against Covanta Babylon, Inc. ("Covanta Babylon") for approximately $13.4
million in prepetition damages and $5.5 million in postpetition damages,
alleging that Covanta Babylon has accepted less waste than required under the
Service Agreement between the Town and Covanta Babylon. The Town also filed a
motion to modify the automatic stay in order to permit it to commence
arbitration against the Company. The Company has filed an objection to the
Town's claim and the motion to modify the stay. The Court has issued a temporary
restraining order barring the Town from proceeding with the arbitration. The
parties have agreed that disputes between the parties shall be resolved before
the Court.
The Company believes that it is in full compliance with the express
requirements of the contract and was entitled to adjust the amount of waste it
is required to accept to reflect the energy content of the waste delivered. It
therefore believes it has valid defenses to the Town's claim. In the event the
parties are unable to consensually resolve their differences, and depending upon
(among other things) the outcome of the litigation with the Town, the Debtors
may, among other things, assume or reject one or more executory contracts
related to the Babylon Facility, recharacterize Covanta Babylon as a Liquidating
Debtor, and/or withdraw Covanta Babylon as a Reorganizing Debtor and
subsequently file a separate plan of reorganization for Covanta Babylon. In such
an event, creditors of Covanta Babylon may not receive any recovery on account
of their claims. The Debtors are not able to determine at this time whether a
failure to resolve the litigation or timely consummate a restructuring
transaction with respect to Covanta Babylon would impair the other Debtors'
ability to confirm and consummate the Plans, or the terms of any exit financing
available to such other Debtors.
(e) Martin County Coal Corporation Litigation
Motions for relief from the Chapter 11 automatic stay have been filed
with the Court by a group of plaintiffs, led by Martin County Coal Corporation,
to join Ogden Environmental and Energy Services ("OEES"), a Liquidating Debtor
subsidiary of Covanta, as a third party defendant to several pending Kentucky
state court litigations arising from an October 2000 failure of a mine waste
impoundment that resulted in the release of approximately 250 million gallons of
coal slurry. Plaintiffs allege that OEES is liable to Martin County Coal in an
unspecified amount for contribution and/or indemnification arising from an
independent contractor agreement to perform engineering and technological
services with respect to the impoundment from 1994 to 1996. OEES had not been a
party to the underlying litigation to date, some of which had been pending for
two (2) years. On April 30, 2003, the Court entered an agreed-upon order by
which Plaintiffs may liquidate their claims (if any) against OEES, but may not
recover or execute judgment against OEES.
(f) Heber Royalty Holder Claims
The HFC Project Company is the lessee under more than 200 leases with
landowners in Imperial County, California, pursuant to which the HFC Project
Company leases the right to extract geothermal fluids used to run two power
plants owned or leased by the HGC Project Company and the SIGC Project Company.
The HFC Project Company also enjoys easement, access and other rights with
respect to the leased property.
Approximately 100 lessors have formed a group and filed proofs of claim
in the Debtors' bankruptcy proceedings seeking more than $68 million from the
HFC Project Company, HGC Project Company and/or SIGC Project Company for alleged
underpayment of royalties owed to them under their leases, easement violations
and violations of "most favored nations" clauses, and also an increase in the
prospective royalty rates used to pay them. Following several months of
negotiations, in July 2003 the Debtors and the lessor group reached an agreement
in principle, subject to Court approval, under which the Debtors have agreed to
pay members of the lessor group approximately $3.4 million (including attorneys'
fees) upon emergence from bankruptcy (or under certain other circumstances,
including sale of the projects). Under that tentative settlement, prospective
royalty rates would remain the same as the royalty rates historically paid to
the lessors, and any disputes relating to individual easement or most favored
nation clause violations would be resolved on a case-by-case basis.
[The Debtors have filed a motion with the Court (Docket No. ____)
seeking approval of the compromise with the lessor group, and that motion is set
for hearing on October [ ], 2003. In the motion, the Debtors also seek
permission to enter into individual settlement agreements on substantially
similar terms with lessors that are not members of the lessor group.]
15. Summary of Claims Process, Bar Dates and Claims Filed
(a) Schedules and Statements of Financial Affairs
On June 14, 2002 the Debtors filed with the Court their Original
Schedules setting forth, among other things, the assets and liabilities of the
Debtors as shown by their books and records, subject to the assumptions
contained in certain notes filed in connection therewith. On November 22, 2002,
the Debtors filed their First Amended Schedules with the Court (Docket No.
1107). On December 11, 2002, the Debtors filed their Second Amended Schedules
with the Court (Docket No. 1146). On December 16, 2002, Covanta Concerts
Holdings, Inc. filed its schedules (Docket no. 2 in case 02-16322). On June 22,
2003, the Debtors filed schedules setting forth, among other things, the assets
and liabilities for the New Debtors with the Court (Docket No. 1631-1691). The
Debtors filed their Third Amended Schedules (Docket Nos. 1886-2006), in order to
(i) reclassify the claims of a number of scheduled creditors by transferring
those creditors' claims from one debtor's schedules to the applicable schedule
for a different debtor's case, (ii) reflect that certain schedule creditors
whose claims were listed in the Original Schedules as contingent, unliquidated
and/or disputed are no longer contingent, unliquidated or disputed, and (iii)
add additional creditors.
(b) Claims Bar Dates
On June 26, 2002, the Court entered the General Bar Date Order
establishing August 9, 2002 as the General Bar Date in the Chapter 11 Cases of
the Original Debtors and approved the form and manner of notice to be provided
with respect of the General Bar Date, and set deadlines for the Debtors to mail
and publish notices of the General Bar Date. In accordance with the General Bar
Date Order, on or before June 28, 2002, the Debtors' notice agent, Bankruptcy
Services L.L.C. (the "Notice Agent"), gave notice of the General Bar Date by
mailing to all scheduled creditors the notice of the General Bar Date approved
by the Court and a proof of claim form substantially similar to Official Form
No. 10. In addition, the Debtors published notice of the General Bar Date in the
Wall Street Journal and the USA Today on August 11, 2002.
On September 20, 2002, the Court entered the Employee Bar Date Order
establishing November 15, 2003 as the Employee Bar Date. Employees were provided
notice of the Employee Bar Date by mail.
On May 19, 2003, the Court entered the Covanta Concerts Bar Date Order
establishing June 27, 2003 as the Covanta Concerts Bar Date. The same order
established June 27, 2003 as the Convertible Debentures Bar Date. The Notice
Agent mailed notice of the Convertible Debentures Bar Date to all registered
holders and other known holders of the Convertible Debentures and published a
notice of the same in the Financial Times of London and the Luxemburger Wort, as
contemplated under the relevant fiscal agency agreement.
On June 30, 2003, the Court entered an order establishing August 14,
2003 as the New Debtors' Bar Date. Because the Court was closed on August 14 and
15, 2003, as a result of the blackout that affected the Northeast region of the
United States, the New Debtors' Bar Date was changed to August 18, 2003. The
Notice Agent sent notice of the New Debtor's Bar Date to all known creditors of
the New Debtors and published notice of the same in The Wall Street Journal and
USA Today.
In accordance with the General Bar Date Order, which granted the
Debtors authority to amend the Original Schedules, the Debtors have filed
several amendments to the Original Schedules. On November 22, 2002, the Original
Debtors filed the First Amendment Schedules, and established December 27, 2002
as the First Amended Bar Date. On December 11, 2002, the Original Debtors filed
the Second Amended Schedules, and established January 13, 2003 as the Second
Amended Bar Date. On August 24 and 25, 2003, the Original Debtors filed the
Third Amended Schedules, and established October 6, 2003 as the Third Amended
Bar Date. Finally, on June 22, 2003, the New Debtors filed the New Debtors
Schedules, and established August 18, 2003 as the New Debtors Bar Date.
(c) Proofs of Claim
As of September 8, 2003, approximately 4,457 proofs of claim in the
aggregate amount of approximately $12 billion were filed. The Debtors believe
that the aggregate amount of Claims against the Debtors that ultimately will be
allowed is significantly less that the amount asserted by the claimants in their
proofs of claim.
(d) Claims Administration
Prior to the commencement of these cases, the Debtors maintained, in
the ordinary course of business, books and records that reflected, among other
things, the Debtors' liabilities and the amounts thereof owed to their
creditors. The Debtors have conducted a review of the proofs of claim filed in
the Chapter 11 Cases, including any supporting documentation, the Claims set
forth therein, and the Debtors' books and records to determine the validity of
the Claims asserted against the Debtors. Based on their reviews, the Debtors
determined that certain Claims asserted against the Debtors were objectionable.
The Debtors have filed with the Court certain omnibus objections to
Claims and will continue to do so. To date, the Debtors' objections to proofs of
claim have for the most part sought to reclassify the numerous proofs of claim
filed in the Debtors' lead case (Case No. 02-40826) to other Debtors' cases. The
Debtors also have filed objections to a number of duplicate claims, as well as
certain claims the Debtors believe to be invalid. BECAUSE THE DEADLINE UNDER THE
PLANS FOR OBJECTING TO CLAIMS IS AFTER THE DATE ON WHICH VOTING ON THE PLANS
WILL BE CONCLUDED, CREDITORS SHOULD NOT RELY ON THE ABSENCE OF AN OBJECTION TO
THEIR PROOF OF CLAIM IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE
PLANS, OR ANY INDICATION THAT THE DEBTORS OR OTHER PARTY IN INTEREST WILL NOT
OBJECT TO THE AMOUNT, PRIORITY, SECURITY OR ALLOWABILITY OF SUCH CLAIM.
16. Development and Implementation of the Business Plan
Commencing in September 1999, the Company implemented a strategic plan
to sell or dispose of its non-core assets and, at the same time, underwent a
significant change in senior management. From 2000 to 2001, the Company was
successful in disposing of a number of its non-core operations, although it was
not possible to dispose of the Arenas and the significant contingent liabilities
associated therewith, and the Aviation Fueling Assets, as the events of
September 11, 2001 impacted the closing of a sale thereof. When the Debtors
filed for bankruptcy in 2002, management was provided a means to dispose of the
Arenas, by converting the significant contingent liabilities associated thereto
into funded debt. Management was also provided opportunity to achieve an orderly
exit from the remaining non-core operations. During the pendency of the Chapter
11 Cases, the Company's primary objectives have been to dispose of those
remaining non-core assets and to maintain the successful operation of its core
WTE Projects, IPPs, and Water Projects (collectively, the "Core Operations").
Since the Initial Petition Date, the Core Operations have continued to
perform well. In 2002 the waste-to-energy projects achieved records in all major
performance categories. The facilities processed over 10.27 million tons of
waste (112,000 tons more than any previous year) and sold over 4.966 gwh of
electricity (128,000 mwh more than the previous year). The waste-to-energy
projects operating performance through June 2003 is on track to surpass last
year's production levels. As of June 30, 2003, the waste-to-energy projects have
processed over 5.18 million tons of waste and have sold over 2,434 gwh of
electricity. These production levels represent a waste processing performance of
240,000 tons more than last year's production level through June as well as a
net energy generation increase of 378,000 mwh. The domestic independent power
project facilities also performed well in 2002 and 2003, meeting their key
production goals and posting a net electrical production of 822.7 gwh through
June 2003. In 2002 and 2003 the Company conducted its typical comprehensive
scheduled maintenance and plant preservation program, including semi-annual
boiler maintenance outages as well as several major turbine/generator overhauls.
In order to adequately evaluate the long-term prospects of the Core
Operations and to develop its business plan, the Company undertook a thorough
and detailed process including the development of long-term operating and
financial forecasts by the management teams at the individual project
facilities. The development of the business plan was performed as part of the
Company's regular and recurring budgeting process, with additional years of
operation added to the focus. The executive management team conducted intensive
reviews of the individual project operating and financial forecasts. Factors
affecting each project-specific forecast were refined and key assumptions used
to establish the forecast were finalized. Concurrently, the corporate forecast
was established after extensive review by the Company's executive management and
advisors. It includes projections for operational and administrative overhead at
a level consistent with the Company's business plan, other non-facility costs
and the Company's capital structure. The existing facility financial forecasts
were consolidated with the potential WTE expansion projects and the corporate
forecast to establish the business plan. The proforma financial projects in
Exhibit C reflect the initial years of the business plan forecast.
These efforts culminated in the Company's strategic business plan (the
"Business Plan"), of which the primary components are: (i) maintenance of the
Core Operations; (ii) disposal of the remaining non-core assets; and (iii)
corporate overhead cost consistent with the business plan.
(a) Maintenance of Core Operations
The Company took steps at the onset of the Chapter 11 Cases to insure
that its clients, partners and vendors understood the nature of the bankruptcy
proceedings and that the Company intended to continue its tradition of operating
excellence. As noted above, the Company has continued to achieve operational
success at its Core Operations during the Chapter 11 Cases. With few exceptions,
the Business Plan was based on continued operation and/or ownership of the
Company's existing Core Operations. The financial forecast was based on the
continuation of the Company's historical operational performance and reasonable
projections as to future factors that may affect revenues and expenses,
including client community desire to extend existing Service Agreements upon
concluding the initial term and market conditions that will affect such things
as waste disposal pricing, energy pricing, commodity pricing, labor cost and
insurance cost. Further, where client communities of publicly owned facilities
intend to expand their existing facility, the Company has included a reasonable
financial forecast relating to potential expansion projects.
(b) Disposal of Remaining Non-Core Operations
As of the Initial Petition Date the Company had the following
significant non-core assets remaining: the Aviation Fueling Assets and the
Arenas. During the course of the Chapter 11 Cases, the Company has been actively
working to dispose of those assets in a structured environment. The Business
Plan assumes that those and the other non-core operations will not be part of
Reorganized Covanta.
Since the Initial Petition Date, the Company has sold and resolved a
number of other issues pertaining to the non-core operations, including: (i) the
sale, or disposal otherwise, of its interests in the Argentine Assets, its
interests in the Team and Corel Centre, the Aviation Fueling Assets and certain
equipment, furniture and fixtures at former non-core operations; (ii) the
collection of deferred purchase prices; and (iii) the settlement of certain
claims held by Covanta. For a more detailed discussion of the sale of the
non-core operations, see Section VI.C.8.
(c) Corporate Overhead Costs
Shortly after the Initial Petition Date, the Company re-evaluated its
corporate overhead structure and embarked on a reorganization to eliminate
organizational redundancy and streamline overall costs. The Company also focused
on more tightly aligning its corporate functions with the requirements and
expectations of the ongoing Waste to Energy, Independent Power and water
projects.
This effort cumulated in a reduction in force in September 2002 that
eliminated 87 corporate positions (approximately 25% of non-plant personnel),
the closure of satellite development offices and the reduction in all other
costs not related directly to maintaining operations at their current high
levels. As part of the reduction in force, waste-to-energy and domestic
independent power headquarters management were combined and numerous other
structural changes were instituted to improve management efficiency. These
changes reduced annual overhead cost by approximately $20 million. The reduction
did not affect the staffing at any of the facilities.
VII. SUMMARY OF THE PLANS
THIS SECTION CONTAINS A SUMMARY OF THE STRUCTURE OF, CLASSIFICATION AND
TREATMENT OF CLAIMS AND INTERESTS IN AND IMPLEMENTATION OF THE REORGANIZATION
PLAN AND THE LIQUIDATION PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
BOTH PLANS, WHICH ACCOMPANY THIS DISCLOSURE STATEMENT, AND TO THE EXHIBITS
ATTACHED THERETO OR REFERRED TO THEREIN. CAPITALIZED TERMS NOT DEFINED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS SET FORTH IN THE PLANS.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE SUMMARIES
OF THE PROVISIONS CONTAINED IN THE PLANS AND IN DOCUMENTS REFERRED TO THEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE
PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE PLANS OR
DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLANS AND TO SUCH
DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND PROVISIONS.
THE PLANS THEMSELVES AND THE DOCUMENTS REFERRED TO THEREIN, WHICH ARE
OR WILL HAVE BEEN FILED WITH THE COURT, WILL CONTROL THE TREATMENT OF CREDITORS
AND HOLDERS OF EQUITY INTERESTS UNDER THE PLANS AND WILL, UPON THE EFFECTIVE
DATE OF THE PLANS, BE BINDING UPON HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN
THE REORGANIZED DEBTORS, REORGANIZED HEBER DEBTORS AND/OR LIQUIDATION TRUSTS, AS
APPLICABLE, AND OTHER PARTIES IN INTEREST, REGARDLESS OF WHETHER OR HOW THEY
HAVE VOTED ON THE PLANS.
A. Overall Structure of the Plans
The Debtors have formulated a Reorganization Plan and a Liquidation
Plan that taken together facilitate the successful resolution of these Chapter
11 Cases.
The overriding purpose of the Reorganization Plan is to enable the
Reorganizing Debtors to emerge from chapter 11 as a scaled down enterprise
focused on its current core business operations in the waste-to-energy, domestic
independent power production and water and waste-water treatment market
segments. The Reorganization Plan is premised upon the establishment of an ESOP
that will own all the stock of Reorganized Covanta on the Effective Date.
Establishment of the ESOP will generate value by resulting in favorable tax
treatment for the Reorganized Debtors under applicable federal tax law, and this
value will be shared among the holders of Allowed Claims receiving Distributions
under the Reorganization Plan and the ESOP as owner of Reorganized Covanta's
stock.
The goal of preserving and enhancing the value of the Reorganizing
Debtors' continuing operations is further advanced by the Liquidation Plan,
pursuant to which the assets which have been deemed to be Non-Core Assets will
be sold or liquidated. The assets identified as Non-Core Assets are generally
those associated with those entities that have been designated as the
Liquidating Debtors. Substantially all of such assets have already been sold in
postpetition transactions approved by the Court. Upon consummation of the
Liquidation Plan, any remaining assets of a Liquidating Debtor will be
contributed to a Liquidation Trust, as described below, and the Liquidating
Debtors will be wound down and dissolved by the Liquidating Trustee in
accordance with applicable law. Upon the exhaustion of Liquidation Assets in the
Liquidation Trust and the complete distribution of any Liquidation Proceeds, if
any, to holders of Claims, the Liquidation Plan requires the Liquidation Trustee
to close each of the Liquidating Debtors' Chapter 11 Cases with the Court. It
should be noted that the proceeds that were generated from postpetition sales
and many of the Liquidation Assets of the Liquidating Debtors will not be
transferred to the Liquidation Trust, but rather transferred to Reorganized
Covanta in accordance with the Liquidation Plan's Secured Creditor Direction and
DIP Lender Direction.
Each of the Reorganization Plan and the Liquidation Plan constitute
separate plans for each of the respective Debtors thereunder. Each of the Plans
constitutes a joint plan for the Debtors that are the subject thereof. Pursuant
to the Plans, the Reorganizing Debtors, Heber Debtors and the Liquidating
Debtors, respectively, have been deemed consolidated solely for purposes of plan
administration, procedure and voting. As a result, certain Classes have been
established pursuant to the Plans as containing Claims against multiple Debtors.
If the Plans are confirmed by the Court and consummated, Classes of
Claims against and Equity Interests in the Debtors will receive the treatment
described in the Plans and this Disclosure Statement. A description of the
Claims and Equity Interests included in each Class of Claims and Equity
Interests, the treatment of those Classes under the Plans, the terms of the Plan
Notes and Reorganization Plan Equity Securities and Reorganization Plan Warrants
and other property (if any) to be distributed to holders of Allowed Claims in
those Classes under the Reorganization Plan are described below.
The amounts and forms of distributions under the Plans are based upon,
among other things, the requirements of applicable law and the Debtors'
assessment of their ability to achieve the goals set forth in their Business
Plan.
B. Classification and Treatment of Claims and Equity Interests
Section 1122 of the Bankruptcy Code requires that a plan of
reorganization classify the claims of a debtor's creditors and the interests of
its equity holders. The Bankruptcy Code also provides that, except for certain
claims classified for administrative convenience, a plan of reorganization may
place a claim of a creditor or an interest of an equity holder in a particular
class only if such claim or interest is substantially similar to the other
claims or interests in such class.
The Bankruptcy Code also requires that a plan of reorganization provide
the same treatment for each claim or interest of a particular class unless the
holder of a particular claim or interest agrees to a less favorable treatment of
its claim or interest. The Debtors believe that they have complied with such
standard. If the Court finds otherwise, however, it could deny confirmation of
either Plan if the Claimholders affected do not consent to the treatment
afforded them under the respective Plan.
The Plans classify Claims and Equity Interests in the following
Classes:
- ------------------------------------------------------------------------------------------------------------------
Class Reorganization Plan Liquidation Plan
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Class 1 Allowed Priority Non-Tax Claims, which Allowed Priority Non-Tax Claims, which consists
consists of all such Claims against each of of all such Claims against each of the
the Reorganizing Debtors. Liquidating Debtors.
- ------------------------------------------------------------------------------------------------------------------
Class 2 Allowed Project Debt Claims, which consists of N/A
the Allowed Secured Claims against the
Operating Company Reorganizing Debtors that
are secured by Liens on such Reorganizing
Debtors' tangible and intangible assets, but
excluding the Claims of the Prepetition
Lenders and the DIP Lenders.
- ------------------------------------------------------------------------------------------------------------------
Class 2H Allowed Heber Secured Claims, which consists
of any Secured Claim against a Heber Debtor
that is Secured by a Lien on such Heber
Debtor's tangible or intangible assets and any
Claim against __________ based on a guarantee
of a Secured Claim described in the preceding
clause of this definition; provided, however,
that Heber Secured Claims do not include the
Claims of the DIP Lenders, or Intercompany
Claims.
- ------------------------------------------------------------------------------------------------------------------
Class 3 Subclass 3A: Allowed Secured Bank Claims Class 3A: Allowed Liquidation Secured Claims,
which consists of the Secured Bank
Subclass 3B: Allowed Secured 9.25% Debenture Claims and the 9.25% Debentures Claims
Claims. against each of the Liquidating Pledgor
Debtors.
Class 3B: Allowed Secured CSFB Claim against
Ogden FMCA.
- ------------------------------------------------------------------------------------------------------------------
Class 4 Allowed Operating Company Unsecured Claims N/A
which consists of all Allowed Unsecured Claims
against Operating Company Reorganizing Debtors.
- ------------------------------------------------------------------------------------------------------------------
Class 5 Allowed Covanta energy americas unsecured N/A
Claims, which consists of all Allowed Unsecured
Claims against Covanta Energy Americas.
- ------------------------------------------------------------------------------------------------------------------
Class 6 Allowed Covanta Unsecured Claims, which N/A
consists of all Allowed Unsecured Claims
against Reorganized Covanta and any
Intermediate Holding Company Debtor and the
9.25% Deficiency Claims and Prepetition Lender
Deficiency Claims.
- ------------------------------------------------------------------------------------------------------------------
Class 7 Allowed Heber Unsecured Claims, which consists Allowed Unsecured Liquidation Claims, which
of all Allowed Unsecured Claims against a consists of all Allowed Unsecured Liquidation
Heber Debtor. Claims against the Liquidating Debtors
- ------------------------------------------------------------------------------------------------------------------
Class 8 Class 8 consists of all Allowed Convenience N/A
Claims. Convenience Claims are those Unsecured
Claims against any Operating Company Reorganizing
Debtor in an amount less than $2,500.
- ------------------------------------------------------------------------------------------------------------------
Class 9 Intercompany Claims, which consists of Claims Intercompany Claims, which consists of Claims by any
by any Reorganizing Debtor, Heber Debtor or Reorganizing Debtor or Liquidating Debtor against any
Liquidating Debtor against any Reorganizing Liquidating Debtor.
Debtor or Heber Debtor.
- ------------------------------------------------------------------------------------------------------------------
Class 10 Convertible Subordinated Bondholder Claims, N/A
which consists of all Allowed Claims against
Reorganized Covanta by the holders of the
Convertible Subordinated Bonds.
- ------------------------------------------------------------------------------------------------------------------
Class 11 Equity Interests in Subsidiary Debtors, which Equity Interests in Liquidating Debtors, which
consists of the Equity Interests held by any consists of the Equity Interests held in any
Reorganizing Debtor in any of the Subsidiary Liquidating Debtors.
Debtors.
- ------------------------------------------------------------------------------------------------------------------
Class 12 Equity Interests in Covanta Huntington, N/A
Covanta Onondaga and DSS Environmental.
- ------------------------------------------------------------------------------------------------------------------
Class 13 Old Covanta Stock Equity Interests, which N/A
consists of all Equity Interests of holders
of Old Covanta Stock.
- ------------------------------------------------------------------------------------------------------------------
Class 14 Equity Interests in Heber Debtors N/A
- ------------------------------------------------------------------------------------------------------------------
The Debtors believe that they have classified all Claims and Equity
Interests in compliance with the requirements of section 1122 of the Bankruptcy
Code. If a holder of a Claim or Equity Interest challenges such classification
of Claims or Equity Interests and the Court finds that a different
classification is required for the Plans to be confirmed, the Debtors, to the
extent permitted by the Court, intend to make such modifications to the
classifications of Claims or Equity Interests under the Plans to provide for
whatever classification might be required by the Court for confirmation. UNLESS
SUCH MODIFICATION OF CLASSIFICATION ADVERSELY AFFECTS THE TREATMENT OF A HOLDER
OF A CLAIM OR EQUITY INTEREST AND REQUIRES RESOLICITATION, ACCEPTANCE OF EITHER
PLAN BY ANY HOLDER OF A CLAIM OR EQUITY INTEREST PURSUANT TO THIS SOLICITATION
WILL BE DEEMED TO BE A CONSENT TO EACH PLAN'S TREATMENT OF SUCH HOLDER OF A
CLAIM OR EQUITY INTEREST, RESPECTIVELY, REGARDLESS OF THE CLASS AS TO WHICH SUCH
HOLDER IS ULTIMATELY DEEMED TO BE A MEMBER.
1. Treatment of Unclassified Claims
(a) Administrative Expense Claims Generally
Administrative Expense Claims consist primarily of the costs and
expenses of administration of the Chapter 11 Cases. They include, but are not
limited to, Claims arising under the DIP Financing Facility, the cost of
operating the Debtors' businesses since the Initial Petition Date, the
outstanding unpaid fees and expenses of the professionals retained by the
Debtors and the Creditors Committee as approved by the Court, and the payments
necessary to cure prepetition defaults on unexpired leases and executory
contracts that are being assumed under the Plans ("Cure"). All payments to
professionals in connection with the Chapter 11 Cases for compensation and
reimbursement of expenses, and all payments to reimburse expenses of members of
the Creditors Committee, will be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules and are subject to
approval of the Court as reasonable. The Debtors currently anticipate that all
Administrative Expense Claims representing (i) Claims against all the Debtors,
generally, arising under the DIP Financing Facility and (ii) claims against the
Debtors generally for unpaid professional fees and expenses will be paid by the
Reorganizing Debtors in accordance with the Reorganization Plan.
All Administrative Expense Claims are subject to the Administrative
Expense Claim Bar Date, which is thirty (30) days following the Effective Date,
except for the following limited claims: (a) United States Trustee Claims; (b)
postpetition liabilities incurred and payable in the ordinary course of business
by any Reorganizing Debtor; or (c) fees and expenses incurred by (i) Retained
Professionals, (ii) persons employed by the Debtors or serving as independent
contractors to the Debtors in connection with their reorganization and/or
liquidation efforts, or (iii) Bankruptcy Services LLC. To the extent that the
Administrative Expense Bar Date applies, failure to file a timely request for
payment of an Administrative Expense Claim prior to the Administrative Expense
Bar Date shall result in the Administrative Expense Claim being forever barred
and discharged. All Retained Professionals and other entities seeking an award
by the Court of compensation for services rendered or reimbursement of expenses
incurred through and including the Effective Date under subsections 503(b)(2),
503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code must file a timely
request for payment on or before the date that is forty-five (45) days after the
Effective Date. Any such request for payment of compensation for services
rendered or reimbursement of expenses incurred that is not filed by the
applicable deadline shall be barred.
As of September 8, 2003, there was no outstanding balance under the DIP
Financing Facility, although the Debtors might make draws from the DIP Credit
Facility prior to the Effective Date. Assuming that the Plans are consummated on
or before December 31, 2003, the Reorganizing Debtors and Heber Debtors believe
that their available cash resources (including funds that will become available
pursuant to the contemplated sale of the Geothermal Business) will be sufficient
to enable them to pay all Allowed Administrative Expense Claims as of the
Effective Date, any professional fees that remain unpaid as of the Effective
Date, and all amounts outstanding, if any, under the DIP Financing Facility at
such time. Moreover, the Debtors believe that the aggregate amount of
Administrative Expense Claims that may become Allowed after the Effective Date
will not exceed the Reorganized Debtors, Reorganized Heber Debtors and/or the
Liquidating Trustee's ability to pay such Claims when they are Allowed and/or
otherwise become due. The procedures governing allowance and payment of
Administrative Claims of (i) the Reorganizing Debtors and Heber Debtors are
described in Section VII.E below and (ii) the Liquidating Debtors are described
in Section VII.F below.
(i) Administrative Expense Claims under the Reorganization Plan
Subject to the provisions of Article 2.2 of the Reorganization Plan, on
the first Distribution Date occurring after the later of (a) the date an
Administrative Claim becomes an Allowed Administrative Expense Claim or (b) the
date an Administrative Expense Claim becomes payable pursuant to any agreement
between a Reorganizing Debtor (or a Reorganized Debtor) and the holder of such
Administrative Expense Claim, an Allowed Administrative Claimholder in the
Reorganizing Debtors and Heber Debtors' Chapter 11 Cases shall receive, in full
satisfaction, settlement, release, and discharge of and in exchange for such
Administrative Expense Claim, (i) Cash equal to the unpaid portion of such
Allowed Administrative Expense Claim or (ii) such other treatment as to which
the Reorganizing Debtors or Heber Debtors (or the Reorganized Debtors or
Reorganized Heber Debtors) and such Claimholder shall have agreed upon in
writing; provided, however, that Allowed Administrative Expense Claims with
respect to liabilities incurred by the Reorganizing Debtors or Heber Debtors in
the ordinary course of business during the Chapter 11 Cases shall be paid in the
ordinary course of business in accordance with the terms and conditions of any
agreements relating thereto.
(ii) Contingent Administrative Expense Claims under the DIP
Financing Facility
On the Effective Date, any outstanding letters of credit issued under
Tranche B of the DIP Financing Facility are expected to be replaced with new
letters of credit to be issued under the Reinstated L/C Facility. Once such new
letters of credit have been issued (and any funded amounts under the DIP
Financing Facility have been repaid), the DIP Financing Facility shall be deemed
terminated (subject in all respects to any carve-out approved by the Court in
the Final Order approving the DIP Financing Facility), and the DIP Lenders shall
take all necessary action to confirm the removal of any liens on the properties
of the applicable Reorganizing Debtors or Heber Debtors securing the DIP
Financing Facility. To the extent that Claims arising under the DIP Financing
Facility will not be paid in full as a result of reinstatement of contingent
obligations under the Reinstated L/C Facility, acceptance of reinstatement as
provided for under the Reorganization Plan by a requisite majority of DIP
Lenders as contemplated under the DIP Financing Facility shall be binding on all
DIP Lenders in full satisfaction of their Administrative Claim.
(iii) Administrative Expense Claim Bar Date
Administrative Expense Claims must be filed with the Court and served
on counsel for the Debtors prior to the Administrative Expense Claim Bar Date,
which is thirty (30) days following the Effective Date. The Administrative
Expense Claim Bar Date applies to all holders of Administrative Expense Claims
except for holders of the following limited types of claims: (a) United States
Trustee Claims; (b) postpetition liabilities incurred and payable in the
ordinary course of business by any Reorganizing Debtor; and (c) fees and
expenses incurred by (i) Retained Professionals and (ii) persons employed by the
Reorganizing Debtors or Heber Debtors or serving as independent contractors to
the Reorganizing Debtors or Heber Debtors in connection with their
reorganization efforts, including without limitation the Balloting Agent.
(iv) Administrative Claims for Compensation and Reimbursement
All Retained Professionals, or Persons employed by the Reorganizing
Debtors or Heber Debtors or serving as independent contractors to the
Reorganizing Debtors or Heber Debtors or any other Persons seeking an award by
the Court of compensation for services rendered or reimbursement of expenses
incurred through and including the Effective Date under subsections 503(b)(2),
503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code must file and serve on
counsel for the Reorganizing Debtors and Heber Debtors and as otherwise required
by the Court and Bankruptcy Code their respective final applications for
allowance of compensation for services rendered and reimbursement of expenses
incurred on or before the date that is forty-five (45) days after the Effective
Date. All such Allowed Administrative Expense Claims shall be paid in full by
the Reorganized Debtors or Reorganized Heber Debtors on the Distribution Date,
or upon such other terms as may be mutually agreed upon between the holder of
such an Allowed Administrative Expense Claim and the Reorganized Debtors or
Reorganized Heber Debtors.
Any Person who requests compensation or expense reimbursement for a
Substantial Contribution Claim must file an application with the clerk of the
Court, on or before the Administrative Expense Bar Date, and serve such
application on counsel for the Reorganized Debtors and Reorganized Heber Debtors
and as otherwise required by the Court and the Bankruptcy Code on or before such
date.
(v) Administrative Expense Claims under the Liquidation Plan
Except to the extent that the applicable Liquidating Debtor and any
holder of an Allowed Administrative Expense Claim agree to a less favorable
treatment and as set forth in Sections 2.3 and 2.5 of the Liquidation Plan, each
holder of an Allowed Administrative Expense Claims against a Liquidating Debtor,
in full satisfaction of such Claims shall be paid Cash in an amount equal to
such Claims on the Initial Liquidation Distribution Date from the Operating
Reserve provided that any such liabilities not incurred in the ordinary couse of
business were approved and authorized by a Final Order of the Court; provided,
however, that Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by such Liquidating Debtor, as a
debtor-in-possession, shall be paid by the Liquidating Trustee from the
Operating Reserve, in the ordinary course of business, consistent with past
practice and in accordance with the terms and subject to the conditions of any
agreements governing, instruments evidencing, or other documents relating to
such transactions. To the extent that the Administrative Expense Claim Bar Date
applies, failure to file a timely request for payment of an Administrative
Expense Claim prior to the Administrative Expense Claim Bar Date shall result in
the Administrative Expense Claim being forever barred and discharged.
(b) Priority Tax Claims
(i) Priority Tax Claims under the Reorganization Plan
Priority Tax Claims are those tax Claims entitled to priority pursuant
to section 507(a)(8) of the Bankruptcy Code. The Reorganization Plan provides
that Priority Tax Claims, if any, are Unimpaired. Specifically, subject to the
consent of the requisite New Facility Lenders, each holder of an Allowed
Priority Tax Claim will receive Cash equal to the unpaid portion of such Allowed
Priority Tax Claim on or as soon as practical after the later of: (i) thirty
(30) days after the Effective Date, or (ii) thirty (30) days after the date on
which such Priority Tax Claim becomes Allowed; provided, however, that at the
option of the Reorganized Debtors or Reorganized Heber Debtors, a Reorganized
Debtor or Reorganized Heber Debtor may pay Allowed Priority Tax Claims over a
period not exceeding six (6) years after the date of assessment of the Priority
Tax Claims as provided in subsection 1129(a)(9)(C) of the Bankruptcy Code. If a
Reorganized Debtor or Reorganized Heber Debtor elects this option as to any
Allowed Priority Tax Claim, then the payment of simple interest on the unpaid
portion of such Claim shall be made in equal semiannual installments with the
first interest payment due on the latest of: (i) six (6) months after the
Effective Date, (ii) six (6) months after the date on which such Priority Tax
Claim becomes an Allowed Claim, or (iii) such other time as may be agreed to by
the holder of such Priority Tax Claim and the Reorganized Debtor. Simple
interest shall be paid on the unpaid portion of such Allowed Priority Tax Claim,
without penalty of any kind, at the statutory rate of interest provided for such
taxes under applicable nonbankruptcy law.
