Exhibit 2.4
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. )
FIRST AMENDED DISCLOSURE STATEMENT WITH RESPECT TO REORGANIZING DEBTORS' JOINT
PLAN OF REORGANIZATION, HEBER DEBTORS' JOINT PLAN OF REORGANIZATION, AND
LIQUIDATING DEBTORS' JOINT PLAN OF LIQUIDATION UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE
Dated: October 3, 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, NY 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 K.
DISCLAIMER
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT (THE "DISCLOSURE
STATEMENT") AND APPENDICES HERETO RELATES TO THE REORGANIZING DEBTORS' FIRST
AMENDED JOINT PLAN OF REORGANIZATION (AS AMENDED, THE "REORGANIZATION PLAN"),
THE HEBER DEBTORS' SECOND AMENDED JOINT PLAN OF REORGANIZATION (AS AMENDED, THE
"HEBER REORGANIZATION PLAN"), AND THE LIQUIDATING DEBTORS' FIRST AMENDED JOINT
PLAN OF LIQUIDATION (AS AMENDED, THE "LIQUIDATION PLAN," AND TOGETHER WITH THE
REORGANIZATION PLAN AND THE HEBER REORGANIZATION PLAN, THE "PLANS") AND ARE
INCLUDED HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF EACH OF THE
REORGANIZATION PLAN AND THE LIQUIDATION PLAN AND MAY NOT BE RELIED UPON FOR ANY
PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON EACH SUCH PLAN. 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, THE HEBER 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
(THE "BANKRUPTCY RULES") 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 THIS 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 OR LIQUIDATION 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 THE 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 ARTICLE 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 REORGANIZATION PLAN OR LIQUIDATION PLAN.
SUMMARY OF THE PLANS
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 and the Plans. Copies
of the Plans are annexed hereto in Exhibits A, B and C.
This Disclosure Statement contains, among other things, descriptions
and summaries of provisions of the Reorganization Plan being proposed by the
Reorganizing Debtors, the Heber Reorganization Plan being proposed by the Heber
Debtors, and the Liquidation Plan being proposed by the Liquidating Debtors
(together, the "Debtors"), respectively, as filed with the United States
Bankruptcy Court for the Southern District of New York (the "Court"). Certain
provisions of the Plans, and thus the descriptions and summaries contained
herein, are the subject of continuing negotiations among the Debtors and various
parties, have not been finally agreed upon, and may be modified.
A complete list of the Reorganizing Debtors, the Heber Debtors and the
Liquidating Debtors is attached as Exhibit K hereto. Without prejudice to the
rights of the Proposed Buyers under the Heber Purchase Agreement (each as
defined herein), 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 applicable Confirmation
Hearing (as defined below). Holders of Claims or Equity Interests (each as
defined below) who are entitled to vote on the Plans and who are affected by any
such redesignation shall have five (5) days from notice of such redesignation to
vote to accept or reject the applicable Plan(s). Without prejudice to the rights
of the Proposed Buyers under the Heber Purchase Agreement, the Debtors also have
reserved the right to withdraw prior to the applicable Confirmation Hearing one
or more Debtors from a Plan, and thereafter to 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. Definitions
Except as otherwise provided herein, capitalized terms not otherwise
defined in this Disclosure Statement have the meanings ascribed to them in the
Plans. In addition, all references in this Disclosure Statement to monetary
figures refer to United States currency, unless otherwise expressly provided.
B. 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 ("WTE"), independent power production ("IPP") 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."
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 intercreditor issues that were difficult 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 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 fewer
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 WTE
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 2022 (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 (collectively, the
"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. They also realized their interests in the Corel Centre in Ottawa,
Canada (the "Corel Centre") and in the Ottawa Senators Hockey Club Corporation
(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, WTE and domestic independent power
headquarters management were combined and numerous other structural changes were
instituted in order to improve management efficiency.
C. Events Leading to the Plans
Over the course of these proceedings, the Debtors have held discussions
with the Official Committee of Unsecured Creditors (the "Creditors Committee"),
representatives of the Debtors' prepetition bank lenders (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 was to foster the exploration of
the ESOP structure by devising a course of action pursuant to which the Company
could move forward with its inquiries regarding the ESOP alternative. It was the
ESOP Committee's belief 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 believed that an independent fiduciary's representation of the ESOP
and its participants would be essential to ensuring 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").
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 in the near
future.
D. 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 Plans. 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 as otherwise provided in the
Reorganization Plan or the Heber Reorganization Plan or in the orders confirming
the Plans (the "Confirmation Order"), the confirmation of the Reorganization
Plan and the Heber Reorganization Plan discharges the Reorganizing Debtors and
Heber Debtors, respectively, from any debt that arose prior to the applicable
Effective Date, substitutes therefor the obligations specified under the
confirmed Reorganization Plan or Heber 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 and the Heber
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 Heber 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, confirmation of the Liquidation Plan does not discharge the Liquidating
Debtors from any Claims asserted against them.
Under the Plans, Claims against and Equity 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, Heber 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, the 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, Heber Debtor or Liquidating
Debtor expressly assumes an obligation or liability of another Debtor, the Plans
will not operate to impose liability on the Reorganizing Debtors, Heber Debtors
or 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 of the
Reorganization Plan (the "Reorganization Effective Date") or the Effective Date
of the Heber Reorganization Plan (the "Heber Effective Date"), each Reorganizing
Debtor and Heber Debtor will be separately liable for its own debts and
obligations arising on and after the applicable Effective Date. Additionally,
from and after the Effective Date of the Liquidation Plan (the "Liquidation
Effective Date"), each Liquidating Debtor will be separately liable for its own
debts and obligations arising on and after the Liquidation 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 Liquidation 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 going concerns 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 H 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 Plans
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 or the Liquidation Plan, as applicable. Because all
non-insider classes of claims under the Heber Reorganization Plan are
unimpaired, the Heber Debtors are not soliciting votes in respect of the Heber
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.
E. Restructuring of the Debtors
The Debtors filed with the Court (i) the Reorganization Plan (which was
filed jointly by the Reorganizing Debtors and the Heber Debtors) and the
Liquidation Plan on September 8, 2003, (ii) the First Amended Heber
Reorganization Plan on September 24, 2003, and (iii) the First Amended
Reorganization Plan, the Second Amended Heber Reorganization Plan and the First
Amended Liquidation Plan on September 28, 2003. The Debtors expect to file with
the Court slightly revised versions of the Plans on or about October 13, 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) 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 Article 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 Business")(2) either pursuant to section 363 of the Bankruptcy Code
or the Heber Reorganization Plan, as contemplated by that certain Amended and
Restated Ownership Interest Purchase Agreement, by and among Covanta Heber Field
Energy, Inc., Heber Field Energy II, Inc., ERC Energy, Inc., ERC Energy II, Inc.
Heber Loan Partners, Covanta Power Pacific, Inc. and Covanta Energy Americas,
Inc. (collectively, the "Sellers") and Covanta and Caithness Heber Field I, LLC,
Caithness Heber Field II, LLC, Caithness Heber Geothermal I, LLC, Caithness
Heber Geothermal II, LLC, Caithness Mammoth, LLC, Caithness SIGC GP, LLC and
Caithness SIGC LP, LLC (collectively, the "Proposed Buyers") dated as of
September 25, 2003 (Docket No. 2214) (as such agreement may be amended, modified
or terminated pursuant to the terms thereof, the "Heber Purchase Agreement").
Pursuant to the Heber Purchase Agreement, the Sellers, in consultation with the
Proposed Buyers, shall determine whether to accomplish the resolution of the
Chapter 11 Cases of the Heber Debtors though a sale pursuant to section 363 of
the Bankruptcy Code or through the Heber Reorganization Plan. On September 8,
2003 the Debtors filed a motion (Docket No. 2057) (the "Heber Sale Motion"),
seeking, among other things, (i) entry of an Order establishing competitive
bidding and auction procedures for the Geothermal Business; (ii) approval of the
sale (without prejudice to the Proposed Buyers' rights under the Heber Purchase
Agreement, the "Geothermal Sale") of the Geothermal Business to the Proposed
Buyers pursuant to the Heber Purchase Agreement, subject to higher or better
offers under the Court-approved bidding and auction procedures, pursuant to
either the Heber Sale Motion or the Heber Reorganization Plan (the "Heber
Alternative Transaction"); (iii) and the dismissal of the Heber Debtors' Chapter
11 Cases as contemplated by the Heber Sale Motion or the Heber Alternative
Transaction, as applicable (the "Heber Debtor Dismissal"). On the same day, the
Heber Debtors filed their original proposed plan of reorganization, which was
subsequently amended as provided in the Heber Reorganization Plan. On September
29, 2003, the Court entered an order (Docket No. 2222) (the "Heber Bidding
Procedures Order"), approving the bidding procedures and establishing November
19, 2003 as the date of the Auction (as defined in the Heber Bidding Procedures
Order) and the hearing to consider approval of the Geothermal Sale, either
pursuant to the Heber Sale Motion or the Heber Reorganization Plan (the
"Approval Hearing"). If the Court confirms the Heber Reorganization Plan at the
Approval Hearing, the Debtors will withdraw the request for the Heber Debtor
Dismissal as provided in the Heber Sale Motion.
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2 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.
The Reorganization Plan and the Heber Reorganization Plan are premised
on the consummation of the Geothermal Sale, as the proceeds of the Geothermal
Sale will provide the Reorganized Debtors and the Heber Debtors with funds
necessary to emerge from their respective Chapter 11 Cases.
The Liquidation Plan provides for the complete liquidation of the
Liquidating Debtors. Apart from the disposition of businesses associated with
the Arrowhead Pond of Anaheim arena in Anaheim, California ("Arrowhead Pond"),
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 $3,000,000 of the Cash subject to the transfers
described in the previous sentence be transferred to the Operating Reserve and
the Administrative Expense Claims Reserve, which shall be used by the
Liquidating Trustee to fund the implementation of the Liquidation Plan. The
transfers to Reorganized Covanta 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.
F. Compromises and Settlements Incorporated into the Plans
Under the Plans, 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
the Borrowers (including Covanta and certain of its subsidiaries under Tranche B
of the DIP Financing Facility (as defined herein)) under the Master Credit
Facility (the "Prepetition Borrowers") are expected to aggregate $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, 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 is also
incorporated in the Reorganization Plan and shall become effective on the
Reorganizing 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.(3) 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 under the
Reorganization Plan).(4) 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.
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3 Capitalized terms in this paragraph not otherwise defined herein or in the
Reorganization Plan shall have the meaning set forth in the Master Credit
Facility.
4 Based upon current projections, the Pooled Facility Lenders will purchase
approximately US$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 negotiation
of the Plans, 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 and up to $2,500,000 will be
used to fund the Administrative Expense Claims Reserve, both of which are
established under the Liquidation Plan. The Debtors believe that the transfer to
Reorganized Covanta 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.
Additionally, pursuant to the 9.25% Settlement, the holders of Parent
and Holding Company Unsecured Claims would be entitled to receive a Pro-Rata
Share of a Settlement Distribution as a result of the proposed settlement of the
9.25% Debentures Adversary Proceeding, as further described in Section VI.C.11
below. Each holder of an Allowed 9.25% Debenture Claim shall have the option to
opt out of participation in the 9.25% Settlement (those electing to opt out, the
"Rejecting Bondholders"). In the event that there are Rejecting Bondholders with
aggregate Claims in excess of $10 million, the 9.25% Debentures Adversary
Proceeding shall continue with respect to such holders and the distribution to
such Rejecting Bondholders will be held in a Reserve Account subject to
resolution of the 9.25% Debentures Adversary Proceeding.
G. Treatment of Executory Contracts and Unexpired Leases Under the Plans
1. General Treatment
(a) Reorganizing Debtors: For Reorganizing Covanta and certain other
Reorganizing Debtors listed on Exhibit 9.1A of the Reorganization Plan
(collectively, the "Rejecting Debtors"), on the Reorganization 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, filed as Exhibit 9.1A(s) of the Reorganization Plan, as may be
amended, 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 prior to
the hearing to consider the confirmation of the Reorganization Plan and related
matters (with the hearing to consider the confirmation of the Liquidation Plan
and related matters, the "Plans Confirmation Hearing"). The Rejecting Debtors
expressly reserve the right to add or remove executory contracts and unexpired
leases to or from the Rejecting Debtors' Schedule of Assumed Contracts and
Leases at any time prior to the Reorganization Effective Date. The listing of a
document on the Rejecting Debtors' Schedule of Assumed Contracts and Leases
shall not constitute an admission that such document is an executory contract or
unexpired lease or that the Reorganizing Debtors have any liability thereunder.
For Reorganizing Debtors listed on Exhibit 9.1B of the Reorganization
Plan (collectively, the "Assuming Debtors"), on the Reorganization 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, filed as Exhibit 9.1B(s) of the Reorganization Plan, as may be
amended, 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 at or prior
to the Plans Confirmation Hearing. The Assuming Debtors expressly reserve the
right to add or remove executory contracts and unexpired leases to or from the
Assuming Debtors' Schedule of Rejected Contracts and Leases at any time prior to
the Reorganization Effective Date. The listing of a document on the Assuming
Debtors' Schedule of Assumed Contracts and Leases shall not constitute an
admission that such document is an executory contract or unexpired lease or that
the Reorganizing Debtors have any liability thereunder.
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) Heber Debtors: For the Heber Debtors, upon the Heber Effective
Date, all Heber Debtor Contracts, including the Heber Debtor Contracts
identified on Exhibit B of the Heber Reorganization Plan and the mineral rights
leases and related agreements identified on Exhibit C of the Heber
Reorganization Plan, shall be deemed assumed by the Heber Debtor that is a party
to such Heber Debtor Contract; except for any contract or lease that (a) has
been previously assumed or rejected pursuant to a Final Order of the Court, (b)
is specifically designated as a contract or lease on the Heber Debtors' Schedule
of Rejected Contracts and Leases, or (c) is the subject of a separate motion to
assume or reject filed under section 365 of the Bankruptcy Code by one of the
Heber Debtors at or prior to the hearing to consider the confirmation of the
Heber Reorganization Plan (the "Heber Confirmation Hearing"). Any affiliate of a
Heber Debtor that is a party to a Heber Debtor Contract shall assign its rights
and obligations under such Heber Debtor Contract to Buyers at Closing, provided
that such Heber Debtor Contract is assumed pursuant to this Heber Reorganization
Plan. The Heber Debtors may amend Exhibits B and C of the Heber Reorganization
Plan to add or delete any contract or lease at or prior to the Heber
Confirmation Hearing. Additionally, upon the Heber Effective Date, the Heber
Debtor Contracts identified on Exhibit F of the Heber Reorganization Plan, which
previously have been assumed by Final Order of the Court, shall be transferred
through the transfer of Equity Interests in the Heber Debtors to the applicable
Proposed Buyers pursuant the terms of the Heber Purchase Agreement.
Certain of the Debtor Sellers (as defined herein) and certain of the
Debtor Operators (as defined herein) are also parties, along with the Heber
Debtors, to certain of the Heber Debtor Contracts or parties to various other
contracts relating to the Geothermal Business. Such Additional Contracts are
identified on Exhibit D of the Heber Reorganization Plan. In accordance with
section 365(f) of the Bankruptcy Code, upon the Heber Effective Date, the
Additional Contracts shall be assumed and assigned to the Proposed Buyers
pursuant to the terms of the Heber Purchase Agreement or a Heber Alternative
Transaction. In addition, upon the Heber Effective Date, the Debtor Operators
shall assign to the Proposed Buyers the O&M Contracts identified on Exhibit E of
the Heber Reorganization Plan. The listing of a document on Exhibits D and E of
the Heber Reorganization Plan shall not constitute an admission that such
document is an executory contract or unexpired lease or that the Heber Debtors
have any liability thereunder. The Heber Debtors may amend Exhibits D and E of
the Heber Reorganization Plan to add or delete any contract or lease at or prior
to the Heber Confirmation Hearing.
(c) Liquidating Debtors: For Liquidating Debtors, on the Liquidation
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) is specifically designated as a contract or lease on the Schedule
of Assumed Contracts and Leases, filed as Exhibit 5 of the Liquidation Plan, as
may be amended; (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. On the Effective 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 Reorganization Effective Date. The Liquidating
Debtors reserve the right to ad or remove executory contracts and unexpired
leases to or from the Schedule of Assumed Contracts and Leases at any time prior
to the Liquidation Effective Date.
2. Cure of Defaults
(a) Reorganizing and Liquidating Debtors: 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. Any party failing
to object to the proposed cure amount fifteen days following service of the
proposed cure amount by the Debtors shall be forever barred from asserting,
collecting, or seeking to collect any amounts in excess of the proposed cure
amount against the Reorganizing Debtors or Reorganized Debtors. 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.
(b) Heber Debtors: Exhibits B, C, D and E of the Heber Reorganization
Plan set forth the Cure Amounts necessary to cure any and all defaults existing
under each of the contracts identified thereto pursuant to section 365(b) of the
Bankruptcy Code, as determined by the Heber Debtors and the Debtors, based upon
a review of their books and records and the relevant documents. The Cure Amounts
shall be final and binding on the parties identified on Exhibits B, C, D and E
of the Heber Reorganization Plan (or their successors and assigns) and shall not
be subject to further dispute or audit based on performance prior to the time of
assumption, irrespective of whether such assumed executory contract or unexpired
lease contains an audit clause; provided, however, that the terms of the HFC
Royalty Settlement Order shall control the Cure Amounts owed to parties to the
HFC Royalty Settlement, including Cure Amounts fixed in additional settlement
agreements contemplated and authorized by such Order. The holders of Heber
Royalty Settled Claims shall be entitled to receive both the Cure Amounts and
the HFC Royalty Settlement Payments.
Any objection to (i) assumption, assignment or rejection of the
contracts or leases pursuant to the Heber Reorganization Plan or (ii) Cure
Amounts must be in writing, shall state with particularity the reasons for the
objection or response, and shall be filed with the Court and served upon
co-counsel to the Debtors on or before seven (7) days prior to the Heber
Confirmation Hearing. Only those objections that have been timely filed and
served will be considered by the Court at the Heber Confirmation Hearing.
Objections to Cure Amounts must state with specificity the Cure Amount the
objecting party believes is required and provide appropriate documentation in
support thereof. If no objection to a particular Cure Amount is timely received,
the Cure Amount set forth on Exhibits B, C, D, and E of the Heber Reorganization
Plan shall be controlling notwithstanding anything to the contrary in any such
contract or lease, and the counterparty thereto shall be forever barred from
asserting any other claim arising prior to the assumption or assumption and
assignment against the Debtors, the Heber Debtors, the Reorganized Heber Debtors
or the Buyer as to such Cure Amounts; provided, however, that the terms of the
HFC Royalty Settlement Order shall control the Cure Amounts owed to parties to
the HFC Royalty Settlement, including Cure Amounts fixed in additional
settlement agreements contemplated and authorized by such Order. The holders of
Heber Royalty Settled Claims shall be entitled to receive both the Cure Amounts
and the HFC Royalty Settlement Payments. In the event of a dispute regarding any
Cure Amount or the ability of the Heber Debtor or other Debtors to assume and/or
assign a particular contract or lease, including providing adequate assurance of
future performance, the applicable Debtor may determine to reject such contract
or lease and otherwise will provide for payments required by section 365(b)(1)
of the Bankruptcy Code only after the entry of a Final Order resolving such
dispute
3. Approval of Assumption of Certain Executory Contracts
(a) Reorganizing and Liquidating Debtors: Subject to Sections 9.1 and
9.2 of the Reorganization Plan and Sections 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 shall be
assumed by and, as applicable, assigned to the relevant Reorganizing or
Liquidating Debtors as of the applicable Effective Date. Except as may otherwise
be ordered by the Court, the Reorganizing Debtors and Liquidating Debtors shall
have the right to cause any assumed executory contract or unexpired lease to
vest in the Reorganized Debtor designated for such purpose by the Reorganizing
Debtors and Liquidating Debtors.
(b) Heber Debtors: Subject to Sections 9.1, 9.2 and 9.3 of the Heber
Reorganization Plan, the executory contracts and unexpired leases of the Heber
Debtors listed on Exhibits B, C, D and E of the Heber Reorganization Plan shall
be assumed by and, as applicable, assigned to the relevant Heber Debtors as of
the Heber Effective Date. Except as may otherwise be ordered by the Court, the
Heber Debtors shall have the right to cause any assumed executory contract or
unexpired lease to vest in the Reorganized Heber Debtor designated for such
purpose by the 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
(a) Reorganizing Debtors and Liquidating Debtors: 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.
(b) Heber Debtors: Claims arising out of the rejection of an executory
contract or unexpired lease pursuant to Section 9.1 of the Heber Reorganization
Plan must be filed with the Court no later than the later of (i) fifteen (15)
days after the Heber Effective Date, and (ii) fifteen (15) days after 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
Debtors, the Heber Debtors or the Reorganized Heber Debtors.
6. Deemed Consents of Debtors' Executory Contracts, Unexpired Leases,
Licenses or Permits
Unless a counterparty to an executory contract, unexpired lease,
license or permit objects to the applicable Debtor's assumption thereof in
writing on or before seven (7) days prior to the applicable Confirmation
Hearing, then, unless such executory contract, unexpired lease, license or
permit has been rejected by the applicable Debtor or will be rejected by
operation of the Reorganization Plan, the Heber Reorganization Plan, or the
Liquidation Plan, the Reorganized Debtors, the Reorganized Heber Debtors and
Reorganized Covanta (as assignee of all executory contracts and unexpired leases
assumed by the Liquidating Debtors), shall enjoy all the rights and benefits
under each such executory contract, unexpired lease, license and permit without
the necessity of obtaining such counterparty's written consent to assumption or
retention of such rights and benefits.
7. Reorganizing and Liquidating Debtors' Reservation of Rights Under
Insurance Policies and Bonds
The enforceability by beneficiaries of (i) any insurance policies that
may cover Claims against any Reorganizing or Liquidating Debtor, or (ii) any
bonds issued to assure the performance of any such 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.
8. Survival of Reorganizing and Liquidating Debtors' Corporate
Indemnities
Any obligations of any of the Reorganizing or Liquidating Debtors
pursuant to the applicable Debtor's corporate charters and bylaws or agreements
entered into any time prior to the applicable 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 applicable Plan. Such obligations shall be deemed and
treated as executory contracts to be assumed by the applicable Debtor pursuant
to the applicable Plan, 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.
H. Treatment of Claims and Interests under the Plans
Pursuant to the Plans, and subject to the provisions therein, certain
unclassified Claims, including Administrative Expense Claims (other than the DIP
Financing Facility Claims and Claims for compensation and reimbursement) and
Priority Tax Claims, will receive payment in Cash (i) on the later of the
applicable Distribution Date, or (ii) in installments over time (as permitted by
the Bankruptcy Code), or (iii) as agreed with the holders of such Claims. The
DIP Financing 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 Reorganization 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 Financing 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 applicable
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 on or before the deadlines set forth in the Plans.
All other Claims and Equity 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 Equity
Interests. The classification and treatment for all Classes are described in
more detail under Article VII.
The Debtors have been informed by counsel to the informal committee of
9.25% Debenture Holders (the "Informal Committee") that the Informal Committee
opposes confirmation of the Reorganization Plan and the Liquidation Plan, as
currently drafted, and believes that such Plans violate sections 1122(a),
1123(a)(4) and 1129(a)(1) of the Bankruptcy Code. The Debtors have been further
advised that the Informal Committee believes that the Reorganization Plan and
Liquidation Plan are not confirmable because (i) the 9.25% Debenture Claims
should be classified separately from the Secured Bank Claims; (ii) disparate
treatment exists among the Allowed Class 3 Claims (Reorganized Covanta Secured
Claims); and (iii) the Reorganization Plan and Liquidation Plan have not been
proposed in good faith. At the hearing to approve this Disclosure Statement and
the Short-Form Disclosure Statement, the Informal Committee preserved its rights
to object to confirmation of the Reorganization Plan and Liquidation Plan on the
foregoing and any other grounds.
Contrary to the assertions of the Informal Committee, the Debtors
believe that the Reorganization Plan and the Liquidation Plan comply with
sections 1122, 1123 and 1129, as well as any other relevant provisions of the
Bankruptcy Code. The Debtors believe and expect to provide sufficient evidence
at the Plans Confirmation Hearing to prove that the Reorganization Plan and the
Liquidation Plan have been proposed in good faith as required by section
1129(a)(3) of the Bankruptcy Code, that the classification of the 9.25%
Debenture Claims under the respective Plans is proper and that no disparate
treatment exists among the Allowed Class 3 Claims. The professionals
representing the Informal Committee and certain members of such Committee have
executed confidentiality agreements with the Debtors and have participated in
negotiations regarding the creation of the Plans and have had the opportunity to
comment on the Plans and this Disclosure Statement prior to their submission.
The Debtors will continue to negotiate with the Informal Committee to attempt to
resolve their concerns.
Reorganization Plan
-------------------
Class Reorganization Plan
- ----- -------------------
Class 1 Allowed Priority Non-Tax Claims
Treatment of Class 1 Claims is summarized on page xv
Class 2 Allowed Project Debt Claims
Treatment of Class 2 Claims is summarized on page xvi
Class 3 Subclass 3A: Allowed Secured Bank Claims
Subclass 3B: Allowed Secured 9.25% Debenture Claims
Treatment of Class 3 Claims is summarized on page xvii
Class 4 Allowed Operating Company Unsecured Claims
Treatment of Class 4 Claims is summarized on page xxi
Class 5 Allowed Parent and Holding Company Guarantee Claims
Treatment of Class 5 Claims is summarized on page xxii
Class 6 Allowed Parent and Holding Company Unsecured Claims
Treatment of Class 6 Claims is summarized on page xxiii
Class 7 Allowed Convertible Subordinated Bond Claims
Treatment of Class 7 Claims is summarized on page xxiv
Class 8 Allowed Convenience Claims
Treatment of Class 8 Claims is summarized on page xxv
Class 9 Subclass 9A: Liquidating Debtors
Intercompany Claims
Subclass 9B: Reorganizing Debtors
Intercompany Claims
Subclass 9C: Heber Debtor
Intercompany Claims
Treatment of Class 9 Claims is summarized
on page xxvi
Class 10 Subordinated Claims
Treatment of Class 10 Claims is summarized on page xxvii
Class 11 Equity Interests in Subsidiary Debtors
Treatment of Class 11 Claims is summarized on page
xxviii
Class 12 Equity Interests in Covanta Huntington, Covanta Onondaga
and DSS Environmental
Treatment of Class 12 Claims is summarized on page xxix
Class 13 Old Covanta Stock Equity Interests
Treatment of Class 13 Claims is summarized on page xxx
Heber Reorganization Plan
-------------------------
Class Heber Reorganization Plan
- ----- -------------------------
Class 1 Allowed Priority Non-Tax Claims
Treatment of Class 1 Claims is summarized on page xxxi
Class 2H Subclass 2H-A: Allowed GECC Secured SIGC Claims
Subclass 2H-B: Allowed GECC Secured HGC/HFC Claims
Treatment of Class 2H Claims is summarized on page
xxxii
Class 3H Allowed Heber Secured Claims
Treatment of Class 3H Claims is summarized on page
xxxiii
Class 4 N/A
Class 5 N/A
Class 6 N/A
Class 7 Allowed Unsecured Claims
Treatment of Class 7 Claims is summarized on page xxxiv
Class 8 Allowed Heber Intercompany Claims
Treatment of Class 8 Claims is summarized on page xxxv
Class 9 Intercompany Claims
Treatment of Class 9 Claims is summarized on page xxxvi
Class 10 N/A
Class 11 N/A
Class 12 N/A
Class 13 N/A
Class 14 Equity Interests in the Heber Debtors
Treatment of Class 14 Claims is summarized on page
xxxvii
Liquidation Plan
----------------
Class Liquidation Plan
- ----- ----------------
Class 1 Allowed Priority Non-Tax Claims
Treatment of Class 1 Claims is
summarized on page xxxviii
Class 2 N/A
Class 3 Class 3A: Allowed Liquidation Secured
Claims
Class 3B: Allowed Secured CSFB Claim
Class 3C: Allowed Covanta Tulsa Secured
Claims
Treatment of Class 3 Claims is
summarized on page xxxix
Class 4 N/A
Class 5 N/A
Class 6 N/A
Class 7 Allowed Unsecured Liquidation Claims and
Allowed Insurance Claims
Treatment of Class 7 Claims is
summarized on page xli
Class 8 N/A
Class 9 Intercompany Claims
Treatment of Class 9 Claims is
summarized on page xlii
Class 10 N/A
Class 11 Equity Interests in Liquidating Debtors
Treatment of Class 11 Claims is
summarized on page xliii
Class 12 N/A
Class 13 N/A
REORGANIZATION PLAN SUMMARY OF CLASS TREATMENT
----------------------------------------------
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 1: Estimated Allowed Claims: $0 to $200,000
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.