Under the Reorganization Plan, no holder of an Allowed Priority Tax
Claim will be entitled to any payments on account of any pre-Effective Date
interest accrued on, or penalty arising after the Petition Date with respect to
or in connection with, an Allowed Priority Tax Claim. Any such Claim or demand
for any such accrued postpetition interest or penalty will be discharged upon
confirmation of the Reorganization Plan in accordance with section 1141(d)(1) of
the Bankruptcy Code, and the holder of a Priority Tax Claim will be precluded
from assessing or attempting to collect such accrued interest or penalty from
the Reorganized Debtors or Reorganized Heber Debtors or its property.
(ii) Priority Tax Claims under the Liquidation Plan
Subject to the consent of the requisite New Facility Lenders, each
holder of an Allowed Priority Tax Claim against a Liquidating Debtor will
receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Priority Tax Claim, Cash equal to the unpaid portion
of such Allowed Priority Tax Claim on or as soon as practical after the later
of: (i) thirty (30) days after the Effective Date, or (ii) thirty (30) days
after the date on which such Priority Tax Claim becomes Allowed provided,
however, that at the option of the Liquidating Trustee, the Liquidating Trustee
may pay Allowed Priority Tax Claims over a period of six (6) years after the
date of assessment of the Priority Tax Claim as provided in subsection
1129(a)(9)(C) of the Bankruptcy Code, provided, further, that in no event shall
the Liquidating Trustee extend such date of repayment beyond the Final
Liquidation Determination Date. If the Liquidating Trustee elects this option as
to any Allowed Priority Tax Claim, then the Liquidating Trustee shall make
payment of simple interest on the unpaid portion of such Claim semiannually
without penalty of any kind, at the statutory rate of interest provided for such
taxes under applicable nonbankruptcy law, with the first interest payment due on
the latest of: (i) six (6) months after the Effective Date, (ii) six (6) months
after the date on which such Priority Tax Claim becomes an Allowed Claim, or
(iii) such other time as may be agreed to by the holder of such Priority Tax
Claim and the Liquidating Trustee, provided, however, that the Liquidating
Trustee shall reserve the right to pay any Allowed Priority Tax Claim, or any
remaining balance of such Allowed Priority Tax Claim, in full, at any time on or
after the Effective Date, without premium or penalty.
2. Unimpaired Classes of Claims
The Classes listed below are Unimpaired by the Plans
Reorganization Plan Liquidation Plan
- ------------------- ----------------
Class 1: Allowed Priority Non-Tax Claims Class 1: Allowed Priority
Class 2: Allowed Project Debt Claims Non-Tax Claims
Class 2H: Allowed Heber Secured Claims
Class 7: Allowed Heber Unsecured Claims
Class 12: Allowed Equity Interests in Covanta
Huntington, Covanta Onondaga and DSS Environmental
3. Impaired Classes of Claims and Interests
The Classes listed below are Impaired by the Plans.
Reorganization Plan Liquidation Plan
- ------------------- ----------------
Class 3: Allowed Covanta Secured Claims Class 3: Allowed Liquidation Secured Claims
Class 4: Allowed Operating Company Unsecured Claims Class 7: Allowed Unsecured Liquidation Claims
Class 5: Allowed Intermediate Holding Company Class 9: Intercompany Claims
Unsecured Claims Class 11: Equity Interests in Liquidating Debtors
Class 5: Allowed Covanta Energy Unsecured Claims
Class 8: Allowed Convenience Class Claims
Class 9: Intercompany Claims
Class 10: Subordinated Claims
Class 11: Equity Interests in Subsidiary Debtors
Class 13: Old Covanta Stock Equity Interests
Class 14: Equity Interests in the Heber Debtors
4. Treatment of Classified Claims
Pursuant to section 1122 of the Bankruptcy Code, set forth below is a
designation of classes of Claims against and Equity Interests in each of the
Debtors. All Claims and Equity Interests, except Administrative Claims and
Priority Tax Claims, are placed in the Classes set forth below. In accordance
with section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims
and Priority Tax Claims of the kinds specified in sections 507(a)(1) and
507(a)(8) of the Bankruptcy Code have not been classified, and their treatment
is set forth in Article II of each Plan.
A Claim or Equity Interest is placed in a particular Class only to the
extent that the Claim or Equity Interest falls within the description of that
Class and is classified in other Classes to the extent that any portion of the
Claim or Equity Interest falls within the description of such other Classes. A
Claim or Equity Interest is also placed in a particular Class only for the
purpose of voting on, and receiving distributions pursuant to, the Plans only to
the extent that such Claim or Equity Interest is an Allowed Claim or an Allowed
Equity Interest in that Class and such Claim or Equity Interest has not been
paid, released or otherwise settled prior to the Effective Date.
(a) Unimpaired Classes of Claims under the Reorganization Plan and
Liquidation Plan (as applicable).
(i) Class 1 - Allowed Priority Non-Tax Claims. Each holder of an
Allowed Class 1 Claim shall receive, in full settlement, release and
discharge of its Class 1 Claim, either (i) Cash, on the Distribution
Date, in an amount equal to such Allowed Claim, or (ii) on such other
less favorable terms as the Reorganizing Debtors and Reorganized
Debtors and the holder of an Allowed Priority Non-Tax Claim agree.
(ii) Class 2 - Allowed Project Debt Claims. On the Effective
Date, the legal, equitable and contractual rights of the holders of
Allowed Class 2 Claims will be reinstated in full satisfaction,
release and discharge of their respective Class 2 Claims and will
remain unaltered under the Reorganization Plan, except as the
Reorganizing Debtors and the holders of Allowed Class 2 Claims may
otherwise agree or as such holders may otherwise consent.
Notwithstanding the foregoing, no contractual provisions or applicable
law that would entitle the holder of an Allowed Class 2 Claim to
demand or receive payment of such Claim prior to the stated maturity
of such Claim, terminate any contractual relationship or take such
other enforcement action (as may be applicable) from and after the
occurrence of a default that occurred prior to the Effective Date
shall be enforceable against the Reorganized Debtors.
(iii) Class 2H - Allowed Heber Secured Claims. On the Effective
Date, to the extent such claims are not paid in full on or prior to
the Effective Date, the legal, equitable and contractual rights of the
holders of Allowed Class 2H Claims will be reinstated in full
satisfaction, release and discharge of their respective Class 2H
Claims and will remain unaltered under the Reorganization Plan, except
as the Heber Debtors and the holders of Allowed Class 2H Claims may
otherwise agree or as such holders may otherwise consent; provided,
however, that that the assets of the Heber Debtors subject to Liens,
Claims and encumbrances of holders of Allowed Class 2H Claims may be
sold, subject to such Liens, Claims and encumbrances, as part of the
Geothermal Sale contemplated by this Reorganization Plan, and provided
further that to the extent an Allowed Class 2H Claim is paid in full
on or prior to the Effective Date, the Liens, Claims and encumbrances
securing such claim shall be released and discharged immediately upon
such payment in full. Notwithstanding the foregoing, no contractual
provisions or applicable law that would entitle the holder of an
Allowed Class 2 Claim to demand or receive payment of such Claim prior
to the stated maturity of such Claim, terminate any contractual
relationship or take such other enforcement action (as may be
applicable) from and after the occurrence of a default that occurred
prior to the Effective Date shall be enforceable against the
Reorganized Heber Debtors.
(iv) Class 7 - Allowed Heber Unsecured Claims. On the
Distribution Date, each holder of an Allowed Class 7 Claim shall
receive, in full satisfaction, release and discharge of its Class 7
Claim, a Cash payment equal to the full amount of its Allowed Class 7
Claim, on the Distribution Date.
(v) Class 12 - Allowed Equity Interests in Covanta Huntington,
Covanta Onondaga and DSS Environmental. As of the Effective Date,
holders of Equity Interests in Covanta Huntington, Covanta Onondaga
and DSS Environmental shall be reinstated, in full satisfaction,
release, and discharge of any Allowed Class 12 Equity Interests.
(b) Impaired Classes of Claims under the Reorganization Plan and
Liquidation Plan (as applicable).
(i) Class 3 - Allowed Reorganized Covanta Secured Claims.
(A) Reorganization Plan: Class 3 consists of all Allowed
Reorganized Covanta Secured Claims. Class 3 is divided into two
Subclasses for Distribution purposes: Subclass 3A consists of the
Allowed Secured Bank Claims and Subclass 3B consists of Allowed
Secured 9.25% Debenture Claims.
Allowed Class 3 Claims are all deemed secured by the same
Prepetition Collateral for the purpose of the Plans. Accordingly,
pursuant to the Reorganization Plan, an Initial Distribution of the
Secured Class 3 Total Distribution is made between Subclass 3A and
Subclass 3B, with each Subclass receiving in the aggregate its Pro
Rata Share based upon the Allowed Subclass 3A Claim Amount and the
Allowed Subclass 3B Claim Amount, respectively. The Secured Class 3
Total Distribution consists of the following types of consideration:
[(i) Distributable Cash, (ii) Excess Distributable Cash (if any),
(iii) the New High Yield Secured Notes, (iv) New Secured CPIH Notes,
(v) Reorganized CPIH Preferred Stock, (vi) New Lender Warrants, and
(vii) [Additional Class 3 Warrants.]
As explained above, the Initial Distribution between Subclass 3A
and Subclass 3B is made on a pro rata basis. However, the
Reorganization Plan provides that only those holders of Allowed Class
3 Claims that participate as New Facility Lenders will receive
Distributable Cash as part of their Class 3 Distribution. Accordingly,
Distributable Cash will be included in the Initial Distribution to
Subclass 3A or Subclass 3B only to the extent that the Allowed
Subclass 3A Claim Amount or Allowed Subclass 3B Claim Amount relates
to an Allowed Subclass 3A Claim or Subclass 3B Claim, as the case may
be, that is held by a New Facility Lender. Similarly, the
Reorganization Plan provides that only those holders of Allowed Class
3 Claims that are Additional New Lenders will receive New Lender
Warrants together with their New High Yield Secured Notes as part of
their Class 3 Distribution. Accordingly, New Lender Warrants will be
included in the Initial Distribution to Subclass 3A or Subclass 3B
only to the extent that the Allowed Subclass 3A Claim Amount or
Allowed Subclass 3B Claim Amount relates to an Allowed Subclass 3A
Claim or Subclass 3B Claim, as the case may be, that is held by one of
the Additional New Lenders.
After implementing the Initial Distribution, the Reorganization
Plan provides for Distribution among holders of Allowed Claims in
Subclass 3A and Subclass 3B as follows:
Distribution Among Holders of Allowed Subclass 3A Claims:
---------------------------------------------------------
First, the Priority Bank Lenders shall receive first, to the
extent available as part of the Subclass 3A Recovery, Excess
Distributable Cash in an amount equal to the amount of such
Allowed Priority Bank Claims and thereafter New High Yield
Secured Notes in a principal amount equal to the remaining amount
of such Allowed Priority Bank Claims;
Second, immediately after making the Distribution on account of
the Allowed Priority Bank Claims, in full settlement, release and
discharge of Non-Priority Subclass 3A Claims, the holders of
Allowed Non-Priority Subclass 3A Claims shall receive a Pro Rata
Subclass Share of the remaining Subclass 3A Recovery; where such
distribution shall consist of Distributable Cash, New High Yield
Secured Notes and New Lender Warrants, which types of
Distributions may be further allocated depending on whether the
holder of a Subclass 3A Claim is a New Facility Lender, one of
the Additional New Lenders or a Non-Participating Lender.
Distribution Among Holders of Allowed Subclass 3B Claims:
--------------------------------------------------------
First, each holder of an Allowed Subclass 3B Claim shall receive
its Pro Rata Subclass Share of Distributions of the Subclass 3B
Recovery; provided, however, that with respect to the Subclass 3B
Recovery, (i) the New Facility Lenders in Subclass 3B, if any,
shall receive their Secured Value Distribution first, to the
extent available, in the form of Distributable Cash and
thereafter in the form of New High Yield Secured Notes; and (ii)
the members of the Additional New Lenders in Subclass 3B shall
receive their Secured Value Distribution solely in the form of
New High Yield Secured Notes plus a Pro Rata Subclass Share of
the New Lender Warrants; and provided further that the
Non-Participating Lenders in Subclass 3B shall not receive any
Distributable Cash or any Distribution of New Lender Warrants.
Second, in the event that the parties to the 9.25% Adversary
Proceeding reach a settlement to their dispute, the Distributions
made to each holder of an Allowed Subclass 3B Claim shall be
subject to adjustment and modification in accordance with the
provisions of that settlement.
(B) Liquidation Plan:
1. Class 3A. Allowed Liquidation Secured Claims, consisting of
Secured Bank Claims and the 9.25% Debenture Claims:
Under the Liquidation Plan, each holder of an Allowed
Liquidation Secured Claim would be entitled, assuming its
security interest is valid and absent the Secured Creditor
Direction (further described below), to receive on any
Liquidation Distribution Date, such holder's Pro Rata Share
of any Net Liquidation Proceeds and Liquidation Assets of
the Liquidating Pledgor Debtors. On the Effective Date, each
holder of an Allowed Class 3A Liquidation Secured Claim
shall be deemed to have received, an account of its Class 3A
Allowed Liquidation Secured Claim, the distribution it
receives as a holder of a Class 3A or 3B Claim under the
Reorganization Plan, as applicable, in full satisfaction of
its Class 3A Claim, and the Liquidating Trustee and the
Liquidating Debtors will implement the Secured Creditor
Direction. Furthermore, to the extent that any Liquidating
Pledgor Debtors have any Residual Liquidation Assets, which
the Liquidating Trustee determines in its sole discretion
can profitably be sold or monetized, then the holders of
Class 3A Claims under the Liquidation Plan, shall be
entitled to their Pro Rata Share of the Net Liquidation
Proceeds on the succeeding Liquidation Distribution Date
resulting from such sale, after the payment of the
Liquidation Expenses attributable to such sale.
2. Class 3B. Class 3B consists of the Allowed Secured CSFB Claims
against Ogden FMCA:
On the Effective Date, or as soon thereafter as practicable,
Ogden FMCA shall cause to be transferred, pursuant to
Section 6.1(b) of the Liquidation Plan, to CSFB, in its
capacity as holder of the Allowed Secured CSFB Claim, the
Ogden FMCA Collateral.
(ii) Class 4 - Allowed Operating Company Unsecured Claims. On the
Distribution Date, each holder of an Allowed Class 4 Claim shall be entitled to
receive a Distribution of Reorganization Plan Unsecured Notes in the aggregate
principal amount equal to the amount of its Allowed Class 4 Claim. With respect
to Allowed Class 4 Claims for and to the extent which insurance is available,
such Class 4 Claims shall be paid in the ordinary course of the Reorganizing
Debtors business to the extent of such insurance, when any such Claim becomes an
Allowed Claim and such insurance proceeds become available; provided, however,
that to the extent insurance is not available or is insufficient, treatment of
such Allowed Class 4 Claims shall be as otherwise provided pursuant to the
Reorganization Plan. Furthermore, each holder of an Allowed Class 4 Claim shall
have the option to elect for treatment as holder of a Class 4 Claim, in which
case, at the option of the Reorganizing Debtors, each such holder of an Elective
Convenience Claim shall be entitled to receive either (A) payment in Cash, in an
amount equal to the lesser of $2,500 or 75% of such Allowed Class 4 Claim, or
(B) the Reorganization Plan Unsecured Notes that such holder would otherwise
have been entitled to receive for its Allowed Class 4 Claim pursuant to the
Reorganization Plan if such holder had not made such an election.
(iii) Class 5 -Allowed Covanta Energy Americas Unsecured Claims. On the
Distribution Date, each holder of an Allowed Class 5 Claim shall receive, in
full satisfaction, release and discharge of its Class 5 Claim, a Distribution of
Reorganization Plan Unsecured Notes in the aggregate principal amount equal to
the amount of its Allowed Class 5 Claim.
(iv) Class 6 - Allowed Covanta Unsecured Claims. On the Distribution
Date, each holder of an Allowed Class 6 Claim shall receive, in full
satisfaction, release and discharge of its Class 6 Claim, (1) Reorganization
Plan Warrants representing 7 1/2% of the equity of Reorganized Covanta, subject
to any agreed upon pro rata dilution imposed on all Reorganization Plan
Warrants, as required for ESOP purposes, (2) 5% of the first $80 million of net
cash proceeds when realized from the sale of the CPIH assets and which proceeds
are distributed to holders of Allowed Class 3 Claims , (3) 10% of Reorganized
CPIH Preferred Stock; provided, however, that such Preferred Stock shall only be
entitled to distributions to the extent of cash proceeds when realized from the
sale of the CPIH assets in excess of $90 million, (4) the waiver by the
Prepetition Lenders [and the holders of the 9.25% Debentures] of (i) any
Deficiency Claim on account of the Allowed Secured Bank Claim [and the Allowed
Secured Claim of the 9.25% Debentures] and (ii) the subordination provisions
contained in the Convertible Subordinated Bonds, and (5) all proceeds from any
cause of action or claim of the Reorganizing Debtors arising under sections 544,
545, 547, 548, 549 and 550 of the Bankruptcy Code (the "Avoidance Actions"), and
the right to pursue any Avoidance Actions on terms to be agreed upon with the
Reorganizing Debtors; provided that in no event shall such Avoidance Actions or
other actions include claims or causes of action against any of the Prepetition
Lenders, DIP Lenders or the holders of the 9.25% Debentures. In the event that
the parties to the 9.25% Adversary Proceeding reach a settlement to their
dispute, the Distributions made to each holder of an Allowed Class 6 Claim
(other than a Class 6 Claim consisting of a 9.25% Deficiency Claim or a
Prepetition Lender Deficiency Claim) shall be subject to adjustment and
modification in accordance with the provisions of that settlement. With respect
to Allowed Class 6 Claims for and to the extent which insurance is available,
such Class 6 Claims shall be paid in the ordinary course of the Reorganizing
Debtors business to the extent of such insurance, when any such Claim becomes an
Allowed Claim and such insurance proceeds become available; provided, however,
that to the extent insurance is not available or is insufficient, treatment of
such Allowed Class 6 Claims shall be as otherwise provided in the Reorganization
Plan.
The Committee and the Bondholders Committee have reached a tentative settlement
in principle of the 9.25% Debentures Adversary Proceeding. To achieve a
consensual settlement, final agreement and approval by the Bondholders Committee
remains subject to their approval of the treatment of the 9.25% Debentures
Claims under the Reorganization Plan.
[Furthermore, the subordination provisions contained in the Convertible
Subordinated Bonds shall be enforced against the holders of Convertible
Subordinated Bond Claims, such that all Distributions that the holders of
Convertible Subordinated Bond Claims would otherwise be entitled to receive
under the Reorganization Plan, shall instead be Distribute don a pro rata basis
the holders of Allowed Class 6 Claims that are entitled to the benefit of such
subordination provisions.]
The Plans and this Disclosure Statement may be modified after the date hereof in
order to conform them to the terms of this tentative settlement.
(iv) Class 7 - Allowed Unsecured Liquidation Claims. On the
Distribution Date, each holder of an Allowed Class 7 Claim shall receive, in
full satisfaction, release and discharge of its Class 7 Claim, a Cash payment
equal to the full amount of its Allowed Class 7 Claim, on the Distribution Date.
(v) Class 8 - Allowed Convenience Claims. On the Distribution Date,
each holder of an Allowed Class 8 Claim shall receive, in full satisfaction,
release and discharge of its Class 8 Claim, a paymentin Cash, in an amount equal
to seventy-five (75%) of the Allowed amount of such Class 8 Claim.
(vi) Class 9 - Intercompany Claims.
(A) Reorganization Plan: Under the Reorganization Plan, Class 9
consists of all Intercompany Claims and is subdivided into three
Subclasses for Distribution purposes: Subclass 9A consists of the
Liquidating Debtors Intercompany Claims; Subclass 9B consists of the
Reorganized Debtors Intercompany Claims; and Subclass 9C consists of
the Heber Debtors Intercompany Claims. On the Effective Date, all
Subclass 9A Claims shall be deemed cancelled or waived in exchange for
the Reorganizing Debtors' contribution of the Operating Reserve
Deficiency Amount, if any, to the Operating Reserve. On the Effective
Date, all Subclass 9B Claims shall be, in the sole discretion of the
applicable Reorganizing Debtor or Reorganized Debtor, either be: (a)
preserved and reinstated, (b) released waived and discharged, or (c)
contributed to the capital of the obligor corporation. On the
Effective Date, each Subclass 9C Claims shall be deemed released,
waived and discharged.
(B) Liquidation Plan: Under the Liquidation Plan, Class 9
consists of all Intercompany Claims. On the Effective Date, all
Intercompany Claims under the Liquidation Plan shall be cancelled,
annulled and extinguished.
(vii) Class 10 -Subordinated Claims. As of the Effective Date, holders
of Class 10 Claims shall not receive any Distributions or retain any property
under the Reorganization Plan in respect of Class 10 Claims, in full
satisfaction, release and discharge of such Claims. All instruments evidencing
Subordinated Claims shall be cancelled, annulled or extinguished.
(viii) Class 11 - Equity Interests in Subsidiary Debtors and
Liquidating Debtors. The holders of Equity Interests in each Subsidiary Debtor
and Liquidating Debtor shall not be entitled to receive any Distribution or
retain any property under the Plans, except that any such Equity Interest in a
Subsidiary Debtor shall continue to be held by the Reorganizing Debtors that
originally held such Equity Interest, which Equity Interest shall be evidenced
by existing capital stock, partnership and/or membership interests.
(ix) Class 13 - Old Covanta Stock Equity Interests. Holders of Allowed
Equity Interests in Old Covanta Stock shall not receive any Distribution or
retain any property under the Reorganization Plan in respect of Class 13 Equity
Interests. All Class 13 Equity Interests in Old Covanta Stock shall be
cancelled, annulled and extinguished, in full satisfaction, release and
discharge of any Allowed Class 13 Equity Interests.
(xi) Class 14 - Equity Interests in Heber Debtors. Class 14 consists of
all Equity Interests in the Heber Debtors. Class 14 is subdivided into two
Subclasses for Distribution purposes: Subclass 14A consists Equity Interests in
Covanta SIGC Energy I, Covanta SIGC Energy II, Heber Field Company and Heber
Geothermal Company; Subclass 14B consists of Equity Interests in Amor 14 and
Second Imperial Geothermal Company. Holders of Allowed Class 14A Equity
Interests shall not receive any Distribution or retain any property under the
Heber Reorganization Plan in respect of Class 12 Equity Interests. All Class 12
Equity Interests shall be cancelled, annulled and extinguished, in full
satisfaction, release and discharge of any Allowed Class 12 Equity Interests.
Holders of Allowed Class 14B Equity Interests shall not receive any Distribution
under the Heber Reorganization Plan, except that any such Equity Interests shall
continue to be held by the Heber Debtor or Reorganizing Debtor that originally
held such Equity Interests, which Equity Interests shall continue to be
evidenced by the existing capital stock, partnership and/or membership
interests.
C. Confirmability, Modification and Severability of the Plans
The confirmation requirements of section 1129 of the Bankruptcy Code
must be satisfied separately with respect to each Reorganizing Debtor and each
Liquidating Debtor.
Subject to the provisions of Section 5.5 of the Reorganization Plan and
Section 5.5 of the Liquidation Plan, the Reorganizing Debtors, Heber Debtors and
Liquidating Debtors reserve the right, in accordance with the Bankruptcy Code
and the Bankruptcy Rules, to amend or modify the Plans at any time prior to the
entry of the Confirmation Order. Additionally, the Reorganizing Debtors, Heber
Debtors and Liquidating Debtors reserve the right to alter, amend, modify,
revoke or withdraw the Plans as they apply to any particular Reorganizing Debtor
or Liquidating Debtor. After the entry of the Confirmation Order, the
Reorganizing Debtors or Liquidating Debtors may, upon order of the Court, amend
or modify this Reorganization Plan, in accordance with section 1127(b) of the
Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency
in the Plans in such manner as may be necessary to carry out the purpose and
intent of the Plans. A holder of an Allowed Claim or Allowed Equity Interest
that is deemed to have accepted the Plans shall be deemed to have accepted the
Plans as modified if the proposed modification does not materially and adversely
change the treatment of the Claim or Equity Interest of such holder.
The Debtors have reserved their rights in the Plans to redesignate
Debtors as Reorganizing Debtors, Heber Debtors or Liquidating Debtors at any
time prior to ten (10) days prior to the Confirmation Hearing. Holders of Claims
or Equity Interests who are entitled to vote on the Reorganization Plan or
Liquidation Plan and who are affected by any such redesignation shall have five
(5) days from the notice of such redesignation to vote to accept or reject the
Reorganization Plan or the Liquidation Plan, as the case may be. The Debtors
also have reserved the right to withdraw prior to the Confirmation Hearing one
or more Debtors from the Reorganization Plan or the Liquidation Plan, as the
case may be, and to thereafter file a plan solely with respect to such Debtor.
If, prior to the Confirmation Date, any term or provision of either of
the Plans is determined by the Court to be invalid, void or unenforceable, the
Court will have the power to alter and interpret such term or provision to make
it valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision will then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration or interpretation, the
remainder of the terms and provisions of the Plans will remain in full force and
effect and will in no way be affected, impaired or invalidated by such holding
alteration or interpretation. The Confirmation Order will constitute a judicial
interpretation that each term and provision of the Plans, as it may have been
altered or interpreted in accordance with the forgoing, is valid and enforceable
pursuant to its terms. Additionally, if the Court determines that either of the
Plans, as it applies to any particular Debtor, is not confirmable pursuant to
section 1129 of the Bankruptcy Code (and cannot be altered or interpreted in a
way that makes it confirmable), such determination shall not limit or affect (a)
the confirmability of the Plans as they apply to any other Debtor or (b) the
Debtors' ability to modify the Plans, as they apply to any particular Debtor, to
satisfy the confirmation requirements of section 1129 of the Bankruptcy Code.
D. Certain Considerations with Respect to Treatment of Class 3 Secured Claims
under the Reorganization Plan
The Prepetition Lenders and the 9.25% Debenture Holders both assert
their Claims are secured by the same Prepetition Collateral consisting of
substantially all of the assets of Covanta and all of its existing and future
domestic subsidiaries, to the extent permitted, and by a pledge of 100% of the
shares of substantially all of Covanta's existing and future domestic
subsidiaries, and 65% of the shares of substantially all of Covanta's foreign
subsidiaries. Accordingly, the Allowed Secured Claims of the Prepetition Lenders
and the 9.25% Debenture holders have been classified together as Secured Claims
in Class 3 pursuant to the Reorganization Plan.
While the Claims of the Prepetition Lenders and the 9.25% Debenture
Holders have been classified together because they share in the same Prepetition
Collateral, there are nonetheless some differences in their respective rights
and interests in these Chapter 11 Cases, as described further below.
Consequently, the Reorganization Plan establishes separate Subclasses for the
Prepetition Lenders and the 9.25% Debenture Holders, placing them in Subclass 3A
and 3B, respectively, in order to properly implement redistributions and third
party settlements that only relate to Claims within these separate Subclasses.
As a result, the Reorganization Plan provides for treatment of Allowed
Class 3 Claims on two levels - on the Class level and the Subclass level. In the
first instance, all holders of Allowed Class 3 Claims are treated equally as
members of the same Class, as a result of their Claims being secured by the same
Prepetition Collateral. In that regard, all holders of Allowed Secured Claims in
Class 3 will initially receive a Pro Rata Share of Distributions consisting of a
mix of Reorganization Plan Notes, Reorganization Plan Equity Securities and
Reorganization Plan Warrants, Distributable Cash and Excess Distributable Cash,
if available. The aggregate Distribution to Class 3 is initially divided between
Subclass 3A and Subclass 3B strictly on a pro-rata basis, based upon the
respective aggregate amount of the Allowed Secured Claims in each Subclass.
Then, as described further below, the Reorganization Plan implements
certain redistributions on the level of both Subclass 3A and Subclass 3B. As a
result, of these redistributions, certain members of Subclass 3A will receive
enhanced recoveries, with the result that the percentage recovery for the
members of Class 3, while based on an initial pro-rata Distribution, will
ultimately vary from Subclass 3A to Subclass 3B, as well as from one member of
Subclass 3A to another. Additionally, in the event that the parties to the 9.25%
Adversary Proceeding reach a settlement to their dispute, members of Subclass 3B
may waive their rights to receive a certain portion of their Distribution.
1. The Subclass 3A Distribution
Pursuant to the terms of an Intercreditor Agreement by and among the
Debtors and the Prepetition Lenders, certain of the Prepetition Lenders were
entitled to receive priority recoveries and ratable paydowns with respect to the
Priority Bank Claims.
In order to account for the priority rights arising under the
Intercreditor Agreement, the Reorganization Plan includes certain provisions
that relate solely to the Distribution among holders of Subclass 3A Claims.
Specifically, as a first step in making a Subclass 3A Distribution, the
Reorganization Plan provides that the holders of Allowed Priority Bank Claims
will receive first, to the extent available, Excess Distributable Cash, and
thereafter New High Yield Secured Notes in an amount equal to the Allowed
Priority Bank Claims in full settlement, release and discharge of such Claims.
After payment in full of these Priority Bank Claims, the Reorganization Plan
then provides that the holders of Allowed Non-Priority Subclass 3A Claims shall
receive a Distribution consisting of a Pro Rata Share of the remaining Subclass
3A Recovery.
The Subclass 3A Distribution will be made in full settlement, release
and discharge of all Claims of the Prepetition Lenders arising in connection
with the Prepetition Credit Agreement and the Intercreditor Agreement.
2. Voting Rights with Respect to Class 3 Distributions and the Settlement
Agreements
Since Class 3 Claims are Impaired under the Reorganization Plan, the
holders of Allowed Claims in Class 3 are entitled to vote to accept or reject
the Reorganization Plan. The members of Subclasses 3A and 3B shall vote together
as a single Class for purposes of accepting or rejecting the Secured Class 3
Total Distribution under the Reorganization Plan.
E. Implementation of the Reorganization Plan
1. Continued Corporate Existence
Each of the Reorganized Debtors and Reorganized Heber Debtors will
continue to exist after the Effective Date as a separate corporate entity, with
all the powers of a corporation under applicable law in the jurisdiction in
which each applicable Reorganized Debtor or Reorganized Heber Debtor is
incorporated and pursuant to the respective certificate of incorporation and
bylaws in effect prior to the Effective Date, except to the extent such
certificate of incorporation and bylaws are amended pursuant to the
Reorganization Plan.
2. Exit Financing
(a) Domestic Facilities
Upon emergence from the Chapter 11 Cases, the Reorganizing Debtors,
other than those identified as CPIH Borrowers (defined below) and those
Reorganizing Debtors that are subject to existing contractual restrictions
prohibiting such a transition (the "Domestic Borrowers") expect to enter into a
new credit facility with certain of the Prepetition Lenders, Additional New
Lenders and potentially third party banks and financial institutions acceptable
to the Agents of the bank group, of up to $127 million, which will consist of
(i) a revolving credit line of $40 million consisting of commitments solely for
cash borrowings (the "New Revolver Facility") and, (ii) a revolving credit line
of $87 million, consisting of commitments solely for the issuance of letters of
credit to support obligations to be identified, including commitments for the
continuation of, or the issuance of replacement letters of credit to replace,
extend or continue, all outstanding Tranche A letters of credit under the DIP
Financing Facility (the "New L/C Facility"). Additionally, the Domestic
Borrowers expect to enter into a revolving credit line of approximately $176.0
million with their Prepetition Lenders, consisting of commitments solely for the
continuation of, or the issuance of replacement letters of credit to replace,
extend or continue, outstanding Tranche B letters of credit under the DIP
Financing Facility (the "Existing L/C Facility") (together with the New Revolver
Facility and the New L/C Facility, the "Domestic Facilities"). The Domestic
Facilities shall be guaranteed by the CPIH Borrowers on a joint and several
basis (the "CPIH Borrower Guaranty").
The New Revolver Facility will be used to finance the Domestic
Borrowers' working capital needs and other general corporate purposes. The New
L/C Facility will be used for the purposes described above, and the Existing L/C
Facility will be issued solely to replace, extend or continue existing letters
of credit.
The New Revolver Facility, the New L/C Facility and the Domestic
Borrower Guaranty (as defined herein) will be secured by a first priority
perfected lien on all existing and future personal, mixed and real property of
the Domestic Borrowers, subject to existing contractual restrictions, valid,
enforceable and perfected third party liens on project assets and certain other
permitted liens. They will constitute senior obligations of the Domestic
Borrowers and rank pari passu with each other and the Domestic Borrower Guaranty
(described below). The Existing L/C Facility will be secured by a lien on the
foregoing collateral junior and subordinate only to the liens in favor of the
New Revolver Facility, New L/C Facility and Domestic Borrower Guaranty.
(b) CPIH Facilities
Upon emerging from bankruptcy, Covanta Power International Holdings
Inc. ("CPIH") and each of its subsidiaries (including certain domestic entities
holding the equity interests in Covanta's foreign subsidiaries) holding the
assets and operations of the international independent power project business
(the "CPIH Borrowers") expect to enter into a new credit facility with certain
members of the Company's prepetition bank group and the Additional New Lenders,
of up to $90 million, which will consist of (i) a revolving credit line of up to
$10 million, consisting solely of cash borrowings (the "CPIH Revolver
Facility"), and (ii) funded debt of $80 million representing a like amount of
prepetition funded secured loans (the "CPIH Term Loan Facility") (together with
the CPIH Revolver Facility, the "CPIH Facilities"). The CPIH Revolver Facility
will be guaranteed by the Domestic Borrowers on a joint and several basis (the
"Domestic Borrower Guaranty").
The CPIH Revolver Facility will be used to finance the CPIH Borrowers'
working capital needs and other general corporate purposes. The CPIH Term Loan
Facility will be used to replace pre-existing secured debt of Covanta.
The CPIH Revolver Facility and the CPIH Borrower Guaranty will be
secured by first priority perfected liens on all existing and future personal,
mixed and real property of the CPIH Borrowers, subject to existing contractual
restrictions, valid, enforceable and perfected third party liens on the project
assets and certain other permitted liens. The obligations under the CPIH
Revolver Facility and the CPIH Borrower Guaranty will constitute senior secured
obligations of the CPIH Borrowers and will rank pari passu with each other. The
CPIH Term Loan Facility will have a lien on the foregoing collateral junior and
subordinate only to the liens in favor of the CPIH Revolver Facility and the
CPIH Borrower Guaranty.
(c) Documentation; Court approval
Documents evidencing the Domestic Facilities and the CPIH Facilities,
will be filed by the Debtors with the Court as part of the Plan Supplement no
later than five (5) days prior to the last day for voting with respect to the
Reorganization Plan. In the Confirmation Order the Court will approve the
Domestic Facilities and the CPIH Facilities in substantially the same form filed
with the Court and authorize the Reorganizing Debtors to execute the same
together with such other documents as the Domestic Facilities and the CPIH
Facilities Lenders may reasonably require in order to effectuate the treatment
afforded to such parties under the Domestic Facilities and the CPIH Facilities.
3. Reorganization Plan Notes and Reorganization Plan Equity Securities
and Warrants
Pursuant to the Reorganization Plan, the Reorganizing Debtors will
issue Reorganization Plan Notes, Reorganization Plan Equity Securities and
Reorganization Plan Warrants for Distribution to holders of Allowed Claims as
described in Section VII.E.3. The material terms of the Reorganization Plan
Notes, Reorganization Plan Equity Securities and Reorganization Plan Warrants
are as follows:
(a) Securities to be issued to holders of Allowed Claims by Reorganized
Covanta
New High Yield Secured Notes: New High Yield Secured Notes will be
issued initially in an aggregate principal amount of $[200 million accreting to
an aggregate principal amount of $225 million upon maturity seven (7) years
after the Effective Date]. A semi-annual cash coupon of $9.25 million will be
payable on the outstanding New High Yield Secured Notes. The New High Yield
Secured Notes will be secured by a third priority lien on the Post-Confirmation
Collateral.
Reorganization Plan Unsecured Notes: Reorganization Plan Unsecured
Notes will be issued in a principal amount equal to the aggregate amount of
Allowed Class 4 Claims and Allowed Class 5 Claims with a maturity date eight (8)
years after the Effective Date. Interest will be payable semi-annually at an
interest rate of 7.5%. Annual amortization payments of approximately $4.8
million (paid at end of year) will be paid beginning in year 2, with the balance
due on maturity.
Tax Notes: Tax Notes will be issued in an aggregate principal amount
equal to the aggregate amount of Allowed Priority Tax Claims with a maturity six
(6) years after the Effective Date. Interest will be payable semi-annually at an
interest rate of no more than [ ].
Reorganization Plan Warrants: The Reorganization Plan Warrants will be
issued by Reorganized Covanta on the Effective Date in accordance with the terms
of the Reorganization Plan, which shall entitle a holder to receive upon
maturity ten (10) years following the Effective Date an amount in cash, notes or
stock equal to the excess in the value of a single share of Reorganized Covanta
Common Stock as of such maturity date over the fair market value of a single
share of Reorganized Covanta Common Stock on the Effective Date, subject to
certain restrictions on transfer and other terms and conditions of the
Reorganization Plan Warrant Agreement contained in the Plan Supplement.
(b) Securities to be issued to holders of Allowed Claims by Reorganized
CPIH
New CPIH Funded Debt: New CPIH Funded Debt will be issued in an
aggregate principal amount of $80 million with a maturity date five (5) years
after the Effective Date. The New CPIH Funded Debt will be obligations of CPIH,
secured by a second priority security interest in substantially all the assets
of CPIH and its domestic subsidiaries, subject to contractual and statutory
limitations, but will be non-recourse to the Reorganized Debtors other than CPIH
and its subsidiaries.
Reorganized CPIH Preferred Stock: Reorganized CPIH Preferred Stock will
be issued with an aggregate liquidation preference of [$30 million]. The
Reorganized CPIH Preferred Stock will grant voting rights, conversion rights and
other features on terms and conditions as set forth in the form of CPIH
Preferred Stock certificate contained in the Plan Supplement.
4. Corporate Restructuring
The Reorganizing Debtors will undertake a corporate restructuring
pursuant to which all Reorganizing Debtors that own or operate businesses
outside of the United States shall become direct or indirect subsidiaries of
CPIH.
5. Revesting of Corporate Assets
The Reorganized Debtors and Reorganized Heber Debtors shall be revested
with the assets of their bankruptcy estates (except for leases and executing
contracts that have not yet been assumed or rejected, which shall only be deemed
vested if and when they are assumed) on the Effective Date. Assets revested in
the Reorganizing Debtors and Heber Debtors shall include all ownership interest
of any Reorganizing Debtor in any Subsidiary Debtor, by virtue of the deemed
consolidation of the Reorganizing Debtors and Heber Debtors for purposes of the
Reorganization Plan, subject to the terms of the corporate restructuring
described below.
6. Heber Debtors Coversion Into Limited Liability Companies
On the second business day prior to the Effective Date, the Heber
Debtors that are stock corporations shall be authorized to convert into limited
liability companies.
7. Directors and Officers of Group
(a) On the Effective Date, the operation of the Reorganized Debtors
shall become the general responsibility of their respective boards of directors
who shall, thereafter, have the responsibility for the overall management,
control and operation of the Reorganized Debtors.
(b) The board of directors of Reorganized Covanta shall consist
initially of those persons identified in a filing submitted to the Court by the
Reorganizing Debtors prior to the Confirmation Hearing. [Board members will
serve an initial term for a period from the Effective Date through the date of
the annual meeting that first occurs after a date which is one (1) year after
the Effective Date and for one (1) year terms thereafter (with subsequent terms
subject to election by [shareholder vote/ESOP Committee/ESOP trustee]) with each
such term expiring at the conclusion of the next annual meeting of
stockholders.]
(c) The officers of the Reorganized Debtors and the directors of the
Reorganized Debtors other than Reorganized Covanta that are in office
immediately before the Effective Date shall continue to serve immediately after
the Effective Date in their respective capacities. Such persons shall be deemed
elected pursuant to the Confirmation Order, and such elections shall be
effective on and after the Effective Date, without any requirement of further
action by stockholders or other owners of the Reorganized Debtors.
8. Certificate of Incorporation and Bylaws
The certificates of incorporation and bylaws of the Reorganized Debtors
and Reorganized Heber Debtors will be amended as may be required in order that
they are consistent with the provisions of the Reorganization Plan and the
Bankruptcy Code. On the Effective Date, the Reorganized Debtors and Reorganized
Heber Debtors are authorized to, and shall, without the need for any further
corporate action, adopt and, as applicable, file their respective amended
organizational documents with the applicable Secretary of State. The amended
organizational documents shall prohibit the issuance of nonvoting equity
securities, as required by sections 1123(a) and (b) of the Bankruptcy Code,
subject to further amendment as permitted by applicable law. Any modification to
the certificate of incorporation of any of the Reorganized Debtors and
Reorganized Heber Debtors as originally filed may be filed after the
Confirmation Date and may become effective on or prior to the Effective Date.
9. Employment, Retirement and Other Agreements
Employment Agreements
Pursuant to applicable provisions of the Bankruptcy Code, the Plans
currently contemplate the rejection of all existing prepetition employment
agreements.
Retirement Plans
Following the Effective Date, the Reorganized Debtors intend to
continue the Pension Plan and meet the minimum funding standards under ERISA and
the IRC, administer and operate the Pension Plan in accordance with its terms
and the applicable provisions of ERISA and the IRC and pay all insurance
premiums with respect to the PBGC. In addition, the Reorganized Debtors
currently intend to continue the SEIU Pension Plan after the Effective Date. For
a more in-depth discussion of the Pension Plan and SEIU Pension Plan please
refer to Section III.A.
Following the Effective Date, the Reorganized Debtors intend to
continue the (i) Savings Plan, (ii) Security Fund, (iii) Hennepin Plan, (iv)
Resource Pension Plan, (v) Supplementary Plan, (vi) Resource Plan and (vii)
Energy Select Plan. In addition, the Reorganized Debtors intend to merge
outstanding participant account balances in the Resource 401(k) Plan into the
Savings Plan and expect such merger to have become effective prior to the
consummation of the Reorganization Plan. The Reorganized Debtors are currently
in the process of terminating the (i) Metropolitan 401(k) Plan, (ii) Energy
Services 401(k) Plan and (iii) Select Plan since no obligations or liabilities
currently exist thereunder and expect such terminations to have been completed
prior to the consummation of the Reorganization Plan. For a more in-depth
discussion of each of these plans please refer to Section III.A.
Retiree Medical Programs
Following the Effective Date, the Reorganized Debtors, with certain
adjustments and exceptions as discussed below, intend to continue the Retiree
Medical Programs for those participants currently eligible to receive
post-retirement benefits. With respect to the medical coverage provided to
participants in the Core Retiree Program, the Debtors are currently in the
process of adjusting the levels of such coverage so that post-retirement medical
benefits provided thereunder are equivalent in scope to the medical benefits
currently afforded active senior executives of the Company. The Company is in
the process of providing each of the affected retirees with written notice of
such adjustment. The rate of contribution for such retirees will generally
remain at the same cost. With respect to certain of these retirees, however, the
Company is in the process of advising such retirees that the retiree medical
coverage they currently receive is not covered by section 1114 of the Bankruptcy
Code and, as a result, such retirees will be solely responsible for the cost
associated with the continuation of such coverage.
The Reorganized Debtors intend to continue to maintain the dental
benefits provided for under the Core Retiree Program, as applicable and the life
insurance benefits provided to core retirees, as applicable, at the levels and
for the duration of the periods that the Reorganized Debtors and Reorganized
Heber Debtors are otherwise obligated to provide such benefits.
Following the Effective Date, the Reorganized Debtors will continue to
maintain the benefits provided under the Non-Core Retiree Program and the life
insurance benefits provided to applicable retirees at the levels and for the
duration of the periods that the Reorganized Debtors are otherwise obligated to
provide such benefits.
Notwithstanding anything herein to the contrary, the Reorganized
Debtors will continue to maintain all of their existing rights with respect to
the Retiree Medical Programs, including the right to amend, modify or terminate
the Retiree Medical Programs.
Other Agreements
Other than as set forth herein or as otherwise prohibited by applicable
law, to the extent the Reorganized Debtors have in place as of the Effective
Date any severance, change in control, retirement, indemnification and other
agreements (excluding any existing employment agreements) with their active
directors, officers and employees who will continue in such capacities or a
similar capacity following the Effective Date, or retirement income plans,
welfare benefit plans and other plans for such persons, such agreements,
programs and plans will remain in place after the Effective Date and the
Reorganized Debtors will continue to honor such agreements, programs and plans.
Such agreements, programs and plans also may include equity, bonus and other
incentive plans in which officers and other employees of the Reorganized Debtors
may be eligible to participate, subject in each case to the Reorganized Debtors
rights to amend, terminate or modify such agreements, programs and plans at any
time as permitted by the terms and provisions thereof or applicable
non-bankruptcy law.
10. Management Agreements
On the Effective Date and pursuant to the Reorganization Plan,
management of the Reorganized Debtors shall be entitled to receive a cash
incentive bonus in an amount equal to 2 1/2% of the amount (if any) by which the
difference between (x) Free Cash and (y) Exit Cost is greater than Distributable
Cash.
For these purposes, "Free Cash" means the total amount of domestic cash
held by the Reorganized Debtors on the Effective Date immediately prior to
giving effect to any distributions or transactions contemplated by the
Reorganization Plan. However, Free Cash does not include any cash that the
Reorganizing Debtors and Heber Debtors are restricted from using pursuant to the
terms of any agreements to which they are party, including any project financing
or operating agreements nor does it include post-confirmation working capital in
the amount of $10 million. For these purposes, "Distributable Cash" means an
amount of cash equal to the lesser of (i) $60 million and (ii) the amount of (x)
Free Cash minus (y) Exit Costs.
The terms of certain post-Effective Date management incentive,
employment and non-competition agreements are currently under discussion by the
Company and its various creditor constituencies.
11. Corporate Action
Each of the matters provided for under the Reorganization Plan
involving the corporate structure of the Reorganizing Debtors and Heber Debtors
or corporate action to be taken by or required of the Reorganizing Debtors and
Heber Debtors will, as of the Effective Date, be deemed to have occurred and be
effective as provided herein, and will be authorized and approved and, to the
extent taken prior to the Effective Date, ratified in all respects without any
requirement of further action by stockholders, creditors, or directors of the
Reorganizing Debtors and Heber Debtors.
12. Effective Date Payments and Post-Effective Date Financing
All Cash necessary for the Reorganized Debtors to make payments
pursuant to the Reorganization Plan will be obtained from the Reorganized
Debtors' cash balances and operations and borrowings under the Exit Financing
Agreements.
On the Effective Date, the Reorganized Debtors are authorized to enter
into and shall enter into the Exit Financing Agreements and effect all
transactions and take any actions provided for in or contemplated by the Exit
Financing Agreement, including without limitation, the payments of all fees and
other amounts contemplated by the Exit Financing Agreements.
13. New Common Stock, Plan Notes and Collateral Documents; Further
Transactions
On the Effective Date, in accordance with the terms and conditions of
the Reorganization Plan and without the need for any further corporate action,
Reorganized Covanta is authorized to issue the (i) the New High Yield Secured
Notes, (ii) the Reorganization Plan Unsecured Note, (iii) the Reorganized
Covanta Common Stock and (iv) the Reorganization Plan Warrants; and Reorganized
CPIH is authorized to issue the (i) New CPIH Funded Debt and (ii) Reorganized
CPIH Preferred Stock. On the Effective Date, in accordance with the provisions
of the Reorganization Plan, the Reorganized Debtors shall execute and deliver
the new collateral documents providing a security interest with respect to the
Post-Confirmation Collateral securing the obligations under the Exit Financing
Agreements.
14. Establishment of ESOP and Election of S Corp Status
In order to emerge from the Chapter 11 Cases as a viable going concern
entity while at the same time awarding the employees of the Reorganized Debtors
with an equity interest in Reorganized Covanta, on or before the Effective Date
Reorganized Covanta intends to (i) establish and implement an ESOP to which it
will contribute all of the outstanding shares of Reorganized Covanta stock, and
(ii) take all steps necessary to elect S corporation status effective as of
January 1, 2004. In addition to the potential economic benefit offered to
employees through participation in the ESOP structure, the establishment and
implementation of an ESOP, in conjunction with Reorganized Covanta's conversion
to an S corporation, will maximize recovery for other parties in interest to the
Debtors' Chapter 11 Cases by minimizing the Reorganized Debtors' current tax
liabilities in a manner that will result in significantly increased cash flow
and permit the Reorganized Debtors exitto pay down a larger portion of their
Allowable Claims, thereby allowing the Debtors to emerge from bankruptcy and
benefit the employees participating in the ESOP.
In brief, an ESOP is a tax-qualified employee benefit plan (for
purposes of Section 401(a) of the IRC), similar to other types of employee
defined contribution plans (such as a profit-sharing or "401(k)" plan), designed
primarily to invest in the stock of the employer. The Reorganization Plan
contemplates a contributory ESOP to which Reorganized Covanta would contribute
100% of the outstanding shares of its stock upon the confirmation of the
Reorganization Plan. In order to be effective, the independent fiduciary, U.S.
Trust, must decide, after consultation with its financial advisor, D&P, whether
the acceptance of such a contribution would be in the best interests of the ESOP
and its beneficiaries, i.e., the employees of the Reorganized Debtors who are
eligible to participate therein. The ESOP will serve as an additional employee
benefit and will not reduce any benefits participants currently receive under
other pre-existing employee benefit plans, including the Savings Plan or other
retirement plans that will be maintained by the Reorganized Debtors, except to
the extent contribution limitations under the IRC apply.
Generally, all domestic salaried and hourly full-time employees of the
Reorganized Debtors who have attained the age of twenty-one (21) and who have
performed at least one (1) year of continuous service for the Reorganized
Debtors will be eligible to participate in the ESOP, unless such employee is
represented by a collective bargaining unit. The ESOP will be administered by
the ESOP Committee which shall have the authority to make all decisions, not
otherwise required by applicable law to be made by the independent fiduciary,
concerning the administration and interpretation of the ESOP.
Following the initial contribution to the ESOP of 100% of the
outstanding stock of Reorganized Covanta, Reorganized Covanta intends to make
recurrent annual contributions of stock to the ESOP equal in amount to [20]% of
the then outstanding stock of Reorganized Covanta. Both the initial and annual
contributions made to the ESOP on behalf of a participant, when combined with
any other contributions made in the same plan year on behalf of such participant
(either by the participant or any of the Reorganized Debtors) to any other
tax-qualified defined contribution plan maintained or sponsored by the
Reorganized Debtors must not exceed, in the aggregate, the lesser of $40,000 or
100% of such participant's annual compensation. In addition, if the initial
contribution or any annual contribution were to exceed an amount equal to 25% of
the aggregate annual compensation of all covered participants, Reorganized
Covanta would be required to pay a 10% excise tax on the amount of such excess.
All contributions will be contributed to participants' accounts in proportion to
such participants' annual eligible compensation (as defined in the governing
ESOP plan document), taking into account a maximum annual per participant
compensation of $200,000 (subject to annual adjustment by IRS for cost of living
increases).
Participants will fully vest in their respective accounts upon the
earlier of (i) completion of five (5) years of participation in the ESOP, (ii)
death or (iii) disability. In the event a participant's employment with the
Reorganized Debtors is terminated for any reason other than death or disability
prior to vesting, the shares held in such participant's account will be
immediately forfeited and used to offset future annual recurrent contributions.
Generally, any participant who has attained age fifty-five (55) and
completed at least ten (10) years of participation in the ESOP shall be
permitted, for the six (6) year period thereafter, to direct the ESOP to
reinvest at least 25% of such participant's account balance among at least three
(3) diverse investment alternatives. It is currently contemplated that the ESOP
will raise cash, to the extent necessary to meet such diversification
obligations and for the period the stock of Reorganized Covanta is not publicly
traded, by either selling the shares held in the participant's account back to
Reorganized Covanta, an affiliate of Reorganized Covanta or a third party.
Valuations for such a sale, as well as annual valuations to be performed for
annual reports to participants, the Department of Labor and the IRS, shall be
based upon an independent third-party's appraisal during the period Reorganized
Covanta stock is not publicly traded.
Distribution of an account balance to a participant will be made, in
the event of (i) a termination of such participant's employment following such
participant's having attained normal retirement age (with at least five (5)
years of service), at the end of the calendar year beginning after such
termination of employment and (ii) any other termination of such participant's
employment, at the end of the calendar year following the fifth calendar year
beginning after such termination of employment. This effectively means that
participant distributions will not be made until the completion of the first ten
(10) years of the ESOP's existence. In addition, because of certain limitations
imposed by the IRC upon the number of permissible Subchapter S corporation
shareholders, all participant distributions will be made in cash, for an amount
equal to the fair market value of a participant's account as of the date of such
distribution, rather than shares of Reorganized Covanta's stock. In order to
raise cash to honor such distribution obligations, it is currently contemplated
that the ESOP will, for the period Reorganized Covanta stock is not publicly
traded, sell the shares of Reorganized Covanta stock held in a participant's
account either back to Reorganized Covanta, an affiliate of Reorganized Covanta
or a third party. Sales to affiliates and third parties must recognize and
adhere to the shareholder limits referenced above, including limitations on the
number and nature of permissible shareholders, as well as recognize the tax
effect any such sale will have upon the purchaser.
In the event any dividends are to be paid on shares of Reorganized
Covanta stock held in a participant's account, such dividends shall be used to
acquire additional shares of Reorganized Covanta stock, which shall then be
allocated to such participant's account. Such additional shares shall be first
acquired from departing participants entitled to account distributions.
With respect to voting rights, participants shall be entitled to vote
shares allocated to their accounts with respect to any corporate matter
involving the voting of such shares with respect to the approval or disapproval
of any corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all the assets of a trade or
business or such similar transaction. The independent fiduciary shall vote the
shares held by the ESOP on all other matters, including election of members of
Reorganized Covanta's Board of Directors.
Reorganized Covanta shall have the right to amend, modify or terminate
the ESOP at any time, subject to the requirement that no participant's accrued
benefit be reduced.
The ESOP has been structured with the intent that it be qualified under
Section 401 of the IRC. Accordingly, Covanta intends to request a determination
letter from the Internal Revenue Service with respect to the ESOP's qualified
status. Although Covanta expects to receive an affirmative determination letter
from the IRS and intends to make such modifications as the IRS may require in
connection therewith, there can be no assurance that a favorable determination
letter will be received.
15. Preservation of Causes of Action
On and after the Effective Date, the Reorganized Debtors and
Reorganized Heber Debtors will retain and have the exclusive right to enforce
any and all present or future rights, claims or causes of action against any
Person and rights of the Reorganized Debtors and Reorganized Heber Debtors that
arose before or after the Petition Date, including, but not limited to, (a)
rights, claims, causes of action, avoiding powers, suits and proceedings arising
under sections 544, 545, 548, 549, 550 and 553 of the Bankruptcy Code and (b)
those rights, claims and causes of action transferred to the Reorganized Debtors
and Reorganized Heber Debtors pursuant to the Secured Creditor Direction and the
DIP Lender Direction. The Reorganized Debtors and Reorganized Heber Debtors may
pursue, abandon, settle or release any or all such rights of action, as they
deem appropriate, without the need to obtain approval or any other or further
relief from the Court. The Reorganized Debtors and Reorganized Heber Debtors
may, in their discretion, offset any such claim held against a Person against
any payment due such Person under the Reorganization Plan; provided, however,
that any claims of any of the Reorganized Debtors and Reorganized Heber Debtors
arising before the Petition Date shall first be offset against Claims against
any of the Reorganized Debtors and Reorganized Heber Debtors arising before the
Petition Date.
16. Cancellation of Existing Equity Securities and Agreements
Except for purposes of evidencing a right to distributions under the
Reorganization Plan or otherwise provided under the Reorganization Plan, on the
Effective Date, all the agreements and other documents evidencing (i) any Claims
or rights of any holder of a Claim against the applicable Reorganizing Debtor,
including all indentures and notes evidencing such Claims and (ii) any options
or warrants to purchase Equity Interests, obligating Reorganizing Covanta to
issue, transfer or sell Equity Interests or any other capital stock of
Reorganizing Covanta, shall be cancelled; provided, however, that
notwithstanding the foregoing, the Reorganized Debtors and Reorganized Heber
Debtors shall remain obligated with respect to liens, security interests or
encumbrances in property of the Reorganized Debtors and Reorganized Heber
Debtors that have been granted pursuant to any executory contracts that have
been assumed in accordance with Article IX of the Reorganization Plan or
pursuant to the Exit Financing Agreements.
17. Exclusivity Period
The Debtors will retain the exclusive right to amend or modify the
Plan, and to solicit acceptances of any amendments to or modifications of the
Plan, through and until the Effective Date.
18. Deemed Consolidation for Procedural, Administrative and Voting Purposes
The Reorganization Plan does not provide for the substantive
consolidation of the Reorganizing Debtors' or Heber Debtors' Estates. Subject to
the occurrence of the Effective Date, the Reorganizing Debtors and Heber Debtors
shall be deemed consolidated for the following purposes under the Reorganization
Plan: (i) as provided with respect to Class 11 Claims, no Distributions shall be
made under the Reorganization Plan on account of Equity Interests in Subsidiary
Debtors; and (ii) in some instances, Claims against more than one Reorganizing
Debtor have been grouped together into a single Class of Claims for voting and
distribution purposes. Such deemed consolidation is for purposes of
Reorganization Plan administration and procedure and will not affect: (i) the
legal and organizational structure of each Reorganized Debtors and Reorganized
Heber Debtors; (ii) the ownership interest of any Reorganizing Debtor in any
Subsidiary Debtor and (iii) pre and post-Petition Date guarantees, Liens and
security interests that are required to be maintained (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 or (b) pursuant to the
Reorganization Plan or the instruments and documents issued in connection with
the Reorganization Plan (including without limitation, the Exit Financing
Agreements).
F. Implementation of the Liquidation Plan
1. The Secured Creditor Direction and the DIP Lender Direction
Based upon the Debtors' extensive negotiations with the Secured Bank
Lenders and the 9.25% Debenture Holders and the compromises reached by the
Debtors generally in their Chapter 11 Cases, further described in Section VII.D.
above, the Debtors have proposed that the Secured Bank Lenders and the 9.25%
Debenture Holders contribute their Distributions, to which they would otherwise
be entitled under the Liquidation Plan (consisting of (i) the proceeds of
certain postpetition asset sales and (ii) certain other Claims of the
Liquidating Debtors upon which the Secured Bank Lenders and 9.25% Debenture
Holders have a first priority secured lien) to Reorganized Covanta. The
transfers described above are referred to in the Liquidation Plan as the Secured
Creditor Direction and the DIP Lender Direction. Under the Secured Creditor
Direction and the DIP Lender Direction, the Secured Bank Lenders and the 9.25%
Debenture Holders are deemed to direct that the Distributions (consisting of the
collateral referred to above) to which they are otherwise entitled to under the
Liquidation Plan be transferred to Reorganized Covanta. Furthermore, as the
Secured Bank Lenders and 9.25% Debenture Holders hold Claims under both Plans,
the Secured Creditor Direction and the DIP Lender Direction is intended to
enhance the value of Reorganized Covanta and thus, derivatively inure to the
benefit of the such creditors via their Distributions under the Reorganization
Plan. It is estimated that (i) the amount of Cash proceeds to be transferred
pursuant to the Secured Creditor Direction and the DIP Lender Direction is
approximately $10,639,000 and (ii) the approximate value of all other
Liquidation Assets transferred pursuant to the Secured Creditor Direction and
the DIP Lender Direction is $1,999,318. The Debtors further propose that up to
$500,000 of the Cash subject to the transfers described above be transferred to
the Operating Reserve, which shall be used by the Liquidating Trustee to fund
the implementation of the Liquidation Plan. The Liquidating Debtors believe that
after the transfers contemplated by the Secured Creditor Direction and the DIP
Lender Direction, there will be de minimis Liquidation Assets, if any, remaining
with the Liquidating Debtors and thereby transferred to the Liquidating Trust
pursuant to the Liquidation Plan.
2. Funding of the Implementation of the Liquidation Plan
As described in Section VIII.F.1 above, the Debtors currently
contemplate that on the Effective Date, the Liquidating Debtors and the
Liquidating Trustee will implement the Secured Creditor Direction and the DIP
Lender Direction. The Secured Creditor Direction and the DIP Lender Direction
will operate to fund the implementation of the Liquidation Plan by requiring
that $500,000 of the Liquidation Proceeds that would otherwise be transferred to
Reorganized Covanta will remain in the accounts of the Liquidating Debtors and
shall be transferred by the Liquidating Trustee to the Operating Reserve,
provided, however, to the extent that the sum of all the Cash in the accounts of
the Liquidating Debtors is less than $500,000 on the Effective Date, then (i)
the Liquidating Trustee shall transfer the sum of all such Cash in the
Liquidating Debtors' accounts to the Operating Reserve and (ii) Reorganized
Covanta shall transfer the Operating Reserve Deficiency Amount to the Operating
Reserve. The Liquidating Debtors believe that $500,000 is sufficient to fund the
implementation of the Liquidation Plan, in accordance with Section 9.14(b) of
the Liquidation Plan.
3. Transfer of Liquidation Assets
On the Effective Date, each Liquidating Debtor shall irrevocably
transfer and assign its Residual Liquidation Assets, if any, or cause such
Residual Liquidation Assets to be transferred and assigned to the Liquidating
Trust, to hold in trust for the benefit of all holders of Allowed Claims with
respect to each such Liquidating Debtor pursuant to the terms hereof and of the
Liquidating Trust Agreement, provided, however, that prior to the transfers
contemplated hereby, the Liquidating Trustee and Liquidating Debtors, as
applicable, shall make the transfers contemplated by the Secured Creditor
Distribution and the DIP Lender Direction to Reorganized Covanta and to the
Operating Reserve. In accordance with section 1141 of the Bankruptcy Code and
except as otherwise provided by this Liquidation Plan or the Liquidating Trust
Agreement, upon the Effective Date, title to the Residual Liquidation Assets
shall pass to the Liquidating Trust free and clear of all Claims and Equity
Interests. The Liquidating Trustee shall pay, or otherwise make Distributions on
account of, all Claims against the Liquidating Debtors whose Residual
Liquidation Assets were contributed to such Liquidating Trust strictly in
accordance with the Liquidation Plan. The Liquidation Debtors do not believe
that the Residual Liquidation Assets, if any, will provide value for a
distribution to creditors.
4. Distribution of the Bank Agreement Ogden FMCA Collateral.
The Liquidation Plan provides that on the Effective Date, or as soon
thereafter as practicable, Ogden FMCA shall cause to be transferred to CSFB, as
holder of the Allowed Secured CSFB Claim, the Bank Agreement Ogden FMCA
Collateral free and clear of all Claims and Equity Interests, in accordance with
section 1141 of the Bankruptcy Code.
5. Dissolution of the Liquidating Debtors
Following the transfers contemplated above and pursuant to the DIP
Lender Direction, each Liquidating Debtor shall be dissolved by the Liquidation
Trustee pursuant to applicable state law. The Liquidating Trustee shall have all
the power to wind up the affairs of each Liquidating Debtor under applicable
state laws (including the filing of certificates of dissolution) in addition to
all the rights, powers and responsibilities conferred by Bankruptcy Code, the
Liquidation Plan, the Confirmation Order and the Liquidating Trust Agreement.
6. The Liquidating Trustee
(a) The Liquidating Trustee shall be designated by the Liquidating
Debtors in the Notice of Designation, which shall be filed with the Bankruptcy
Court on or before thirty (30) days prior to the Confirmation Hearing. The
Liquidating Trustee's appointment shall become effective upon the occurrence of
the Effective Date.
(b) Compensation of the Liquidating Trustee for Dissolution Expenses.
The Liquidating Trustee shall be paid for all reasonable and necessary
Dissolution Expenses (including the reasonable and necessary fees and expenses
of Retained Liquidation Professionals) out of the Operating Reserve in the
following manner. On or before any Liquidating Trustee Billing Date, the
Liquidating Trustee shall send the Liquidating Trustee Fee Notice and any
Retained Liquidation Professional Fee Notices to the Oversight Nominee. Fifteen
(15) days after sending the Liquidating Trustee Fee Notice and any Retained
Liquidation Professional Fee Notices to the Oversight Nominee, the Liquidating
Trustee shall be entitled to withdraw from the Operating Reserve the Dissolution
Expenses claimed in such Liquidating Trustee Fee Notice and such Retained
Liquidation Professional Fee Notice, provided, however, that if the Oversight
Nominee sends a Fee Dispute Notice within such fifteen (15) day period to the
Liquidating Trustee or a Retained Professional, then the Liquidating Trustee
shall only be entitled to withdraw any undisputed portion of such Dissolution
Expenses from the Operating Reserve on such date. As to the disputed portion of
such Dissolution Expenses, within five (5) days receipt of the Fee Dispute
Notice, the Liquidating Trustee or applicable Retained Liquidation Professional
must either (a) notify the Oversight Nominee that it will reduce the Dissolution
Expenses in accordance with the Fee Dispute Notice or (b) commence a proceeding
in the Court to determine the reasonableness, accuracy or proper scope of the
disputed Dissolution Expenses. The Liquidating Trustee shall be paid for all
Liquidation Expenses in the manner specified in Section 9.3 of the Liquidation
Plan.
(c) Recovery or Realization of Liquidation Proceeds. To the extent that
the Liquidating Trustee determines in its sole discretion that it could
profitably realize Liquidation Proceeds from the sale, transfer, collection or
monetization of any Residual Liquidation Assets, which shall not include any of
the Liquidation Assets transferred to Reorganized Covanta pursuant to the
Secured Creditor Direction or the DIP Lender Direction, then the Liquidating
Trustee shall liquidate such Residual Liquidation Assets in accordance with the
provisions of the Liquidation Plan. Alternatively, if the Liquidating Trustee
determines that it would not be profitable to pursue the sale, transfer,
collection or monetization of any Residual Liquidation Assets of any respective
Liquidating Debtor, then the Liquidating Trustee shall abandon such assets in
accordance with Section 9.10 of the Liquidation Plan. All Liquidation Expenses
incurred by the Liquidating Trustee in the sale, transfer, collection or
monetization of Residual Liquidation Assets shall be paid only from the
recoveries thereon.
(d) Distributions. On the Liquidation Distribution Date following the
realization of any Liquidation Proceeds from the sale, transfer, collection or
monetization of any Residual Liquidation Assets, the Liquidating Trustee shall
distribute any Net Liquidation Proceeds to the holders of Allowed Claims in
accordance with the Liquidation Plan. The Liquidating Trustee shall provide
notice to the Oversight Nominee in the Liquidation Trustee Billing Notice of (i)
the realization of any Liquidation Proceeds; and (ii) any planned Distribution
of any Net Liquidation Proceeds to be made on the next Liquidation Distribution
Date.
(e) Engagement of Professionals. The Liquidating Trustee shall obtain
the approval of the Oversight Nominee prior to retention and engagement of any
Retained Liquidation Professionals. Such approval shall not be unreasonably
delayed or withheld. Each Retained Liquidation Professional shall submit its
Retained Liquidation Professional Fee Notice to the Liquidating Trustee five (5)
days prior to the Liquidating Trustee Billing Date. The fees and expenses of
such professionals shall be (i) paid by the Liquidating Trustee out of the
Operating Reserve so long as such fees and expenses constitute Dissolution
Expenses and (ii) paid from the sale, transfer, collection or monetization of
any Liquidation Assets, so long as the fees and expenses constitute Liquidation
Expenses. The fees and expenses of Retained Liquidation Professionals are
subject to the approval of the Oversight Nominee and any disputes concerning the
fees and expenses of Retained Professionals will be dealt with in accordance
with Section 9.2 of the Liquidation Plan.
(f) Status of the Liquidating Trustee. Effective on the Effective Date,
the Liquidating Trustee shall be the representative of each particular
Liquidating Debtor's Estate as that term is used in section 1123(b)(3)(B) of the
Bankruptcy Code and shall have the rights and powers provided for in the
Liquidating Trust Agreement. In its capacity as the representative of an Estate,
the Liquidating Trustee shall be the successor-in-interest to each Liquidating
Debtor with respect to any action commenced by such Liquidating Debtor prior to
the Confirmation Date, except with respect to the Claims of the Liquidating
Pledgor Debtors and the Liquidating Non-Pledgor Debtors that are contributed to
Reorganized Covanta pursuant to the Secured Creditor Direction or the DIP Lender
Direction. All such actions and any and all other claims or interests
constituting Residual Liquidation Assets, and all claims, rights and interests
thereunder shall be retained and enforced by the Liquidating Trustee as the
representative of such Estate pursuant to section 1123(b)(3)(B) of the
Bankruptcy Code (except as provided for in the Secured Creditor Direction and
the DIP Lender Direction). The Liquidating Trustee shall be a party in interest
as to all matters over which the Court has jurisdiction.
(g) Authority. Subject to the limitations contained in the Liquidation
Plan, the Liquidating Trustee shall have the following powers, and authorities,
and duty, by way of illustration and not of limitation:
(i) Manage, sell and convert all or any portion of the
Liquidation Assets to Cash and distribute the Net Liquidation Proceeds
as specified in the Liquidation Plan;
(ii) Release, convey or assign any right, title or interest in or
about the Residual Liquidation Assets or any portion thereof;
(iii) Pay and discharge any costs, expenses, fees of Retained
Liquidation Professionals or obligations deemed necessary to preserve
or enhance the value of the Residual Liquidation Assets, discharge
duties under the Liquidation Plan or perform the purposes of the
Liquidation Plan;
(iv) Open and maintain bank accounts and deposit funds and draw
checks and make disbursements in accordance with the Liquidation Plan;
(v) Engage and have such attorneys, accountants, agents, tax
specialists, financial advisors, other professionals, and clerical
assistance as may, in the discretion of the Liquidating Trustee, be
deemed necessary for the purposes specified under the Liquidation
Plan;
(vi) Sue and be sued and file or pursue objections to Claims and
seek to estimate them;
(vii) Enforce, waive or release rights, privileges or immunities
of any kind;
(viii) In general, without in any manner limiting any of the
foregoing, deal with the Residual Liquidation Assets or any part or
parts thereof in all other ways as would be lawful for any person
owning the same to deal therewith, whether similar to or different
from the ways specified in the Liquidation Plan;
(ix) Abandon any Residual Liquidation Assets in accordance with
Section 9.10 of the Liquidation Plan;
(x) File certificates of dissolution and take any other action
necessary to dissolve and wind up the affairs of the Liquidating
Debtors in accordance with applicable state law;
(xi) As soon as is practicable after the Final Distribution Date
of each Liquidating Debtor, ask the Court to enter the Final Order
closing the Chapter 11 Case of each such Liquidating Debtor; and
(xii) Without limitation, do any and all things necessary to
accomplish the purposes of the Liquidation Plan.
(h) Objectives. In selling the Residual Liquidation Assets, or
otherwise monetizing them, the Liquidating Trustee shall use his or her best
efforts to maximize the amount of Liquidation Proceeds derived therefrom. The
Liquidating Trustee shall cause all Residual Liquidation Assets not otherwise
abandoned to be sold or otherwise monetized by the second anniversary of the
Effective Date.