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: 100%
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 2: Estimated Allowed Claims: $300,000 to $1 million
Allowed Project
Debt Claims
On the Reorganization 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. To the extent that
defaults exist in connection with any
Allowed Project Debt Claims, the
Reorganized Debtors shall comply with
section 1124(2) of the Bankruptcy Code
on or before the Reorganization
Effective Date. Without limiting the
generality of the foregoing, the
Reorganizing Debtors shall pay in Cash
thirty (30) days after the
Confirmation Date of the
Reorganization Plan any Secured
Project Fees and Expenses, which are
defined as those reasonable fees,
costs or charges that (i) are incurred
by a trustee acting on behalf of a
bondholder, bond insurer or owner
participant under any indenture that
relates to an Allowed Project Debt
Claim, (ii) represent fees, costs or
charges incurred after the Petition
Date, (iii) are properly payable under
the applicable indenture, and (iv)
have been approved by order of the
Court; provided, however, that to the
extent that any Secured Project Fees
and Expenses may have been paid by
third parties, then such third parties
may only seek reimbursement from the
Reorganizing Debtors for payment of
such Secured Project Fees and
Expenses, if and to the extent
permitted by the relevant prepetition
transaction documents and the
Bankruptcy Code. 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 Reorganization 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: 100%
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 3:
Under the Reorganization Plan, Class 3
is divided into two Subclasses for
Allowed Reorganized Distribution purposes: Subclass 3A
Covanta Secured consists of the Allowed Secured Bank
Claims Claims and Subclass 3B consists of
Allowed Secured 9.25% Debenture Claims.
Estimated Allowed Claims: $418.7
million to $448.6 million
Subclass 3A: Holders of Allowed Subclass 3A Claims
shall receive the Subclass 3A Recovery
Allowed Reorganized in full settlement, release and
Covanta Secured Claims discharge of their aggregate Allowed
-- Secured Bank Claims Subclass 3A Claims. The 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; provided, however, that
with respect to the Distribution of
the remaining Subclass 3A Recovery,
(i) the New Facility Lenders in
Subclass 3A 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
Additional New Lenders in Subclass
3A shall receive their Secured
Value Distribution first in the
form of New Lender Warrants and
thereafter solely in the form of
New High Yield Secured Notes; and
further, provided, that
Non-Participating Lenders in
Subclass 3A shall receive their
Secured Value Distribution solely
in the form of New High Yield
Secured Notes and shall not receive
any Distribution of Distributable
Cash or New Lender Warrants.
Immediately prior to any
Distribution to holders of Subclass
3A Claims, the settlement of the
Loss Sharing Litigation as
described on Exhibit 6 to the
Reorganization Plan shall be deemed
effective and implemented for
purposes of Distributions under the
Reorganization Plan.
Class 3 Claims are Impaired, and the
holders of Allowed Claims in such Class
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 this
Reorganization Plan; provided, however
that the Ballots distributed to holders
of Subclass 3B Secured Claims shall
permit each such holder the opportunity
to elect treatment as a Rejecting
Bondholder, it being understood that any
such holder who does not expressly make
such election by properly marking the
Ballot shall be deemed an Accepting
Bondholder.
Estimated Percentage Recovery:
63.0% to 70.5%
Subclass 3B:
Estimated Allowed Claims:
$105 million
Allowed Reorganized
Covanta Secured
Claims--9.25% Debenture
Claims
On the Distribution Date, holders of
Allowed Subclass 3B Claims shall
receive the Subclass 3B Recovery in
full settlement, release and discharge
of their respective Allowed Subclass
3B Claims. The Subclass 3B Recovery
shall be distributed among holders of
Allowed Subclass 3B Claims as follows:
First, the Subclass 3B Secured
Claim shall be deemed an Allowed
Secured Claim in an amount equal to
the Allowed Subclass 3B Settlement
Amount and in full settlement,
release and discharge of the
Allowed Secured Claims of the
Accepting Bondholders, each holder
of an Allowed Subclass 3B Claim
that is an Accepting Bondholder
shall, subject to payment of its
pro-rata share of the Settlement
Distribution, receive its Pro Rata
Subclass Share of Distributions of
the Subclass 3B Accepting
Bondholder Recovery; provided,
however, that with respect to the
Subclass 3B Accepting Bondholder
Recovery, (i) the New Facility
Lenders in Subclass 3B that are
Accepting Bondholders, 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
Additional New Lenders in Subclass
3B that are Accepting Bondholders,
if any, 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 that are Accepting
Bondholders shall not receive any
Distributable Cash or any
Distribution of New Lender Warrants
as part of the Secured Value
Distribution. Distributions made to
each Accepting Bondholder of such
holder's Allowed Subclass 3B Claim
shall be subject to adjustment and
modification in accordance with the
provisions of the 9.25% Settlement,
including the waiver of the 9.25%
Deficiency Claims and any
subordination benefits with respect
to the Convertible Subordinated
Bonds, and payment of such holder's
pro-rata share of the Settlement
Distribution to the holders of
Allowed Class 6 Claims as provided
under the Reorganization Plan.
Second, in the event that the
aggregate amount of Subclass 3B
Claims held by Rejecting
Bondholders is equal to or greater
than $10 million, the Subclass 3B
Claim of each Rejecting Bondholder
shall be deemed a Disputed Secured
Claim, allowance thereof shall be
subject to determination pursuant
to the 9.25% Debentures Adversary
Proceeding, and on the Effective
Date, the Reorganizing Debtors
shall deliver the Subclass 3B
Rejecting Bondholder Recovery into
a Reserve Account in accordance
with Section 8.4 of the
Reorganization Plan and be held
subject to Distribution pursuant to
Section 8.6 of the Reorganization
Plan.
Third, in the event that the
aggregate amount of Subclass 3B
Claims held by Rejecting
Bondholders is less than $10
million, the Subclass 3B Claim of
each Rejecting Bondholder shall be
deemed an Allowed Secured Claim in
its full amount and in full
settlement, release and discharge
of the Allowed Secured Claims of
the Rejecting Bondholders, on the
Reorganization Effective Date, each
holder of an Allowed Subclass 3B
Claim that is a Rejecting
Bondholder shall receive its Pro
Rata Subclass Share of
Distributions of the Subclass 3B
Rejecting Bondholder Recovery;
provided, however, that with
respect to the Subclass 3B
Rejecting Bondholder Recovery, (i)
the New Facility Lenders in
Subclass 3B that are Rejecting
Bondholders, 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
Additional New Lenders in Subclass
3B that are Rejecting Bondholders,
if any, 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 that are Rejecting
Bondholders shall not receive any
Distributable Cash or any
Distribution of New Lender Warrants
as part of the Secured Value
Distribution. In the event that the
aggregate amount of Subclass 3B
Claims held by Rejecting
Bondholders is less than $10
million, the Distributions made to
each Rejecting Bondholder of such
holder's Allowed Subclass 3B Claim
shall not be subject to adjustment
and modification in accordance with
the provisions of the 9.25%
Settlement, nor shall they receive
a release of claims asserted in the
9.25% Debentures Adversary
Proceeding (remaining subject to
liability to the holders of Class 6
Claims for the Settlement
Distribution.
Class 3 Claims are Impaired, and the
holders of Allowed Claims in such
Class 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
this Reorganization Plan; provided,
however that the Ballots distributed
to holders of Subclass 3B Secured
claims shall permit each such holder
the opportunity to elect treatment as
a Rejecting Bondholder, it being
understood that any such holder who
does not expressly make such election
by properly marking the Ballot shall
be deemed an Accepting Bondholder
Estimated Percentage Recovery
before giving effect to the 9.25%
Settlement Distribution: 63.0% to
70.5%
Estimated Percentage Recovery for
Accepting Bondholders after giving
effect to the 9.25% Settlement
Distribution: 55.2% to 61.7%
Estimated Percentage Recovery for
Rejecting Bondholders who are
unsuccessful in the 9.25%
Debentures Adversary Proceeding:
1.6% to 6.5% (treatment as holders
of Class 6 Claims)
IF HOLDERS OF SUBCLASS 3B CLAIMS IN
EXCESS OF $10 MILLION ELECT TO
BECOME REJECTING BONDHOLDERS, THEN
ALL DISTRIBUTIONS TO REJECTING
BONDHOLDERS WILL BE HELD IN A
DISPUTED RESERVE ACCOUNT SUBJECT TO
RESOLUTION OF THE 9.25% DEBENTURES
ADVERSARY PROCEEDING.
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 4: Estimated Allowed Claims:
$30 million to $35 million
Allowed Operating
Company Unsecured Claims
(Note: A list of Operating On the Distribution Date, each
Company Debtors is attached holder of an Allowed Class 4 Claim
at Exhibit K) shall receive, in full settlement,
release and discharge of its Class
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 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 in Section 4.4 of the
Reorganization Plan.
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:
100%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 5: Estimated Allowed Claims: $0
Allowed Parent and
Holding Company
Guarantee Claims
On the Reorganization Effective Date,
the legal, equitable and contractual
rights of the holders of Allowed Class
5 Claims will be reinstated in full
satisfaction, release and discharge of
their respective Class 5 Claims and
will remain unaltered under the
Reorganization Plan, except as the
Reorganizing Debtors and the holders
of Allowed Class 5 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 5 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 Reorganization Effective
Date shall be enforceable against the
Reorganized Debtors.
Class 5 Claims are Unimpaired, and the
holders of Allowed Class 5 Claims are
not entitled to vote to accept or
reject the Reorganization Plan.
Estimated Percentage Recovery:
100%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 6: Estimated Allowed Claims: $125
million to $500 million
Allowed Parent and
Holding Company
Unsecured Claims
In consideration of the agreement by
the holders of Class 6 Claims to waive
any claims, including all alleged
avoidance actions, that might be
brought against the holders of
Subclass 3A Claims and to settle the
9.25% Debentures Adversary Proceeding
in accordance with the terms of the
9.25% Settlement, and to secure the
support of the holders of Allowed
Class 6 Claims for confirmation of
this Reorganization Plan, the holders
of Allowed Class 3 Claims have agreed
to provide the holders of Allowed
Class 6 Claims from the value that
would otherwise have been
distributable to the holders of
Allowed Class 3 Claims under this
Reorganization Plan, so that 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,
Distributions consisting of (i) such
holder's Pro Rata Class Share of Class
6 Warrants, (ii) such holder's Pro
Rata Class Share of Class 6 CPIH
Preferred Stock, (iii) such holder's
Pro Rata Class Share of the CPIH
Participation Interest, and (iv) such
holders Pro Rata Class Share of the
proceeds, if any, with respect to the
Class 6 Litigation Claims.
Additionally, each holder of an
Allowed Class 6 Claim (a) shall
receive from each Accepting
Bondholder, in full satisfaction,
release and discharge of its rights
with respect to the 9.25% Debentures
Adversary Proceeding against each
Accepting Bondholder, a Distribution
consisting of such holder's Pro Rata
Share of the Settlement Distribution
and (b) may receive a further
Distribution with respect to the
Subclass 3B Rejecting Bondholder
Recovery, subject to the resolution of
the 9.25% Debentures Adversary
Proceeding, in accordance with Section
8.6(b) of the Reorganization Plan.
With respect to the Distribution to
holders of Allowed Class 6 Claims
(including any Distribution with
respect to the Settlement
Distribution), the Reorganizing
Debtors shall have the option to make
all or any portion of the Distribution
either directly to the holder of such
Allowed Class 6 Claim or through a
depository or trust arrangement that
provides holders of Allowed Class 6
Claims with the equivalent economic
benefits they would have received
through a direct Distribution;
provided, however, that the costs of
implementing and maintaining any such
depository or trust arrangement shall
be paid for from the proceeds of the
Distribution to holders of Allowed
Class 6 Claims. 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 Section 4.7 of
the Reorganization Plan.
Estimated Percentage Recovery
before giving effect to 9.25%
Settlement Distribution:
1.6% to 6.5%
Class Description Treatment Under Reorganization Plan
Class 7: Estimated Allowed Claims:
$154.5 million
Allowed Convertible
Subordinated Bond Claims
On the Distribution Date, each holder
of an Allowed Class 7 Claim shall not
receive any Distributions from the
Reorganizing Debtors or retain any
property under the Reorganization Plan
in respect of Class 7 Claims, on
account of its Class 7 Claim.
Class 7 Claims are Impaired, and the
holders of Allowed Class 7 Claims are
conclusively presumed to reject the
Reorganization Plan. The votes of
holders of Allowed Class 7 Claims will
not be solicited.
Estimated Percentage Recovery: 0%
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 8: Estimated Allowed Claims:
$2.1 million
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
payment in 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%
Class Description Treatment Under Reorganization Plan
- ----------------- -----------------------------------
Class 9: Class 9 consists of all Intercompany
Claims. Class 9 is subdivided into two
Subclasses for Distribution purposes:
Intercompany Claims Subclass 9A consists of the Liquidating
Debtors Intercompany Claims; Subclass 9B
consists of the Reorganized Debtors
Intercompany Claims.
Subclass 9A: In full satisfaction, release and
discharge of each Liquidating Debtors
Liquidating Debtors Intercompany Claim, each such
Intercompany Claims Liquidating Debtors Intercompany 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
or Reorganized Debtor, Reorganizing
Reorganizing Debtor Debtors shall be Reorganizing Debtors
Intercompany Claims either: (a) preserved and reinstated,
(b) released, waived and Intercompany
Claims discharged, (c) contributed to
the capital of the obligee corporation,
or (d) distributed to the obligee
corporation.
Subclass 9C: On the Reorganization Effective Date,
all Subclass 9C Claims shall be deemed
Heber Debtors cancelled or waived in exchange for the
Intercompany Claims Reorganizing Debtors' undertaking
certain obligations in connection with
the Heber Reorganization Plan.
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 10: Estimated Allowed Claims:
$100,000 to $500,000
Subordinated Claims
As of the Reorganized Plan 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, on account 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: 0%
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 11:
Equity Interests in
Subsidiary Debtors
As of the Reorganization Effective
Date, all Equity Interests in
Subsidiary Debtors shall be reinstated
in full satisfaction, release and
discharge of any Allowed Class 11
Claims and such Equity Interests shall
be evidenced by the existing capital
stock, partnership and/or membership
interests.
Class 11 Equity Interests are
Unimpaired and the holders of Allowed
Class 11 Equity Interests in such
Class are conclusively presumed to
accept the Reorganization Plan. The
votes of holders of Class 11 Equity
Interests will not be solicited.
Class Description Treatment Under Reorganization Plan
----------------- -----------------------------------
Class 12:
Equity Interests in As of the Reorganization Effective
Covanta Huntington, Date, Equity Interests in Covanta
Covanta Onondaga and Huntington, Covanta Onondaga and DSS
DSS Environmental(5) Environmental shall be reinstated, in
full satisfaction, release, and
discharge of any Allowed Class 12
Equity Interests, and such reinstated
Equity Interests shall be evidenced
by the existing capital stock,
partnership and/or membership
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: 100%
- ------------------
5 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
- ----------------- -----------------------------------
Class 13: Holders of Allowed Class 13 Equity
Interests shall not receive any
Old Covanta Stock Distribution or retain any property
Equity Interests under the Reorganization Plan in
respect of Class 13 Equity Interests.