(i) Distributions. The Liquidating Trustee shall be responsible for
making Distributions described in the Liquidation Plan, and shall coordinate as
necessary, to make the transfers of the Distributions and other Liquidation
Assets as contemplated by the Secured Creditor Direction and the DIP Lender
Direction. (j) Abandonment. The Liquidating Trustee may abandon, on thirty (30)
days' written notice to the Oversight Nominee and United States Trustee, any
property which he or she determines in its reasonable discretion to be of de
minimis value to the Liquidating Trust, including any pending adversary
proceeding or other legal action commenced or commenceable by the Liquidating
Trust. If either the Oversight Nominee or United States Trustee provides a
written objection to the Liquidating Trustee prior to expiration of such
thirty-day period with respect to the proposed abandonment of such property,
then such property may be abandoned only pursuant to an application made to the
Court.
(k) Resignation. The Liquidating Trustee may resign at any time by
giving at least thirty (30) days' written notice to the Oversight Nominee and
the United States Trustee. In case of the resignation, removal or death of a
Liquidating Trustee, a successor shall thereupon be appointed by agreement of
the Oversight Nominee and the United States Trustee.
(l) Reserves. The Liquidating Trustee shall establish and maintain the
Disputed Claims Reserve and the Operating Reserve.
(i) The Disputed Claims Reserve. Upon (i) the Liquidating
Trustee's determination that Disputed Claims have been asserted
against a Liquidating Debtor and (ii) the Liquidating Trustee's
identification of Liquidation Proceeds that are not Collateral, the
Liquidating Trustee shall establish the Disputed Claims Reserve, in
order to make disbursements to each holder of a Disputed Claim against
the applicable Liquidating Debtor, as provided in Article VII of the
Liquidation Plan, whose Claim is or becomes an Allowed Claim, as the
case may be, in the amount specified in the Final Order allowing such
Disputed Claim on the Liquidation Distribution Date occurring after
such order becomes a Final Order
(ii) The Operating Reserve. On the Effective Date, the
Liquidating Trustee shall establish the Operating Reserve in order to
pay all Administrative Expense Claims, Priority Tax Claims, Priority
Non-Tax Claims and any Oversight Nominee Expenses and Dissolution
Expenses. The Operating Reserve shall be funded in an amount not to
exceed $500,000.00, pursuant to the Secured Creditor Direction and to
the extent necessary, Reorganized Covanta's payment of any Operating
Reserve Deficiency Amount, if any. Upon the latest to occur of (i) the
entry of the Final Order closing each of the Liquidating Debtors'
Chapter 11 Cases, (ii) the Final Liquidation Determination Date and
(iii) the final payment of any Dissolution Expenses and Oversight
Nominee Expenses, to the extent that there is any Cash in the
Operating Reserve, the Liquidating Trustee shall contribute such Cash
to Reorganized Covanta.
(m) Statements. The Liquidating Trustee shall maintain a record of the
names and addresses of all holders of Allowed Unsecured Liquidation Claims
against the applicable Liquidating Debtor for purposes of mailing Distributions
to them. The Liquidating Trustee may rely on the name and address set forth in
the applicable Liquidating Debtor's schedules filed with the Court, except to
the extent a different name and/or address shall be set forth in a proof of
claim filed by such holder in the cases, and the Liquidating Trustee may rely on
the names and addresses in such schedules and/or proof of claim as being true
and correct unless and until notified in writing. The Liquidating Trustee shall
file all tax returns and other filings with Governmental Authorities on behalf
of the Liquidation Trust and the Assets it holds.
(n) Further Authorization. The Liquidating Trustee shall be entitled to
seek such orders, judgments, injunctions and rulings as they deem necessary to
carry out the intentions and purposes, and to give full effect to the
provisions, of this Liquidation Plan.
7. The Oversight Nominee
(a) Appointment of the Oversight Nominee. The Oversight Nominee shall
be designated by the Liquidating Debtors in the Notice of Designation, which
shall be filed with the Bankruptcy Court on or before thirty (30) days prior to
the Confirmation Hearing. The appointment of the Oversight Nominee shall become
effective upon the occurrence of the Effective Date.
(b) Authority and Responsibility of the Oversight Nominee. The
Oversight Nominee shall have the authority and responsibility to review the
activities and performance of the Liquidating Trustee, and shall have the
authority to remove and replace the Liquidating Trustee. It shall have such
further authority as may be specifically granted or necessarily implied by the
Liquidation Plan.
(c) The Oversight Nominee Expenses. The Oversight Nominee Expenses
shall be paid by the Liquidating Trustee out of the Operating Reserve.
G. Distributions and Disputed Claims under the Reorganization Plan
1. Time of Distributions
Except as otherwise provided under the Reorganization Plan or ordered
by the Court, distributions under the Reorganization Plan will be made on the
Distribution Date.
2. Disbursing Agent
Reorganized Covanta and such other Persons as may be selected by
Reorganized Covanta and approved by the Court shall act as Disbursing Agents
under the Reorganization Plan. No Court approval shall be required to use the
Indenture Trustee for the 9.25% Debentures as a Disbursing Agent for
distributions to holders of 9.25% Debentures or for using Bank of America, N.A.,
as a Disbursing Agent for distributions to the Prepetition Lenders. A Disbursing
Agent shall not be required to give any bond or surety or other security for the
performance of its duties unless otherwise ordered by the Court, and, in the
event that a Disbursing Agent is so otherwise ordered, the costs and expenses
that are directly related to procuring any such bond or surety shall be borne by
the Reorganized Debtors and Reorganized Heber Debtors.
The Disbursing Agent shall be empowered to (i) effect all actions and
execute all agreements, instruments and other documents necessary to perform its
duties under the Reorganization Plan, (ii) make all Distributions contemplated
thereby, (iii) employ professionals to represent it with respect to its
responsibilities, and (iv) exercise such other powers as may be vested in the
Disbursing Agent by order of the Court, pursuant to the Reorganization Plan, or
as deemed by the Disbursing Agent to be necessary and proper to implement the
provisions thereof.
3. Surrender of Securities or Instruments
As a condition to receiving any distribution under the Reorganization
Plan, each holder of an Allowed Claim represented by a certificated instrument
or note must surrender such instrument or note held by it to the Disbursing
Agent or its designee, unless such certificated instrument or note is being
reinstated or being left unimpaired under the Reorganization Plan. Any holder of
such instrument or note that fails to (i) surrender such instrument or note or
(ii) execute and deliver an affidavit of loss and/or indemnity reasonably
satisfactory to the Disbursing Agent and furnish a bond in form, substance and
amount reasonably satisfactory to the Disbursing Agent before the first
anniversary of the Effective Date, shall be deemed to have forfeited all rights
and Claims and may not participate in any distribution under the Reorganization
Plan in respect of such Claim. Any other holder of an Allowed Claim who fails to
take such action reasonably required by the Disbursing Agent or its designee to
receive its Distribution thereunder before the first anniversary of the
Effective Date, or such earlier time as otherwise provided for in the
Reorganization Plan, may not participate in any Distribution under the
Reorganization Plan in respect of such Claim. Any Distribution forfeited under
the Reorganization Plan shall become property of the applicable Reorganized
Debtor, or in the case of Cash Distributions made on behalf of Heber Debtors,
shall become the property of Reorganized Covanta.
4. Delivery of Distributions
Distributions to holders of Allowed Claims shall be made at the address
of each such holder as set forth on the Schedules filed with the Court unless
superseded by the address as set forth on the proofs of claim filed by such
holders or other writing notifying the applicable Reorganized Debtor of a change
of address. If any holder's Distribution is returned as undeliverable, no
further Distributions to such holder shall be made unless and until the
applicable Reorganized Debtor or Reorganized Heber Debtoris notified of such
holder's then current address, at which time all missed Distributions shall be
made on or before one hundred and twenty (120) days after the date such
undeliverable Distribution was initially made. After such date, all unclaimed
property shall, in the applicable Reorganized Debtor's discretion, be used to
satisfy the costs of administering and fully consummating the Reorganization
Plan or become property of the applicable Reorganized Debtor (or in the case of
the Reorganized Heber Debtors, shall become the property of the Reorganized
Debtors), and the holder of any such Claim shall not be entitled to any other or
further distribution under the Reorganization Plan on account of such Claim.
5. DeMinimis Distributions
Unless written request addressed to the Reorganized Debtors,
Reorganized Heber Debtors or Disbursing Agent is received within one hundred and
twenty (120) days after the Effective Date, the Disbursing Agent or such other
entity designated by such Reorganized Debtor or Reorganized Heber Debtoras a
Disbursing Agent on or after the Effective Date will not be required to
distribute Cash, Reorganization Plan Notes or Reorganization Plan Equity
Securities and Reorganization Plan Warrants to the holder of an Allowed Claim in
an Impaired Class if the amount of Cash or the Estimated Recovery Value of such
Reorganization Plan Notes and Reorganization Equity Securities combined to be
distributed on any Distribution Date under the Reorganization Plan on account of
such Claim is less than $50. Any holder of an Allowed Claim on account of which
the amount of Cash or the combined Estimated Recovery Value of Reorganization
Plan Notes and Reorganization Plan Equity Securities and Reorganization Plan
Warrants to be distributed is less than $50 will have its Claim for such
Distribution discharged and will be forever barred from asserting any such Claim
against the Reorganized Debtors, Reorganized Heber Debtors or their respective
property. Any Cash, Reorganization Plan Notes or Reorganization Equity
Securities not distributed pursuant to Section 7.8 of the Reorganization Plan
will become the property of the Reorganized Debtors and Reorganized Heber
Debtors free of any Liens, encumbrances or restrictions thereon (or, in the case
of Cash not distributed by the Reorganized Heber Debtors, shall become the
property of the Reorganized Debtors).
6. No Distribution on Disputed Claims
Under the Reorganization Plan, no payments or distributions will be
made with respect to all or any portion of a Disputed Claim unless and until all
objections to such Disputed Claim have been settled or withdrawn or have been
determined by a Final Order and the Disputed Claim, or some portion thereof, has
become an Allowed Claim.
7. Objections to Claims
Unless otherwise ordered by the Court after notice and a hearing, the
Reorganizing Debtors, Heber Debtors, reorganized Heber Debtors or Reorganized
Debtors shall have the exclusive right to make and file objections to Claims
(other than Administrative Expense Claims) and shall serve a copy of each
objection upon the holder of the Claim to which the objection is made as soon as
practicable, but in no event later than one hundred and twenty (120) days after
the Effective Date; provided, however, that the period for making objections may
be automatically extended by the Reorganizing Debtors and Heber Debtors, without
any further application to, or approval by, the Court, for up to an additional
thirty (30) days. The foregoing deadlines for filing objections to Claims shall
not apply to Claims for tort damages as to which objections may be filed at any
time.
8. No Distribution Pending Allowance
Notwithstanding any other provision of the Reorganization Plan, no
Cash, Reorganization Plan Notes or Reorganization Plan Equity Securities and
Warrants shall be distributed under the Reorganization Plan on account of any
Disputed Claim, unless and until all objections to such Disputed Claim have been
settled or withdrawn or have been determined by Final Order and the Disputed
Claim, or some portion thereof, has become an Allowed Claim.
9. Resolution of Disputed Claims and Equity Interests
Unless otherwise ordered by the Court after notice and a hearing, the
Reorganizing Debtors or Reorganized Debtors, or the Heber Debtors or Reorganized
Heber Debtors, as the case may be, shall have the exclusive right to make and
file objections to Claims (other than Administrative Expense Claims) and shall
serve a copy of each objection upon the holder of the Claim to which the
objection is made as soon as practicable, but in no event later than one hundred
and twenty (120) days after the Effective Date; provided, however, that such one
hundred and twenty (120) day period may be automatically extended by the
Reorganizing Debtors or Heber Debtors, without any further application to, or
approval by, the Court, for up to an additional thirty (30) days. The foregoing
deadlines for filing objections to Claims shall not apply to Claims for tort
damages and, accordingly, no such deadline shall be imposed by this
Reorganization Plan. Notwithstanding any authority to the contrary, an objection
to a Claim shall be deemed properly served on the holder thereof if the
Reorganizing Debtors or Heber Debtors effect service in any of the following
manners: (i) in accordance with Rule 4 of the Federal Rules of Civil Procedure,
as modified and made applicable by Bankruptcy Rule 7004; (ii) by first class
mail, postage prepaid, on the signatory on the proof of claim or interest or
other representative identified in the proof of claim or interest or any
attachment thereto; or (iii) by first class mail, postage, on any counsel that
has appeared on the holder's behalf in the Chapter 11 Cases.
Except with respect to Administrative Expense Claims as to which the
Administrative Expense Claim Bar Date does not apply, Administrative Expense
Claims must be filed with the Court and served on counsel for the Reorganizing
Debtors and Heber Debtors on or before the Administrative Expense Claim Bar
Date. The Reorganizing Debtors, Reorganized Debtors, Heber Debtors, Reorganized
Heber Debtors or any other party in interest permitted under the Bankruptcy Code
may make and file objections to any such Administrative Expense Claim and shall
serve a copy of each objection upon the holder of the Claim to which the
objection is made as soon as practicable, but in no event later than one hundred
and eighty (180) days after the Effective Date. In the event the Reorganizing
Debtors or Reorganized Debtors or the Heber Debtors or Reorganized Heber Debtors
file any such objection, the Court shall determine the Allowed amount of any
such Administrative Expense Claim. Notwithstanding the foregoing, no request for
payment of an Administrative Expense Claim need be filed with respect to an
Administrative Expense Claim which is paid or payable by the Reorganizing
Debtors or Heber Debtors in the ordinary course of business.
10. Estimation of Certain Claims
The Reorganizing Debtors may, at any time, request that the Court
estimate any contingent, unliquidated or Disputed Claim pursuant to section
502(c) of the Bankruptcy Code, regardless of whether the Reorganizing Debtors or
Heber Debtors previously objected to such Claim or whether the Court has ruled
on any such objection, and the Court will retain jurisdiction to estimate any
Claim at any time during litigation concerning any objection to any Claim. In
the event that the Court estimates any Disputed Claim, that estimated amount may
constitute either the Allowed amount of such Claim or a maximum limitation on
such Claim, as determined by the Court. If the estimated amount constitutes a
maximum limitation on such Claim, the Reorganizing Debtors or Heber Debtors may
elect to pursue a supplemental proceeding to object to any ultimate payment of
such Claim. All of the aforementioned Claims objection, estimation and
resolution procedures are cumulative and not necessary exclusive of one another.
11. Reserve Account for Disputed Claims
On and after the Effective Date, the Disbursing Agent shall hold in one
or more Disputed Claims Reserves, for each Class in which there are any Disputed
Claims, Cash, Reorganization Plan Notes or Reorganization Plan Equity Securities
and Reorganization Plan Warrants in an aggregate amount sufficient to pay to
each holder of a Disputed Claim the amount of Cash, Reorganization Plan Notes or
Reorganization Plan Equity Securities and Reorganization Plan Warrants that such
holder would have been entitled to receive pro rata under this Reorganization
Plan if such Claim had been an Allowed Claim in such Class; provided, however
that with respect to Disputed Claims in Class 4, the Reorganized Debtors and
Reorganized Heber Debtors shall not be required to establish a Disputed Claims
Reserve but instead shall issue new Reorganization Plan Unsecured Notes if and
when any Disputed Claim in Class 4 becomes an Allowed Claim. Cash withheld and
reserved for payments to holders of Disputed Claims in any Class shall be held
and deposited by the Disbursing Agent in one or more segregated interest-bearing
reserve accounts for each Class of Claims in which there are Disputed Claims
entitled to receive Cash, to be used to satisfy the Disputed Claims if and when
such Disputed Claims become Allowed Claims.
12. Allowance of Disputed Claims
With respect to any Disputed Claim that is subsequently deemed Allowed,
on the Distribution Date for any such Claim the Reorganizing Debtors or Heber
Debtors shall distribute from the Disputed Claims Reserve Account corresponding
to the Class in which such Claim is classified to the holder of such Allowed
Claim the amount of Cash, Reorganization Plan Notes or Reorganization Plan
Equity Securities and Reorganization Plan Warrants that such holder would have
been entitled to recover pro rata under the Reorganization Plan if such Claim
had been an Allowed Claim on the Effective Date, together with such
claimholder's Pro Rata Class Share of net interest, if any, on such Allowed
Claim. For purposes of the immediately preceding sentence, such holder's Pro
Rata Class Share of net interest shall be calculated by multiplying the amount
of interest on deposit in the applicable Disputed Claims Reserve account on the
date immediately preceding the date on which such Allowed Claim is to be paid by
a fraction, the numerator of which shall equal the amount of such Allowed Claim
and the denominator of which shall equal the amount of all Claims for which
deposits are being held in the applicable Disputed Claims Reserve account on the
date immediately preceding the date on which such Allowed Claim is to be paid.
13. Release of Funds from Disputed Claims Reserve
If at any time or from time to time after the Effective Date, there
shall be Cash, Reorganization Plan Notes or Reorganization Plan Equity
Securities and Warrants in a Disputed Claims Reserve account in an amount in
excess of the Reorganizing Debtors' or Heber Debtors maximum remaining payment
obligations to the then existing holders of Disputed Claims in the Class of
Claims corresponding to such Disputed Claims Reserve account under this
Reorganization Plan, such excess funds, and the Pro Rata Class Share of net
interest in respect thereof, shall become available for Distribution to the
holders of Allowed Claims in the Class corresponding to the Disputed Claims
Reserve Account at issue in accordance with this Reorganization Plan.
14. Allowance of Certain Claims
(a) Professional Claims and Substantial Contribution Claims
(i) Under the Reorganization Plan, all Retained Professionals and other
entities seeking an award by the Court of compensation for services rendered or
reimbursement of expenses incurred through and including the Effective Date
under subsections 503(b)(2), 503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy
Code must file their respective final applications for allowance of compensation
for services rendered and reimbursement of expenses no later than forty-five
(45) days after the Effective Date. Subject to the Court determination that any
such Claim is Allowed, the Reorganized Debtors and Reorganized Heber Debtors
shall pay in full any such Allowed Administrative Expense Claims on the
Distribution Date, or upon such other less favorable terms as may be mutually
agreed upon between the holder of such an Allowed Administrative Expense Claim
and the Reorganizing Debtors and Heber Debtors or, on and after the Effective
Date, the Reorganized Debtors and Reorganized Heber Debtors, and, in each case,
approved by the Court after notice and a hearing. Any request for payment of an
Administrative Expense Claim of the type which is not filed by the applicable
deadline shall be barred.
(ii) Any Person who requests compensation or expense reimbursement for
a Substantial Contribution Claim in the Chapter 11 Cases must file an
application with the clerk of the Court, on or before the Administrative Expense
Bar Date, which is thirty (30) days after the Effective Date, and serve such
application on counsel for the Reorganized Debtors and Reorganized Heber Debtors
and as otherwise required by the Court and the Bankruptcy Code on or before such
date. Failure to file a Substantial Contribution Claim on or before such date
will result in that Person being forever barred from seeking compensation or
expense reimbursement for such Substantial Contribution Claim.
(iii) All other requests for payment of an Administrative Expense Claim
(other than as set forth above) that are subject to the Administrative Expense
Claim Bar Date must be filed with the Court and served on counsel for the
Reorganizing Debtors and Heber Debtors and as otherwise required by the Court
and Bankruptcy Code on or before the Administrative Expense Bar Date. Unless the
Reorganizing Debtors, Heber Debtors, Reorganized Debtors, Reorganized Heber
Debtors or any other party in interest in the Chapter 11 Cases objects to an
Administrative Expense Claim by the Claims Objection Deadline, such
Administrative Expense Claim shall be deemed Allowed in the amount filed. In the
event that the Reorganizing Debtors, Heber Debtors, Reorganized Debtors,
reorganized Heber Debtors or any other party in interest in the Chapter 11 Cases
objects to an Administrative Expense Claim, the Court shall determine the
Allowed amount of such Administrative Expense Claim. Notwithstanding the
foregoing, no request for payment of an Administrative Expense Claim need be
filed with respect to an Administrative Expense Claim which is incurred and
payable by the Reorganizing Debtors, Heber Debtors, Reorganized Debtors or
Reorganized Heber Debtors in the ordinary course of business.
(b) DIP Financing Facility Claims
On the Effective Date, the Reorganizing Debtors shall pay all funded
and additional amounts outstanding under the DIP Financing Facility and all
commitments thereunder shall automatically and irrevocably terminate; provided,
however, that on the Effective Date, all outstanding and unfunded letters of
credit issued under Tranche A of the DIP Financing Facility shall be replaced by
letters of credit to be issued under the New Revolver Facility and, subject to
acceptance by the requisite number of Tranche B DIP Lenders in accordance with
section 2.13 of the DIP Financing Facility, all outstanding letters of credit
issued under Tranche B of the DIP Financing Facility shall be replaced or
otherwise continued by letters of credit to be issued under the Reinstated L/C
Facility. Once all such payments have been received by the DIP Lenders and all
commitments thereunder have been terminated and such letters of credit have been
issued under the New Revolver Facility or the Reinstated L/C Facility, the DIP
Financing Facility shall be terminated with respect to the Reorganizing Debtors
(subject in all respects to any carve-out approved by the Court in the Final
Order approving the DIP Financing Facility and any other terms of the DIP
Financing Facility and the Final Order that by their express terms survive the
termination of the Facility), and the DIP Lenders shall take all necessary to
confirm the removal of any liens on the properties of the applicable
Reorganizing Debtors securing the DIP Financing Facility at the sole cost of the
Reorganized Debtors. To the extent that Claims arising under Tranche B of the
DIP Financing Facility will not be paid in full as a result of reinstatement and
continuation of such letters of credit under the Reinstated L/C Facility,
acceptance of such treatment in full satisfaction of their Administrative Claim
by the requisite majority of DIP Lenders as provided under section 2.13 of the
DIP Financing Facility shall be binding on all DIP Lenders.
On the Effective Date applicable to the Heber Debtors, regardless of
the amounts outstanding underthe DIP Financing Facility, the DIP Financing
Facility shall terminate with respect to the Heber Debtors and the DIP Lenders
shall release the Heber Debtors from any claims and security interests
thereunder and security interests granted in support of the DIP Financing
Facility over Equity Interests in, and assets of, the Heber Debtors; provided,
however, that such releases shall be contingent upon the receipt by the DIP
Lenders of the proceeds of the sale of the Heber Debtors or their assets to the
extent of the funded amounts and additional amounts outstanding under the DIP
Financing Facility.
H. Distributions and Disputed Claims under the Liquidation Plan
1. The Secured Creditor Direction and the DIP Lender Direction
As previously described herein, the Debtors currently contemplate that
on the Effective Date, the Liquidating Debtors and the Liquidating Trustee will
implement the Secured Creditor Direction and the DIP Lender Direction. In
accordance therewith, on the Effective Date, any Liquidation Assets or
Distributions subject to the Secured Creditor Direction or the DIP Lender
Direction will be transferred to Reorganized Covanta, to the extent that such
Distributions or Liquidation Assets have not already been so transferred,
provided, however, that up to $500,000 shall remain in the accounts of the
Liquidating Debtors, and shall be transferred to the Operating Reserve by the
Liquidating Trustee in order to fund the Liquidation Plan. Any Residual
Liquidation Assets which are not subject to the Secured Creditor Direction or
the DIP Lender Direction will be dealt with in accordance with paragraph H.3
below.
2. Time of Distributions
Except as otherwise provided for in the Liquidation Plan, by the
Secured Creditor Distribution or the DIP Lender Direction or ordered by the
Court, distributions under the Liquidation Plan will be made on (i) the Initial
Liquidation Distribution Date, as to Administrative Expense Claims, Priority Tax
Claims and Priority Non-Tax Claims from the Operating Reserve or (ii) any
subsequent Liquidation Distribution Date. The Initial Liquidation Distribution
Date shall occur on the later of the Effective Date (or soon thereafter as
reasonably practicable) and the First Business Day after the date that is thirty
(30) calendar days after the date a Claim becomes Allowed. Each subsequent
Liquidation Distribution Date shall occur on the last Business Day of each
calendar quarter if, on such date, prior to the distribution to holders of
Allowed Claims, there are any Net Liquidation Proceeds.
3. Order of Distributions
Distributions will be made from the Liquidation Trust to the holders of
Claims against the Liquidating Debtors, upon the realization of any Net
Liquidation Proceeds from the Residual Liquidation Assets contained in the
Liquidation Trust, not otherwise subject to the Secured Creditor Direction or
the DIP Lender Direction. To the extent that the Liquidating Trustee is able to
extract any Net Liquidation Proceeds from the Residual Liquidation Assets, such
Net Liquidation Proceeds shall be distributed in the following manner: (i) the
Liquidating Trustee shall first deduct and pay itself any Liquidation Expenses
incurred in extracting such Net Liquidation Proceeds and (ii) the Liquidating
Trustee shall distribute any remaining Net Liquidation Proceeds pro rata to (a)
the holders of Class 3A Claims, to the extent that the Net Liquidation Proceeds
are attributable to a Liquidating Pledgor Debtor; and (b) to the DIP Lenders, to
the extent that the Net Liquidation Proceeds are attributable to a Liquidating
Non-Pledgor Debtor.
4. No Distribution Pending Allowance
Notwithstanding any other provision of the Liquidation Plan, no Net
Liquidation Proceeds or other Distribution shall be distributed under the
Liquidation Plan on account of any Disputed Claim, unless and until all
objections have been settled or withdrawn or have been determined by a Final
Order and the Disputed Claim or some portion thereof, has become an Allowed
Claim.
5. Resolution of Disputed Claims and Equity Interests
(a) Unless otherwise ordered by the Court after notice and a hearing,
the Liquidating Trustee shall have the exclusive right to make and file
objections to Claims (other than Administrative Expense Claims) and shall serve
a copy of each objection upon the holder of the Claim to which the objection is
made as soon as practicable, but in no event later than one hundred and twenty
(120) days after the Effective Date; provided, however, that such one hundred
and twenty (120) day period may be automatically extended by the Liquidating
Trustee, without any further application to, or approval by, the Court, for an
additional thirty (30) days. The foregoing deadlines for filing objections to
Claims shall not apply to filing objections to Claims for tort damages and,
accordingly, no such deadline shall be imposed by the Liquidation Plan.
(b) Except with respect to Administrative Expense Claims as to which
the Administrative Expense Claim Bar Date does not apply, Administrative Expense
Claims must be filed with the Court and served on counsel for the Liquidating
Debtors (if prior to the Effective Date) and counsel for the Liquidating Trustee
(if after the Effective Date) on or before the Administrative Expense Claim Bar
Date. The Liquidating Debtors, the Liquidating Trustee or any other party in
interest permitted under the Bankruptcy Code may make and file objections to any
such Administrative Expense Claim and shall serve a copy of each objection upon
the holder of the Claim to which the objection is made as soon as practicable,
but in no event later than the Claims Objection Deadline. In the event the
Liquidating Debtors or the Liquidating Trustee file any such objection, the
Court shall determine the Allowed amount of any such Administrative Expense
Claim. Notwithstanding the foregoing, no request for payment of an
Administrative Expense Claim need be filed with respect to an Administrative
Expense Claim which is paid or payable by the Liquidating Debtors or the
Liquidating Trustee in the ordinary course of business.
6. Estimation of Claims
The Liquidating Trustee may, at any time request that the Court
estimate any contingent, unliquidated or Disputed Claim pursuant to section
502(c) of the Bankruptcy Code, regardless of whether the Liquidating Debtors
previously objected to such Claim or whether the Court has ruled on any such
objection, and the Court will retain jurisdiction to estimate any Claim at any
time during litigation concerning any objection to any Claim. In the event that
the Court estimates any Disputed Claim, that estimated amount may constitute
either the Allowed amount of such Claim or a maximum limitation on such Claim,
as determined by the Court. If the estimated amount constitutes a maximum
limitation on such Claim, the Liquidating Trustee may elect to pursue any
supplemental proceedings to object to any ultimate payment of such Claim. All of
the aforementioned Claims objection, estimation and resolution procedures are
cumulative and not necessary exclusive of one another.
7. Reserve Account for Disputed Claims
Upon (i) the Liquidating Trustee's determination that Disputed Claims
have been asserted against a Liquidating Debtor and (ii) the Liquidating
Trustee's identification of Liquidation Proceeds that are not Collateral, the
Liquidating Trustee shall establish the Disputed Claims Reserve in accordance
with Section 9.14(a) of the Liquidation Plan and hold in the Disputed Claims
Reserve, for each Class in which such Disputed Claims exist, Cash in an
aggregate amount sufficient to pay to each holder of a Disputed Claim the amount
of Cash that such holder would have been entitled to receive under the
Liquidation Plan if such Claim had been an Allowed Claim in such Class. Cash
withheld and reserved for payments to holders of Disputed Claims in any Class
shall be held and deposited by the Liquidating Trustee in one or more segregated
interest-bearing reserve accounts for each Class of Claims in which there are
Disputed Claims entitled to receive Cash, to be used to satisfy the Disputed
Claims if and when such Disputed Claims become Allowed Claims.
8. Allowance of Disputed Claims
As to each Liquidating Debtor, to the extent that a Disputed Claim
ultimately becomes an Allowed Claim, payments and distributions on account of
such Allowed Claim shall be made in accordance with the provisions of the
Liquidation Plan governing the Class of Claims to which such Claim belongs. On
the succeeding Liquidation Distribution Date, after the date that the order or
judgment of the Court allowing such Claim becomes a Final Order, any property
that would have been distributed prior to the date on which a Disputed Claim
becomes an Allowed Claim shall be distributed on the next Liquidation
Distribution Date, together with such claimholder's Pro Rata Class share of net
interest, if any, on such Allowed Claim.
9. Allowance of Certain Claims
(a) Professional Claims, Substantial Contribution Claims and DIP
Financing Facility Claims
In accordance with Section VII.G, hereof, the Reorganizing Debtors and
Heber Debtors shall pay and/or satisfy all Claims asserted against the Debtors
generally, with respect to (i) all Retained Professionals (other than Retained
Liquidation Professionals) and other entities seeking an award by the Court of
compensation for services rendered or reimbursement of expenses incurred through
and including the Effective Date under subsections 503(b)(2), 503(b)(3),
503(b)(4) or 503(b)(5) of the Bankruptcy Code, including any Person making a
Substantial Contribution Claim and (ii) all amounts outstanding under the DIP
Financing Facility.
(b) Other Administrative Claims
All other requests for payment of an Administrative Claim against a
Liquidating Debtor (other than those seeking an award by the Court of
compensation for services rendered or reimbursement of expenses incurred through
and including the Confirmation Date under subsections 503(b)(2), 503(b)(3),
503(b)(4) or 503(b)(5) of the Bankruptcy Code) must be filed with the Court and
served on the Liquidating Trustee no later than the Administrative Claims Bar
Date, which is thirty (30) days following the Effective Date. Unless the
Liquidating Trustee objects to an Administrative Expense Claim by the Claims
Objection Deadline, such Administrative Expense Claim shall be deemed Allowed in
the amount filed. In the event that the Liquidating Trustee objects to an
Administrative Expense Claim, the Court shall determine the Allowed amount of
such Administrative Expense Claim. Notwithstanding the foregoing, no request for
payment of an Administrative Expense Claim need be filed with respect to an
Administrative Expense Claim which is paid or payable by the Liquidating Trustee
in the ordinary course of business.
I. Treatment of Executory Contracts and Unexpired Leases; Bar Date for
Rejection Damage Claims
1. General Treatment.
(a) Reorganizing Debtors and Heber Debtors: For Reorganizing Covanta
and certain other Reorganizing Debtors listed on Exhibit 9.1A of the
Reorganization Plan (collectively, the "Rejecting Debtors"), on the Effective
Date all executory contracts and unexpired leases to which each of the Rejecting
Debtor is a party shall be deemed rejected, except for any executory contract or
unexpired lease of the Rejecting Debtors that (i) has been previously assumed or
rejected pursuant to a Final Order of the Court, (ii) is specifically designated
as a contract or lease on the Rejecting Debtors' Schedule of Assumed Contracts
and Leases, to be filed prior to the Confirmation Hearing, or (iii) is the
subject of a separate motion to assume or reject filed under section 365 of the
Bankruptcy Code by the Reorganizing Debtors and Heber Debtors prior to the
Confirmation Hearing. For Reorganizing Debtors listed on Exhibit 9.1B and each
Heber Debtor of the Reorganization Plan (collectively, the "Assuming Debtors"),
on the Effective Date all executory contracts and unexpired leases to which each
of the Assuming Debtors is a party shall be deemed assumed, except for any
executory contract or unexpired lease of the Assuming Debtors that (i) has been
previously assumed or rejected pursuant to a Final Order of the Court, (ii) is
specifically designated as a contract or lease on the Assuming Debtors' Schedule
of Rejected Contracts and Leases, to be filed prior to the Confirmation Hearing,
or (iii) is the subject of a separate motion to assume or reject filed under
section 365 of the Bankruptcy Code by the Reorganizing Debtors and Heber Debtors
prior to the Confirmation Hearing.
Each executory contract and unexpired lease listed or to be
listed on the Rejecting Debtors' Schedule of Assumed Contracts and Leases or the
Assuming Debtors' Schedule of Rejected Contracts and Leases (collectively, the
"Contract Schedules") shall include modifications, amendments, supplements,
restatements or other agreements, including guarantees thereof, made directly or
indirectly by any Reorganizing Debtor in any agreement, instrument or other
document that in any manner affects such executory contract or unexpired lease,
without regard to whether such agreement, instrument or other document is listed
on the Contract Schedules. The mere listing of a document on the Contract
Schedules shall not constitute an admission by the Reorganizing Debtors or Heber
Debtors that such document is an executory contract or unexpired lease or that
the Reorganizing Debtors and Heber Debtors have any liability thereunder.
(b) Liquidating Debtors: For Liquidating Debtors, on the Effective Date
all executory contracts and unexpired leases shall be deemed rejected other than
those executory contracts or unexpired leases that are or have been (a)
specifically designated as assumed on the Schedule of Assumed Contracts and
Leases; (b) previously assumed or rejected pursuant to a Final Order of the
Court; or (c) subject to a separate motion to assume or reject filed under
section 365 of the Bankruptcy Code by the applicable Liquidating Debtor prior to
the Confirmation Date. Each of the executory contracts and unexpired leases
listed on the Schedule of Assumed Contracts and Leases shall be deemed to be
assumed by the applicable Liquidating Debtor and assigned to Reorganized Covanta
on the Effective Date.
2. Cure of Defaults.
(c) Except to the extent that (i) a different treatment has been agreed
to by the nondebtor party or parties to any executory contract or unexpired
lease to be assumed pursuant to Section 9.1 of the Reorganization Plan or
Section 8.2 of the Liquidation Plan, or (ii) any executory contract or unexpired
lease shall have been assumed pursuant to an order of the Court which order
shall have approved the cure amounts with respect thereto, the applicable Debtor
shall, pursuant to the provisions of sections 1123(a)(5)(G) and 1123(b)(2) of
the Bankruptcy Code and consistent with the requirements of section 365 of the
Bankruptcy Code, within thirty (30) days after the Confirmation Date, file with
the Court and serve a pleading listing the cure amounts of all executory
contracts or unexpired leases to be assumed. The parties to such executory
contracts or unexpired leases to be assumed by the applicable Debtor shall have
fifteen (15) days from service of such pleading to object to the cure amounts
listed by the applicable Debtor. Service of such pleading shall be sufficient if
served on the other party to the contract or lease at the address indicated on
(i) the contract or lease, (ii) any proof of claim filed by such other party in
respect of such contract or lease, or (iii) the Debtors' books and records,
including the Schedules; provided, however, that if a pleading served by a
Debtor to one of the foregoing addresses is promptly returned as undeliverable,
the Reorganizing Debtor shall attempt reservice of the pleading on an
alternative address, if any, from the above listed sources. If any objections
are filed, the Court shall hold a hearing. Prior to assumption, the applicable
Debtor shall retain its right to reject any of its executory contracts or
unexpired leases, including contracts or leases that are subject to a dispute
concerning amounts necessary to cure any defaults. Notwithstanding the foregoing
or anything in Section 9.3 of the Reorganization Plan or Section 8.3 of the
Liquidation Plan, at all times through the date that is five (5) Business Days
after the Court enters an order resolving and fixing the amount of a disputed
cure amount, the Debtors shall have the right to reject such executory contract
or unexpired lease.
3. Approval of Assumption of Certain Executory Contracts. Subject to
Sections 9.1 and 9.2 of the Reorganization Plan and Section 8.1 and 8.2 of the
Liquidation Plan, the executory contracts and unexpired leases on the Rejecting
Debtors' Schedule of Assumed Contracts, the executory contracts and unexpired
leases of the Assuming Debtors other than those listed on the Assuming Debtors'
Schedule of Rejected Contracts and Leases, the executory contracts and unexpired
leases listed on the Liquidating Debtors' Schedule of Assumed Contracts. Except
as may otherwise be ordered by the Court, the Reorganizing Debtors and Heber
Debtors shall have the right to cause any assumed executory contract or
unexpired lease to vest in the Reorganized Debtor or Reorganized Heber Debtor
designated for such purpose by the Reorganizing Debtors and Heber Debtors.
4. Approval of Rejection of Executory Contracts and Unexpired Leases.
Entry of the Confirmation Order shall constitute the approval, pursuant to
section 365(a) of the Bankruptcy Code, of the rejection of any executory
contracts and unexpired leases to be rejected as and to the extent provided in
the Plans.
5. Bar Date for Filing Proofs of Claim Relating to Executory Contracts and
Unexpired Leases Rejected Pursuant to the Plans. Claims arising out of the
rejection of an executory contract or unexpired lease pursuant to each Plan must
be filed with the Court no later than the later of (i) twenty (20) days after
the Effective Date and (ii) thirty (30) days after the entry of an order
rejecting such executory contract or lease. Any Claims not filed within such
time period will be forever barred from assertion against any of the applicable
Debtors and/or their corresponding Estates.
6. Reservation of Rights Under Insurance Policies and Bonds. The
enforceability by beneficiaries of (i) any insurance policies that may cover
Claims against any Debtor, or (ii) any bonds issued to assure the performance of
any Debtor, is not affected by the Plans, nor shall anything contained therein
constitute or be deemed to constitute a waiver of any cause of action that the
Debtors or any entity may hold against any insurers or issuers of bonds under
any such policies of insurance or bonds. To the extent any insurance policy or
bond is deemed to be an executory contract, such insurance policy or bond shall
be deemed assumed in accordance with Article IX of the Reorganization Plan or
Article VIII of the Liquidation Plan as applicable. Notwithstanding the
foregoing, the Debtors do not assume any payment or other obligations to any
insurers or issuers of bonds, and any agreements or provisions of policies or
bonds imposing payment or other obligations upon the Debtors shall only be
assumed as provided pursuant to a separate order of the Court.
7. Survival of Debtors' Corporate Indemnities. Any obligations of any of
the Debtors pursuant to the applicable Debtor's corporate charters and bylaws or
agreements entered into any time prior to the Effective Date, to indemnify the
Specified Personnel, with respect to all present and future actions, suits and
proceedings against such Debtor or such Specified Personnel, based upon any act
or omission for or on behalf of such Debtor, shall not be discharged or impaired
by confirmation of the Plans. Such obligations shall be deemed and treated as
executory contracts to be assumed by the applicable Debtor pursuant to the
Plans, and shall continue as obligations of the applicable Debtor. To the extent
a Debtor is entitled to assert a Claim against Specified Personnel (whether
directly or derivatively) and such Specified Personnel is entitled to
indemnification, such Claim against Specified Personnel is released, waived and
discharged.
J. Effect of Confirmation
1. Revesting of Reorganization Assets
Upon the Effective Date, pursuant to sections 1141(b) and (c) of the
Bankruptcy Code, except for leases and executory contracts that have not yet
been assumed or rejected (which leases and contracts shall be deemed vested when
and if assumed), all property of each Reorganizing Debtor's Estate shall vest in
the applicable Reorganized Debtor or Reorganized Heber Debtor free and clear of
all Claims, Liens, encumbrances, charges and other interests, except as provided
in the Reorganization Plan or pursuant to any of the Plan Documents. Each
Reorganized Debtor and Reorganized Heber Debtor may operate its businesses and
may use, acquire and dispose of property free of any restrictions of the
Bankruptcy Code or the Bankruptcy Rules and in all respects as if there were no
pending cases under any chapter or provision of the Bankruptcy Code, except as
provided in the Reorganization Plan.
2. Discharge under the Plans
(a) Discharge under the Reorganization Plan. Upon the Effective Date
and in consideration of the distributions to be made under the Reorganization
Plan, except as otherwise expressly provided in the Reorganization Plan, each
holder (as well as any trustees and agents on behalf of each holder) of a Claim
or Equity Interest of such holder shall be deemed to have forever waived,
released and discharged each of the Reorganizing Debtors and Heber Debtors, to
the fullest extent permitted by section 1141 of the Bankruptcy Code, of and from
any and all Claims, Equity Interests, rights and liabilities (other than the
right to enforce the Reorganizing Debtors, Heber Debtors, Reorganized Debtors or
Reorganized Heber Debtors' obligations under the Reorganization Plan or Plan
Documents) that arose prior to the Confirmation Date, whether existing in law or
equity, whether based on fraud, contract or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, whether based in
whole or in part on any act, omission or occurrence taking place on or before
the Confirmation Date. Upon the Effective Date, all such Persons shall be
forever precluded and enjoined, pursuant to section 524 of the Bankruptcy Code,
from prosecuting or asserting any such discharged Claim against or canceled
Equity Interest in each of the Reorganizing Debtors and Heber Debtors.
(b) Discharge under the Liquidation Plan. Pursuant to section
1141(d)(3) of the Bankruptcy Code, occurrence of the Confirmation Date will not
discharge Claims against the Liquidating Debtors; provided, however, that no
holder of a Claim against any Liquidating Debtor may, on account of such Claim,
seek or receive any payment or other distribution from, or seek recourse
against, any Liquidating Debtor, Reorganizing Debtor, their respective
successors or their respective property, except as otherwise provided in the
Liquidation Plan.
3. Release of Certain Parties under the Plans
(a) Releases under the Reorganization Plan. On the Effective Date, the
Debtors, on behalf of themselves and their Estates, shall be deemed to release
unconditionally, all claims, obligations suits, judgments, damages, rights,
causes of action and liabilities whatsoever against the Reorganizing Debtors or
Heber Debtors' present or former officers, directors, employees, partners,
members, advisors, attorneys, financial advisors, accountants, investment
bankers and other professionals, and the Committee's members, advisors,
attorneys, financial advisors, investment bankers, accountants and other
professionals, in each case whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based in whole or in
part upon actions taken with respect to any omission, transaction, event, or
other occurrence taking place on or prior to the Effective Date in any way
relating to the Reorganizing Debtors, Heber Debtors, the Chapter 11 Cases, or
the Reorganization Plan.
(b) Releases under the Liquidation Plan. On the Effective Date, the
Liquidating Debtors, on behalf of themselves and their Estates, shall be deemed
to release unconditionally all of the Reorganizing Debtors and Heber Debtors and
such parties' respective officers, directors, employees, affiliates, advisors,
attorneys, financial advisors, accountants, and other professionals from any and
all claims, obligations, suits, judgments, damages, rights, causes of action,
and liabilities whatsoever, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based in whole or in
part upon actions taken in their respective capacities described above with
respect to any omission, transaction, event or other occurrence taking place on
or prior to the Effective Date in any way relating to the Liquidating Debtors,
the Chapter 11 Cases, the Reorganization Plan or this Liquidation Plan.
4. Exculpation
As more fully described in the Plans, as of the Effective Date, none of
(i) the Liquidating Debtors, Reorganizing Debtors, Heber Debtors or Reorganized
Debtors or their respective officers, directors and employees, (ii) the
Specified Personnel, (iii) the Creditors Committee and any subcommittee thereof,
(iv) the Agent Banks, the DIP Agents and the steering committee for the holders
of the Secured Bank Claims, (v) the Liquidating Trustee, (vi) the accountants,
financial advisors, investment bankers, and attorneys for the Liquidating
Debtors, Reorganizing Debtors, Heber Debtors, Reorganized Debtors or Reorganized
Heber Debtors, and (vii) the directors, officers, employee, partners, members,
agents, representatives, accountants, financial advisors, investment bankers,
attorneys, or affiliates for any of the persons or entities described in (i),
(iii), (iv), (v) or (vi) of this section shall have or incur any liability to
any holder of a Claim or an Interest, or any other party in interest, or any of
their respective agents, employees, representatives, financial advisors,
attorneys, or affiliates, or any of their successors or assigns, for any act or
omission in connection with, relating to, or arising out of the commencement or
conduct, the Chapter 11 Cases; formulating, negotiating or implementing the
Plans; formulating, negotiating or implementing the Geothermal Sale under the
Reorganization Plan; the solicitation or acceptances of the Plans; the pursuit
of confirmation of the Plans; the confirmation, consummation or administration
of the Plans or the property to be distributed under the Plans, except for their
gross negligence or willful misconduct, and in all respects shall be entitled to
rely upon the advice of counsel with respect to their duties and
responsibilities under the Plans.
5. Injunction under the Plans
The satisfaction, release, and discharge pursuant to Article XI of the
Reorganization Plan shall act as an injunction against any Person commencing or
continuing any action, employment of process, or act to collect, offset, or
recover any Claim or Cause of Action satisfied, released, or discharged under
the Reorganization Plan to the fullest extent authorized or provided by the
Bankruptcy Code, including, without limitation, to the extent provided for or
authorized by sections 524 and 1141 thereof.
(a) Injunction under the Reorganization Plan. Section 11.9 of the
Reorganization Plan provides that upon the Effective Date with respect to the
Reorganization Plan and except as otherwise provided in the Reorganization Plan
or in the Confirmation Order, all persons who have held, hold, or may hold
Claims against or Equity Interests in the Reorganizing Debtors or Heber Debtors,
and all other parties in interest in the Chapter 11 Cases, along with their
respective present or former employees, agents, officers, directors or
principals, shall be permanently enjoined on and after the Effective Date from
directly or indirectly (i) commencing or continuing in any manner any action or
other proceeding of any kind to collect or recover any property on account of
any such Claim or Equity Interest against any such Reorganizing Debtor, Heber
Debtor, Reorganized Debtor, Reorganizing Heber Debtor or Person entitled to
exculpation under Section 11.7 hereof, (ii) enforcing, attaching, collecting or
recovering by any manner or means of any judgment, award, decree, or order to
collect or recover any property on account of any such Claim or Equity Interest
against any such Reorganizing Debtor, Heber Debtor, Reorganized Debtors or
Reorganzing Heber Debtor, (iii) creating, perfecting, or enforcing any
encumbrance of any kind against any such Reorganizing Debtor, Heber Debtor,
Reorganized Debtors or Reorganzing Heber Debtor on account of such Claim or
Equity Interest, (iv) except for recoupment, asserting any right of setoff or
subrogation of any kind against any obligation due any such Reorganizing Debtor,
Heber Debtor, Reorganized Debtors or Reorganzing Heber Debtor or against the
property or interests in property of any such Reorganizing Debtor, Heber Debtor,
Reorganized Debtors or Reorganzing Heber Debtor on account of any such Claim or
Equity Interest, (v) commencing or continuing any action against the Reorganized
Debtors or Reorganized Heber Debtors in any manner or forum in respect of such
Claim or Equity Interest that does not comply or is inconsistent with the Plan,
and (vi) taking any actions to interfere with the implementation or consummation
of the Reorganization Plan; provided that nothing in the Reorganization Plan
shall prohibit any holder of a Claim from prosecuting a properly completed and
filed proof of claim in the Chapter 11 Cases. In no event shall the Reorganized
Debtors, Reorganizing Heber Debtors or Person entitled to exculpation under
Section 11.7 hereof have any liability or obligation for any Claim against or
Equity Interest in any of the Reorganizing Debtors or Heber Debtors arising
prior to the Effective Date, other than in accordance with the provisions of the
Reorganization Plan. In addition, except as otherwise provided in the
Reorganization Plan or the Confirmation Order, on and after the Effective Date,
any individual, firm, corporation, limited liability company, partnership,
company, trust or other entity, including any successor of such entity, shall be
permanently enjoined from commencing or continuing in any manner, any litigation
against the Reorganized Debtors, Reorganized Heber Debtors or Person entitled to
exculpation under Section 11.7 hereof on account of or in respect of any of the
Reorganizing Debtors and Heber Debtors' prepetition liabilities or other
liabilities satisfied pursuant to the Reorganization Plan. By accepting
Distributions pursuant to the Reorganization Plan, each holder of an Allowed
Claim or Allowed Equity Interest receiving Distributions pursuant to the
Reorganization Plan will be deemed to have specifically consented to the
injunctions set forth in Section 11.9 of the Reorganization Plan.
6. Rights of Action
On and after the Effective Date, and except as may otherwise be agreed
to by the Debtors, the Reorganized Debtors will retain and have the exclusive
right to enforce any and all present or future rights, claims or causes of
action against any Person and rights of the Reorganized Debtors and Reorganized
Heber Debtors that arose before or after the applicable Petition Date,
including, but not limited to (a) rights, claims, causes of action, avoiding
powers suits and proceedings arising under sections 544, 545, 548, 549, 550, and
553 of the Bankruptcy Code; (b) the Heber Debtors' right to enforce any and all
present or future rights, claims or causes of action against any Person and the
rights of the Heber Debtors that arose before or after the applicable Petition
Date, including, but not limited to, rights, claims, causes of action, avoiding
powers suits and proceedings arising under sections 544, 545, 548, 549, 550, and
553 of the Bankruptcy Code, which shall be assigned to the Reorganized ; and (c)
those rights, claims and causes of action transferred to Reorganized Covanta
pursuant to the Secured Creditor Direction and the DIP Lender Direction, as
provided by the Liquidation Plan. The Reorganized Debtors and Reorganized Heber
Debtors may pursue, abandon, settle or release any or all such rights of action,
as they deem appropriate, without the need to obtain approval or any other or
further relief from the Court. The Reorganized Debtors and Reorganized Heber
Debtors may, in their discretion, offset any such claim held against a Person
against any payment due such Person under the Reorganization Plan; provided,
however, that any claims of any of the Reorganized Debtors and Reorganized Heber
Debtors arising before the applicable Petition Date shall first be offset
against Claims against any of the Reorganized Debtors and Reorganized Heber
Debtors arising before the applicable Petition Date.
K. Miscellaneous Matters
1. Liability of the Liquidating Trustee
(a) Limited Liability. The Liquidating Trustee shall not be liable for
any act he or she may do or omit to do while acting in good faith and in the
exercise of his or her best judgment, and the fact that such act or omission was
advised by an authorized attorney (or other Retained Liquidation Professional)
for the Liquidating Trustee shall be conclusive evidence of such good faith and
best judgment; provided, however, that nothing contained in subparagraph
VII.I.5.(a) of the Liquidation Plan shall affect the liability of any of the
Liquidating Trustee for gross negligence or willful misconduct.
(b) No Recourse. No recourse shall ever be had under the Liquidation
Plan, directly or indirectly, against the Liquidating Trustee, personally or
against any agent, attorney, accountant or professional for the Liquidating
Trustee, by legal or equitable proceedings or by virtue of any statute or
otherwise, nor upon any promise, contract, instrument, undertaking, obligation,
covenant or agreement whatsoever executed by the Liquidating Trustee under the
Liquidation Plan, or by reason of the creation of any indebtedness by the
Liquidating Trustee under the Liquidation Plan for any purpose authorized by the
Liquidation Plan, it being expressly understood and agreed that all such
liabilities, covenants, and agreements of the Liquidating Trustee, whether in
writing or otherwise, shall be enforceable only against and be satisfied only
out of the Residual Liquidation Assets or such part thereof as shall, under the
terms of any such agreement, be liable therefore or shall be evidence only of a
right of payment out of the Residual Liquidation Assets, provided, however, that
nothing contained in this subparagraph [VII.I.5.(b)] shall affect the liability
of any of the parties listed above for gross negligence or willful misconduct.
2. Limited Liability of the Oversight Nominee
The Oversight Nominee shall not be liable for anything other than its
own acts as shall constitute willful misconduct or gross negligence of its
duties. None of the Oversight Nominee's designees, agents, representatives or
employees, shall incur or be under any liability or obligation by reason of any
act done or omitted to be done, by the Oversight Nominee or its designee, agent,
representative or employee. The Oversight Nominee may, in connection with the
performance of functions, and in its sole and absolute discretion, consult with
counsel, accountants and its agents, and shall not be liable for anything done
or omitted or suffered to be done in accordance with such advice or opinions. If
the Oversight Nominee determines not to consult with counsel, accountants or its
agents, such determination shall not be deemed to impose any liability on the
Oversight Nominee.
3. Setoffs
Each Reorganizing Debtor may, in accordance with the provisions of the
Reorganization Plan, Section 553 of the Bankruptcy Code and applicable
non-bankruptcy law, set off against any Allowed Claim and the Distributions to
be made pursuant to the Reorganization Plan on account of such Allowed Claim
(before any Distribution is made on account of such Allowed Claim), the Claims,
rights and causes of action of any nature that such Reorganizing Debtor may hold
against the holder of such Allowed Claim; provided, however, that neither the
failure to effect such a setoff nor the allowance of any Claim hereunder shall
constitute a waiver or release by the applicable Reorganizing Debtor of any such
Claims, rights and causes of action that the applicable Reorganizing Debtor may
possess against such holder; and provided, further that any Claims of each
Reorganizing Debtor arising before the applicable Petition Date shall only be
setoff against Claims against such Reorganizing Debtor arising before the
applicable Petition Date.
4. Satisfaction of Subordination Rights
All Claims against the Debtors and all rights and claims between or
among Claimholders relating in any manner whatsoever to distributions on account
of Claims against the Debtors, based upon any subordination rights, whether
asserted or unasserted, legal or equitable, shall be deemed satisfied by the
Distributions under the Plans to Claims having such subordination rights, and
such subordination rights shall be deemed waived, released, discharged, and
terminated as of the Effective Date. Distributions to the various Classes of
Claims hereunder shall not be subject to levy, garnishment, attachment, or like
legal process by any Claimholder by reason of any subordination rights or
otherwise, so that each Claimholder shall have and receive the benefit of the
distributions in the manner set forth in the Plan.
5. Dissolution of the Creditors Committee
Effective on the Effective Date, the Committee shall be dissolved and
the members thereof shall be released and discharged of and from all further
authority, duties, responsibilities, and obligations related to and arising from
and in connection with the Chapter 11 Cases, and the retention or employment of
the Committee's attorneys, accountants, and other agents, shall terminate.
6. Management of the Reorganized Debtors and Reorganized Heber Debtors
On the Effective Date, the existing officers of the Reorganized Debtors
that are in office immediately before the Effective Date shall remain as
officers and shall continue to serve immediately after the Effective Date in
their respective capacities until such time as they may resign, be removed or be
replaced by the board of directors of the Reorganized Debtors. The officers and
directors of the Heber Debtors that are in office immediately before the
Effective Date shall resign as of the Effective Date. The Buyers under the
Geothermal Sale shall designate and appoint the new officers and directors of
the Reorganized Heber Debtors.
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED
The holder of a Claim against the Debtors should read and carefully
consider the following factors, as well as the other information set forth in
this Disclosure Statement (and the documents delivered together herewith and/or
incorporated by reference herein), before deciding whether to vote to accept or
to reject the Plans. These factors should not, however, be regarded as
constituting the only risks involved in connection with the Plans and their
implementation.
A. General Considerations
The formulation of a reorganization plan is the principal purpose of a
chapter 11 case. The Plans set forth the means for satisfying the holders of
Claims against and Equity Interests in the Debtors. Certain Claims may receive
partial distributions pursuant to the Plans, and in some instances, no
distributions at all. See Section VII.B--"Classification and Treatment of Claims
and Equity Interests," above. The recapitalization of the Debtors realizes the
going concern value of the Debtors for their holders of Claims and Equity
Interests. Moreover, reorganization of the Reorganizing Debtors and Heber
Debtors' business and operations under the proposed Reorganizing Plan also
avoids the potentially adverse impact of a liquidation on the holders of Claims
and Equity Interests and the Reorganizing Debtors and Heber Debtors' employees,
and many of its customers, trade vendors, suppliers of goods and services, and
lessors.
B. Certain Bankruptcy Considerations
The Debtors are parties to various contractual arrangements under which
the commencement of the Chapter 11 Cases and the other transactions contemplated
by the Plans could, subject to the Debtors' rights and powers under the
Bankruptcy Code, (and in particular, sections 105, 362 and 365 of the Bankruptcy
Code) (i) result in a breach, violation, default or conflict, (ii) give other
parties thereto rights of termination or cancellation, or (iii) have other
adverse consequences for the Debtors, Reorganized Debtors or Reorganized Heber
Debtors. The magnitude of any such adverse consequences may depend upon, among
other factors, the diligence and vigor with which other parties to such
contracts may seek to assert any such rights and pursue any such remedies in
respect of such matters, and the ability of the Debtors, Reorganized Debtors or
Reorganized Heber Debtors to resolve such matters on acceptable terms through
negotiations with such other parties or otherwise. The Debtors do not believe
that any material enforceable breach of or default under any such agreement has
occurred.
There can be no assurance that the requisite acceptances to confirm the
Plans will be obtained. Even if the requisite acceptances are received, there
can be no assurance that the Court will confirm the Plans. A non-accepting
creditor or equity security holder of the Debtors might challenge the adequacy
of the Disclosure Statement or the balloting procedures and results as not being
in compliance with the Bankruptcy Code and/or Bankruptcy Rules. Even if the
Court were to determine that the Disclosure Statement and the balloting
procedures and results were appropriate, the Court could still decline to
confirm the Plan if it were to find that any of the statutory requirements for
confirmation had not been met. Section 1129 of the Bankruptcy Code sets forth
the requirements for confirmation and requires, among other things, a finding by
the Court that the confirmation of the Plans is not likely to be followed by a
liquidation or a need for further financial reorganization and that the value of
distributions to non-accepting holders of claims and interests within a
particular class under the Plans will not be less than the value of
distributions such holders would receive if the Debtors were liquidated under
Chapter 7 of the Bankruptcy Code. While there can be no assurance that the Court
will conclude that these requirements have been met, the Debtors believe that
the Plans will not be followed by a need for further financial reorganization
and that non-accepting holders within each class under the Plans will receive
distributions at least as great as would be received following a liquidation
pursuant to Chapter 7 of the Bankruptcy Code when taking into consideration all
administrative claims and costs associated with any such Chapter 7 case.
The confirmation and consummation of the Plans are also subject to
certain conditions. If the Plans, or a plan determined not to require
resolicitation of any Classes of Claims or Equity Interests by the Court, were
not to be confirmed, it is unclear whether the restructuring could be
implemented and what distribution holders of Claims and Equity Interests
ultimately would receive with respect to their Claims and Equity Interests. If
an alternative reorganization could not be agreed to, it is possible that the
Debtors would have to liquidate their assets, in which case it is likely that
holders of Claims would receive substantially less than the treatment they will
receive pursuant to the Plans. If a complete liquidation or protracted
reorganization were to occur, there is a risk that there would be little, if
any, value available for distribution to the holders of Claims and Equity
Interests. See Exhibits D and E attached to this Disclosure Statement for a
hypothetical liquidation valuation analysis of each individual Debtor.
The continuation of the Chapter 11 Cases, particularly if the Plans are
not approved or confirmed in the timeframe currently contemplated, could further
adversely affect the Debtors' operations and relationships with customers,
employees, regulators and other parties. If confirmation and consummation of the
Plans do not occur expeditiously, the Chapter 11 Cases could result in, among
other things, increased costs for professional fees and similar expenses. In
addition, further delay could make it more difficult to retain and attract
management and other key personnel and would require senior management to spend
a significant amount of time and effort dealing with reorganization instead of
business operations.
C. Inherent Uncertainty of Financial Projections
The Projections attached as Exhibit C2 to this Disclosure Statement
cover Reorganized Covanta, its Reorganized Debtor and Reorganizing Heber Debtor
subsidiaries and its non-debtor subsidiaries (collectively, the "Reorganized
Company") operations through December 31, 2007. These Projections are based on
numerous assumptions including the timing, confirmation and consummation of the
Plans in accordance with their terms, the anticipated future performance of the
Reorganized Debtors, industry performance, general business and economic
conditions, the continued exemption from federal income taxation afforded by the
ESOP/S corporation structure, the restructuring of certain projects and the
resolution of litigation relating to projects as described above and other
matters, many of which are beyond the control of the Reorganized Debtors and
Reorganized Heber Debtors and some or all of which may not materialize. In
addition, unanticipated events and circumstances occurring subsequent to the
date that this Disclosure Statement was approved by the Court may affect the
actual financial results of the Reorganized Debtors and Reorganized Heber
Debtors' operations. These variations may be material and may adversely affect
the ability of the Reorganized Debtors and Reorganized Heber Debtors to make
payments with respect to post-Effective Date indebtedness. Because the actual
results achieved throughout the periods covered by the Projections may vary from
the projected results, the Projections should not be relied upon as a guaranty,
representation or other assurance of the actual results that will occur.
Except with respect to the Projections and except as otherwise
specifically and expressly stated herein, this Disclosure Statement does not
reflect any events that may occur subsequent to the date hereof and that may
have a material impact on the information contained in this Disclosure
Statement. The Reorganized Company does not intend to update the Projections;
thus, the Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Projections.
D. Sale of Geothermal Debtor Equity
In order to fund the cost of emerging from Chapter 11 protection, the
Debtors have determined to pursue a sale of the Geothermal Debtor Equity through
the Geothermal Sale. The Geothermal Sale is an integral part of the
Reorganization Plan and the Reorganizing Debtors' successful emergence from
Chapter 11 protection. Failure to sell the Geothermal Debtor Equity will likely
result in insufficient funding to consummate the Reorganization Plan without
further agreement from the Secured Bank Lenders. The Debtors believe that the
Geothermal Debtor Equity is valuable and attractive and anticipate that they
will successfully complete such a transaction. Nevertheless, there can be no
assurance that the Debtors will successfully sell the Geothermal Debtor Equity,
which might prevent consummation of the Reorganization Plan.
E. WTE Projects Restructuring and Litigation
As discussed in Section VI.C.9 above, certain of the Reorganizing
Debtors and contract parties have reached agreements with respect to, or are in
the process of discussing, material restructuring of their mutual obligations in
connection with several WTE projects. One such Reorganizing Debtor (Covanta
Onondaga) has reached agreements in principle and is in the process of
documenting the proposed restructurings. Another two (2) Reorganizing Debtors
(Covanta Warren and Covanta Tulsa) are negotiating the restructuring of their
respective obligations with relevant contract parties, but have not yet reached
any agreement in principle with such contract parties. In addition, and as
dicussed in Section VI.C.13 above, two (2) other Reorganizing Debtors operating
WTE facilities (Covanta Babylon and Covanta Lake) are involved in material
litigation with contract counterparties. In the event any of these projects is
either unable to consummate a restructuring of its material obligations or
achieves an unsuccessful result in its material litigation, as the case may be,
the Debtors may, among other things, reject one or more executory contracts
related to such Debtor's facility, recharacterize such Debtor as a Liquidating
Debtor, and/or withdraw such Debtor as a Reorganizing Debtor and subsequently
file a separate plan of reorganization for such Debtor. In such an event,
creditors of the relevant Debtor may not receive any recovery on account of
their claims. The Debtors cannot guarantee that each of these Debtors will
successfully restructure, receive Court approval of such restructuring, or
achieve a successful result in its litigation, as the case may be. Furthermore,
the Debtors cannot guarantee that one or more such events, if they occur, would
not impair the other Debtors' ability to confirm and consummate the Plans or the
terms of any exit financing available to such other Debtors.
F. Dividends
The Reorganized Debtors do not anticipate that dividends will be paid
with respect to the New Common Stock in the foreseeable future.
G. Impact of Interest
A significant portion of the Reorganized Debtors' debt upon emergence,
including the New Credit Facility, will have interest rates that vary with
prevailing short-term rates. To the extent that either short-term rates or
long-term rates in the future exceed those forecasted by the Reorganized
Debtors, interest costs will increase, which could have an adverse effect on the
Reorganized Debtors.
H. Access to Financing
The Reorganizing Debtors' ability to consummate the Plan and obtain
sufficient Cash resources for post-Effective Date working capital depend upon
successful consummation of the Geothermal Sale as well as implementation of the
Exit Financing Agreements, including the New CPIH Revolver Facility and the New
Revolver Facility. The Reorganizing Debtors believe that they will be able to
successfully complete these transactions, although there can be no assurance
that the Geothermal Sale will be consummated or that sufficient commitments for
the New CPIH Revolver Facility and the New Revolver Facility will be obtained.
Further, the Company assumes that it will be able to refinance the Exit
Financing Agreements before maturity, although there can be no assurance of such
refinancing.
I. Claims Estimations
There can be no assurance that the estimated Claim amounts set forth
herein are correct, and the actual allowed amounts of Claims may differ from the
estimates. The estimated amounts are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual allowed amounts of
Claims may vary from those estimated herein.
J. Environmental Regulation
The Company's operations are subject to various federal, state and
local environmental laws and regulations, including the Clean Air Act, the Clean
Water Act, CERCLA or Superfund and RCRA. Although the Company's operations are
occasionally subject to proceedings and orders pertaining to emissions into the
environment and other environmental violations, which may result in fines,
penalties, damages or other sanctions, the Company believes that it is in
substantial compliance with existing environmental laws and regulations.
The Company may be identified, along with other entities, as being
among parties potentially responsible for contribution to costs associated with
the correction and remediation of environmental conditions at disposal site
subject to CERCLA and/or analogous state laws. In certain instances the Company
may be exposed to joint and several liability for remedial action or damages.
The Company's ultimate liability in connection with such environmental claims
will depend on many factors, including its volumetric share of waste, the total
cost of remediation, the financial viability of other companies that also sent
waste to a given site and, in the case of divested operations, its contractual
arrangement with the purchaser of such operations.
K. Market for Securities
There can be no assurance that an active market for any of the
securities to be distributed pursuant to the Plan, including the High Yield
Notes and the Reorganized CPIH Preferred Securities, will develop and no
assurance can be given as to the prices at which such securities might be
traded.
L. Assumptions Regarding Value of Debtors' Assets
Pursuant to SOP 90-7, the Projections incorporate "Fresh Start
Reporting" principles which the Reorganized Debtors will be required to adopt
upon emergence from bankruptcy. These Fresh Start Reporting principles require,
among other things, that the Reorganized Debtors' assets and liabilities be
recorded at fair value ("Fresh Start Reporting Adjustments"). The Fresh Start
Reporting Adjustments included in the Projections are preliminary estimates to
adjust the Reorganized Debtors' capital structure and its assets and liabilities
to their estimated fair values in accordance with the Reorganization Plan and
the Valuation Analysis in Exhibit D. These estimated Fresh Start Reporting
Adjustments are subject to change and the Debtors can give no assurance that
they will not change materially. A material change to the Fresh Start Reporting
Adjustment could materially impact the Reorganized Debtors' net income.
M. ESOP/S Corporation Tax Structure; Potential Disallowance of Tax
Benefits
1. Second Class of Stock
The Reorganization Plan has been structured with the intention that
Reorganized Covanta will qualify as an S corporation wholly owned by an ESOP
with the result that Reorganized Covanta's future U.S. federal income tax
liabilities would be substantially reduced. While the Company believes the
ESOP/S corporation structure meets all requirements for such qualification, no
ruling from the IRS or opinion of counsel has been received with respect to such
qualification and there is no assurance that the IRS will not successfully
challenge such structure. In the event Reorganized Covanta does not qualify as
an S corporation, it would incur significant amounts of tax liabilities that
would result in substantial shortfalls in Reorganized Covanta's ability to
service its debt and otherwise meet its obligations.
Reorganized Covanta intends to elect to be taxed as an S corporation as
of January 1, 2004. Covanta believes that that it will satisfy all of the
requirements for qualification as an S corporation upon consummation of the Plan
of Reorganization. However, among the requirements for qualification for S
corporation status is that the stock of the corporation be owned by qualifying
stockholders, such as individuals or tax-exempt entities, and that the
corporation has only one class of stock outstanding. The ESOP, a tax-exempt
entity, is a qualifying stockholder, and it will own all of the outstanding
stock of Reorganized Covanta. Nevertheless, based on the amount of Covanta Notes
and Reorganization Plan Warrants, the IRS could take the position that the
Covanta Notes, in whole or in part, or the Reorganization Plan Warrants,
constitute a second class of stock for purposes of the S corporation rules.
There is consequently a risk that the IRS would be successful in asserting that
the Covanta Notes and/or Reorganization Plan Warrants should be characterized as
a second class of stock. If that were to occur, Reorganized Covanta would not
qualify for S corporation treatment and would incur significant amounts of
unanticipated tax liabilities that would result in substantial shortfalls in the
Reorganizing Debtors' ability to service their debt and otherwise meet their
obligations. See generally Section X, Certain U.S. Federal Income Tax
Consequences of the Plan.
2. IRS Review
In recent months, the IRS has issued revenue rulings and temporary and
proposed regulations regarding arrangements involving certain ESOPs holding
stock in S corporations. The focus of the IRS' recent efforts has been on
arrangements used to avoid the IRC's requirement that an ESOP owning stock in an
S corporation provide meaningful benefits to a broad group of rank-and-file
employees of the S corporation; the intent of which is to prevent the owners of
closely-held S corporations from using ESOPs to shelter their personal service
income from tax through the ESOP. No assurance can be given that the IRS will
not take additional action to target a broader scope of ESOP/S corporation
structures. In fact, in a recent revenue ruling (IRS Revenue Ruling 2003-6) the
IRS has indicated its intent to develop further guidance to address other
abusive arrangements involving S corporation ESOPs. It is the Company's belief
that the Reorganized Covanta ESOP, as structured, does not implicate recent IRS
regulations. Unlike the circumstances described in recent IRS rulings, the ESOP
contemplates that a broad group of over 1,500 employees will receive substantial
equity value in Reorganized Covanta; a benefit such employees would not receive
had the Company sought the implementation of a plan of liquidation.
Because of the uncertainty surrounding the IRS's scrutiny of such
transactions there can be no guarantee that it will not try to disqualify the
Reorganization Plan's ESOP structure. If the IRS were in fact to pursue such an
attack it may seek to rely on the argument that a significant portion of the
benefits of the structure are being realized by the creditors of the Company (as
a result of the increased cash flow available to pay down their debt) at the
expense of the ESOP whose involvement in the Reorganization Plan as the sole
stockholder of Reorganized Covanta generates significant economic value for all
parties in interest. Similarly, the IRS might contend that in light of
Reorganized Covanta's outstanding debt and its issuance of the Reorganization
Plan Warrants, the special rule permitting an ESOP to avoid paying unrelated
business tax on its allocable share of S corporation earnings is being put to an
unintended use, with the result that its benefits should be denied to
Reorganized Covanta. There is no existing specific authority on which the IRS
could rely in formulating such arguments, and as noted above, under the ESOP/S
corporation structure substantial benefits are being extended to a broad group
of employees who, absent such structure, might not otherwise have realized such
benefits. Though there can be no assurance that a court would not be persuaded
by the IRS arguments or that legislative or administrative action could not be
taken that would curtail the benefits of the structure for Reorganized Covanta,
the Company believes that, under current law, the IRS's arguments would not
prevail.