All Class 13 Equity Interests
shall be cancelled, annulled and
extinguished.
Class 13 Equity Interests are
Impaired, and the holders of Allowed
Class 13 Equity Interests are
conclusively presumed to reject the
Reorganization Plan.
Estimated Percentage Recovery: 0%
HEBER REORGANIZATION PLAN SUMMARY OF CLASS TREATMENT
----------------------------------------------------
Class Description Treatment Under Heber Reorganization Plan
----------------- -----------------------------------------
Class 1: Estimated Allowed Claims: $0
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
Covanta and the holder of an Allowed
Priority Non-Tax Claim agree,
provided, however, that no such
agreement shall impose any obligation
upon the Reorganized Heber Debtors
beyond the payment of amounts
calculated in accordance with the
Working Capital Adjustment.
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: 100%
Class Description Treatment Under Heber Reorganization Plan
- ----------------- -----------------------------------------
Class 2H: Under the Heber Reorganization Plan,
Class 2H is divided into two subclasses
Allowed GECC Secured for distribution purposes: Subclass 2H-A
Claims consists of the Allowed GECC Secured
SIGC Claims, and Subclass 2H-B consists
of all Allowed GECC Secured HGC/HFC
Claims.
Subclass 2H-A: The holder of the Allowed Subclass 2H-A
Claims shall retain, unaltered, the
Allowed GECC Secured legal, equitable and contractual rights,
SIGC Claims including, without limitation, any valid
and perfected Liens that secure such
Allowed Claim, provided, however, that
the assets of the Heber Debtors subject
to the GECC Liens may be sold, subject
to such GECC Liens, as part of the
Geothermal Sale contemplated by the
Heber Reorganization Plan.
Subclass 2H-B: Covanta shall pay to each holder of an
Allowed Subclass 2H-B Claim, in full
Allowed GECC Secured settlement, release and discharge of its
HGC/HFC Claims Subclass 2H-B Claim, either (i) Cash, on
the Heber Effective Date, in an amount
equal to such Allowed Subclass 2H-B
Claim, or (ii) such other less favorable
terms as Covanta and the holder of an
Allowed GECC Secured HGC/HFC Claim
agree, provided, however, that no such
agreement shall impose any obligation
upon the Reorganized Heber Debtors
beyond the payments of amounts
calculated in accordance with the
Working Capital Adjustment.
Class 2H Claims are Unimpaired, and the
holder of the Allowed Class 2H Claims is
not entitled to vote to accept or reject
the Heber Reorganization Plan.
Estimated Percentage Recovery: 100%
Class Description Treatment Under Heber Reorganization Plan
- ----------------- -----------------------------------------
Class 3H: Estimated Allowed Claims: $0
Allowed Heber Secured On the Heber Reorganization Effective
Claims other than Date, the legal, equitable and
Allowed GECC contractual rights of the holders of
Allowed Secured Claims Allowed Class 3H Claims will be
reinstated in full satisfaction, release
and discharge of their respective Class
3H Claims and will remain unaltered,
except as the applicable Heber Debtor
(or, on and after the Heber Effective
Date, the applicable Reorganized Heber
Debtor) and the holders of Allowed Class
3H 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 3H 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 Heber Effective
Date shall be enforceable against the
Reorganized Heber Debtors. In the lieu
of the foregoing, any Heber Debtor (or,
on and after the Heber Effective Date,
any Reorganized Heber Debtor) may, at
its election, make a Cash payment to the
holder of an Allowed Class 3H Claim
equal to the full amount of the holder's
Allowed Class 3H Claim, together with
interest at the legal rate to the extent
required by law, in full settlement,
release and discharge of such Class 3H
Claim.
Class 3H Claims are Unimpaired, and
the holders of Allowed Class 3H Claims
are not entitled to vote to accept or
reject the Heber Reorganization Plan.
Estimated Percentage Recovery: 100%
Class Description Treatment Under Heber Reorganization Plan
----------------- -----------------------------------------
Class 7: Estimated Allowed Claims: $4
million to $6 million
Allowed Unsecured
Claims
On the Distribution Date, each holder
of an Allowed Class 7 Claim shall
receive, in full settlement, release
and discharge of its Class 7 Claim, a
Cash payment equal to the full amount
of its Allowed Class 7 Claim, together
with interest at the legal rate to the
extent required by law.
Class 7 Claims are Unimpaired, and the
holders Allowed Class 7 Claims are not
entitled to vote to accept or reject
the Heber Reorganization Plan.
Estimated Percentage Recovery: 100%
Class Description Treatment Under Heber Reorganization Plan
- ----------------- -----------------------------------------
Class 8: The legal, equitable and contractual
rights of holders of Heber Intercompany
Claims in respect of such claim shall
not be affected, altered or Impaired
under the Heber Reorganization Plan.
Heber Intercompany
Claims
Class 8 Claims are Unimpaired, and the
holders Allowed Class 8 Claims are not
entitled to vote to accept or reject
the Heber Reorganization Plan.
Estimated Percentage Recovery: 100%
Class Description Treatment Under Heber Reorganization Plan
- ----------------- -----------------------------------------
Class 9: On the Heber Effective Date, all
Intercompany Claims shall be cancelled,
annulled and extinguished. Holders of
such Claims shall receive no Distributions in respect of
Intercompany Claims Class 9 Claims.
Class 9 Claims are Impaired, and the
holders of Allowed Class 9 Claims are
conclusively presumed to reject the
Heber Reorganization Plan.
Estimated Percentage Recovery: 0%
Class Description Treatment Under Heber Reorganization Plan
- ----------------- -----------------------------------------
Class 14: Holders of Allowed Class 14 Equity
Interests shall not receive any
Equity Interests in the Distribution under the Heber
Heber Debtors Reorganization Plan in respect of Class
14 Equity Interests, except that any such
Equity Interests shall continue to be
held by the Heber Debtor or Reorganized
Heber Debtor that originally held such
Equity Interests, which Equity Interests
shall continue to be evidenced by the
existing capital stock, partnership
interests or membership interests.
Class 14 Equity Interests are Impaired,
and the holders of Class 14 Equity
Interests are conclusively presumed to
reject the Heber Reorganization Plan.
Estimated Percentage Recovery: 0%
LIQUIDATION PLAN SUMMARY OF CLASS TREATMENT
Class Description Treatment Under Liquidation Plan
----------------- --------------------------------
Class 1: Estimated Allowed Claims: $0 to $130,000
Allowed Priority Each holder of an Allowed Class 1 Claim
Non-Tax Claims shall receive, in full settlement,
release and discharge of its Class 1
Claim, 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: 100%
Class Description Treatment Under Liquidation Plan
- ----------------- --------------------------------
Class 3: Under the Liquidation Plan, Class 3 is
divided into two Subclasses for
Allowed Reorganized Covanta Distribution purposes: Subclass 3A
the Secured Claims consists of Allowed Secured Bank Claims
and the Allowed 9.25% Debenture Claims
and Subclass 3B consists of the Allowed
CSFB Claim.
Subclass 3A: In full settlement, release and
discharge of its Class 3A Claim,
Allowed Liquidation Secured (I) (a) each holder of an Allowed
Claims--Secured Bank Claims Liquidation Secured Claim would be
and 9.25% Debenture Claims entitled, absent the Secured
Creditor Direction, to receive on
any Liquidation 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 Liquidation
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.
Subclass 3B: On the Liquidation Effective Date, or as
soon thereafter as practicable, Ogden
Allowed Liquidation FMCA shall cause to be transferred,
Secured Claims--the CSFB pursuant to Section 6.1(b) of the
Claim Liquidation Plan, to CSFB, in its
capacity as holder of the Allowed
Secured CSFB Claim, the Bank Agreement
Ogden FMCA Collateral, in full
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.
Subclass 3C: On the Liquidation Effective Date, or as
soon thereafter as practicable, Covanta
Tulsa shall cause to be transferred,
Allowed Liquidation pursuant to Section 6.1(c) of the
Secured Claims - Covanta Liquidation Plan, to the Covanta Tulsa
Tulsa Secured Claims Secured Parties as holders of the
Allowed Covanta Tulsa Secured Claims,
the Covanta Tulsa Collateral in full
settlement, release and discharge of the
Class 3C Claims.
The Class 3C Claims are Impaired and
the holder of the Claims in such
subclass are entitled to vote to
accept or reject the Liquidation Plan.
Class Description Treatment Under Liquidation Plan
Class 7: Allowed Estimated Allowed Claims: $10
Unsecured Liquidation million to $600 million
Claims and Allowed
Insured Claims
The holders of Class 7 Claims shall not
be entitled to receive any Distribution
(Note: A list of under the Liquidation Plan. Class 7
Liquidating Debtors is Claims are Impaired and the holders of
attached at Exhibit K) Allowed Claims in Class 7 are
conclusively presumed to reject the
Liquidation Plan. The votes of holders
of Class 7 Claims will not be solicited,
provided, however, that with respect to
Allowed Class 7 Claims for and to the
extent that 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: 0%
Class Description Treatment Under Liquidation Plan
- ----------------- --------------------------------
Class 9: On the Liquidation Effective Date, all
Intercompany Claims shall be cancelled,
Intercompany Claims 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: 0%
Class Description Treatment Under Liquidation Plan
- ----------------- --------------------------------
Class 11: On the Liquidation Effective Date, all
Equity Interests in the Liquidating
Debtors shall not be entitled to receive
any Distributions under the Liquidation
Equity Interests in Plan. Such Equity Interests shall be
Liquidating Debtors 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: 0%
I. 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 USA TODAY. On August 16, 2002, the Court
entered a stipulated order (Docket No. 738) (the "Bank of America Bar Date
Order") that, among other things, extended the bar date by which Bank of
America, N.A. must file proofs of claim against the Original Debtors to
September 30, 2002 (the "Bank of America Bar Date"). On September 5, 2002, the
Court entered a stipulated order (Docket No. 854) (the "IRS Bar Date Order")
that, among other things, extended the bar date by which the Internal Revenue
Service must file proofs of claim against the Original Debtors to December 31,
2002 (the "IRS Bar Date").
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 to all scheduled creditors of Covanta Concerts Holdings, Inc. The same
order established June 27, 2003 as the last date for holders of Convertible
Debentures to file proofs of claim against Covanta (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.
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 and 2186) (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 and December 5, 2003 is the New Debtors
Government Bar Date, as defined in the New Debtors Bar Date Order.
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
Bank of America Bar Date September 30, 2002
Employee Bar Date November 15, 2002
First Amended Bar Date December 27, 2002
IRS Bar Date December 31, 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 total, approximately 4,500 proofs of claim in the aggregate amount
of approximately $13 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
A. Definitions..........................................................iv
B. Overview.............................................................iv
C. Events Leading to the Plans..........................................vi
D. General Structure of the Plans......................................vii
E. Restructuring of the Debtors.......................................viii
F. Compromises and Settlements Incorporated into
the Plans.............................................................x
G. Treatment of Executory Contracts and Unexpired
Leases Under the Plans...............................................xi
1. General Treatment................................................xi
2. Cure of Defaults................................................xii
3. Approval of Assumption of Certain Executory
Contracts......................................................xiii
4. Approval of Rejection of Executory Contracts
and Unexpired Leases...........................................xiii
5. Bar Date for Filing Proofs of Claim Relating
to Executory Contracts and Unexpired Leases
Rejected Pursuant to the Plans..................................xiv
6. Deemed Consents of Debtors' Executory Contracts,
Unexpired Leases, Licenses or Permitsxiv
7. Reorganizing and Liquidating Debtors' Reservation of
Rights Under Insurance Policies and Bonds.......................xiv
8. Survival of Reorganizing and Liquidating
Debtors' Corporate Indemnities..................................xiv
H. Treatment of Claims and Interests under the Plans...................xiv
I. Bar Dates and Schedules...........................................xlvii
I. INTRODUCTION.............................................................1
II. BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES.......................1
A. Notice to Holders of Claims...........................................1
B. Voting Record Date....................................................2
C. Solicitation Package..................................................2
D. General Voting Procedures, Ballots, and Voting Deadline...............3
E. Special Voting Procedures for the Prepetition Lenders.................3
F. Special Voting Procedures for the 9.25% Debenture Holders.............4
G. Voting Procedures for Unknown Holders.................................4
H. Questions About Voting Procedures.....................................4
I. Tabulation of Votes and Voting Objection Procedures...................5
J. Confirmation Hearings and Deadlines for
Objections to Confirmation.............................................5
K. Additional Copies of Disclosure Statement,
Short-Form 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
B. Other Aspects of Business Operations.................................10
1. Insurance........................................................10
2. Environmental Matters............................................11
3. Prepetition Legal Proceedings....................................12
4. Employees; Labor Matters; Benefit Plans..........................14
C. Recent Financial Results.............................................21
IV. PREPETITION CAPITAL STRUCTURE OF THE DEBTORS............................22
A. Prepetition Credit Facility..........................................22
B. 9.25% Debentures due 2022............................................23
C. Convertible Debentures...............................................23
D. Project Debt.........................................................23
E. Equity Bonds.........................................................24
F. Equity...............................................................24
V. CORPORATE STRUCTURE OF THE DEBTORS......................................24
A. The Debtors' Corporate Structure.....................................24
B. Management of the Debtors............................................24
VI. THE CHAPTER 11 CASES....................................................26
A. Events Leading Up to the Chapter 11 Cases............................26
B. Need for Restructuring and Chapter 11 Relief.........................26
C. Significant Events During the Bankruptcy Cases.......................27
1. Significant Court Orders.........................................27
2. DIP Financing Facility...........................................27
3. Adequate Protection..............................................29
4. Assumption and Rejection.........................................30
...