N. U.S. Trust Acceptance of ESOP Contribution
The Reorganizing Debtors' ability to consummate the Reorganization Plan
depends upon acceptance by U.S. Trust, as Trustee on behalf of the proposed
ESOP, of the proposed contribution of Reorganized Covanta stock to the ESOP. As
part of this decision making process, U.S. Trust is also responsible for
negotiating on behalf of the ESOP the terms and conditions governing such
contribution. There can be no assurance that U.S. Trust will not impose
conditions on its acceptance of the contribution that will be undesirable to the
Debtors, the Committee, the Secured Bank Lenders and/or the 9.25% Debenture
Holders, and that, if unacceptable to any or all of such parties, would prevent
the successful creation of the ESOP and consummation of the Reorganization Plan.
O. Reorganized CPIH Preferred Shares; Certain Contractual Restrictions.
Certain project contracts of Covanta's foreign affiliates contain
change-of-control provisions that may limit the ability of Reorganized CPIH to
issue to third parties equity securities of CPIH and/or grant certain control or
management rights over CPIH, without consent from counterparties to the foreign
projects. Should the preferred shares effectively transfer control of CPIH to
their holders, a violation of the change-of-control provisions of certain
international projects could be triggered.
P. International Political Risk
The ownership and operation of facilities in foreign countries in
connection with the Company's international business entails significant
political and financial uncertainties that typically are not involved in such
activities in the United States. Key international risk factors include
governmentally-sponsored efforts to renegotiate long-term contracts, non-payment
of fees and other monies owed to the Company, unexpected changes in electricity
tariffs, conditions in financial markets, currency exchange rates, currency
repatriation restrictions, currency convertability, changes in laws and
regulations and political, economic or military instability, civil unrest and
expropriation. Such risks have the potential to cause substantial delays or
material impairment to the value of the Company's international businesses.
IX. RESALE OF SECURITIES RECEIVED UNDER THE REORGANIZATION PLAN
A. Issuance of New Debt and Equity
Reorganized Covanta does not believe that registration under the
Securities Act of 1933 (the "Securities Act") or comparable state laws is
required with respect to the Reorganization Plan Notes or the Reorganization
Plan Equities Securities to be distributed to holders of Claims (including,
without limitation, to the holders of (i) Reorganized Covanta Secured Claim,
(ii) Operating Company Unsecured Claims, (iii) Intermediate Holding Company
Unsecured Claims or (iv) Covanta Unsecured Claims on account of and in exchange
for such Claims.
Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of
securities under a plan of reorganization from registration under section 5 of
the Securities Act and state laws if three principal requirements are satisfied:
(i) the securities must be offered and sold under a plan of reorganization and
must be securities of the debtor, of an affiliate participating in joint plan
with the debtor, or of a successor to the debtor under the plan; (ii) the
recipients of the securities must hold claims against or interests in the
debtor; and (iii) the securities must be issued in exchange (or principally in
exchange) for the recipient's claim against or interest in the debtor. The
Reorganizing Debtors believe that the offer and sale of the Reorganization Plan
Notes and the Reorganization Plan Equity Securities under the Reorganization
Plan to holders of Claims (including those identified in the immediately
preceding paragraph) satisfy the requirements of section 1145(a)(1) of the
Bankruptcy Code and are, therefore, exempt from registration under the
Securities Act and state securities laws.
B. Subsequent Transfers of Reorganization Plan Notes
To the extent that the Reorganization Plan Notes or the Reorganization
Plan Equity Securities are issued under the Reorganization Plan and are covered
by section 1145(a)(1) of the Bankruptcy Code, they may be resold by the holders
thereof without registration unless, as more fully described below, the holder
is an "underwriter" with respect to such securities. Generally, section
1145(b)(1) of the Bankruptcy Code defines an "underwriter" as any person who:
(i) purchases a claim against, an interest in, or a claim for an
administrative expense against the debtor, if such purchase is with a
view to distributing any security received in exchange for such a
claim or interest;
(ii) offers to sell securities offered under a plan for the
holders of such securities;
(iii) offers to buy such securities from the holders of such
securities, if the offer to buy is:
(A) with a view to distributing such securities; and
(B) under an agreement made in connection with the plan, the
consummation of the plan, or with the offer or sale of securities
under the plan; or
(iv) is an "issuer" with respect to the securities, as the term
"issuer" is defined in section 2(11) of the Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any
person directly or indirectly controlling or controlled by the issuer, or any
person under direct or indirect common control of the issuer.
To the extent that Persons who receive Reorganization Plan Notes or
Reorganization Plan Equity Securities pursuant to the Reorganization Plan are
deemed to be "underwriters" as defined in section 1145(b) of the Bankruptcy
Code, resales by such Persons would not be exempted by section 1145 of the
Bankruptcy Code from registration under the Securities Act or other applicable
law. Such Persons would, however, be permitted to sell such Reorganization Plan
Notes or Reorganization Plan Equity Securities without registration if they are
able to comply with the provisions of Rule 144 under the Securities Act. These
rules permit the public sale of securities received by such Person if current
information regarding the issuer is publicly available and if volume limitations
and certain other conditions are met.
Whether or not any particular person would be deemed to be an
"underwriter" with respect to the Reorganization Plan Notes or Reorganization
Plan Equity Securities to be issued pursuant to the Reorganization Plan would
depend upon various facts and circumstances applicable to that person.
Accordingly, the Reorganizing Debtors and Heber Debtors express no view as to
whether any particular Person receiving Reorganization Plan Notes or
Reorganization Plan Equity Securities under the Reorganization Plan would be an
"underwriter" with respect to such Reorganization Plan Notes or other
securities.
Given the complex and subjective nature of the question of whether a
particular holder may be an underwriter, the Reorganizing Debtors make no
representation concerning the right of any Person to trade in the Reorganization
Plan Notes or Reorganization Plan Equity Securities. The Reorganizing Debtors
recommend that potential recipients of the Reorganization Plan Notes or
Reorganization Plan Equity Securities consult their own counsel concerning
whether they may freely trade Reorganization Plan Notes or Reorganization Plan
Equity Securities or Reorganization Plan Equity Securities without compliance
with the Securities Act, the Exchange Act or similar state and federal laws.
X. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A summary description of certain material United States federal income
tax consequences of the Reorganization Plan is provided below. This description
is for informational purposes only and, due to a lack of definitive judicial or
administrative authority or interpretation, substantial uncertainties exist with
respect to various tax consequences of the Reorganization Plan as discussed
herein. Only the principal United States federal income tax consequences of the
Reorganization Plan to the Reorganizing Debtors and Heber Debtors and to Holders
of Claims who are entitled to vote or to accept or reject the Reorganization
Plan are described below. No opinion of counsel has been sought or obtained with
respect to any tax consequences of the Reorganization Plan. Except for a
determination letter with respect to the ESOP's compliance with the requirements
of Code Sections 401(a), 501(a) and 4975(e)(7), no rulings or determinations of
the Internal Revenue Service (the "IRS") or any other tax authorities have been
sought or obtained with respect to any tax consequences of the Reorganization
Plan, and the discussion below is not binding upon the IRS or such other
authorities. No representations are being made regarding the particular tax
consequences of the confirmation and consummation of the Reorganization Plan to
the Reorganizing Debtors and Heber Debtors or any Holder of a Claim. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a different position from any discussed herein.
The discussion of United States federal income tax consequences below
is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, judicial authorities, published positions of the IRS and other
applicable authorities, all as in effect on the date of this document and all of
which are subject to change or differing interpretations (possibly with
retroactive effect).
The following discussion does not address foreign, state or local tax
consequences of the Reorganization Plan, nor does it purport to address the
United States federal income tax consequences of the Reorganization Plan to
special classes of taxpayers. Furthermore, the following discussion does not
address United States federal taxes other than income taxes.
EACH HOLDER IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING
THE UNITED STATES FEDERAL, STATE AND LOCAL AND ANY FOREIGN TAX CONSEQUENCES OF
THE TRANSACTIONS DESCRIBED HEREIN AND IN THE REORGANIZATION PLAN.
A. United States Federal Income Tax Consequences to the Reorganizing Debtors and
Heber Debtors
1. Taxation of Reorganized Covanta as an S corporation
Upon implementation of the Reorganization Plan, on the Effective Date,
all the outstanding Old Covanta Stock will be cancelled for no consideration and
Reorganized Covanta will issue one hundred percent of the Reorganized Covanta
Common Stock to an ESOP in accordance with the Reorganization Plan. Reorganized
Covanta intends to elect to be treated as an S corporation as of January 1,
2004. Generally, the income of an S corporation is not subject to corporate
income tax but passes through to its shareholders. Losses incurred by an S
corporation flow through to its shareholders up to the amount of each
shareholder's adjusted basis in his stock and debt, if any, of the S
corporation. The ESOP, a tax-exempt organization, will be the only shareholder
of Reorganized Covanta. In general, an ESOP is not subject to United States
federal income taxation, except with respect to such ESOP's "unrelated business
taxable income." Under a special statutory provision, income of an S corporation
allocated to an ESOP shareholder is not treated as "unrelated business taxable
income" in the hands of the ESOP. Accordingly, the ESOP will not be subject to
United States federal income taxation with respect to such income. It is
expected that Reorganized Covanta will generate large amounts of taxable income
in the taxable periods following the Effective Date. Consequently, if
Reorganized Covanta were not to qualify for S corporation treatment, or if the
IRS were to successfully challenge the S corporation status of Reorganized
Covanta, Reorganized Covanta would incur significant amounts of federal income
taxes on such income. It is expected that Reorganized Covanta would not have the
financial capability to satisfy such tax liabilities and its outstanding debt
obligations.
Although generally S corporations are not subject to corporate income
taxes, they are subject to corporate income taxes on built-in gains. These
special rules are only relevant for S corporations that were previously taxed as
C corporations, such as Reorganized Covanta. If, within ten (10) years of
Reorganized Covanta's conversion to an S corporation, Reorganized Covanta sells
assets with built-in gains attributable to unrealized appreciation that existed
on the date Reorganized Covanta converted to an S corporation, Reorganized
Covanta would be subject to corporate tax on such gains. The total amount of
such built-in gains that can become subject to corporate income tax cannot
exceed Covanta's net unrealized built-in gain. Net unrealized built-in gain is
the amount by which the fair market value of all assets of Reorganized Covanta
on the first day of its taxable year as an S corporation exceeds the aggregate
adjusted basis of those assets at that time. If Reorganized Covanta recognizes
built-in losses (attributable to unrealized depreciation that existed on the
date Covanta converted to an S corporation) in the same taxable year it
recognizes built-in gains, the losses can offset the gains. Recognized built-in
losses cannot, however, be carried forward to another taxable year. Reorganized
Covanta's net recognized built-in gain subject to corporate income tax for any
taxable year is limited to the amount of taxable income Reorganized Covanta
would have reported if it were a C corporation.
Although in general, most states automatically follow the federal
treatment of an S corporation, certain states do not recognize an S corporation
election or impose an entity-level tax at a reduced rate on an S corporation. It
is expected that Reorganized Covanta will be subject to state corporate income
taxes in certain jurisdictions.
2. Requirements for S Corporation Election
In general, in order to qualify as an S corporation, a corporation must
meet certain requirements. An S corporation cannot have more than 75
shareholders. Only certain specified categories of persons, including tax-exempt
organizations such as an ESOP, are eligible to be an S corporation shareholder.
Reorganized Covanta will be permitted to have only one shareholder, the ESOP,
and therefore this requirement should be met. Second, an S corporation can only
have one class of stock (except for common stock with different voting rights).
Reorganized Covanta will have only one class of stock outstanding, the
Reorganized Covanta Common Stock, and will not be permitted to issue additional
classes of stock. Under certain circumstances, however, other forms of
instruments such as debt or warrant-type instruments may be treated as a second
class of stock. A recharacterization of debt or Reorganization Plan Warrants
that will be issued by Reorganized Covanta as a second class of stock would
result in Reorganized Covanta being disqualified as an S corporation. See
"Second Class of Stock" discussion below. Reorganized Covanta could also be
disqualified as an S corporation if it has passive investment income in excess
of 25 percent of its gross receipts for two consecutive tax years. It is not
expected that Reorganized Covanta will have significant amounts of passive
investment income.
An S corporation election for a particular taxable year (i) may not be
made after the first two and a half months of that year and (ii) may only be
made if the corporation is eligible for S corporation status as of the beginning
of that taxable year. Covanta has the calendar year as its taxable year.
Reorganized Covanta intends to make an S corporation election effective as of
January 1, 2004. In order for Reorganized Covanta to make the S corporation
election effective as of January 1, 2004, it is necessary for Reorganized
Covanta to meet all requirements necessary to qualify as an S corporation as of
January 1, 2004. In particular, it is necessary for the Reorganized Covanta
Common Stock to be owned by the ESOP as of January 1, 2004 for Covanta's S
corporation election to be effective as of that date. During any period that
Reorganized Covanta's S corporation election is not in effect, Reorganized
Covanta will be subject to corporate income tax.
3. Second Class of Stock
In addition to the Reorganized Covanta Common Stock, Reorganized
Covanta will issue the Reorganization Plan Unsecured Notes and the New High
Yield Secured Notes (together, "Covanta Notes") and the Reorganization Plan
Warrants. If these instruments are treated as a second class of stock,
Reorganized Covanta would be disqualified as an S corporation.
(a) The Covanta Notes
Under the Treasury Regulations, debt generally will not be treated as a
second class of stock for S corporation purposes, unless (i) the debt is
appropriately characterized as equity under general tax law principles and (ii)
a principal purpose of issuing the debt is to circumvent the limitations on
eligible shareholders of an S corporation. A significant number of Holders of
the Covanta Notes would be ineligible to be S corporation shareholders. In
addition, in light of the amount of debt that Reorganized Covanta will have
outstanding as compared to its equity, the IRS could argue that Reorganized
Covanta is thinly capitalized and that under general principles of tax law, all
or some of the Covanta Notes are more appropriately characterized as a second
class of equity. In general, the IRS and the courts have not developed a precise
test for distinguishing debt from equity. A number of characteristics, however,
traditionally have been used to identify debt. In addition to the absence of
thin capitalization, the most important of these are: (i) the return of
principal on or before a fixed maturity date; (ii) an interest rate that is not
contingent upon either a discretionary action of the issuing corporation's board
of directors or the corporation's earnings; (iii) the existence of a claim that
is superior to that of the shareholders of the issuer and on a parity with at
least the claim of some other creditors of the issuer; (iv) a lack of
participation by the Holder of the instrument in the management of the issuer;
and (v) the ability of the issuing corporation to meet its obligations.
Reorganized Covanta will treat the Covanta Notes as debt for all purposes.
Moreover, assuming the Reorganization Plan is approved, the Bankruptcy Court
will make a finding that the Reorganization Plan is feasible indicating its
belief that it is reasonable to conclude that Reorganized Covanta can repay or
refinance the Covanta Notes in the ordinary course of business. However, such
treatment and/or determination is not binding on the IRS, there can be no
assurance that the IRS would not be successful in challenging such a finding and
asserting that certain of the Covanta Notes should be treated as a second class
of equity. The IRS may also contend that the issuance of the Reorganization Plan
Warrants to Holders of the Covanta Notes, which entitle the Holders to a
significant portion of the appreciation in value of the equity of Reorganized
Covanta, should be taken into account in assessing whether the Covanta Notes
should be reclassified as equity. The Covanta Notes and Reorganization Plan
Warrants are separate instruments, the Notes can be transferred independently of
the Reorganization Plan Warrants, and the Reorganization Plan Warrants are not
held in the same ratio as any class or classes of Covanta Notes. As such, the
Reorganization Plan Warrants arguably should not be considered in assessing the
classification of the Covanta Notes. Nonetheless, there can be no assurance that
such an argument would prevail and the IRS would not be successful in asserting
that the Covanta Notes should be treated, in whole or in part, as a second class
of stock.
(b) Reorganization Plan Warrants
The Treasury Regulations provide special rules for determining whether
a call option, warrant, or similar instrument (a "call option") is treated as a
second class of stock for S corporation purposes. It is unclear whether the
Reorganization Plan Warrants, which provide Reorganized Covanta with the right
to settle in cash, as well as stock, will be treated as a call option subject to
these rules.
Under the rules, a call option is treated as a second class of stock
if, taking into account all the facts and circumstances, the call option is
substantially certain to be exercised and has a strike price substantially below
the fair market value of the underlying stock on the date the call option is
issued, transferred by a person who is eligible to be an S corporation
shareholder to a person who is not eligible to be an S corporation shareholder,
or materially modified (each such date, a "testing date"). Applicable Treasury
Regulations provide for a safe harbor such that if on any testing date, the
strike price of the call option is at least 90 percent of the underlying stock's
fair market value on that date, the call option is not treated as a second class
of stock. Failure of an option to meet this safe harbor will not necessarily
result in the option being treated as a second class of stock, but rather such
option then needs to be tested under the general rules, as described above. It
is expected that the Reorganization Plan Warrants, upon issuance, will qualify
for this safe harbor. The Reorganization Plan Warrants by their terms are not
transferable in a way that would cause a new testing date to occur. Therefore,
if the special rules under the Treasury Regulations were applicable to the
Reorganization Plan Warrants, the Reorganization Plan Warrants should not be
considered to constitute a second class of stock.
Alternatively, were the Reorganization Plan Warrants determined not to
be call options covered by the Treasury Regulations, the IRS could attempt to
recharacterize the Reorganization Plan Warrants as a second class of stock under
general principles of tax law. While the company would argue that the
Reorganization Plan Warrants should not be treated more stringently than an
actual call option, which entitles the holder to acquire stock of the company,
there is no assurance that such an argument would prevail and that the IRS would
not be successful in recharacterizing the Reorganization Plan Warrants as a
second class of stock.
4. Qualified Subchapter S Subsidiaries ("QSub")
At the same time Reorganized Covanta will elect S corporation status,
it will elect to treat most of its domestic subsidiaries as QSubs. Because, in
general, this election is only available with respect to wholly-owned
subsidiaries of an S corporation that are eligible domestic corporations,
Reorganized Covanta will not be able to elect QSub status for its foreign
subsidiaries. A QSub election can be made for a chain of subsidiaries. Once a
first-tier subsidiary becomes a QSub, the S corporation is treated as owning
directly all of the stock of a second-tier subsidiary held by such first-tier
subsidiary, and therefore may make a QSub election with respect to the
second-tier subsidiary. However, it is not possible to make a QSub election for
a second-tier subsidiary if the first-tier subsidiary remains a C corporation.
Immediately before the S corporation and the QSub elections are deemed
effective, the Subsidiaries for which a valid QSub election will be made, will
be deemed to have liquidated for U.S. federal income tax purposes. While it is
anticipated that such liquidations will generally be done on a tax-free basis,
in one instance the deemed liquidation will give rise to the recognition of
taxable gain that will cause a tax liability to be incurred for state corporate
income tax. After the QSub elections become effective, the separate existence of
the QSubs will be ignored for United States federal income tax purposes. All
assets, liabilities and items of income, deduction and credit of the QSubs will
be treated as assets, liabilities and items of income, deduction and credit of
Reorganized Covanta. The consolidated group for United States federal income tax
purposes of which Covanta is the parent will no longer exist. By making QSub
elections for most of the domestic Subsidiaries, Reorganized Covanta will be
able to extend the beneficial tax consequences of being an S corporation that is
wholly-owned by an ESOP to most of the activities of its domestic subsidiaries.
5. Cancellation of Indebtedness Income.
Upon implementation of the Reorganization Plan, the amount of
Reorganized Covanta's aggregate outstanding indebtedness will be reduced. In
general, the discharge of a debt obligation in exchange for an amount of cash
and other property, including new debt obligations, having a fair market value
(or, in the case of a new debt instrument, an "issue price") less than the
"adjusted issue price" of the debt gives rise to cancellation of indebtedness
("COD") income to the debtor. However, COD income is not taxable to the debtor
if the debt discharge occurs in a Title 11 bankruptcy case. Instead, under the
Code, such COD income will reduce certain of the debtor's tax attributes,
generally in the following order: (a) net operating losses ("NOLs") and NOL
carryforwards; (b) general business credit carryforwards; (c) minimum tax credit
carryforwards; (d) capital loss carryforwards; (e) the tax basis of the debtor's
depreciable and nondepreciable assets (but not below the amount of its
liabilities immediately after the discharge); and (f) foreign tax credit
carryforwards. The reduction in tax attributes occurs only after the tax for the
year of the debt discharge has been determined (i.e., such attributes may be
available to offset taxable income that accrues between the date of discharge
and the end of Covanta's taxable year). Any excess COD income over the amount of
available tax attributes is not subject to United States federal income tax and
has no other United States federal income tax impact. After reduction for the
COD income generated by the Reorganization Plan, Covanta does not expect to have
significant amounts of remaining tax attributes.
B. United States Federal Income Tax Consequences to the Holders of Claims
of the Reorganizing Debtors and Heber Debtors
The following is a summary of the principal U.S. federal income tax
consequences of the Reorganization Plan that may be relevant to a beneficial
holder of a Claim that is a citizen or resident of the United States or a
domestic corporation or otherwise subject to U.S. federal income tax on a net
income basis in respect of the Claim (a "Holder"). The discussion does not deal
with special classes of Holders, such as dealers in securities or currencies,
banks, financial institutions, insurance companies, tax-exempt organizations,
persons holding Claims as a position in a "straddle" or conversion transaction,
or as part of a "synthetic security" or other integrated financial transaction
or persons that have a functional currency other than the U.S. dollar. Moreover,
this summary does not address the U.S. federal estate and gift tax or
alternative minimum tax consequences of the Reorganization Plan or of the
ownership or retirement of the Reorganization Plan Warrants, the New CPIH
Preferred Stock or the Reorganization Plan Notes issued pursuant to the
Reorganization Plan and does not address the U.S. federal income tax treatment
of Holders that acquire such Reorganization Plan Warrants, Equity Securities or
Notes subsequent to the Effective Date of the Reorganization Plan. This
discussion assumes that the Reorganization Plan Warrants, the New CPIH Preferred
Stock, and the Reorganization Plan Notes will be held as "capital assets" within
the meaning of Section 1221 of the Code.
For U.S. federal income tax purposes, the treatment of Holders and the
character and amount of income, gain or loss recognized as a consequence of the
Reorganization Plan will depend upon, among other factors, whether the Claims,
the Reorganization Plan Warrants, the New CPIH Preferred Stock, and the
Reorganization Plan Notes constitute "securities in a corporation a party to a
reorganization" for the purposes of Code 354 ("Section 354 Securities").
The rules for determining whether an obligation constitutes a
"security" for purposes of Code Section 354 are unclear. The term security is
not defined in the Code or the Treasury Regulations and has not been clearly
defined by judicial decisions. The test as to whether a debt instrument is a
security involves an overall evaluation of the nature of the debt instrument and
the extent of the investor's proprietary interest in the issuer. One of the most
significant factors considered in determining whether a particular debt
instrument is a security is its original term. Generally, debt instruments with
a term of less than five (5) years are not likely, except in certain
circumstances, to be considered securities. Debt instruments with a term of ten
(10) years or more are highly likely to be considered securities, while debt
instruments with an initial term at issuance of five (5) to ten (10) years are
often considered securities, but their status is unclear. Under Code Section 354
and applicable Treasury Regulations, call options that provide the holder with a
right to acquire stock generally would be treated as Section 354 Securities.
However, it would appear that options that may be settled in cash at the
discretion of the issuer are not likely to be treated as Section 354 Securities.
In addition, claims arising out of the extension of trade credit have been held
not to be securities.
If an instrument is a "security" under Code Section 354, it is
necessary to consider whether such instrument is a security "in a corporation a
party to a reorganization" in order to determine whether such a security is a
Section 354 Security. A subsidiary of a corporation engaging in a
recapitalization is not a "party to the reorganization" with the result that its
securities would not constitute Section 354 Securities.
In light of the foregoing, and, taking into account the reasons for the
exchange and more generally the risks borne by Holders of New High Yield Secured
Notes, Covanta intends to take the position that (i) the Allowed Secured 9.25%
Debenture Claims, with an initial term of twenty (20) years, and (ii) the New
High Yield Secured Notes, with an initial term of seven (7) years, are Section
354 Securities. Covanta also intends to take the position that the
Reorganization Plan Warrants received in exchange for Allowed Claims are not
Section 354 Securities, and none of the other Allowed Claims or other
consideration to be received in exchange for Allowed Claims as part of the
Reorganization Plan will be Section 354 Securities. Each Holder is urged to
consult its tax advisor regarding the status of its Claim, or any portion
thereof, or of consideration received in exchange for an Allowed Claim as part
of the Reorganization Plan as a Section 354 Security.
1. Consequences to Holders of Allowed Claims other than Allowed Secured
9.25% Debenture Claims ("Other Allowed Claims") who receive some combination of
Cash, Reorganization Plan Unsecured Notes, New CPIH Funded Debt, New CPIH
Preferred Stock, Reorganization Plan Warrants and New High Yield Secured Notes.
The exchange of Other Allowed Claims for some combination of Cash,
Reorganization Plan Unsecured Notes, New CPIH Funded Debt, New High Yield
Secured Notes, New CPIH Preferred Stock, and Reorganization Plan Warrants will
be a fully taxable transaction.
The tax consequences of such transaction to any specific Holder will
differ and will depend on factors specific to each such Holder, including but
not limited to: (i) whether the Holder's Other Allowed Claim constitutes a claim
for principal or interest, (ii) the origin of the Other Allowed Claim, (iii) the
type of consideration received in exchange for the claim, (iv) whether the
Holder reports income on the accrual or cash basis method, and (v) whether the
Holder has taken a bad debt deduction or otherwise recognized a loss with
respect to the Other Allowed Claim. However, as a general matter, Holders of
Other Allowed Claims will recognize gain or loss in an amount equal to the
difference between the amount realized on the exchange and their adjusted tax
basis in the Other Allowed Claims tendered upon the consummation of the Plan.
Any such gain or loss should constitute ordinary income or loss unless such
Other Allowed Claim is a capital asset. If the Other Allowed Claim is a capital
asset, and it has been held for more than one year, such Holder will realize
long-term capital gain or loss (other amounts attributable to market discount
and amounts received attributable to accrued but unpaid interest).
A Holder's adjusted tax basis in an Other Allowed Claim generally will
equal the amount paid for such Other Allowed Claim, increased by the amount of
any market discount previously taken into account by the Holder and reduced by
the amount of any amortizable bond premium previously amortized by the Holder
with respect to the Other Allowed Claim. The amount realized in the exchange
will be the fair market value of the New CPIH Preferred Stock, Reorganization
Plan Warrants, and New CPIH Funded Debt received plus the issue price of the
Covanta Notes received (determined as described below under "-Holding and
Disposing of New CPIH Preferred Stock, Reorganization Plan Warrants and
Reorganization Plan Notes - Issue Price of the Reorganization Plan Notes.") plus
the amount of Cash received, if any (other than amounts received attributable to
accrued interest, which will be taxed as such).
In general, if a Holder acquired the Other Allowed Claim with market
discount, any gain realized by a Holder will be treated as ordinary income to
the extent of the portion of the market discount that has accrued while such
Other Allowed Claims were held by the Holder, unless the Holder has elected to
include market discount in income currently as it accrues.
A Holder's tax basis in any New CPIH Preferred Stock, Reorganization
Plan Warrant, or New CPIH Funded Debt will be the fair market value of such New
CPIH Preferred Stock, Reorganization Plan Warrant or Note at the time of the
exchange. A Holder's tax basis in any Covanta Note received will equal the issue
price of such Note, as determined below under "- Holding and Disposing of New
CPIH Preferred Stock, Reorganization Plan Warrants and Reorganization Plan Notes
- - Issue Price of the Reorganization Plan Notes." The holding period for any New
CPIH Preferred Stock, Reorganization Plan Warrant or Reorganization Plan Note
received generally will begin the day following the issuance of such New CPIH
Preferred Stock, Reorganization Plan Warrant or Reorganization Plan Note.
2. Consequences to Holders of Allowed Secured 9.25% Debenture Claims.
Covanta intends to take the position that the exchange of Allowed
Secured 9.25% Debenture Claims for New High Yield Secured Notes and any other
consideration constitutes a recapitalization that qualifies as a tax-free
reorganization with meaning of Code Section 368(a)(1)(E). If the exchange
qualifies as a recapitalization, a Holder that receives New High Yield Secured
Notes and any other consideration will not recognize loss on the exchange, and
will recognize gain only to extent of the lesser of (i) the amount of gain
realized on the exchange and (ii) the amount of "boot" received on the exchange.
Any Cash, Reorganization Plan Unsecured Notes, New CPIH Funded Debt, New CPIH
Preferred Stock, or Reorganization Plan Warrants received in the exchange will
be treated as boot, in an amount equal to their fair market value. The amount of
gain realized on the exchange, if any, will equal the excess of the Holder's
amount realized on the exchange over the Holder's adjusted tax basis in its
Allowed Secured 9.25% Debenture Claims. A Holder's amount realized will equal
the sum of (i) the issue price of the New High Yield Secured Notes received,
determined as described below under "- Holding and Disposing of New CPIH
Preferred Stock, Reorganization Plan Warrants and Reorganization Plan Notes -
Issue Price of the Reorganization Plan Notes," and (ii) the fair market value of
other consideration received in the exchange. A Holder's adjusted tax basis in
the Allowed Secured 9.25% Debenture Claims generally equals the amount paid for
such Claim, increased by the amount of any market discount previously taken into
account by the Holder and reduced by the amount of any amortizable bond premium
previously amortized by the Holder with respect to the Certificates. Subject to
the application of the market discount rules, as discussed below, any gain
recognized on the exchange will be capital gain.
A Holder's tax basis in the New High Yield Secured Notes received will
be the same as such Holder's tax basis in the Allowed Secured 9.25% Debenture
Claims exchanged, decreased by the amount of Cash received, if any, and the fair
market value of any other consideration received and increased by the amount of
any gain recognized by the Holder in respect of the exchange. A Holder's holding
period for the New High Yield Secured Notes will include its holding period for
the Allowed Secured 9.25% Debenture Claims. A Holder's tax basis in other
consideration will be the fair market value of such other consideration at the
time of the exchange. The holding period for any Reorganization Plan Warrant,
New CPIH Preferred Stock or New CPIH Funded Debt received generally will begin
the day following the issuance of such Reorganization Plan Warrant, Stock, or
Notes.
If a Holder acquired the Allowed Secured 9.25% Debenture Claims with
market discount, any gain recognized by the Holder on the recapitalization will
be treated as ordinary income to the extent of the portion of the market
discount that has accrued while such Allowed Secured 9.25% Debenture Claims were
held by the Holder, unless the Holder has elected to include market discount in
income currently as it accrues.
3. Holding and Disposing of New CPIH Preferred Stock, Reorganization Plan
Warrants and Reorganization Plan Notes
(a) Issue price of the Reorganization Plan Notes.
The issue price of the Covanta Notes depends on whether a substantial
amount of the Covanta Notes or the Allowed Claims for which they are exchanged
are treated as "traded on an established market" within the meaning of the
applicable Treasury Regulations. The issue price of the New CPIH Secured Notes
depends on whether a substantial amount of the New Secured CPIH Notes are
treated as "traded on an established market" within the meaning of the
applicable Treasury Regulations. Reorganization Plan Notes are treated as
"traded on an established market" if, at any time during the 60-day period
ending 30 days after the issue date, such Notes are traded or listed on a
national securities exchange, interdealer quotation system, certain foreign
exchanges, or price quotations are readily available from dealers, brokers or
traders. If an Allowed Claim or the Covanta Notes for which such Claim is
exchanged were traded on an established market, the issue price of the Covanta
Notes would equal the fair market value of either the Allowed Claim or the
Covanta Notes for which such Claim is exchanged. If a New CPIH Secured Note were
traded on an established market, the issue price of the New CPIH Secured Note
would equal the fair market value of such New CPIH Secured Note. If neither the
Allowed Claim, the Covanta Notes for which such Claim is exchanged, nor the New
CPIH Secured Note are traded on an established market, then the Reorganization
Plan Notes would have an issue price equal to their stated principal amount so
long as there is "adequate stated interest" within the meaning of Code Section
1274(c)(2). Covanta expects the Reorganization Plan Notes to have adequate
stated interest. Covanta does not expect the Allowed Claims or the
Reorganization Plan Notes to be traded on an established market, within the
meaning of the applicable Treasury Regulations, and, accordingly, intends to
treat the Reorganization Plan Notes as having an issue price equal to their
stated principal amount.
(b) Qualified Stated Interest and Original Issue Discount
In general, for U.S. federal income tax purposes, a Holder will have to
include qualified stated interest on the Reorganization Plan Notes in gross
income in accordance with its usual method of tax accounting. Qualified stated
interest is stated interest that is unconditionally payable in cash or in
property at least annually at a single fixed rate. All interest payments on the
Reorganization Plan Notes will be treated as qualified stated interest.
If the issue price of the Reorganization Plan Notes is less than their "stated
redemption price at maturity" by more than a de minimis amount (1/4 of 1 percent
of the Reorganization Plan Notes' stated redemption price at maturity multiplied
by the number of complete years to their stated maturity), the Reorganization
Plan Notes will be treated as issued with OID for U.S. federal income tax
purposes. As described above under "- Holding and Disposing of New CPIH
Preferred Stock, Reorganization Plan Warrants and Reorganization Plan Notes -
Issue Price of the Reorganization Plan Notes," Covanta expects that issue price
of the Reorganization Plan Notes to be equal to their stated principal amount
which, in applicable Treasury Regulations, is defined as all payments due under
the debt instrument, excluding any amount of stated interest. The Reorganization
Plan Notes' stated redemption price at maturity is the sum of all payments due
under the Reorganization Plan Notes other than payments of qualified stated
interest. Because Covanta expects all stated interest on the Reorganization Plan
Notes to be qualified stated interest, it is expected that the issue price of
the Reorganization Plan Notes will be equal to their stated redemption price at
maturity so that they will not be issued with OID.
(c) Market Discount and Bond Premium
Any Holder that received New High Yield Secured Notes in an exchange
that qualifies as a recapitalization and has a tax basis in such New High Yield
Secured Notes that is less than the issue price of such Notes will be subject to
the market discount rules (unless the amount of the excess of the issue price
over the basis is less than a specified de minimis amount, in which case market
discount is considered to be zero). Any Holder that received Reorganized Plan
Unsecured Notes or New CPIH Funded Debt in an exchange and has a tax basis in
such Notes that is less than the issue price of such Notes will be subject to
the market discount rules (unless the amount of the excess of the issue price
over the basis is less than a specified de minimis amount, in which case market
discount is considered to be zero).
In general, if a note is purchased with market discount, a Holder may
elect (but is not required) to take market discount into income over the
remaining life of a note, either on a ratable or economic yield basis. In
addition, a Holder who acquired its Allowed Secured 9.25% Debenture Claims at a
market discount may be required to carry over to the New High Yield Secured
Notes any accrued market discount with respect to the Allowed Secured 9.25%
Debenture Claims to the extent that the accrued market discount was not
previously included in income.
If any Holder receives Reorganization Plan Notes in an exchange and has
a tax basis in such Reorganization Plan Notes that exceeds such Reorganization
Plan Note's stated redemption price at maturity, the New High Yield Secured
Notes will have bond premium to the extent of that excess. A Holder generally
may elect to amortize the premium on the constant yield to maturity method as a
reduction of the Holder's interest income from the Reorganization Plan Note.
(d) Sale, Exchange or Redemption of Reorganization Plan Notes
Upon a sale, exchange, redemption or other taxable disposition of
Reorganization Plan Notes, a Holder generally will recognize gain or loss in an
amount equal to the difference between the amount such Holder realizes on the
disposition and its adjusted tax basis in the Reorganization Plan Notes. Subject
to the application of the market discount rules, as discussed above, gain or
loss recognized upon such a disposition generally will be capital gain or loss,
and will be long-term gain or loss if a Holder's holding period exceeds one (1)
year.
(e) Consequences of Holding Reorganization Plan Warrants
The Reorganization Plan Warrants should generally be treated as call
options for U.S. federal income tax purposes. Accordingly, a Holder of
Reorganization Plan Warrants would realize capital gain or loss upon the lapse
or settlement at maturity in an amount equal to the difference between the
amount realized, if any, and the Holder's tax basis for such Reorganization Plan
Warrants. If settled in cash, a Holder will recognize capital gain or loss equal
to the difference between the cash received and the Holder's adjusted tax basis
in the Reorganization Plan Warrants. Such capital gain or loss will be long-term
if the Holder's holding period is more than one (1) year and will be short-term
if the holding period is equal to or less than one (1) year.
(f) Dividends Received on New CPIH Preferred Stock
Generally, a distribution by CPIH with respect to the New CPIH
Preferred Stock will be treated as a dividend to the extent of CPIH current or
accumulated earnings and profits as of the year of distribution, then as a
tax-free return of capital to the extent of a Holder's tax basis in the
Reorganized CPIH Preferred Stock that such Holder holds and thereafter as a gain
from the sale or exchange of such stock.
(g) Sale of New CPIH Preferred Stock and Reorganization Plan
Warrants
Upon the sale or exchange of New CPIH Preferred Stock or Reorganization
Plan Warrants, a Holder generally will recognize capital gain or loss equal to
the difference between (i) the amount of cash and the fair market value of any
property received upon the sale or exchange and (ii) such Holder's adjusted tax
basis in the New CPIH Preferred Stock and Reorganization Plan Warrants. Such
capital gain or loss will be long-term if the Holder's holding period is more
than one (1) year and will be short-term if the holding period is equal to or
less than one (1) year.
C. Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments
in respect of the Reorganization Notes within the United States if you are not a
corporation. To avoid the imposition of backup withholding on such payments, a
Holder should complete an IRS Form W-9 (which can be obtained at the website of
the IRS at www.irs.gov) and either (i) provide its correct taxpayer
identification number ("TIN"), which is a Holder's social security number for an
individual Holder, and certain other information, or (ii) establish a basis for
an exemption from backup withholding. Certain Holders (including, among others,
corporations, individual retirement accounts and certain foreign persons) are
exempt from these backup withholding and information reporting requirements, but
may be required to establish their entitlement to an exemption. If the payment
agent for the Reorganization Notes is not provided with the correct TIN or an
adequate basis for exemption, a Holder may be subject to a backup withholding
tax on payments received in respect of the Reorganization Plan Notes. If backup
withholding results in an overpayment of taxes, a refund or credit may be
obtained, provided that the required information is provided to the IRS.
XI. FEASIBILITY OF THE LIQUIDATION PLAN AND THE REORGANIATION PLAN
AND THE BEST INTERESTS TEST
A. Feasibility of the Plans
To confirm the Reorganization Plan, the Court must find that
confirmation of the Reorganization Plan are not likely to be followed by the
liquidation or the need for further financial reorganization of the Reorganizing
Debtors and Heber Debtors, unless and to the extent liquidation is contemplated
by either of such Plan. This requirement is imposed by section 1129(a)(11) of
the Bankruptcy Code and is referred to as the "feasibility" requirement. The
Reorganizing Debtors and Heber Debtors believe that they will be able to timely
perform all obligations described in the Reorganization Plan, and, therefore,
that the Plan is feasible. Because substantially all of the assets of the
Liquidating Debtors have been sold and any further liquidation of the Residual
Liquidation Assets, if any, is provided for in the Liquidation Plan, the
Liquidating Debtors believe that the Liquidating Plan meets the feasibility
requirement.
1. The Reorganization Plan
To demonstrate the feasibility of the Reorganization Plan, the
Reorganizing Debtors and Heber Debtors have prepared financial Projections
through December 31, 2007, as set forth in Exhibit C2 attached to this
Disclosure Statement. The Projections indicate that the Reorganizing Debtors and
Heber Debtors should have sufficient cash flow to pay and service its debt
obligations and to fund their operations. Accordingly, the Reorganizing Debtors
and Heber Debtors believe that the Reorganization Plan satisfies the feasibility
requirement of section 1129(a)(11) of the Bankruptcy Code. As noted in the
Projections, however, the Reorganizing Debtors and Heber Debtors caution that no
representations can be made as to the accuracy of the Projections or as to the
Reorganizing Debtors and Heber Debtors' ability to achieve the projected
results. Many of the assumptions upon which the Projections are based are
subject to uncertainties outside the control of the Reorganizing Debtors and
Heber Debtors. Some assumptions inevitably will not materialize, and events and
circumstances occurring after the date on which the Projections were prepared
may be different from those assumed or may be unanticipated, and may adversely
affect the Reorganizing Debtors and Heber Debtors' financial results. Therefore,
the actual results may vary from the projected results and the variations may be
material and adverse. See Section XI.A.1, for a discussion of certain risk
factors that may affect financial feasibility of the Reorganization Plan.
2. The Liquidation Plan
The Liquidation Plan contemplates that any remaining Residual
Liquidation Assets of the Liquidating Debtors that have not already been sold,
will be abandoned (to the extent that such Residual Liquidation Assets have de
minimis value) or monetized (to the extent that such Residual Assets have
greater than de minimis value) and all the proceeds of the Liquidation Assets
will be distributed pursuant to the terms of the Liquidation Plan. Because no
further financial reorganization of the Liquidating Debtors will be possible,
the Liquidating Debtors believe that the Liquidation Plan meets the feasibility
requirement. In addition, based on the funding of the Operating Reserve from
certain Net Liquidation Proceeds in the amount of $500,000, the Liquidating
Debtors believe that sufficient funds will exist at confirmation to make all
payments required by the Liquidation Plan.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, THE PRACTICES RECOGNIZED TO BE IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, OR THE RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE PROJECTIONS HAVE
NOT BEEN AUDITED BY THE DEBTORS' INDEPENDENT ACCOUNTANTS. ALTHOUGH PRESENTED
WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF
ASSUMPTIONS, SOME OF WHICH IN THE PAST HAVE NOT BEEN ACHIEVED AND WHICH MAY NOT
BE REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE DEBTORS. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS
A REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, THAT THE
PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
PRESENTED IN THE PROJECTIONS.
B. Acceptance of the Plans
As a condition to confirmation, the Bankruptcy Code requires that each
Class of Impaired Claims and Interests vote to accept the Plans, except under
certain circumstances.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by
a class of impaired claims as acceptance by holders of at least two-thirds in
dollar amount and more than one-half in number of claims in that class, but for
that purpose counts only those who actually vote to accept or to reject the
Plan. Thus, a Class of Claims will have voted to accept a plan only if
two-thirds in amount and a majority in number actually voting cast their Ballots
in favor of acceptance. Under section 1126(d) of the Bankruptcy Code, a Class of
Interests has accepted a plan if holders of such Interests holding at least
two-thirds in amount actually voting have voted to accept a plan. Holders of
claims or interests who fail to vote are not counted as either accepting or
rejecting a plan.
C. Best Interests Test
Even if a plan is accepted by each class of holders of claims and
interests, the Bankruptcy Code requires a Court to determine that the plan is in
the "best interests" of all holders of claims and interests that are impaired by
the plan and that have not accepted the plan. The "best interests" test, as set
forth in section 1129(a)(7) of the Bankruptcy Code, requires a Court to find
either that (i) all members of an impaired class of claims or interests have
accepted the plan or (ii) the plan will provide a member who has not accepted
the plan with a recovery of property of a value, as of the effective date of the
plan, that is not less than the amount that such holder would recover if the
debtor were liquidated under chapter 7 of the Bankruptcy Code.
To calculate the probable distribution to members of each impaired
class of holders of claims and interests if the debtor were liquidated under
chapter 7, a Court must first determine the aggregate dollar amount that would
be generated from the debtor's assets if its chapter 11 case were converted to a
chapter 7 case under the Bankruptcy Code. This "liquidation value" would consist
primarily of the proceeds from a forced sale of the debtor's assets by a chapter
7 trustee.
The amount of liquidation value available to unsecured creditors would
be reduced by the costs of liquidation under chapter 7 of the Bankruptcy Code,
including the compensation of a trustee, as well as of counsel and other
professionals retained by the trustee, asset disposition expenses, additional
administrative claims and other wind-down expenses. The liquidation itself would
trigger certain priority payments that otherwise would be due in the ordinary
course of business. Those priority claims would be paid in full from the
liquidation proceeds before the balance would be made available to pay general
unsecured claims or to make any distribution in respect of equity interests. The
liquidation also would prompt the rejection of a large number of executory
contracts and thereby create a significantly higher number of unsecured claims.
The foregoing types of claims and such other claims which may rise in
the liquidation cases or result from the pending Chapter 11 Cases would be paid
in full from the liquidation proceeds before the balance of those proceeds would
be made available to pay prepetition claims.
Once the court ascertains the recoveries in liquidation of secured
creditors and priority claimants, it must determine the probable distribution to
general unsecured creditors and equity security holders from the remaining
available proceeds in liquidation. If such probable distribution has a value
greater than the distributions to be received by such creditors and equity
security holders under a debtor's plan, then such plan is not in the best
interests of creditors and equity security holders.
D. Estimated Valuation of the Reorganized Debtors and Reorganized
Heber Debtors
A copy of the Reorganization Valuation Analysis is attached to this
Disclosure Statement as Exhibit D.
E. Application of the Best Interests Test to the Liquidation Valuation
Analysis and the Valuation of the Reorganized Debtors and Reorganized
Heber Debtors
A Liquidation Valuation Analysis prepared with respect to each of the
Debtors is attached as Exhibit E to this Disclosure Statement. The Debtors
believe that any liquidation analysis is speculative. For example, the
liquidation analysis necessarily contains an estimate of the amount of Claims
which will ultimately become Allowed Claims. In preparing the Liquidation
Valuation Analysis, the Debtors have projected an amount of Allowed Claims based
upon a review of their scheduled claims. Additions were made to the scheduled
claims to adjust for estimated claims related to postpetition obligations,
pension liabilities and other employee-related obligations, post-retirement
obligations and certain lease damage claims. No order or finding has been
entered by the Court estimating or otherwise fixing the amount of Claims at the
projected amounts of Allowed Claims set forth in the Liquidation Valuation
Analysis. The estimate of the amount of Allowed Claims set forth in the
Liquidation Valuation Analysis should not be relied on for any other purpose,
including, without limitation, any determination of the value of any
distribution to be made on account of Allowed Claims and Interests under the
Plans. In addition, as noted above, the valuation analysis of the Reorganized
Debtors and Reorganized Heber Debtors also contains numerous estimates and
assumptions. For example, the value of the Reorganized Covanta Common Stock
cannot be determined with precision due to the absence of a public market for
the Reorganized Covanta Common Stock.
Notwithstanding the difficulties in quantifying recoveries to creditors
with precision, the Debtors believe that, (i) after taking into account the
Liquidation Valuation Analysis and the valuation analysis of the Reorganized
Debtors and Reorganized Heber Debtors and (ii) after consideration of the
effects that a chapter 7 liquidation would have on the ultimate proceeds
available for distribution to creditors in the Chapter 11 Cases, including: (a)
the increased costs and expenses of a liquidation under chapter 7 arising from
fees payable to a trustee in bankruptcy and professional advisors to such
trustee; (b) the substantial increases in claims which would be satisfied on a
priority basis or on parity with creditors in the Chapter 11 Cases; and (c) the
significantly lower proceeds likely to be realized from a liquidation of the
Debtors' assets under a chapter 7 liquidation, the Plan meets the "best
interests" test of section 1129(a)(7) of the Bankruptcy Code. The Debtors
believe that the members of each impaired class will receive at least as much
under the Plans than they would in a liquidation in a hypothetical chapter 7
case. Creditors will receive a better recovery through the distributions
contemplated by the Plans because the continued operation of the Reorganizing
Debtors and Heber Debtors as going concerns rather than a forced liquidation and
an orderly liquidation of the Liquidating Debtors of Covanta's non-core Assets
by a Liquidating Trustee that is already familiar with such Liquidating Debtors
and such Assets will allow the realization of more value for the Debtors'
assets. Moreover, creditors such as the Debtors' employees would retain their
jobs and most likely make few if any other claims against the estate. Lastly, in
the event of liquidation, the aggregate amount of unsecured claims will no doubt
increase significantly, and such claims will be subordinated to priority claims
that will be created. Also, a chapter 7 liquidation would give rise to
additional administrative claims. For example, employees will file claims for
wages, pensions and other benefits, some of which will be entitled to priority.
The resulting increase in both general unsecured and priority claims will no
doubt decrease percentage recoveries to unsecured creditors of all Debtors. All
of these factors lead to the conclusion that recoveries under the Plans would be
at least as much, and in many cases significantly greater, than the recoveries
available in a chapter 7 liquidation.
F. Confirmation Without Acceptance of All Impaired Classes:
The `Cramdown' Alternative
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if it has not been accepted by all impaired classes, as long as
at least one impaired class of Claims has accepted it. The Court may confirm the
Plans at the request of the Debtors notwithstanding the Plans' rejection (or
deemed rejection) by impaired Classes as long as the Plans "do not discriminate
unfairly" and are "fair and equitable" as to each impaired Class that has not
accepted them. A plan does not discriminate unfairly within the meaning of the
Bankruptcy Code if a dissenting class is treated equally with respect to other
classes of equal rank.
A plan is fair and equitable as to a class of secured claims that
rejects such plan if the plan provides (1)(a) that the holders of claims
included in the rejecting class retain the liens securing those claims whether
the property subject to those liens is retained by the debtor or transferred to
another entity, to the extent of the allowed amount of such claims, and (b) that
each holder of a claim of such class receives on account of that claim deferred
cash payments totaling at least the allowed amount of that claim, of a value, as
of the effective date of the plan, of at least the value of the holder's
interest in the estate's interest in such property; (2) for the sale, subject to
section 363(k) of the Bankruptcy Code, of any property that is subject to the
liens securing the claims included in the rejecting class, free and clear of the
liens, with the liens to attach to the proceeds of the sale, and the treatment
of the liens on proceeds under clause (1) or (2) of this paragraph; or (3) for
the realization by such holders of the indubitable equivalent of such claims.
A plan is fair and equitable as to a class of unsecured claims which
rejects a plan if the plan provides (1) for each holder of a claim included in
the rejecting class to receive or retain on account of that claim property that
has a value, as of the effective date of the plan, equal to the allowed amount
of such claim; or (2) that the holder of any claim or interest that is junior to
the claims of such rejecting class will not receive or retain on account of such
junior claim or interest any property at all.
A plan is fair and equitable as to a class of equity interests that
rejects a plan if the plan provides (1) that each holder of an interest included
in the rejecting class receive or retain on account of that interest property
that has 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 (2) that the holder of any interest that is junior to
the interest of such rejecting class will not receive or retain under the plan
on account of such junior interest any property at all. Because (i) holders of
Unsecured Liquidation Claims against the Liquidating Debtors in Class 7, (ii)
holders of Equity Interests in the Subsidiary Debtors and the Liquidating
Debtors in Class 11 and (iii) holders of Old Covanta Stock Equity Interests in
Class 12 are receiving no distribution on account of such Claims and Interests
under the Plans, their votes are not being solicited and they are deemed to have
rejected the Plans pursuant to section 1126(g) of the Bankruptcy Code.
Accordingly, the Debtors are seeking confirmation of the Plans pursuant to
section 1129(b) of the Bankruptcy Code with respect to such Classes and may seek
confirmation pursuant thereto as to other Classes if such Classes vote to reject
the Plans.
G. Conditions to Confirmation and/or Consummation of the Plans
1. Conditions to Confirmation
The following are conditions precedent to confirmation of the Plans.
These conditions may be satisfied or waived by the Debtors in accordance with
Article X of the Reorganization Plan and Article XI of the Liquidation Plan:
(a) The entry of a Final Order finding that the Disclosure Statement
contains adequate information pursuant to section 1125 of the Bankruptcy Code;
(b) The proposed Confirmation Order shall be in form and substance,
reasonably acceptable to the Reorganizing Debtors, Heber Debtors and the
Liquidating Debtors;
(c) All provisions, terms and conditions of the Reorganization Plan are
approved in the Confirmation Order;
(d) The Confirmation Order shall contain a finding that any
Intercompany Claim held by a Reorganizing Debtor, Liquidating Debtor or Heber
Debtor is the exclusive property of such Reorganizing Debtor, Liquidating Debtor
or Heber Debtor pursuant to section 541 of the Bankruptcy Code;
(e) The Confirmation Order shall contain a ruling that each of the
Liquidating Debtors Claims against (i) the Reorganizing Debtors and Heber
Debtors and any of their respective present or former officers, directors,
employees, attorneys, accountants, financial advisors, investment bankers or
agents and (ii) the other persons or entities identified in Section 11.10 of the
Reorganization Plan and Section 12.9 of the Liquidation Plan will be fully
settled and released as of the Effective Date;
(f) The Confirmation Order shall contain a ruling that each of the
Reorganizing Debtors and Heber Debtors Claims against (i) the Reorganizing
Debtors and Heber Debtors and any of their respective present or former
officers, directors, employees, attorneys, accountants, financial advisors,
investment bankers or agents and (ii) the other persons or entities identified
in Section 11.10 of the Reorganization Plan will be fully settled and released
or, with respect to Claims against the Reorganizing Debtors or Heber Debtors,
treated in accordance with Sections 4.9(b)(II) and 4.9(v)(III) of the
Reorganization Plan; and
(g) The Confirmation Order shall contain a finding that the Geothermal
Sale shall be deemed to be incorporated into and consummated under the
Reorganization Plan for all purposes including, without limitations, section
1146 of the Bankruptcy Code.
2. Conditions Precedent to the Effective Date of the Reorganization Plan
The Effective Date of the Reorganization Plan shall occur on or prior
to [ ], 2003, unless such date is extended by the Reorganizing Debtors and Heber
Debtors. Each of the following is a condition precedent to the occurrence of the
Effective Date under the Reorganization Plan, each of which may be satisfied or
waived in accordance with Section 10.3 of the Reorganization Plan:
(a) The Confirmation Order (i) shall have been entered by the Court and
become a Final Order, (ii) be in form and substance satisfactory to the
Reorganizing Debtors, Heber Debtors and the Liquidating Debtors, and (iii)
provide that the Liquidating Debtors, the Reorganizing Debtors, Heber Debtors,
the Reorganized Debtors and Reorganized Heber Debtors are authorized and
directed to take all actions necessary or appropriate to enter into, implement
and consummate the contracts, instruments, releases, leases, indentures and
other agreements or documents created in connection with the Liquidation Plan,
and the Reorganization Plan;
(b) The conditions precedent to the Effective Date of the Liquidation
Plan shall have been satisfied or waived in accordance with the terms and
provisions of the Liquidation Plan;
(c) All conditions precedent to the closing of the Geothermal Sale or
an alternative sale of some or all of the Heber Debtors or their assets shall
have been satisfied;
(d) All documents, instruments and agreements necessary to implement
the ESOP for Reorganized Covanta shall have been executed and delivered by the
parties thereto;
(e) All regulatory approval necessary or desireable to effectuate the
Reorganization Plan and the transctions contemplated hereunder shall have been
obtained;
(f) Reorganized Covanta Common Stock shall have been delivered to the
ESOP in accordance with the terms of this Reorganization Plan, Reorganized
Covanta shall have delivered the Reorganization Plan Equity Securities and
Warrants as contemplated hereunder and the equity securities of all the other
Reorganized Debtors shall have been deemed to revert to ownership by the same
entity by which they were held prior to the applicable Petition Date;
(g) Reorganized Covanta shall have taken all steps necessary in its
discretion to enable its conversion to an S corporation effective as of January
1, 2004;
(h) The Exit Financing Agreements shall have been executed and
delivered by the parties thereto, and shall be in full force and effect in
accordance with the terms thereof;
(i) The Reorganized Debtors shall have sufficient Cash (i) to make
payment of the estimated Exit Costs, including, without limitation, all Allowed
Administrative Expense Claims, Allowed Priority Non-Tax Claims, Allowed
Convenience Claims, (ii) to transfer Cash such that CPIH shall have $2 million
in accounts under its control and (iii) to deposit Cash in the Disputed Claims
Reserve in respect of any Administrative Expense Claims and Priority Non-Tax
Claims that are Disputed Claims;
(j) All documents, instruments and agreements provided for under, or
necessary to implement, the Reorganization Plan shall have been executed and
delivered by the parties thereto, in form and substance satisfactory to the
Reorganizing Debtors and Heber Debtors, unless such execution or delivery has
been waived by the parties thereby.
3. Conditions Precedent to the Effective Date of the Liquidation Plan
The Effective Date of the Liquidation Plan shall occur on or prior to [
], 2003, unless such date is extended by the Liquidating Debtors. The
Liquidating Debtors intend that the Effective Date of the Liquidation Plan will
be the Effective Date of the Reorganization Plan. The following are conditions
precedent to the occurrence of the Effective Date under the Liquidation Plan,
each of which may be satisfied or waived in accordance with Section 11.2 of the
Liquidation Plan
(a) The Confirmation Order (i) shall have been entered by the Court and
become a Final Order, (ii) be in form and substance satisfactory to the
Reorganizing Debtors, Heber Debtors and the Liquidating Debtors, and (iii)
provide that the Liquidating Debtors, the Reorganizing Debtors, the Reorganized
Debtors and the Reorganized Heber Debtors are authorized and directed to take
all actions necessary or appropriate to enter into, implement and consummate the
contracts, instruments, releases, leases, indentures and other agreements or
documents created in connection with the Liquidation Plan and the Reorganization
Plan;
(b) The Liquidating Trustee has entered into the Liquidating Trustee
Agreement with the Liquidating Debtors and is willing to serve in such capacity
and the terms of its service and compensation shall have been approved by the
Court at the Confirmation Hearing;
(c) The conditions precedent to the Effective Date of the
Reorganization Plan shall have been satisfied or waived;
(d) The Liquidating Debtors, the Reorganizing Debtors and Heber Debtors
shall be authorized and directed to take all actions necessary or appropriate to
enter into, implement and consummate the contracts, instruments, releases,
leases, indentures and the agreements or documents created in connection with
the Liquidation Plan and the Reorganization Plan; and
(e) All actions, documents and agreements necessary to implement the
Liquidation Plan and the Reorganization Plan shall have been effected or
executed.
H. Waiver of Conditions to Confirmation and/or Consummation of the
Plans
The conditions set forth in Article X of the Reorganization Plan and
Article XI of the Liquidation Plan may be waived by the Reorganizing Debtors,
Heber Debtors or Liquidating Debtors respectively as provided in those Articles,
without leave of, or notice to the Court and without a formal action other than
proceeding with conformation of the Plans or emergence from bankruptcy. The
failure to satisfy or waive any condition to the Confirmation Date or the
Effective Date may be asserted by the Debtors in their sole discretion
regardless of the circumstances giving rise to the failure of such condition to
be satisfied (including any action or inaction by the Debtors in their sole
discretion). The failure of the Debtors in their sole discretion to exercise any
of the foregoing rights will not be deemed a waiver of any other rights, and
each such right will be deemed an ongoing right, which may be asserted at any
time.
I. Retention of Jurisdiction
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, the Court
will retain exclusive jurisdiction of all matters arising under, arising out of,
and related to, the Chapter 11 Cases and the Plans, for, among other things, the
following non-exclusive purposes:
(i) to determine the allowance or classification of Claims and to
hear and determine any objections thereto;
(ii) to hear and determine any motions for the assumption,
assumption and assignment or rejection of executory contracts or
unexpired leases, and the allowance of any Claims resulting therefrom;
(iii) to determine any and all motions, adversary proceedings,
applications, contested matters and other litigated matters in
connection with the Chapter 11 Cases that may be pending in the Court
on, or initiated after, the Effective Date;
(iv) to enter and implement such orders as may be appropriate in
the event the Confirmation Order is for any reason stayed, revoked,
modified, or vacated;
(v) to issue such orders in aid of the execution, implementation
and consummation of the Plans to the extent authorized by section 1142
of the Bankruptcy Code or otherwise;
(vi) to construe and take any action to enforce the Plans;
(vii) to reconcile any inconsistency in any order of the Court,
including, without limitation, the Confirmation Order;
(viii) to modify the Plans pursuant to section 1127 of the
Bankruptcy Code, or to remedy any apparent non-material defect or
omissions in the Plans, or to reconcile any non-material inconsistency
in the Plans so as to carry out their intent and purposes;
(ix) to hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331,
and 503(b) of the Bankruptcy Code;
(x) to resolve any disputes over the reasonableness, accuracy and
proper scope of any Dissolution Expenses of the Liquidating Trustee;
(xi) to determine any other requests for payment of Priority Tax
Claims, Priority Non-Tax Claims or Administrative Expense Claims;
(xii) to hear and determine disputes arising in connection with
the interpretation, implementation, or enforcement of the Plans;
(xiii) to hear and determine all matters relating to the 9.25%
Debentures Adversary Proceeding, including any disputes arising in
connection with the interpretation, implementation or enforcement of
any settlement agreement related thereto;
(xiv) to consider and act on the compromise and settlement or
payment of any Claim against the Debtors;
(xv) to recover all assets of the Debtors and property of their
Estates, wherever located;
(xvi) to determine all questions and disputes regarding title to
the assets of the Debtors or their Estates;
(xvii) to construe and take any action authorized by the
Bankruptcy Code and requested by any Debtor, the Liquidating Trustee
or any other party in interest to enforce the Plans and the documents
filed in connection with the Plans, and to issue orders as may be
necessary for the implementation, execution and consummation of the
Plans;
(xviii) to issue injunctions, enter and implement other orders or
to take such other actions as may be necessary or appropriate to
restrain interference by any entity with the consummation,
implementation or enforcement of the Plans or the Confirmation Order;
(xix) to remedy any breach or default occurring under the Plans;
(xx) to resolve and finally determine all disputes that may
relate to, impact on or arise in connection with, the Plans;
(xxi) to hear and determine matters concerning state, local, and
federal taxes in accordance with sections 346, 505, 1129 and 1146 of
the Bankruptcy Code (including any requests for expedited
determinations under section 505(b) of the Bankruptcy Code filed, or
to be filed, with respect to tax returns for any and all taxable
periods ending after the Petition Date through, and including, the
final Distribution Date or Final Liquidation Distribution Date, as
applicable);
(xxii) to determine such other matters and for such other
purposes as may be provided in the Confirmation Order;
(xxiii) to hear any other matter consistent with the provisions
of the Bankruptcy Code; and
(xxiv) to enter a final decree closing the Chapter 11 Cases.
Unless otherwise specifically provided herein or in a prior order of
the Court, the Court will have exclusive jurisdiction to hear and determine
disputes concerning Claims, Equity Interests, Retained Actions.
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLANS
The Debtors believe that the Plans afford holders of Claims the
potential for the greatest realization on the Debtors' assets and, therefore,
are in the best interests of such holders.
If the Plans are not confirmed, however, the theoretical alternatives
include: (a) continuation of the pending Chapter 11 Cases; (b) an alternative
plan or plans of reorganization; or (c) liquidation of the Debtors under chapter
7 or liquidation of the Reorganizing Debtors and Heber Debtors under chapter 11
of the Bankruptcy Code.
A. Continuation of the Bankruptcy Case
If the Debtors remain in chapter 11, they could continue to operate
their businesses and manage their properties as debtors in possession, but they
would remain subject to the restrictions imposed by the Bankruptcy Code. It is
not clear whether the Debtors could survive as a going concern in protracted
Chapter 11 Cases. The Debtors could have difficulty sustaining the high costs
and the erosion of market confidence that may be caused if the Debtors remain
chapter 11 debtors in possession. In addition, certain material agreements, such
as the DIP Financing Facility, are currently due to expire by their terms on
October 1, 2003.
B. Alternative Plans of Reorganization
If the Plans are not confirmed, the Debtors, or, after the expiration
of the Debtors' exclusive period in which to propose and solicit a
reorganization plans, any other party in interest in the Chapter 11 Cases, could
propose a different plan or plans. Such plans might involve either a
reorganization and continuation of the Debtors' businesses, or an orderly
liquidation of its assets, or a combination of both.
C. Liquidation Under Chapter 7 or Chapter 11
1. Liquidation of the Debtors under Chapter 7
If no plan is confirmed, the Debtors' Chapter 11 Cases may be converted
to a case under chapter 7 of the Bankruptcy Code. In a chapter 7 case, a trustee
or trustees would be appointed to liquidate the assets of the Debtors. It is
impossible to predict precisely how the proceeds of the liquidation, if any,
would be distributed to the respective holders of Claims against the Debtors.
However, the Debtors believe that creditors would lose the
substantially higher going concern value if the Debtors were forced to
liquidate, as well as incur substantial tax obligations. In addition, the
Debtors believe that in liquidation under chapter 7, before creditors received
any distribution, additional administrative expenses involved in the appointment
of a trustee or trustees and attorneys, accountants and other professionals to
assist such trustees would cause a substantial diminution in the value of the
Estates. The assets available for distribution to creditors would be reduced by
such additional expenses and by Claims, some of which would be entitled to
priority, which would arise by reason of the liquidation and from the rejection
of leases and other executory contracts in connection with the cessation of
operations and the failure to realize the greater going concern value of the
Debtors' assets.
2. Liquidation of the Reorganizing Debtors and Heber Debtors under
Chapter 11
The Reorganizing Debtors and Heber Debtors could be liquidated pursuant
to a chapter 11 plan. In a liquidation under chapter 11, the Reorganizing
Debtors and Heber Debtors' assets could be sold in an orderly fashion that may
be conducted over a more extended period of time than in a liquidation under
chapter 7. Thus, a chapter 11 liquidation might result in larger recoveries than
a chapter 7 liquidation, but the potential delay in distributions could result
in lower present values received and higher administrative costs, as well as
incur substantial tax obligations. Because a trustee is not required in a
chapter 11 case, expenses for professional fees could be lower than in a chapter
7 case, in which a trustee must be appointed. Any distribution to the holders of
Claims and interests under a chapter 11 liquidation plan could potentially be
delayed. As to the Liquidating Debtors, whose assets are primarily non-core and
unnecessary for the Reorganizing Debtors and Heber Debtors going forward, that
Chapter 11 liquidation will maximize the value of the Liquidating Debtors for
the benefit of the holders of Claims and interests.
The Debtors' Liquidation Valuation Analysis, prepared with its
accountants and financial advisors, is premised upon a hypothetical liquidation
in a chapter 7 case and is attached as Exhibit E to this Disclosure Statement.
In the analysis, the Debtors have taken into account the nature, status, and
underlying value of their assets, the ultimate realizable value of their assets,
and the extent to which such assets are subject to liens and security interests.
The likely form of any liquidation would be the sale of individual
assets. Based on this analysis, it is likely that a chapter 7 liquidation of the
Debtors' assets would produce less value for distribution to creditors than that
recoverable in each instance under the Plans. In the opinion of the Debtors, the
recoveries projected to be available in a chapter 7 liquidation are not likely
to afford holders of Claims and holders of Interests as great a realization
potential as do the Plans.
XIII. VOTING REQUIREMENTS
On October [ ], 2003, the Court entered an order (the "Solicitation
Procedures Order"), among other things, approving this Disclosure Statement and
the Short-Form Disclosure Statement, setting voting procedures and scheduling
the Confirmation Hearing. A copy of the Confirmation Hearing Notice is enclosed
with this Disclosure Statement. The Confirmation Hearing Notice sets forth in
detail, among other things, the voting deadlines and objection deadlines with
respect to the Plans. The Confirmation Hearing Notice and the instructions
attached to the Ballots should be read in connection with this section of this
Disclosure Statement.
If you have any questions about (i) the procedure for voting your Claim
or Interest or with respect to the packet of materials that you have received,
(ii) the amount of your Claim or your Interest holdings, or (iii) if you wish to
obtain, at your own expense, unless otherwise specifically required by Federal
Rule of Bankruptcy Procedure 3017(d), an additional copy of the Plan, this
Disclosure Statement or any appendices or exhibits to such documents, please
contact:
Bankruptcy Services LLC
757 Third Avenue, 3rd Floor
New York, New York 10017
The Court may confirm the Plans only if it determines that the Plans
comply with the technical requirements of chapter 11 of the Bankruptcy Code and
that the disclosures by the Debtors concerning the Plans have been adequate and
have included information concerning all payments made or promised by the
Debtors in connection with the Plans and the Chapter 11 Cases. In addition, the
Court must determine that the Plans have been proposed in good faith and not by
any means forbidden by law, and under Federal Rule of Bankruptcy Procedure
3020(b)(2), it may do so without receiving evidence if no objection is timely
filed.
In particular, the Bankruptcy Code requires the Court to find, among
other things, that (a) the Plans have been accepted by the requisite votes of
all Classes of impaired Claims and Interests unless approval will be sought
under section 1129(b) of the Bankruptcy Code in spite of the nonacceptance by
one or more such Classes, (b) the Plan is "feasible," which means that there is
a reasonable probability that the Debtors will be able to perform their
obligations under the Plans and continue to operate their businesses without
further financial reorganization or liquidation, and (c) the Plans are in the
"best interests" of all Claimholders and Interestholders, which means that such
holders will receive at least as much under the Plans as they would receive in a
liquidation under chapter 7 of the Bankruptcy Code. The Court must find that all
conditions mentioned above are met before it can confirm the Plans. Thus, even
if all the Classes of impaired Claims against the Debtors accept the Plan by the
requisite votes, the Court must still make an independent finding that the Plans
satisfy these requirements of the Bankruptcy Code, that the Plans are feasible,
and that the Plans are in the best interests of the holders of Claims and Equity
Interests against and in the Debtors.
UNLESS THE BALLOT BEING FURNISHED IS TIMELY SUBMITTED TO THE VOTING
AGENT ON OR PRIOR TO [NOVEMBER 18, 2003 AT 4:00 P.M.] (PREVAILING EASTERN TIME)
TOGETHER WITH ANY OTHER DOCUMENTS REQUIRED BY SUCH BALLOT, THE DEBTORS MAY, IN
THEIR SOLE DISCRETION, REJECT SUCH BALLOT AS INVALID AND, THEREFORE, DECLINE TO
COUNT IT AS AN ACCEPTANCE OR REJECTION OF THE PLAN. IN NO CASE SHOULD A BALLOT
OR ANY OF THE CERTIFICATES BE DELIVERED TO THE DEBTORS OR ANY OF THEIR ADVISORS.
A. Parties in Interest Entitled to Vote
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be "impaired" under a plan unless (a) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim or
interest entitles the holder thereof or (b) notwithstanding any legal right to
an accelerated payment of such claim or interest, the plan cures all existing
defaults (other than defaults resulting from the occurrence of events of
bankruptcy) and reinstates the maturity of such claim or interest as it existed
before the default.
In general, a holder of a claim or interest may vote to accept or to
reject a plan if (1) no party in interest has objected to such claim or
interest, and (2) the claim or interest is impaired by the Plans. If the holder
of an impaired claim or impaired interest will not receive any distribution
under the plan in respect of such claim or interest, the Bankruptcy Code deems
such holder to have rejected the plan. If the claim or interest is not impaired,
the Bankruptcy Code deems that the holder of such claim or interest has accepted
the plan and the plan proponent need not solicit such holder's vote.