5. Appointment of Creditors Committee...............................31
6. Exclusivity......................................................32
7. Discussions of Alternative Reorganization Plans..................32
8. Sale of Geothermal Assets........................................32
9. Sale of Non-Core Assets..........................................33
10. Restructuring of Certain Projects................................33
11. 9.25% Debentures Adversary Proceeding............................37
12. Agreements with the holders of Secured Claims....................38
13. Proceedings Related to the Team, the Corel
Centre and Arrowhead Pond........................................39
14. Other Postpetition Litigation....................................39
15. Summary of Claims Process, Bar Dates and Claims Filed............42
16. Development and Implementation of the Business Plan..............44
VII. SUMMARY OF THE PLANS....................................................45
A. Overall Structure of the Plans.......................................46
B. Classification and Treatment of Claims and Equity Interests..........47
1. Treatment of Unclassified Claims.................................49
2. Unimpaired Classes of Claims.....................................53
3. Impaired Classes of Claims and Interests.........................54
4. Treatment of Classified Claims...................................54
C. Confirmability, Modification and Severability
of the Plans.........................................................61
D. Certain Considerations with Respect to Treatment
of Class 3 Secured Claims under the Reorganization
Plan.................................................................62
1. Subclass 3A Distribution.........................................63
2. Voting Rights with Respect to Class 3
Distributions and the Settlement Agreements
under the Reorganization Plan....................................63
E. Implementation of the Reorganization Plan............................64
1. Continued Corporate Existence....................................64
2. Exit Financing...................................................64
3. Reorganization Plan Notes and Reorganization
Plan Equity Securities and Warrants..............................65
4. Corporate Restructuring..........................................66
5. Revesting of Corporate Assets....................................66
6. Directors and Officers of Reorganized Covanta and CPIH...........66
7. Certificate of Incorporation and Bylaws..........................67
8. Employment, Retirement and Other Agreements......................67
9. Management Agreements............................................68
10. Corporate Action.................................................69
11. Effective Date Payments and Post-Effective Date Financing........69
12. New Common Stock, Plan Notes and Collateral
Documents; Further Transactions..................................69
13. Establishment of ESOP and Election of S Corp Status..............69
14. Preservation of Causes of Action.................................71
15. Cancellation of Existing Equity Securities and Agreements........72
16. Exclusivity Period...............................................72
17. Reorganizing Debtors' Reservation of Rights with Respect
to the Manner of Certain Distributions...........................72
18. Deemed Consolidation for Procedural,
Administrative and Voting Purposes...............................72
F. Implementation of the Heber Reorganization Plan......................72
1. Implementation of the Geothermal Sale............................72
2. Authorization of Transfer of Equity Interests....................73
3. Cancellation of Existing Equity Securities
and Agreements...................................................74
4. Directors and Officers...........................................74
5. Deemed Consolidation for Procedural and
Administrative Purposes..........................................74
6. Continued Corporate Existence/Vesting of Assets..................74
7. Conversion To Limited Liability Company Status...................74
8. Amended Organizational Documents.................................74
9. Settlements......................................................75
10. Payment of GECC Secured HGC/HFC Claims...........................75
11. Payment of Covanta Power Pacific, Inc. Debt......................75
12. Corporate Action.................................................75
13. Exclusivity Period...............................................75
G. Implementation of the Liquidation Plan...............................75
1. The Secured Creditor Direction and the DIP Lender Direction......75
2. Funding of the Implementation of the Liquidation Plan............76
3. Transfer of Liquidation Assets...................................76
4. Distribution of the Bank Agreement Ogden FMCA Collateral.........76
5. Distribution of the Covanta Tulsa Collateral.....................77
6. Dissolution of the Liquidating Debtors...........................77
7. The Liquidating Trustee..........................................77
8. The Oversight Nominee............................................80
9. Exclusivity Period...............................................80
H. Distributions and Disputed Claims under the Reorganization Plan......81
1. Time of Distributions............................................81
2. Distribution Record Date.........................................81
3. Disbursing Agent.................................................81
4. Surrender of Securities or Instruments...........................81
5. Delivery of Distributions........................................82
6. DeMinimis Distributions..........................................82
7. No Distribution on Disputed Claims...............................82
8. Objections to Claims.............................................82
9. No Distribution Pending Allowance................................82
10. Resolution of Disputed Claims and Equity Interests...............83
11. Estimation of Certain Claims.....................................83
12. Reserve Account for Disputed Claims..............................83
13. Subclass 3B Rejecting Bondholder Recovery........................84
14. Allowance of Disputed Claims.....................................84
15. Release of Funds from Disputed Claims Reserve....................85
16. Allowance of Certain Claims......................................85
I. Distributions and Disputed Claims under the Heber
Reorganization Plan..................................................86
1. Time of Distributions............................................86
2. Manner of Payment Under Heber Reorganization Plan................86
3. Inquiries Concerning Distributions...............................86
4. Surrender of Securities or Instruments...........................86
5. Delivery of Distributions........................................87
6. No Distribution Pending Allowance................................87
7. Resolution of Disputed Claims and Equity Interests...............87
8. Estimation of Certain Claims.....................................87
9. Reserve Account for Disputed Claims..............................88
10. Allowance of Disputed Claims.....................................88
11. Release of Funds from Disputed Claims Reserve....................88
J. Distributions and Disputed Claims under the
Liquidation Plan.....................................................88
1. The Secured Creditor Direction and the
DIP Lender Direction.............................................88
2. Time of Distributions............................................88
3. Order of Distributions...........................................89
4. No Distribution Pending Allowance................................89
5. Resolution of Disputed Claims and Equity Interests...............89
6. Estimation of Claims.............................................90
7. Reserve Account for Disputed Claims..............................90
8. Allowance of Disputed Claims.....................................90
9. Allowance of Certain Claims......................................90
K. Treatment of Executory Contracts and Unexpired
Leases; Bar Date for Rejection Damage Claims.........................91
1. General Treatment................................................91
2. Cure of Defaults.................................................92
3. Approval of Assumption of Certain Executory Contracts............93
4. Approval of Rejection of Executory Contracts
and Unexpired Leases.............................................93
5. Bar Date for Filing Proofs of Claim Relating to
Executory Contracts and Unexpired Leases
Rejected Pursuant to the Plans...................................93
6. Deemed Consents of Debtors' Executory Contracts,
Unexpired Leases, Licenses or Permits............................94
7. Reorganizing and Liquidating Debtors' Reservation of
Rights Under Insurance Policies and Bonds........................94
8. Survival of Reorganizing and Liquidating
Debtors' Corporate Indemnities...................................94
L. Effect of Confirmation...............................................94
1. Revesting of Reorganization Assets...............................94
2. Discharge under the Plans........................................95
3. Release of Certain Parties under the Plans.......................95
4. Exculpation......................................................96
5. Injunction under the Plans.......................................96
6. Reorganized Debtors' Rights of Action............................98
M. Miscellaneous Matters................................................98
1. Liability of the Liquidating Trustee.............................98
2. Limited Liability of the Oversight Nominee.......................98
3. Setoffs..........................................................99
4. Satisfaction of Subordination Rights under
the Reorganization Plan..........................................99
5. Dissolution of the Creditors Committee...........................99
6. Management of the Reorganized Debtors............................99
7. Payment of Statutory Fees........................................99
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED..................................100
A. General Considerations..............................................100
B. Certain Bankruptcy Considerations...................................100
C. Inherent Uncertainty of Financial Projections.......................101
D. Sale of Geothermal Business.........................................101
E. WTE Projects Restructuring and Litigation...........................102
F. Dividends...........................................................102
G. Impact of Interest..................................................102
H. Access to Financing.................................................102
I. Claims Estimations..................................................102
J. Environmental Regulation............................................103
K. Market for Securities...............................................104
L. Assumptions Regarding Value of Debtors' Assets......................104
M. ESOP/S Corporation Tax Structure Qualification;
Potential Disallowance of Tax Benefits..............................104
1. Second Class of Stock...........................................104
2. IRS Review......................................................104
3. Predecessor Plans...............................................105
N. U.S. Trust Acceptance of ESOP Contribution..........................105
O. Reorganized CPIH Preferred Shares; Certain
Contractual Restrictions............................................105
P. International Political Risk........................................106
IX. RESALE OF SECURITIES RECEIVED UNDER THE REORGANIZATION PLAN............106
A. Issuance of New Debt and Equity.....................................106
B. Subsequent Transfers of Reorganization Plan Notes...................106
C. Subsequent Transfers of Reorganization Plan Warrants................107
X. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN......107
A. United States Federal Income Tax Consequences to
the Reorganizing Debtors............................................108
1. Taxation of Reorganized Covanta as an S corporation.............108
2. Requirements for S Corporation Election.........................109
3. Second Class of Stock...........................................109
4. Qualified Subchapter S Subsidiaries ("QSub")....................110
5. Cancellation of Indebtedness Income.............................111
B. United States Federal Income Tax Consequences to the Holders
of Claims of the Reorganizing Debtors...............................111
C. Backup Withholding and Information Reporting........................116
XI. FEASIBILITY OF THE REORGANIZATION PLAN, THE HEBER
REORGANIZATION PLAN AND THE LIQUIDATION PLAN AND
THE BEST INTERESTS TEST................................................116
A. Feasibility of the Plans............................................116
1. The Reorganization Plan.........................................116
2. The Heber Reorganization Plan...................................117
3. The Liquidation Plan............................................117
B. Acceptance of the Plans.............................................117
C. Best Interests Test.................................................118
D. Estimated Valuation of the Reorganized Debtors......................118
E. Application of the Best Interests Test to the
Liquidation Valuation Analysis and the Valuation
of the Reorganized Debtors..........................................118
F. The Best Interests Test and the Liquidating Debtors.................119
G. Confirmation Without Acceptance of All Impaired
Classes: The 'Cramdown' Alternative................................119
H. Conditions to Confirmation and/or Consummation of the Plans.........120
1. Conditions to Confirmation of the Reorganization
Plan and Liquidation Plan.......................................120
2. Conditions to Confirmation of the Heber
Reorganization Plan.............................................121
3. Conditions Precedent to the Reorganization
Effective Date..................................................121
4. Conditions Precedent to the Heber Effective Date................122
5. Conditions Precedent to the Liquidation Effective Date..........123
I. Waiver of Conditions to Confirmation and/or
Consummation of the Plans...........................................123
J. Retention of Jurisdiction...........................................124
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLANS.............125
A. Continuation of the Bankruptcy Case.................................126
B. Alternative Plans of Reorganization.................................126
C. Liquidation Under Chapter 7 or Chapter 11...........................126
1. Liquidation of the Debtors under Chapter 7......................126
2. Liquidation of the Reorganizing Debtors and
Heber Debtors under Chapter 11..................................126
XIII. VOTING REQUIREMENTS....................................................127
A. Parties in Interest Entitled to Vote on the
Reorganization Plan and the Liquidation Plan.........................128
B. Classes Impaired Under the Plans....................................128
1. Voting Impaired Classes of Claims and Interests.................128
2. Non-Voting Impaired Classes of Claims and Interests.............128
3. Unimpaired Classes of Claims and Interests......................129
XIV. CONCLUSION.............................................................129
A. Hearings on and Objections to Confirmation..........................129
1. Confirmation Hearings...........................................129
2. Dates Set for Filing Objections to
Confirmation of the Plans.......................................129
B. Recommendation......................................................130
GLOSSARY OF DEFINED TERMS....................................................131
EXHIBITS
Exhibit A Reorganization Plan.............................................A-1
Exhibit B Heber Reorganization Plan.......................................B-1
Exhibit C Liquidation Plan................................................C-1
Exhibit D Projected Domestic Financial Information........................D-1
Exhibit E Pro Forma Historical Information................................E-1
Exhibit F Projected CPIH Financial Information............................F-1
Exhibit G Reorganization Valuation Analysis of the
Reorganization Debtors..........................................G-1
Exhibit H Liquidation Valuation Analysis of the Debtors...................H-1
Exhibit I Recovery Analysis...............................................I-1
Exhibit J Historical Financial Results....................................J-1
Exhibit K List of Debtors and Debtors In Possession.......................K-1
FIRST AMENDED DISCLOSURE STATEMENT WITH RESPECT TO REORGANIZING DEBTORS'
JOINT PLAN OF REORGANIZATION, HEBER DEBTORS' JOINT PLAN OF
REORGANIZATION, AND LIQUIDATING DEBTORS' JOINT PLAN OF LIQUIDATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
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 that were filed with the Court on
September 28, 2003, copies of which are attached hereto as Exhibits A and C,
respectively. The Debtors expect to file with the Court slightly revised
versions of the Plans on or about October 13, 2003. Please note that all Claims
of non-insider creditors under the Heber Reorganization Plan are Unimpaired and
as such no Class of creditors is entitled to vote on the Heber Reorganization
Plan, a copy of which is attached hereto as Exhibit B.
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 ARTICLE VII (SUMMARY OF THE PLANS) AND ARTCILE 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. 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
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 prior to exercising the right to
vote to accept or reject either the Reorganization Plan or the Liquidation Plan.
This Disclosure Statement is also being distributed to holders of Claims against
the Heber Debtors for informational purposes, even though such holders are not
entitled to vote on the Heber Reorganization Plan because they are Unimpaired by
the Heber Reorganization Plan.
By order entered on October 3, 2003 (Docket No. 2293) (the "Disclosure
Statement Order"), 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 such 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 ANY 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 TO 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 Plans, 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 Exhibits D, E and F 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
subsequent to the date of this Disclosure Statement; 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.
B. Voting Record Date
The record date for determining which holders of Claims are entitled to
vote on the Reorganization Plan and the Liquidation Plan is September 29, 2003
(the "Voting Record Date"). There is no voting record date with respect to the
Heber Reorganization Plan because no holders of Claims against or Equity
Interests in the Heber Debtors are entitled to vote on the Heber Reorganization
Plan.
C. Solicitation Package
This Disclosure Statement has been prepared with, among other things,
copies of (1) the Reorganization Plan (Exhibit A); (2) the Heber Reorganization
Plan (Exhibit B); (3) the Liquidation Plan (Exhibit C); (4) Projected Financial
Information (Exhibit D); (5) Pro Forma Historical Financial Information (Exhibit
E); (6) Projected CPIH Financial Information (Exhibit F); (7) the Reorganization
Valuation Analysis of the Reorganizing Debtors (the "Reorganization Valuation
Analysis") (Exhibit G); (8) the Liquidation Valuation Analysis of the Debtors
(the "Liquidation Valuation Analysis") (Exhibit H); (9) Recovery Analysis
(Exhibit I); (10) selected historical financial data for the Company (the
"Historical Financial Results") (Exhibit J); (11) List of Debtors and Debtors In
Possession (Exhibit K); (12) 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 Heber Confirmation Hearing and
the Plans Confirmation Hearing, and the time for filing objections to the
confirmation of the Plans (such notice, the "Confirmation Hearing Notice"); and
(13) 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 the Reorganization
Plan, the Heber Reorganization Plan or the Liquidation Plan, you may 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 that has been approved by the Court (the "Short-Form
Disclosure Statement"). Holders of Claims or Equity Interests in Classes 1, 3,
4, 6, 8 and 12 under the Reorganization Plan, holders of Claims or Equity
Interests in Classes 1 and 3 under the Liquidation Plan and holders of Claims or
Equity Interests in Classes 1, 2H, 3H and 7 under the Heber Reorganization Plan
will receive this Disclosure Statement (along with the respective Plan and, if
entitled to vote, respective Ballots). Holders of Claims or Equity Interests in
Classes 2, 5, 7, 10 and 13 of the Reorganization Plan and holders of Claims in
Class 7 of the Liquidation Plan will receive the Short-Form Disclosure Statement
(along with the respective 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 Equity
Interests in Classes 9 and 11 under both the Reorganization Plan and the
Liquidation Plan and holders of Claims or Equity Interests in Classes 8, 9 and
14 under the Heber Reorganization Plan will not receive either this Disclosure
Statement or the Short-Form Disclosure Statement (or any exhibits thereto,
including the Plans).
The Plan Supplement will be distributed only to: (i) counsel to the
Prepetition Lenders; (ii) counsel to the DIP Lenders; (iii) counsel to the
Informal Committee; (iv) counsel to the Indenture Trustee for the 9.25%
Debentures; (v) counsel to the Creditors Committee; (vi) the Office of the
United States Trustee; and (vii) the SEC. The Plan Supplement will also be made
available to other holders of Claims and Equity Interests upon request.
Subject to the limitations provided in the Disclosure Statement Order,
the Confirmation Hearing Notice will be sent to all known holders of Claims
against or Equity 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.
D. General Voting Procedures, Ballots, and Voting Deadline
If you are entitled to vote on the Reorganization Plan or the
Liquidation Plan, after carefully reviewing the respective Plan, this Disclosure
Statement and the voting instructions accompanying your Ballot, please indicate
your acceptance or rejection of either the Reorganization Plan or the
Liquidation Plan, as applicable, 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 voting procedures approved by the Court and is qualified in its entirety by
the Court-approved voting instructions accompanying each Ballot.
Each Ballot has been coded to reflect the Class of Claims or Equity
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 WITH RESPECT TO THE REORGANIZATION PLAN OR THE
LIQUIDATION PLAN 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 (THE "BALLOTING AGENT"). 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.
E. 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.
F. Special Voting Procedures for the 9.25% Debenture Holders
To the best of the Debtors' knowledge, the 9.25% Debentures are held
by way of a central depository known as the Depository Trust Company ("DTC").
Among other activities, DTC is engaged in the business of effecting transfers
and pledges of the securities deposited with it by its participants, who are
banks, brokerage firms, brokers, dealers or other nominees (collectively, "9.25%
Nominees"), which either own the respective securities for their own account or
hold such securities for others (the "9.25% Beneficial Owners"). With respect to
the 9.25% Debentures held through Cede & Co. (as nominee for DTC) as registered
holder, the Balloting Agent will distribute to DTC and its proxy participants
(or their nominees) sufficient solicitation packages with appropriate Ballots
and Master Ballots in order to allow solicitation packages to be delivered to
each 9.25% Beneficial Owner. The 9.25% Nominees or their agents (including, as
applicable, Automatic Data Processing, the "9.25% Nominee's Agents") through
which such 9.25% Beneficial Owners hold the 9.25% Debentures shall forward the
Solicitation Packages including appropriate Ballots to each such beneficial
owners for voting purposes. Each 9.25% Nominee or 9.25% Nominee's Agent (as
applicable) shall then summarize the individual votes of its respective 9.25%
Beneficial Owners from a 9.25% Beneficial Owner's Ballot on an appropriate
Master Ballot, and then return the Master Ballot(s) to the Balloting Agent on or
prior to the Voting Deadline.
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 Reorganization Plan
or Liquidation Plan 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.
Each member of Subclass 3B may choose to opt out of the 9.25%
Settlement, which is incorporated into the Reorganization Plan. Any Bondholder
who opts out will not receive a release with respect to the lien avoidance
litigation. If holders of the 9.25% Debenture claims in excess of $10 million in
the aggregate opt out of the 9.25% Settlement, such holders will not receive a
distribution under the Reorganization Plan until the lien avoidance litigation
is resolved and the distribution to such holders will be subject to the results
of the lien avoidance litigation. In the event that holders of 9.25% Debenture
claims with claims in excess of $10 million opt out of the 9.25% Settlement, the
lien avoidance litigation will continue with respect to such holders.
Holders of 9.25% Debentures should follow the voting procedures
described in the Ballots and Master Ballots for further information. If you have
questions about these procedures, please refer to Section II.H herein.
G. Voting Procedures for Unknown Holders
With respect to all holders of impaired Claims against and impaired
Equity 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 have posted copies of this Disclosure
Statement, the Short-Form Disclosure Statement, the Confirmation Hearing Notice
and the Plans on Covanta's website at http://www.covantaenergy.com (Corporate
Restructuring), and will publish notice of the Heber Confirmation Hearing and
the Plans Confirmation Hearing in the WALL STREET JOURNAL (National Edition),
USA TODAY (National Edition) and the IMPERIAL VALLEY PRESS, once no later than
15 business days after entry of the Disclosure Statement Order. With respect to
holders entitled to vote either under the Reorganization Plan or the Liquidation
Plan, 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 Equity Interest in the Debtors' Estates.
H. Questions About Voting Procedures
If (1) you have any questions about (a) the procedure for voting your
Claim or Equity Interest, (b) the packet of materials that you have received, or
(c) the amount of your Claim or Equity Interest or (2) you wish to obtain, at
your own expense, unless otherwise specifically required by Bankruptcy Rule
3017(d), an additional copy of the Reorganization Plan, the Liquidation Plan,
the Heber Reorganization 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 OR THE CREDITORS COMMITTEE.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT
THE REORGANIZATION AND/OR LIQUIDATION PLAN, SEE ARTICLE XIII (VOTING
REQUIREMENTS).
I. Tabulation of Votes and Voting Objection Procedures
Votes on the Reorganization Plan and the Liquidation Plan will be
counted in accordance with either (i) the Debtors' schedules (as amended) with
respect to Claims as to which no proofs of claim have been filed or (ii) a proof
of claim filed in these cases, provided that a vote in respect of a Claim that
is subject to an objection seeking to (a) disallow or reduce a Claim for voting
purposes, (b) disallow a Claim, (c) reduce the amount of a Claim, and (d)
reallocate and transfer a proof of claim from one Debtor to another Debtor
(collectively, "Claims Objections"), shall be counted in accordance with the
treatment provided in such Claims Objection or as otherwise provided by the
Court. If such an objection is timely filed, the Ballot for the holder of such
proof of claim shall be counted in accordance with a Claims Objection, unless
temporarily allowed in a different manner by the Court after notice and hearing.
Any party seeking temporary allowance of a Claim for voting purposes in a manner
different than as stated in a Claims Objection is required to file with the
Court a motion, with evidence in support thereof, seeking temporary allowance of
such Claim pursuant to Bankruptcy Rule 3018(a) ("Rule 3018(a) Motion") on or
before November 14, 2003 at 4:00 p.m. (Prevailing Eastern Time) (the "Rule
3018(a) Motion Deadline"). Furthermore, any holder of a Claim that is scheduled
as zero, disputed, unliquidated or contingent in the Schedules who wishes to
vote on a Plan must file a Rule 3018(a) Motion on or prior to the Rule 3018(a)
Motion Deadline. A Rule 3018(a) Motion must be served on counsel the Debtors so
as to be received by the Rule 3018(a) Motion Deadline.
J. Confirmation Hearings and Deadlines for Objections to Confirmation
Pursuant to section 1128 of the Bankruptcy Code and Bankruptcy Rule
3017(c), the Court has scheduled (i) the Heber Confirmation Hearing for November
19, 2003, at 2:00 p.m. (Prevailing Eastern Time), and (ii) the Plans
Confirmation Hearing for December 3, 2003 at 2:00 p.m. (Prevailing Eastern
Time). Both confirmation hearings will be held 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 Heber Confirmation Hearing and
the Plans 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 confirmation hearing or at any subsequently adjourned hearing. The Debtors
will post a notice of any adjournment of a confirmation hearing on Covanta's
website at http://www.covantaenergy.com (Corporate Restructuring).
The Court has established that the discovery cut-off date relating to
confirmation of the Heber Reorganization Plan is November 5, 2003 at 4:00 p.m.
(Prevailing Eastern Time) and that the discovery cut-off date relating to the
Reorganization Plan and Liquidation Plan is November 12, 2003 at 4:00 p.m.
(Prevailing Eastern Time).
Pursuant to the Disclosure Statement Order, (i) objections, if any, to
confirmation of the Heber Reorganization Plan must be filed with the Court and
served so that they are RECEIVED on or before November 12, 2003, at 4:00 p.m.
(Prevailing Eastern Time) (the "Heber Confirmation Objection Deadline") by the
parties listed below; and (ii) objections, if any, to confirmation of either the
Reorganization Plan or Liquidation Plan must be filed with the Court and served
so that they are RECEIVED on or before November 18, 2003, at 4:00 p.m.
(Prevailing Eastern Time) (the "Plans Confirmation Objection Deadline") by the
parties listed below. Objections, if any, to confirmation of any of the Plans
must be served on the following parties:
Counsel for the Debtors
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 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
Akin Gump Strauss Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Attn: Fred S. Hodara, Esq.
Counsel for the Creditors Committee
Arnold & Porter
399 Park Avenue
New York, NY 10022
Attn: Daniel M. Lewis, Esq.
Michael J. Canning, Esq.
Responses or objections, if any, to confirmation of any 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 Equity 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 (f) shall provide proposed language changes or
insertions to the Plan(s) to resolve the responses or objections.
Any objections to (i) assumption, assignment or rejection of any
contracts or leases pursuant to the Heber Reorganization Plan or (ii) Cure
Amounts (as defined in the Heber Reorganization Plan) must (a) be in writing,
(b) state with particularity the reasons for the objection or response, (c) be
filed with the Court and served on co-counsel to the Debtors so as to be filed
and received by 4:00 p.m. (Prevailing Eastern Time) on or before November 12,
2003, and (d) state with specificity the Cure Amount the objecting party
believes is required and provide appropriate documentation in support thereof.
If a response or objection to the confirmation of the Plan(s) is not
timely filed and served before the applicable Confirmation Objection Deadline,
the responding or objecting party shall be barred from objecting to confirmation
of the applicable Plan(s) and be precluded from being heard at either the
applicable Confirmation Hearing. Moreover, with respect to objections to the
Cure Amounts in the Heber Reorganization Plan, if no objection to a particular
Cure Amount is timely received, the Cure Amount set forth on the Exhibits to the
Heber Reorganization Plan (except as otherwise provided therein) shall be
controlling notwithstanding anything to the contrary in any contract or lease to
be assumed or assumed and assigned pursuant to the Heber Reorganization Plan,
and the counterparty thereto shall be forever barred from asserting any other
claim arising prior to such assumption or assumption and assignment.
K. Additional Copies of Disclosure Statement, Short-Form
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 ("Water") 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. 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
WTE, IPP and Water.
(1) Waste-to-Energy Projects
The Company's largest operations are in 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 WTE 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, WTE 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 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 20 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.
The regulatory framework for selling power to utilities from
independent power facilities (including WTE 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 WTE 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
their interests in the Argentine Assets, their 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. As of the date hereof, 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");(6) 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 Southern
California Edison Company ("SCE").
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6 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 (the "HGC One Seller"), ERC
Energy, Inc. (the "HGC Two Seller") and ERC Energy II, Inc. (the "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 power 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 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 under more than 200 leases giving the HFC
Project Company the right to extract geothermal fluids from what is
known as 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 fluid 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.
The Geothermal Business 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 is 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. The Company is in the
process of obtaining extended insurance for its Directors and Officers to cover
claims related to the period following expiration of existing Directors and
Officers Liability Insurance.
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
The Company'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 that 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 any WTE, IPP or Water
facility, 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 Environmental Protection Agency (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
(collectively, the "Airlines 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 ("JFK 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. Ogden New York has filed counter-claims and
cross-claims against United and American for contribution. American has filed a
proof of claim against Ogden New York in its chapter 11 case, alleging an
unsecured claim of approximately $74 million. Ogden New York disputes the
allegations and believes that the damages sought are overstated in view of the
airlines' responsibility for the alleged contamination and that Ogden New York
has defenses under its respective leases and Port Authority permits. This
litigation has been stayed as to Ogden New York as a result of its Chapter 11
filing. Ogden New York believes that the claims asserted by United and American
are prepetition unsecured obligations. Ogden New York is a Liquidating Debtor
and the above matter is expected to have no impact on the Reorganized Company
(as defined herein).
In connection with the Airlines Lawsuits, prior to the Initial Petition
Date, Ogden New York commenced an action against Zurich Insurance Company
("Zurich") seeking, among other things, a declaratory judgment that Zurich was
obligated to defend and indemnify Ogden New York against the Airlines Lawsuits
under certain environmental impairment liability policies. Ogden New York
successfully obtained partial summary judgment that Zurich owed a duty to defend
Ogden New York against the Airlines Lawsuits and pay its defense fees, costs and
expenses. Zurich appealed the decision. In April 2003, in order to avoid the
uncertainty and continued costs of the litigation, Ogden New York and Zurich
reached a settlement whereby Zurich agreed to pay to Ogden New York $1.8 million
(the "Insurance Proceeds") in full and final settlement of all claims for
defense and indemnity made to date by Ogden New York and its respective past,
present, and future employees, officers, directors, principals, parents,
subsidiaries, affiliates, agents, representatives, predecessors in interests,
successors in interests and assigns for environmental impairments allegedly
resulting from the Ogden New York's fueling operations at JFK Airport (the
"Zurich Settlement"). Ogden New York filed a motion with the Court seeking
approval of the Zurich Settlement. American objected to the settlement motion,
and requested that the Court establish a constructive trust for the Insurance
Proceeds. Prior to the hearing to consider the settlement motion, American and
Ogden New York agreed upon a consensual form of order whereby (i) Ogden New York
preserved its rights to argue that American was not entitled to any amount of
the Insurance Proceeds, (ii) American preserved its rights to assert a claim for
the Insurance Proceeds, and (iii) Ogden New York agreed not to distribute the
Insurance Proceeds to any other party interest on account of any purported
interests in such proceeds without prior Court order and without prior notice to
American's counsel. The Court entered the consensual order as proposed, thereby
approving the Zurich Settlement (the "Settlement Order"). Although American has
asserted its rights to the Insurance Proceeds in its objections to the Zurich
Settlement and to approval of this Disclosure Statement, it has not filed an
adversary proceeding in Ogden New York's bankruptcy case or taken any other
action seeking a determination of its rights to the Insurance Proceeds. Under
the Liquidation Plan, the Insurance Proceeds, as Designated DIP Collateral (as
defined in the Liquidation Plan) shall be transferred to Reorganized Covanta
pursuant to the DIP Lender Direction (as defined in the Liquidation Plan) and
will not be available for distribution to any of Ogden New York's unsecured
creditors, including American.
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, WTE, Water and domestic IPP 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.
With respect to the Company's Three Mountain Power Project, an electric
generating plant to be located in California for which Debtor Three Mountain
Power, LLC has received permits but has not begun construction, certain of the
Debtors have entered into six (6) labor and associated agreements with certain
unions relating to the construction, maintenance and operation of that facility.
The Company does not intend to proceed with the construction of the Three
Mountain Power Project and is currently in the process of attempting to sell its
interests in the project. No active employees of the Company are currently
covered by such agreements.