Except for Classes 9, 10, 11, 13 and 14 of the Reorganization Plan and
Classes 7, 9 and 11 of the Liquidation Plan (which are presumed to have rejected
the Plans), the holder of a Claim that is "impaired" under the Plans is entitled
to vote to accept or reject the Plans if (1) the Plans provide a distribution in
respect of such Claim and (2) (a) the Claim has been scheduled by the respective
Debtor (and such Claim is not scheduled as disputed, contingent, or
unliquidated), (b) such Claimholder has timely filed a Proof of Claim as to
which no objection has been filed, or (c) such Claimholder has timely filed a
motion pursuant to Federal Rule of Bankruptcy Procedure 3018(a) seeking
temporary allowance of such Claim for voting purposes only and the Debtor has
not opposed the Motion, or objected to the Claim, in which case the holder's
vote will be counted only upon order of the Court.
A vote may be disregarded if the Court determines, pursuant to section
1126(e) of the Bankruptcy Code, that it was not solicited or procured in good
faith or in accordance with the provisions of the Bankruptcy Code. The
Solicitation Procedures Order also sets forth assumptions and procedures for
tabulating Ballots, including Ballots that are not completed fully or correctly.
B. Classes Impaired Under the Plans
1. Voting Impaired Classes of Claims and Interests
The following Classes are impaired under, and entitled to vote to
accept or reject, the Reorganization Plan:
Class 3
Class 4
Class 5
Class 6
Class 8
The following Class is impaired under, and entitled to vote to accept
or reject, the Liquidation Plan.
Class 3
2. Non-Voting Impaired Classes of Claims and Interests
The Classes listed below are not entitled to receive or retain any
property under the Plans. Under section 1126(g) of the Bankruptcy Code,
Claimholders and Interestholders in such Classes are deemed to reject the Plans,
and the votes of such Claimholders and Interestholders will not be solicited:
Classes 9, 10, 11, 13 and 14 of the Reorganization Plan and Classes 7, 9 and 11
of the Liquidation Plan.
3. Unimpaired Classes of Claims and Interests
All other Classes are Unimpaired under the Plans and deemed under
section 1126(f) of the Bankruptcy Code to have accepted the Plans. Their votes
to accept or reject the Plans will not be solicited. Acceptances of the Plans
are being solicited only from those who hold Claims in an Impaired Class whose
members will receive a distribution under the Plans.
XIV. CONCLUSION
A. Hearing on and Objections to Confirmation
1. Confirmation Hearing
The hearing on confirmation of the Plans has been scheduled for
December 3, 2003 at 2:00 p.m. (prevailing Eastern time). Such hearing may be
adjourned from time to time by announcing such adjournment in open court, all
without notice to parties in interest, provided, however, that the Debtors will
file with the Court a notice of such adjournment and will post a notice of
adjournment on Covanta's website at www.covantaenergy.com (corporate
restructuring). The Plans may be modified by the Debtors pursuant to section
1127 of the Bankruptcy Code prior to, during, or as a result of that hearing,
without further notice to parties in interest.
2. Date Set for Filing Objections to Confirmation of the Plans
The time by which all objections to confirmation of the Plan must be
filed with the Court and received by the parties listed in the Confirmation
Hearing Notice has been set for [November 18, 2003, at 4:00 p.m. (prevailing
Eastern time)]. A copy of the Confirmation Hearing Notice is enclosed with this
Disclosure Statement.
B. Recommendation
The Plans provides for an equitable and early distribution to creditors
of the Debtors, preserves the value of the business as a going concern, and
preserves the jobs of its employees. The Debtors believe that any alternative to
confirmation of the Plans, such as a total liquidation of all the Debtors or
attempts by another party in interest to file a plan, could result in
significant delays, litigation, and costs, as well as the loss of jobs by the
employees. Moreover, the Debtors believe that their creditors will receive
greater and earlier recoveries under the Plans than those that would be achieved
in liquidation or under an alternative plan. FOR THESE REASONS, THE DEBTORS URGE
YOU TO RETURN YOUR BALLOT ACCEPTING THE PLANS.
Dated: September 8, 2003
COVANTA ENERGY CORPORATION AND ITS SUBSIDIARIES
THAT ARE ALSO DEBTORS AND DEBTORS IN POSSESSION IN
THE CHAPTER 11 CASES
Debtors and Debtors in Possession
By: /s/ Scott G. Mackin
----------------------------------------
President and Chief Executive Officer
Covanta Energy Corporation and President of
Ogden New York Services, Inc. and authorized
signatory for each of the other Debtors
GLOSSARY OF DEFINED TERMS
4
401(k)...........................................................................................................61
5
5.75% Convertible Bearer Debentures..............................................................................22
5.75% Convertible Debentures.....................................................................................22
5.75% Convertible Registered Debentures..........................................................................22
6
6% Convertible Bearer Debentures.................................................................................22
6% Convertible Debentures........................................................................................22
6% Convertible Registered Debentures.............................................................................22
9
9.25% Adversary Proceeding.......................................................................................34
9.25% Debenture Claims...............................as defined in the Reorganization Plan and the Liquidation Plan
9.25% Debentures..................................................................................................v
9.25% Debentures Adversary Proceeding................as defined in the Reorganization Plan and the Liquidation Plan
9.25% Indenture..................................................................................................34
9.25% Indenture Trustee..........................................................................................34
9.25% Settlement Agreement...........................as defined in the Reorganization Plan and the Liquidation Plan
A
Additional Class 3 Warrants...................................................as defined in the Reorganization Plan
Additional New Lenders........................................................as defined in the Reorganization Plan
Administrative Expense Claim Bar Date................as defined in the Reorganization Plan and the Liquidation Plan
Administrative Expense Claims........................as defined in the Reorganization Plan and the Liquidation Plan
Agent Banks..........................................as defined in the Reorganization Plan and the Liquidation Plan
Allied...........................................................................................................37
Allied Acquired Companies........................................................................................31
Allowed..............................................as defined in the Reorganization Plan and the Liquidation Plan
Allowed Administrative Expense Claim.................as defined in the Reorganization Plan and the Liquidation Plan
Allowed Priority Tax Claim...........................as defined in the Reorganization Plan and the Liquidation Plan
American.........................................................................................................12
AMOR..............................................................................................................9
Arenas...........................................................................................................25
Argentine Assets.................................................................................................vi
Arrowhead Pond....................................................................................................7
Assuming Debtors.................................................................................................76
Assuming Debtors' Schedule of Rejected Contracts and Leases...................as defined in the Reorganization Plan
Aviation Fueling Assets...........................................................................................9
B
Balloting Agent......................................as defined in the Reorganization Plan and the Liquidation Plan
Ballots..............................................as defined in the Reorganization Plan and the Liquidation Plan
Bank Agreement Ogden FMCA Collateral.............................................as defined in the Liquidation Plan
Bankruptcy Code..................................................................................................ii
Bankruptcy Rules.....................................as defined in the Reorganization Plan and the Liquidation Plan
Board............................................................................................................12
Bondholders Committee............................................................................................34
Broad Severance Plan.............................................................................................18
Business Day.........................................as defined in the Reorganization Plan and the Liquidation Plan
Business Plan....................................................................................................41
C
Canadian Court...................................................................................................36
Cash.................................................as defined in the Reorganization Plan and the Liquidation Plan
Casino Iguazu....................................................................................................vi
CCAA.............................................................................................................36
CEO..............................................................................................................18
CERCLA...........................................................................................................11
Chapter 11 Cases..................................................................................................v
Chinese Station..................................................................................................12
CIT..............................................................................................................34
CIT Lease........................................................................................................34
Claims...............................................as defined in the Reorganization Plan and the Liquidation Plan
Claims Objection Deadline............................as defined in the Reorganization Plan and the Liquidation Plan
Client Communities................................................................................................8
COD..............................................................................................................90
Code.............................................................................................................87
Collateral.......................................................................as defined in the Liquidation Plan
Committee's..........................................as defined in the Reorganization Plan and the Liquidation Plan
Company..........................................................................................................iv
Confirmation Date....................................as defined in the Reorganization Plan and the Liquidation Plan
Confirmation Hearing.....................................as defined in the Reorganization Plan and Liquidation Plan
Confirmation Hearing Notice.......................................................................................2
Confirmation Objection Deadline...................................................................................5
Confirmation Order..............................................................................................vii
Contract Schedules...............................................................................................76
Convenience Claims............................................................as defined in the Reorganization Plan
Convertible Debentures........................................................................................xxxii
Convertible Debentures Bar Date...............................................................................xxxii
Core Operations..................................................................................................40
Core Retiree Program.............................................................................................19
Corel Centre.....................................................................................................vi
County...........................................................................................................12
Court............................................................................................................iv
Covanta..........................................................................................................iv
Covanta Babylon..................................................................................................38
Covanta Concerts Bar Date.....................................................................................xxxii
Covanta Concerts Bar Date Order...............................................................................xxxii
Covanta Energy Americas, Inc..................................................as defined in the Reorganization Plan
Covanta Huntington............................................................as defined in the Reorganization Plan
Covanta Lake.....................................................................................................36
Covanta Notes....................................................................................................89
Covanta Onondaga..........................................................33. as defined in the Reorganization Plan
Covanta Tulsa....................................................................................................34
Covanta Union....................................................................................................32
Covanta Unsecured Claims......................................................as defined in the Reorganization Plan
Covanta Warren...................................................................................................33
CPIH.............................................................................................................57
CPIH Borrower Guaranty...........................................................................................57
CPIH Borrowers...................................................................................................57
CPIH Facilities..................................................................................................57
CPIH Revolver Facility...........................................................................................57
CPIH Term Loan Facility..........................................................................................57
CPPI.............................................................................................................10
Creditors Committee..............................................................................................29
CSE..............................................................................................................36
CSFB.............................................................................as defined in the Liquidation Plan
CSP..............................................................................................................36
Cure.............................................................................................................45
D
D&P..............................................................................................................vi
DE Shaw New Lender............................................................as defined in the Reorganization Plan
Debtor Operators.................................................................................................10
Debtors..........................................................................................................iv
Designated DIP Collateral........................................................................................63
DIP Agents...........................................as defined in the Reorganization Plan and the Liquidation Plan
DIP Final Order..................................................................................................26
DIP Financing Facility...........................................................................................26
Disbursing Agent..............................................................as defined in the Reorganization Plan
Disclosure Statement.............................................................................................ii
Disputed Claim................................................................as defined in the Reorganization Plan
Disputed Claims..................................................................as defined in the Liquidation Plan
Disputed Claims Reserves.................................as defined in the Reorganization Plan and Liquidation Plan
Dissolution Expenses.............................................................as defined in the Liquidation Plan
Distributable Cash...............................................................................................61
Distribution Date.............................................................as defined in the Reorganization Plan
Distributions........................................as defined in the Reorganization Plan and the Liquidation Plan
Domestic Borrower Guaranty.......................................................................................57
Domestic Borrowers...............................................................................................56
Domestic Facilities..............................................................................................57
DSS Environmental.............................................................as defined in the Reorganization Plan
E
Effective Date.......................................as defined in the Reorganization Plan and the Liquidation Plan
Elective Convenience Claim....................................................as defined in the Reorganization Plan
Employee Bar Date.............................................................................................xxxii
Employee Bar Date Order.......................................................................................xxxii
Energy Select Plan...............................................................................................16
Energy Services 401(k) Plan......................................................................................15
Environmental Regulatory Laws....................................................................................11
Environmental Remediation Laws...................................................................................11
Equity Bonds.....................................................................................................22
Equity Interests.....................................as defined in the Reorganization Plan and the Liquidation Plan
ERISA............................................................................................................vi
ESOP.............................................................................................................vi
ESOP Committee...................................................................................................vi
Estates..............................................as defined in the Reorganization Plan and the Liquidation Plan
Estimated Recovery Value......................................................as defined in the Reorganization Plan
Excess Distributable Cash.....................................................as defined in the Reorganization Plan
Exclusivity Period...............................................................................................30
Existing L/C Facility............................................................................................57
Exit Costs....................................................................as defined in the Reorganization Plan
Exit Facility Agent...........................................................as defined in the Reorganization Plan
Exit Financing Agreements.....................................................as defined in the Reorganization Plan
F
Fee Dispute Notice...............................................................as defined in the Liquidation Plan
Final Liquidation Determination Date.............................................as defined in the Liquidation Plan
Final Liquidation Distribution Date..............................................as defined in the Liquidation Plan
Final Order..........................................as defined in the Reorganization Plan and the Liquidation Plan
Financial Reporting by Entities in Reorganization under the Bankruptcy Code......................................20
First Amended Bar Date.......................................................................................xxxiii
First Amended Schedules......................................................................................xxxiii
First Amendment..................................................................................................27
Fourth Amendment.................................................................................................27
Free Cash........................................................................................................61
Fresh Start Reporting Adjustments................................................................................84
G
General Bar Date Order........................................................................................xxxii
Geothermal Debtor Equity.........................................................................................ix
Geothermal Project.............................................................................................viii
Geothermal Sale..................................................................................................ix
H
Heber Debtor Holding Companies....................................................................................9
Heber Debtor Project Companies...................................................................................10
Heber Debtors....................................................................as defined in the Liquidation Plan
Heber Debtors Intercompany Claims.............................................as defined in the Reorganization Plan
Heber Plan.......................................................................................................ix
Heber Secured Claims..........................................................as defined in the Reorganization Plan
Heber Sellers....................................................................................................10
Heber Unsecured Claims........................................................as defined in the Reorganization Plan
Hennepin Plan....................................................................................................15
HFC Interests....................................................................................................10
HFC One Seller...................................................................................................10
HFC Operator.....................................................................................................10
HFC Project......................................................................................................10
HFC Project Company..............................................................................................10
HFC Two Seller...................................................................................................10
HGC Interests....................................................................................................10
HGC One Seller...................................................................................................10
HGC Operator.....................................................................................................10
HGC Project......................................................................................................10
HGC Project Company..............................................................................................10
HGC Sellers......................................................................................................10
HGC Three Seller.................................................................................................10
HGC Two Seller...................................................................................................10
Holder...........................................................................................................91
I
Impaired.............................................as defined in the Reorganization Plan and the Liquidation Plan
In re Ogden New York Services, Inc., et al........................................................................v
Indenture Trustee.............................................................as defined in the Reorganization Plan
Initial Distribution..........................................................as defined in the Reorganization Plan
Initial Liquidation Distribution Date............................................as defined in the Liquidation Plan
Initial Petition Date............................................................................................iv
Intercompany Claims..................................as defined in the Reorganization Plan and the Liquidation Plan
Intercreditor Agreement..........................................................................................ix
Intercreditor Amendment..........................................................................................27
Interim Petition Date............................................................................................iv
Intermediate Holding Company Debtors..........................................as defined in the Reorganization Plan
IPP...............................................................................................................8
IRC..............................................................................................................13
IRS..............................................................................................................14
K
KERP.............................................................................................................17
KKR..............................................................................................................30
L
La Rural Fairgrounds.............................................................................................vi
Lake County......................................................................................................36
Lake Facility....................................................................................................36
Liens................................................as defined in the Reorganization Plan and the Liquidation Plan
Liquidating Debtors..............................................................as defined in the Liquidation Plan
Liquidating Debtors Intercompany Claims..............as defined in the Reorganization Plan and the Liquidation Plan
Liquidating Non-Pledgor Debtors..................................................as defined in the Liquidation Plan
Liquidating Pledgor Debtors......................................................as defined in the Liquidation Plan
Liquidating Trust................................................................as defined in the Liquidation Plan
Liquidating Trustee..............................................................as defined in the Liquidation Plan
Liquidating Trustee Billing Date.................................................as defined in the Liquidation Plan
Liquidating Trustee Fee Notice...................................................as defined in the Liquidation Plan
Liquidation Distribution Date....................................................as defined in the Liquidation Plan
Liquidation Expenses.............................................................as defined in the Liquidation Plan
Liquidation Plan.................................................................................................ii
Liquidation Secured Claims.......................................................as defined in the Liquidation Plan
Loss Sharing Litigation..............................as defined in the Reorganization Plan and the Liquidation Plan
LTIP.............................................................................................................17
M
Master Credit Facility............................................................................................v
MP Interests.....................................................................................................10
MP Project Company...............................................................................................10
MPLP Facilities..................................................................................................10
N
Net Liquidation Proceeds.........................................................as defined in the Liquidation Plan
New CPIH Funded Debt.............................................................................................58
New CPIH Revolver Facility....................................................as defined in the Reorganization Plan
New Debtor Schedules.........................................................................................xxxiii
New Debtors Bar Date..........................................................................................xxxii
New Facility Lenders..........................................................as defined in the Reorganization Plan
New High Yield Secured Notes.....................................................................................58
New L/C Facility.................................................................................................57
New Lender Warrants...........................................................as defined in the Reorganization Plan
New Revolver Facility............................................................................................57
NOLs.............................................................................................................90
Non-Core Retiree Program.........................................................................................19
Non-Participating Lenders.....................................................as defined in the Reorganization Plan
Non-Priority Subclass 3A Claims...............................................as defined in the Reorganization Plan
Non-Qualified Plans..............................................................................................16
Non-Rolled Tranche B Letters of Credit...........................................................................27
Notice Agent.....................................................................................................39
Notice of Designation............................................................as defined in the Liquidation Plan
O
OCRRA............................................................................................................33
OEES.............................................................................................................38
Ogden Ground.....................................................................................................12
Ogden New York...................................................................................................12
Old Covanta Stock.............................................................as defined in the Reorganization Plan
Onondaga Facility................................................................................................33
Operating Company Unsecured Claims............................................as defined in the Reorganization Plan
Operating Reserve................................................................as defined in the Liquidation Plan
Operating Reserve Payment Amount.....................as defined in the Reorganization Plan and the Liquidation Plan
opt-out..........................................................................................................21
Original Debtors..............................................................................................xxxii
Original Schedules............................................................................................xxxii
Other Allowed Claims..........................................................................................xxxix
Oversight Nominee................................................................as defined in the Liquidation Plan
Oversight Nominee Expenses.......................................................as defined in the Liquidation Plan
P
Palladium........................................................................................................36
PBGC.............................................................................................................14
Pension Plan.....................................................................................................13
Person...............................................as defined in the Reorganization Plan and the Liquidation Plan
Petition Date....................................................................................................iv
Plan Documents................................................................as defined in the Reorganization Plan
Plans............................................................................................................ii
pooled...........................................................................................................21
Post-Confirmation Collateral..................................................as defined in the Reorganization Plan
PPAs..............................................................................................................8
Prepetition Collateral...........................................................................................ix
Prepetition Credit Agreement.........................as defined in the Reorganization Plan and the Liquidation Plan
Prepetition Lenders..................................as defined in the Reorganization Plan and the Liquidation Plan
Priority Bank Claims.............................................................................................35
Priority Bank Lenders.........................................................as defined in the Reorganization Plan
Priority Non-Tax Claims.......................................................as defined in the Reorganization Plan
Priority Tax Claims..............................................................................................47
Pro Rata Class Share.................................as defined in the Reorganization Plan and the Liquidation Plan
Project Companies................................................................................................10
Project Debt Claims...........................................................as defined in the Reorganization Plan
Projections....................................................................................................viii
PRPs.............................................................................................................12
Q
QSub........................................................................................................xxxviii
Qualified Plans..................................................................................................16
R
Reinstated L/C Facility.......................................................as defined in the Reorganization Plan
Rejecting Debtors................................................................................................76
Reorganization Plan..............................................................................................ii
Reorganization Plan Equity Securities and Warrants............................as defined in the Reorganization Plan
Reorganization Plan Notes.....................................................as defined in the Reorganization Plan
Reorganization Plan Unsecured Notes...........................................as defined in the Reorganization Plan
Reorganization Plan Warrants..................................................as defined in the Reorganization Plan
Reorganized Company..............................................................................................83
Reorganized Covanta..................................as defined in the Reorganization Plan and the Liquidation Plan
Reorganized Covanta Common Stock..............................................as defined in the Reorganization Plan
Reorganized Covanta Secured Claims............................................as defined in the Reorganization Plan
Reorganized CPIH Preferred Stock..............................................as defined in the Reorganization Plan
Reorganized Debtors...........................................................as defined in the Reorganization Plan
Reorganized Heber Debtor......................................................as defined in the Reorganization Plan
Reorganizing Debtors..........................................................as defined in the Reorganization Plan
Reorganizing Debtors Intercompany Claims.............as defined in the Reorganization Plan and the Liquidation Plan
Replacement Liens................................................................................................28
Residual Liquidation Assets......................................................................................ix
Resource 401(k) Plan.............................................................................................14
Resource Pension Plan............................................................................................15
Resource Plan....................................................................................................16
Retained Liquidation Professional................................................as defined in the Liquidation Plan
Retained Liquidation Professional Fee Notices....................................as defined in the Liquidation Plan
Retained Professional.........................................................as defined in the Reorganization Plan
Retained Professionals...........................................................as defined in the Liquidation Plan
Retention Plan...................................................................................................17
Retiree Medical Programs.........................................................................................19
Risk Factors....................................................................................................iii
Rule 3018(a) Motion...............................................................................................5
Rule 3018(a) Motion Deadline......................................................................................5
S
Savings Plan.....................................................................................................14
SCE..............................................................................................................10
Schedule of Assumed Contracts and Leases.........................................as defined in the Liquidation Plan
Schedules............................................as defined in the Reorganization Plan and the Liquidation Plan
SEC..............................................................................................................ii
Second Amended Bar Date......................................................................................xxxiii
Second Amended Schedules.....................................................................................xxxiii
Second Amendment.................................................................................................27
Section 354 Securities...........................................................................................91
Secured Claim.................................................................as defined in the Reorganization Plan
Secured Class 3 Total Distribution............................................as defined in the Reorganization Plan
Secured Creditor Direction...................................................as defined in the Reorganization Plan
Secured Value Distribution....................................................as defined in the Reorganization Plan
Securities Act...................................................................................................87
Security Fund....................................................................................................14
SEIU Pension Plan................................................................................................14
Select Plan......................................................................................................16
Service Agreements................................................................................................8
Severance Plan...................................................................................................17
Short-Form Disclosure Statement...................................................................................3
SIGC Energy I.....................................................................................................9
SIGC Energy II....................................................................................................9
SIGC Interests....................................................................................................9
SIGC Operator....................................................................................................10
SIGC Project......................................................................................................9
SIGC Project Company..............................................................................................9
SIGC Seller.......................................................................................................9
Site.............................................................................................................12
Sixth Amendment..................................................................................................28
Solicitation Procedures Order...................................................................................105
SOP 90-7.........................................................................................................20
Specified Personnel..................................as defined in the Reorganization Plan and the Liquidation Plan
Subclass 3A Recovery.................................as defined in the Reorganization Plan and the Liquidation Plan
Subclass 3B Recovery.................................as defined in the Reorganization Plan and the Liquidation Plan
Subordinated Claims..................................as defined in the Reorganization Plan and the Liquidation Plan
Subsequent Petition Date.........................................................................................iv
Subsidiaries.....................................................................................................iv
Subsidiary Debtors...................................as defined in the Reorganization Plan and the Liquidation Plan
Substantial Contribution Claims......................as defined in the Reorganization Plan and the Liquidation Plan
Superfund........................................................................................................11
Supplementary Plan...............................................................................................15
T
Team.............................................................................................................36
The Disputed Claims Reserve......................................................as defined in the Liquidation Plan
the Effective Date............................................................as defined in the Reorganization Plan
Third Amended Bar Date.......................................................................................xxxiii
Third Amended Schedules......................................................................................xxxiii
Third Amendment..................................................................................................27
TIN..............................................................................................................94
Town.............................................................................................................38
Tranche A........................................................................................................26
Tranche A Letter of Credit Sublimit..............................................................................28
Tranche B........................................................................................................26
Tranche C Obligations............................................................................................27
Tulsa Authority..................................................................................................34
U
U.S. Trust.......................................................................................................vi
U.S. Trust Agreement.............................................................................................vi
Unimpaired...........................................as defined in the Reorganization Plan and the Liquidation Plan
Union Authority..................................................................................................32
Union Facility...................................................................................................32
United...........................................................................................................12
United States Trustee................................as defined in the Reorganization Plan and the Liquidation Plan
United States Trustee Claims.........................as defined in the Reorganization Plan and the Liquidation Plan
Unsecured Liquidation Claims..................................................as defined in the Reorganization Plan
V
Voting Deadline...................................................................................................3
Voting Record Date................................................................................................2
W
Warren Authority.................................................................................................33
Warren Facility..................................................................................................33
Water.............................................................................................................8
WTE...............................................................................................................7
EXHIBIT A
PLAN OF REORGANIZATION
EXHIBIT B
PLAN OF LIQUIDATION
EXHIBIT C1
PRO FORMA HISTORICAL FINANCIAL INFORMATION
[TO BE INSERTED]
EXHIBIT C2
PROJECTED FINANCIAL INFORMATION
[TO BE INSERTED]
EXHIBIT D
REORGANIZATION VALUATION ANALYSIS
[TO BE INSERTED]
EXHIBIT E
LIQUIDATION VALUATION ANALYSIS
[TO BE INSERTED]
EXHIBIT F
HISTORICAL FINANCIAL RESULTS
[TO BE INSERTED]
EXHIBIT G
LIST OF DEBTORS AND DEBTORS IN POSSESSION
Reorganizing Debtors
Debtor Case Number
- ------ -----------
1. Covanta Acquisition, Inc. 02-40861 (CB)
2. Covanta Alexandria/Arlington, Inc. 02-40929 (CB)
3. Covanta Babylon, Inc. 02-40928 (CB)
4. Covanta Bessemer, Inc. 02-40862 (CB)
5. Covanta Bristol, Inc. 02-40930 (CB)
6. Covanta Cunningham Environmental Support Services, Inc. 02-40863 (CB)
7. Covanta Energy Americas, Inc. 02-40881 (CB)
8. Covanta Energy Construction, Inc. 02-40870 (CB)
9. Covanta Energy Corporation 02-40841 (CB)
10. Covanta Energy Group, Inc. 03-13707 (CB)
11. Covanta Energy International, Inc. 03-13706 (CB)
12. Covanta Energy Resource Corp. 02-40915 (CB)
13. Covanta Energy Services of New Jersey, Inc. 02-40900 (CB)
14. Covanta Energy Services, Inc. 02-40899 (CB)
15. Covanta Energy West, Inc. 02-40871 (CB)
16. Covanta Engineering Services, Inc. 02-40898 (CB)
17. Covanta Fairfax, Inc. 02-40931 (CB)
18. Covanta Geothermal Operations Holdings, Inc. 02-40873 (CB)
19. Covanta Geothermal Operations, Inc. 02-40872 (CB)
20. Covanta Heber Field Energy, Inc. 02-40893 (CB)
21. Covanta Hennepin Energy Resource Co., L.P. 02-40906 (CB)
22. Covanta Hillsborough, Inc. 02-40932 (CB)
23. Covanta Honolulu Resource Recovery Venture 02-40905 (CB)
24. Covanta Huntington Limited Partnership 02-40916 (CB)
25. Covanta Huntington Resource Recovery One Corp. 02-40919 (CB)
26. Covanta Huntington Resource Recovery Seven Corp. 02-40920 (CB)
27. Covanta Huntsville, Inc. 02-40933 (CB)
28. Covanta Hydro Energy, Inc. 02-40894 (CB)
29. Covanta Hydro Operations West, Inc. 02-40875 (CB)
30. Covanta Hydro Operations, Inc. 02-40874 (CB)
31. Covanta Imperial Power Services, Inc. 02-40876 (CB)
32. Covanta Indianapolis, Inc. 02-40934 (CB)
33. Covanta Kent, Inc. 02-40935 (CB)
34. Covanta Lake, Inc. 02-40936 (CB)
35. Covanta Lancaster, Inc. 02-40937 (CB)
36. Covanta Lee, Inc. 02-40938 (CB)
37. Covanta Long Island, Inc. 02-40917 (CB)
38. Covanta Marion Land Corp. 02-40940 (CB)
39. Covanta Marion, Inc. 02-40939 (CB)
40. Covanta Mid-Conn, Inc. 02-40911 (CB)
41. Covanta Montgomery, Inc. 02-40941 (CB)
42. Covanta New Martinsville Hydro-Operations Corp. 02-40877 (CB)
43. Covanta Oahu Waste Energy Recovery, Inc. 02-40912 (CB)
44. Covanta Onondaga Five Corp. 02-40926 (CB)
45. Covanta Onondaga Four Corp. 02-40925 (CB)
46. Covanta Onondaga Limited Partnership 02-40921 (CB)
47. Covanta Onondaga Operations, Inc. 02-40927 (CB)
48. Covanta Onondaga Three Corp. 02-40924 (CB)
49. Covanta Onondaga Two Corp. 02-40923 (CB)
50. Covanta Onondaga, Inc. 02-40922 (CB)
51. Covanta Operations of Union, LLC 02-40909 (CB)
52. Covanta OPW Associates, Inc. 02-40908 (CB)
53. Covanta OPWH, Inc. 02-40907 (CB)
54. Covanta Pasco, Inc. 02-40943 (CB)
55. Covanta Power Equity Corp. 02-40895 (CB)
56. Covanta Power International Holdings, Inc. 03-13708 (CB)
57. Covanta Projects, Inc. 03-13709 (CB)
58. Covanta Projects of Hawaii, Inc. 02-40913 (CB)
59. Covanta Projects of Wallingford, L.P. 02-40903 (CB)
60. Covanta RRS Holdings, Inc. 02-40910 (CB)
61. Covanta Secure Services, Inc. 02-40901 (CB)
62. Covanta SIGC Geothermal Operations, Inc. 02-40883 (CB)
63. Covanta Stanislaus, Inc. 02-40944 (CB)
64. Covanta Systems, Inc. 02-40948 (CB)
65. Covanta Tampa Bay, Inc. 02-40865 (CB)
66. Covanta Tulsa, Inc. 02-40945 (CB)
67. Covanta Union, Inc. 02-40946 (CB)
68. Covanta Wallingford Associates, Inc. 02-40914 (CB)
69. Covanta Warren Energy Resource Co., L.P. 02-40904 (CB)
70. Covanta Waste to Energy of Italy, Inc. 02-40902 (CB)
71. Covanta Waste to Energy, Inc. 02-40949 (CB)
72. Covanta Water Holdings, Inc. 02-40866 (CB)
73. Covanta Water Systems, Inc. 02-40867 (CB)
74. Covanta Water Treatment Services, Inc. 02-40868 (CB)
75. DSS Environmental, Inc. 02-40869 (CB)
76. ERC Energy II, Inc. 02-40890 (CB)
77. ERC Energy, Inc. 02-40891 (CB)
78. Heber Field Energy II, Inc. 02-40892 (CB)
79. Heber Loan Partners 02-40889 (CB)
80. OPI Quezon, Inc. 02-40860 (CB)
81. Three Mountain Operations, Inc. 02-40879 (CB)
82. Three Mountain Power, LLC 02-40880 (CB)
Liquidating Debtors
Debtor Case Number
- ------ -----------
1. Alpine Food Products, Inc. 03-13679 (CB)
2. BDC Liquidating Corp. 03-13681 (CB)
3. Bouldin Development Corp. 03-13680 (CB)
4. Covanta Concerts Holdings, Inc. 02-16332 (CB)
5. Covanta Energy Sao Jeronimo, Inc. 02-40854 (CB)
6. Covanta Equity of Alexandria/Arlington, Inc. 03-13682 (CB)
7. Covanta Equity of Stanislaus, Inc. 03-13683 (CB)
8. Covanta Financial Services, Inc. 02-40947 (CB)
9. Covanta Huntington, Inc. 02-40918 (CB)
10. Covanta Key Largo, Inc. 02-40864 (CB)
11. Covanta Northwest Puerto Rico, Inc. 02-40942 (CB)
12. Covanta Oil & Gas, Inc. 02-40878 (CB)
13. Covanta Power Development of Bolivia, Inc. 02-40856 (CB)
14. Covanta Power Development, Inc. 02-40855 (CB)
15. Covanta Secure Services USA, Inc. 02-40896 (CB)
16. Covanta Waste Solutions, Inc. 02-40897 (CB)
17. Doggie Diner, Inc. 03-13684 (CB)
18. Gulf Coast Catering Company, Inc. 03-13685 (CB)
19. J.R. Jack's Construction Corporation 02-40857 (CB)
20. Lenzar Electro-Optics, Inc. 02-40832 (CB)
21. Logistics Operations, Inc. 03-13688 (CB)
22. Offshore Food Service, Inc. 03-13694 (CB)
23. OFS Equity of Alexandria/Arlington, Inc. 03-13687 (CB)
24. OFS Equity of Babylon, Inc. 03-13690 (CB)
25. OFS Equity of Delaware, Inc. 03-13689 (CB)
26. OFS Equity of Huntington, Inc. 03-13691 (CB)
27. OFS Equity of Indianapolis, Inc. 03-13693 (CB)
28. OFS Equity of Stanislaus, Inc. 03-13692 (CB)
29. Ogden Allied Abatement & Decontamination Service, Inc. 02-40827 (CB)
30. Ogden Allied Maintenance Corp. 02-40828 (CB)
31. Ogden Allied Payroll Services, Inc. 02-40835 (CB)
32. Ogden Attractions, Inc. 02-40836 (CB)
33. Ogden Aviation Distributing Corp. 02-40829 (CB)
34. Ogden Aviation Fueling Company of Virginia, Inc. 02-40837 (CB)
35. Ogden Aviation Security Services of Indiana, Inc. 03-13695 (CB)
36. Ogden Aviation Service Company of Colorado, Inc. 02-40839 (CB)
37. Ogden Aviation Service Company of Pennsylvania, Inc. 02-40834 (CB)
38. Ogden Aviation Service International Corporation 02-40830 (CB)
39. Ogden Aviation Terminal Services, Inc. 03-13696 (CB)
40. Ogden Aviation, Inc. 02-40838 (CB)
41. Ogden Cargo Spain, Inc. 02-40843 (CB)
42. Ogden Central and South America, Inc. 02-40844 (CB)
43. Ogden Cisco, Inc. 03-13698 (CB)
44. Ogden Communications, Inc. 03-13697 (CB)
45. Ogden Constructors, Inc. 02-40858 (CB)
46. Ogden Environmental & Energy Services Co., Inc. 02-40859 (CB)
47. Ogden Facility Holdings, Inc. 02-40845 (CB)
48. Ogden Facility Management Corporation of Anaheim 02-40846 (CB)
49. Ogden Facility Management Corporation of West Virginia 03-13699 (CB)
50. Ogden Film and Theatre, Inc. 02-40847 (CB)
51. Ogden Firehole Entertainment Corp. 02-40848 (CB)
52. Ogden Food Service Corporation of Milwaukee, Inc. 03-13701 (CB)
53. Ogden International Europe, Inc. 02-40849 (CB)
54. Ogden Leisure, Inc. 03-13700 (CB)
55. Ogden Management Services, Inc. 03-13702 (CB)
56. Ogden New York Services, Inc. 02-40826 (CB)
57. Ogden Pipeline Service Corporation 03-13704 (CB)
58. Ogden Services Corporation 02-40850 (CB)
59. Ogden Support Services, Inc. 02-40851 (CB)
60. Ogden Technology Services Corporation 03-13703 (CB)
61. Ogden Transition Corporation 03-13705 (CB)
62. PA Aviation Fuel Holdings, Inc. 02-40852 (CB)
63. Philadelphia Fuel Facilities Corporation 02-40853 (CB)
Heber Debtors
Debtor Case Number
- ------ -----------
1. AMOR 14 Corporation 02-40886 (CB)
2. Covanta SIGC Energy, Inc. 02-40885 (CB)
3. Covanta SIGC Energy II, Inc. 02-40884 (CB)
4. Heber Field Company 02-40888 (CB)
5. Heber Geothermal Company 02-40887 (CB)
6. Second Imperial Geothermal Co., L.P. 02-40882 (CB)