(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 Reorganization 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. It is
currently intended that following the Reorganization Effective Date the SEIU
Pension Plan will continue to be maintained as a frozen plan and that the
Company will continue to meet any obligations it currently has 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 Reorganization 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 WTE facility in Marion
County, Oregon; (ii) Hennepin WTE facility in Hennepin County, Minnesota; (iii)
Bristol WTE 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 Reorganization 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 WTE 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 Reorganization 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 Reorganization 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, a Liquidating Debtor 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
Reorganization 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,
which is sponsored by Liquidating Debtor Ogden Services Corporation, 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 Reorganization 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 Cases. 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
Reorganization 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. A small group
of 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) receive 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 also receive 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) receive 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 also receive 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
Reorganization Effective Date.
(i) Employment Agreements
Pursuant to applicable provisions of the Bankruptcy Code, the Plans
currently contemplate the rejection of all prepetition employment agreements
(excluding collective bargaining agreements). The Debtors believe that such
rejection may give rise to rejection damage claims against the Debtor that is a
party to the rejected contract, which claims the Debtors believe should be
treated as unsecured claims in accordance with 11 U.S.C. ss. 365(g)(1). Claims
arising from the rejection, non-assumption or termination of employment
agreements have not been included in the estimates of administrative expense
claims arising under 11 U.S.C. ss. 503(b) or the Administrative Expense Claims
Reserve under the Liquidation Plan.
(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 J 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 on the Initial Petition Date. Since that time,
the Company's consolidated financial statements, including those attached hereto
in Exhibit J, 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, to the extent permitted,
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. More specifically, in the event certain secured
pre-Master Credit Facility lenders exchanged or realized their collateral for
less than the amount due, a portion of that deficiency is entitled to priority
payment before any payments are made to the main lender group. The deficiency
would become a "realized deficiency" creating an entitlement for the relevant
lenders to a priority payment from any repayment to the main lender group. Under
the Intercreditor Agreement, such ratable paydowns are "Senior Obligations", and
the main lender group agrees that their claims are junior and subordinate to the
Senior Obligations, and that no lender in the main lender group shall accept any
distribution, payment or exchange at any time when any of the Senior Obligations
are outstanding.
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. After deducting the
letters of credit that were replaced under the DIP Financing Facility, the
Debtors estimate that approximately $434 million is owed under the Master Credit
Facility (including fees and interest).
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 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 and the proposed 9.25% Settlement, see
Section VI.C.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 WTE
facilities is generally arranged by the relevant municipality through the
issuance of tax-exempt and taxable revenue bonds. For those WTE 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 of 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 WTE, IPP and Water infrastructure in
the United States and abroad. Of the entities that have filed as Debtors, 80
will be reorganized pursuant to the Reorganization Plan, six will be reorganized
pursuant to the Heber Reorganization Plan, 64 will be liquidated pursuant to the
Liquidation Plan, and one will remain in bankruptcy and will attempt to
subsequently consummate a restructuring transaction. The Reorganization Plan
distinguishes between three 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 Reorganization Effective Date; and Intermediate Holding Company
Debtors which own no assets other than stock of the Operating Company Debtors.
The Heber Debtors are Debtors that 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 October 3, 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, the year he joined the Company.
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.
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 WTE 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 then 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 2001 and 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, 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 fewer
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 WTE projects, and the draw during March of 2002 of
approximately $105.2 million in letters of credit related to the Corel 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 Dates 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 the KERP and the Broad 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 "Final DIP 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 April 1,
2004.
On September 26, 2003, one of the Company's insurance providers, AIG,
submitted draw notices for two Tranche B letters of credit under the DIP
Financing Facility, in a total amount of $22,472,040. To the Debtors' knowledge,
the draw notices have not yet been honored but the Debtors expect that they will
be honored shortly. The Debtors believe that they will be able to fulfill their
reimbursement obligations under the DIP Financing Facility.
(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 that provided for, among other
things, the approval of the monthly budget and the Final DIP Order.
(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 and approval for the payment of the expenses and fees
incurred by the Creditors Committee. 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) WTE 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 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, permitted Covanta to engage in certain tax
related restructurings, and permitted the rejection, if necessary, of contracts
related to Covanta Tulsa, Inc.
(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 WTE project and to permit amendments to the corresponding Tranche A and
Tranche B Letters of Credit.
(i) Eighth Amendment to DIP Financing 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.
(j) Ninth Amendment to DIP Financing Facility
On September 15, 2003, the Debtors and the DIP Lenders entered into the
ninth amendment to the DIP Financing Facility that provided for, among other
things, the extension of the termination date of the DIP Financing Facility to
April 1, 2004 and approval of the Onondaga County, New York restructuring
(described in Section VI.C.10 ).
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 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 (Docket No. 287), General
Electric Capital Corporation and certain of its affiliates (collectively "GECC")
were 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; HFC One Seller 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 SIGC Project
Company 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 authorizing either the assumption, or assumption and assignment, of
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), authorizing the assignment of 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 Article IX
of the Reorganization Plan, Article IX of the Heber Reorganization Plan and
Article VIII of the Liquidating Plan. With respect to Reorganizing Covanta and
certain other Reorganizing Debtors listed on Schedule 9.1A of the Reorganization
Plan, on the Reorganization 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
Plans Confirmation Hearing), or as otherwise provided in Section 9.1(a) of the
Reorganization Plan. For the Reorganizing Debtors listed on Schedule 9.1B of the
Reorganization Plan, on the Reorganization 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 Plans Confirmation Hearing), or as otherwise provided in
Section 9.1(b) of the Reorganization Plan.
For the Heber Debtors, on the Heber Effective Date, all Heber Debtor
Contracts, including the Heber Debtor Contracts identified on Exhibit B attached
thereto and the mineral rights leases and related agreements identified on
Exhibit C attached thereto, shall be deemed assumed by the relevant Heber
Debtor, except as otherwise provided in Article IX of the Heber Reorganization
Plan. Any affiliate of a Heber Debtor that is a party to a Heber Debtor Contract
shall assign its rights and obligations under such Heber Debtor Contract to the
Buyers upon the Heber Closing Date, provided that such Heber Debtor Contract is
assumed pursuant to the Heber Reorganization Plan. Certain of the Debtor Sellers
and certain of the Debtor Operators are also parties, along with the Heber
Debtors, to certain of the Heber Debtor Contracts or parties to various other
contracts relating to the Geothermal Business. Such Additional Contracts are
identified on Exhibit D attached to the Heber Reorganization Plan. In accordance
with section 365(f) of the Bankruptcy Code, upon the Heber Effective Date, the
Additional Contracts shall be assumed and assigned to Buyers pursuant to the
terms of the Heber Purchase Agreement or a Heber Alternative Transaction. In
addition, upon the Heber Effective Date, the Debtor Operators shall assign to
Buyers the O&M Contracts identified on Exhibit E attached to the Heber
Reorganization Plan. The Heber Debtor Contracts identified on Exhibit F to the
Heber Reorganization Plan, which were previously assumed by the Heber Debtors,
will be transferred to Buyers pursuant to the Geothermal Sale.
For Liquidating Debtors, on the Liquidation 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 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)
2 Corporate Drive
P.O.Box 861
Shelton, CT 06484-0861
Attn: Glenn Reisman
Pacific Enterprises Energy Management Services
101 Ash Street
Mail Zone HQ-16C
San Diego, CA 92101
Attn: Gary H. Hayes
Babcock Borsig Capital Corporation
82 Cambridge Street
Burlington, MA 01803
Attn: Jessica Fees
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. On September 19, 2003, the Court entered an order (Docket No. 2109)
extending the Exclusivity Period to and including December 8, 2003, with the
exclusive right to solicit acceptances thereto through January 7, 2004.
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"), 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 Prepetition Lenders. In February 2003, KKR
reduced the value of its offer and, consequently, the Debtors understand 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
Prepetition Lenders 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.
The Debtors have an obligation to seek to maximize recoveries for
creditors generally. To that end, the Debtors will, consistent with their
business judgment, continue to consider alternative transactions that would
permit recoveries to creditors greater than those expected under the Plans.
8. Sale of Geothermal Assets
As more fully described herein, the Reorganization Plan and the Heber
Reorganization Plan presume the sale of the Geothermal Business, and the use of
certain of the proceeds of the Geothermal Sale as part of the funding for the
Reorganizing Debtors' and Heber Debtors' emergence from their respective Chapter
11 Cases. As discussed above, the Debtors contemplate effecting the Geothermal
Sale pursuant to either the Heber Sale Motion or the Heber Reorganization Plan.
Subject to higher and better offers pursuant to the Heber Bidding Procedures
Order (and without prejudice to the Proposed Buyers' rights under the Heber
Purchase Agreement), the Heber Reorganization Plan involves (a) the sale of the
Geothermal Business, and transfer of ownership of the Heber Debtor Holding
Companies and the Heber Debtor Project Companies, to the Proposed Buyers; (b)
the payment in full, or continuation of the GECC Liens; (c) the termination of
the DIP Financing Facility with respect to the Heber Debtors, subject to the
consent of the requisite DIP Lenders; (d) payment of all Claims (other than
Intercompany Claims) in full; and (e) distribution of all remaining proceeds of
the Geothermal Sale to the Reorganizing Debtors. Other than the holders of
Claims against or Equity Interests in the Heber Debtors that are insiders, the
holders of Claims against or Equity Interests in the Heber Debtors are
Unimpaired under the Heber Reorganization Plan. As such, no creditors will be
entitled to vote to reject or accept the Heber Reorganization Plan and the Heber
Debtors will not be soliciting any such 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 JFK 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 Covanta 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 (Docket No. 1799).
Please see Section VI.C.13 for a discussion of the disposition
proceedings in connection with the Team and Arenas.
10. Restructuring of Certain 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 seeking approvals for, material
restructuring of their mutual obligations in connection with four (4) WTE
projects, as further summarized below (the Reorganizing Debtors also are
involved in material disputes, and/or litigation with respect to two (2)
additional WTE facilities, described in Section VI.C.14 below). The Reorganizing
Debtors also are involved in negotiations concerning a restructuring of their
obligations with respect to their Tampa Bay, Florida water desalinization
project, which also may become the subject of litigation. To the extent
agreements have been reached or are reached in the future concerning such
restructurings, each restructuring 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
Reorganization 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 Reorganization 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 Debtors' Estates.
(a) Warren County, New Jersey
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. The
Warren Authority has indicated that a consensual restructuring of the parties'
contractual arrangements may be possible in 2004. In addition, the Warren
Authority has agreed to release approximately $1.2 million being held in escrow
to Covanta Warren so that Covanta Warren may perform an environmental retrofit
during 2004. Based upon the foregoing and internal projections which indicate
that Covanta Warren likely will not operate at a loss next year, the Debtors
have determined not to propose a plan of reorganization or plan of liquidation
for Covanta Warren at this time, and instead that Covanta Warren should remain a
debtor-in-possession after the Plans are confirmed with respect to the other 150
Debtors. In order to implement this course of action, and as further discussed
in Section VIIE.4(b), the Debtors contemplate that Covanta Energy Resource Corp.
("CERC") and Covanta OPWH, Inc. ("Covanta OPWH"), Reorganizing Debtors which
together own 100% of the equity in Covanta Warren, will sell such equity to two
other Debtors holding no assets or liabilities, which would operate as holding
companies for Covanta Warren. The Debtors do not believe that this will impair
the other Debtors' ability to confirm and consummate the Plans, or the terms of
any exit financing available to such other Debtors.
In order to emerge from bankruptcy without uncertainty concerning
potential claims against Covanta related to the Warren Facility, Covanta will be
rejecting its guarantees of Covanta Warren's obligations relating to the
operation and maintenance of the Warren Facility. The Debtors anticipate that if
a restructuring is consummated, Reorganized Covanta may at that time issue a new
parent guarantee in connection with that restructuring and emergence from
bankruptcy.
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,
attempt to file a plan of reorganization on a non-consensual basis, or liquidate
Covanta Warren. In such an event, creditors of Covanta Warren may not receive
any recovery on account of their claims.
(b) 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 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 tentative 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, and the Court entered an order
approving that compromise and restructuring on October 9, 2003 (Docket No.
2332). If consummated, 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.
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
Onondaga 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 Onondaga 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) City of Tulsa, Oklahoma
Covanta Tulsa, Inc. ("Covanta Tulsa") operates the WTE facility located
in Tulsa, Oklahoma (the "Tulsa Facility") pursuant to a Service Agreement with
the Tulsa Authority for Recovery of Energy which expires in 2007. Covanta leases
the facility from CIT Group/Capital Finance, Inc. ("CIT") under a long-term
lease presently expiring in 2012 (the "CIT Lease").
Covanta Tulsa and CIT had been engaged in negotiations to restructure
the contractual arrangements between Covanta Tulsa and CIT related to Covanta
Tulsa's operation of the Tulsa Facility, which is projected to become
unprofitable for Covanta Tulsa unless Covanta Tulsa's agreements with CIT are
restructured, but those negotiations failed. As a result, the Debtors have wound
down business operations at the Tulsa Facility, and are in the process of
turning over the Tulsa Facility to CIT. It has not yet determined whether the
facility will be shuttered, or whether operations can and will be transitioned
to a replacement operator for the Tulsa Facility.
The Debtors will be rejecting all executory contracts related to the
Tulsa Facility other than those assigned to CIT. In addition, Covanta Tulsa has
been classified as a Liquidating Debtor, and as a result unsecured creditors of
Covanta Tulsa likely will not receive any recovery on account of their
pre-petition claims. In addition, CIT has indicated that it intends to assert a
material claim against Covanta, as guarantor of Covanta Tulsa's obligations,
which claim the Debtors will treat as a general unsecured Class 6 Claim against
Covanta, and it may attempt to assert material administrative claims against
Covanta Tulsa.
In the unlikely event an agreement were to be reached with CIT, the
Debtors may amend the Plans to reclassify Covanta Tulsa as a Reorganizing
Debtor, in which case unsecured creditors likely would receive a recovery on
account of their claims, and Covanta Tulsa will continue to operate the Tulsa
Facility for some period of time.
The Debtors do not believe that the classification of Covanta Tulsa as
a Liquidating Debtor and the cessation of operation of the Tulsa Facility will
impair the other Debtors' ability to confirm and consummate the Plans, or the
terms of any exit financing available to such other Debtors. The Debtors also do
not believe that reaching an agreement with CIT would materially improve the
Debtor's financial condition.
(d) Hennepin County, Minnesota
On June 11, 2003, the Debtors received Court approval (Docket No. 1597)
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 Hennepin
restructuring was completed on July 8, 2003.
(e) Union County, New Jersey
On June 19, 2003, Debtor Covanta Union, Inc. ("Covanta Union") received
Court approval (Docket No. 1621) 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. The Union restructuring is substantially
complete.
(f) Tampa Water Facility
Covanta Tampa Construction, Inc. ("CTC"), a subsidiary of the Debtors,
is currently completing construction of a 25 million gallon per day
desalination-to-drinking water facility (the "Tampa Water Facility") under a
contract with Tampa Bay Water Authority ("Tampa Bay Water" or "TBW") near Tampa,
Florida. CTC is not a Debtor, although Covanta Energy Group, Inc., which is a
Debtor, has guaranteed CTC's performance under its construction contract with
TBW. A separate subsidiary, Covanta Tampa Bay, Inc. ("CTB") has entered into a
postpetition contract with TBW to operate the Tampa Water Facility after
construction and testing is completed by CTC. CTB is a Debtor.
While construction of the Tampa Water Facility is substantially
complete, the parties have material disputes among them, primarily relating to
(i) whether CTC has satisfied acceptance criteria for the Tampa Water Facility,
and (ii) whether Tampa Bay Water has obtained certain permits necessary for CTC
to complete start-up and testing, and for CTB to subsequently operate the Tampa
Water Facility. In October 2003, TBW issued a default notice to CTC, which CTC
is vigorously contesting, and has indicating that it intends to commence
arbitration proceedings against CTC. Tampa Bay Water also has suggested that the
Debtors bring in a partner to assist with completion and testing issues, and
potentially to assist with operations after acceptance. The Debtors are
discussing potential solutions with Tampa Bay Water, including but not limited
to the addition of a partner acceptable to Tampa Bay Water. CTC also is
preparing to commence acceptance tests on the Tampa Water Facility and is
continuing efforts to reconcile differences with Tampa Bay Water in order to
avoid the significant costs and delays of a default dispute.
The Debtors believe that it would be beneficial to resolve their
differences with Tampa Bay Water, or terminate their agreements with Tampa Bay
Water, prior to confirmation of their Plans. In the event that the parties are
unable to consensually resolve their differences, and depending upon (among
other things) the outcome of the dispute with Tampa Bay Water, the Debtors may,
among other things, commence litigation against Tampa Bay Water, assume or
reject one or more executory contracts related to the Tampa Water Facility,
recharacterize CTB as a Liquidating Debtor, and/or withdraw CTB as a
Reorganizing Debtor and subsequently file a separate plan of reorganization for
it and/or CTC. In addition, CTC may file a bankruptcy petition. In such an
event, creditors of CTC and CTB may not receive any recovery on account of their
claims. The Debtors do not believe that a failure to resolve the dispute or
timely consummate a restructuring transaction with respect to CTB and/CTC 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% Debentures Adversary Proceeding
On May 15, 2002, pursuant to the Final DIP Order, the Debtors, the
Prepetition Lenders and the Informal 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% Debentures Adversary Proceeding"), challenging the secured status of
the 9.25% Debenture Holders. The Informal Committee was later added as a
defendant-intervener. The Debtors have not been named as parties in the 9.25%
Debentures 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'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% Debentures
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.
As requested by the Debtors and as ordered by the Court (Docket No.
41), on May 7, 2003, the parties to the 9.25% Debentures Adversary Proceeding
commenced a mediation that resulted in an agreement in principle to settle the
9.25% Debentures Adversary Proceeding. Based on the results of the mediation,
the Creditors Committee has proposed a basis in principle to resolve the 9.25%
Debentures Adversary Proceeding, which is incorporated into the Reorganization
Plan in the 9.25% Settlement. Each holder of a 9.25% Debenture Claim is provided
with an opportunity to opt out of participation in the 9.25% Settlement. In the
event that holders of 9.25% Debenture Claims with Claims in excess of $10
million opt out of the 9.25% Settlement, the 9.25% Debentures Adversary
Proceeding will continue but only with respect to such holders. The following
summary of the contemplated 9.25% Settlement is qualified in its entirety by the
actual terms of the Reorganization Plan. To the extent that there are any
inconsistencies between the description provided herein and the contemplated
9.25% Settlement, the actual terms of the Reorganization Plan shall govern. In
pertinent part, the contemplated 9.25% Settlement provides as follows:
1. Upon the entry of a Confirmation Order with respect to the
Reorganization Plan or Substantial Consummation of the Reorganization
Plan in which the 9.25% Settlement has been accepted by Accepting
Bondholders, the Creditors Committee shall be deemed to have
acknowledged, for those Accepting Bondholders, the validity, priority,
non-avoidability, perfection and enforceability of the liens and
claims of the Indenture Trustee for the benefit of the Indenture
Trustee and with respect to each such Accepting Bondholder shall be
deemed to have been fully released from any right to challenge such
liens.
2. Upon confirmation of the Reorganization Plan, holders of
Allowed Parent and Holding Company Unsecured Claims shall be entitled
to receive 12.5% of the first $84 million of each component of value
distributable to the Accepting Bondholders pursuant to the
Reorganization Plan (the "Settlement Distribution," as defined in the
Reorganization Plan), which entitlement shall be effectuated under the
Reorganization Plan.
3. Pursuant to the Reorganization Plan, fees and expenses
incurred by the Creditors Committee relating to the Adversary
Proceeding, through the Plans Confirmation Date, shall be paid by
Covanta (subject to the ordinary fee approval process of the Court),
notwithstanding any prior order limiting the amount of cash collateral
authorized to be used for such fees and expenses.
4. Pursuant to the Reorganization Plan, the holders of Allowed
Parent and Holding Company Claims shall receive (A) a waiver by the
Indenture Trustee and by the Accepting Bondholders of (i) any
deficiency claim on account of the Allowed Subclass 3B Secured Claims
held by them, and (ii) the benefits of the subordination provisions
contained in the Convertible Subordinated Bonds, and (B) the treatment
and distributions set forth in Section 4.6(b) of the Reorganization
Plan.
5. The Accepting Bondholders agree not to file, sponsor, support
or vote for any plan of reorganization or other transaction in the
Chapter 11 proceedings which does not contain all of the substantive
terms set forth in the 9.25% Settlement which are designated to be
included in the Reorganization Plan, or which is in any way
substantively inconsistent with any such terms.
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 together with the
Additional New Lenders 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
greater detail below, the Prepetition Lenders would accept a Distribution under
the Reorganization Plan in connection with their Allowed Secured Claim while
waiving any Distribution with respect the Prepetition Lender Deficiency Claim
and also 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, those 9.25% Debenture Holders
that become Accepting Bondholders would accept a Distribution under the
Reorganization Plan in connection with their Allowed Secured Claim, agree to
waive their rights to receive the Settlement Distribution, agree to waive any
Distribution with respect to the 9.25% Debentures Deficiency Claim and also
waive their right to any Distribution under the Liquidation Plan.
(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 $3,000,000 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 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.
13. Proceedings Related to the Team, the Corel Centre and Arrowhead Pond
(a) The Team and the Corel Centre
On January 9, 2003, 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 Canadian Court. 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 is
actively pursuing 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 the filing of the
assumption motion, Covanta Lake filed an adversary complaint (Adv. No.
03-04382-cb) 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. In addition, Covanta Lake has filed a motion
(Adv. 03-04382, Docket No. 23) seeking a determination concerning the validity
and constitutionality of its Service Agreement, as well as other dispositive
motions. The Court is scheduled to conduct a trial with respect to both the
motion to assume and the adversary proceeding commencing on November 3, 2003.
Recently, the Debtors and Lake County renewed their settlement
negotiations. The Debtors anticipate that if those settlement negotiations are
fruitful, they could result in termination of the Service Agreement and the
establishment of a new, long-term commercial arrangement between Covanta Lake
and Lake County that would permit continued operation of the Lake Facility by
Covanta Lake. Settlement negotiations are ongoing, the Debtors and Lake County
have executed a non-binding term sheet, and the parties are drafting definitive
documentation. The tentative settlement is contingent upon, among other things,
receipt of all necessary approvals, as well as a favorable outcome to the
Debtors' pending objection to the proof of claims filed by F. Browne Gregg, a
third-party beneficiary of the existing Service Agreement that would be
terminating under tentative settlement.
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) 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 (Docket No. 1405) to modify the automatic stay in order to permit it to
commence arbitration against the Company. The Company has filed an objection
(Docket No. 1418) to the Town's claim and the motion to modify the stay. The
Court has issued a temporary restraining order (Adv. 03-02387, Docket No. 6)
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.
(c) 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 (Docket Nos. 1786 and
1833). 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 VI.C.10 above.
As noted in Section VI.C.10 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 VI.C.10 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.
(d) 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. In addition, the parties have been in settlement negotiations,
and a tentative settlement has been reached, subject to definitive documentation
and court approval. The Debtors believe that the outcome of the litigation will
not have a material impact upon the Debtors' ability to confirm and consummate
the Plans.
(e) Martin County Coal Corporation Litigation
Motions for relief from the Chapter 11 automatic stay (Docket No. 1281)
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 (Docket No. 1467) by which Plaintiffs may liquidate their
claims (if any) against OEES, but may not recover or execute judgment against
OEES. Because OEES is a Liquidating Debtor and it does not appear that creditors
will receive any recoveries from OEES's Estate, the Debtors have informed
counsel to the plaintiffs and third-party defendants that it does not intend to
participate in the litigation or defend against claims asserted against OEES.
(f) Heber Royalty 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 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 filed a motion with the Court (Docket No. 2144) seeking
approval of the compromise with the lessor group, and on October 8, 2003 the
Court granted the motion. The Court also granted the Debtors permission to enter
into individual settlement agreements on substantially similar terms with
lessors that are not members of the lessor group, and to settle any disputes
relating to individual easement or most favored nation clause violations on a
case-by-case basis, not to exceed $50,000.00 per settlement without further
court approval.
(g) EPA Superfund
On September 15, 2003, the EPA issued a "General Notice Letter"
identifying Covanta as among 41 PRPs with respect to the Diamond Alkali
Superfund Site/"Lower Passaic River Project." The EPA alleges that the PRPs are
liable for releases or potential releases of hazardous substances to a 17 mile
segment of the Passaic River, located in northern New Jersey, and requests the
PRPs' participation as "cooperating parties" with respect to the funding of a
five to seven year study to determine an environmental remedial and restoration
program. The EPA currently estimates the cost of this study at $20 million. The
study also will be used in determining the PRPs' respective shares of liability
for costs associated with implementation of the selected cleanup program, as
well as potential damages for injury to, destruction of, or loss of natural
resources. As a result of uncertainties regarding the source and scope of
contamination, the number of PRPs that ultimately may be named in this matter,
and the varying degrees of responsibility among classes of PRPs, the Company's
share of liability, if any, cannot be determined at this time. Covanta is a
Chapter 11 Debtor. The allegations as to Covanta relate to discontinued,
non-energy operations.
15. Summary of Claims Process, Bar Dates and Claims Filed
(a) Schedules and Statements of Financial Affairs
On June 14, 2002 the Original Debtors filed with the Court their
Original Schedules setting forth, among other things, the assets and liabilities
of the Original 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 Original Debtors filed their First Amended Schedules with
the Court (Docket No. 1107). On December 11, 2002, the Original Debtors filed
their Second Amended Schedules with the Court (Docket No. 1146). On December 16,
2002, Covanta Concerts Holdings, Inc. filed its schedules (Adv. 02-16322, Docket
No. 2). On June 22, 2003, the New Debtors filed the New Debtor Schedules with
the Court (Docket No. 1631-1691). On August 24 and 25, 2003, 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 Original Debtors published notice of the General Bar
Date in the WALL STREET JOURNAL and USA TODAY on August 11, 2002.
On August 16, 2002, the Court entered the Bank of America Bar Date
Order establishing September 30, 2002 as the Bank of America Bar Date. On
September 5, 2002, the Court entered the IRS Bar Date Order establishing
December 31, 2002 as the IRS Bar Date. 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.
(c) Proofs of Claim
As of September 2003, approximately 4,500 proofs of claim in the
aggregate amount of approximately $13 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 these reviews, the Debtors
determined that certain Claims asserted against the Debtors are objectionable.
The Debtors have filed with the Court certain omnibus objections to
Claims and will continue to do so after the applicable Effective Date. 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, IPP and Water projects (collectively, the "Core Operations").
Since the Initial Petition Date, the Core Operations have continued to
perform well. In 2002 the WTE 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 WTE projects' operating
performance through June 2003 is on track to surpass last year's production
levels. As of June 30, 2003, the WTE 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 IPP 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. The corporate forecast 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
projected financial information in Exhibit D reflects 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 assets and
resolved a number of 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.9.
(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 WTE, IPP 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, WTE and domestic IPP 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 AGAINST AND EQUITY INTERESTS IN AND IMPLEMENTATION OF THE
PLANS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO EACH OF THE 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
DATES OF THE PLANS, BE BINDING UPON HOLDERS OF CLAIMS AGAINST, OR EQUITY
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, a Heber
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 WTE, domestic IPP and
Water market segments. The Reorganization Plan is premised upon the
establishment of an ESOP that will own all the stock of Reorganized Covanta on
the Reorganization 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 objective of the Heber
Reorganization Plan is to enable completion of the Geothermal Sale, which sale
is expected to provide a cash infusion that will benefit the Estates of both the
Heber Debtors and the Reorganized Debtors.
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. The
proceeds 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 Plans 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. 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 appears 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.
The Debtors have been informed by counsel to the Informal Committee
that the Informal Committee opposes confirmation of the Reorganization Plan and
the Liquidation Plan, as currently drafted, and believes that such Plans violate
sections 1122(a), 1123(a)(4) and 1129(a)(1) of the Bankruptcy Code. The Debtors
have been further advised that the Informal Committee believes that the
Reorganization Plan and Liquidation Plan are not confirmable because (i) the
9.25% Debenture Claims should be classified separately from the Secured Bank
Claims; (ii) disparate treatment exists among the Allowed Class 3 Claims
(Reorganized Covanta Secured Claims); and (iii) the Reorganization Plan and
Liquidation Plan have not been proposed in good faith. At the hearing to approve
this Disclosure Statement and the Short-Form Disclosure Statement, the Informal
Committee preserved its rights to object to confirmation of the Reorganization
Plan and Liquidation Plan on the foregoing and any other grounds.
Contrary to the assertions of the Informal Committee, the Debtors
believe that the Reorganization Plan and the Liquidation Plan comply with
sections 1122, 1123 and 1129, as well as any other relevant provisions of the
Bankruptcy Code. The Debtors believe, and expect to provide sufficient evidence
at the Plans Confirmation Hearing to prove that the Reorganization Plan and the
Liquidation Plan have been proposed in good faith as required by section
1129(a)(3) of the Bankruptcy Code, that the classification of the 9.25%
Debenture Claims under the respective Plans is proper and that no disparate
treatment exists among the Allowed Class 3 Claims. The professionals
representing the Informal Committee and certain members of such Committee have
executed confidentiality agreements with the Debtors and have participated in
negotiations regarding the creation of the Plans and have had the opportunity to
comment on the Plans and Disclosure Statement prior to their submission. The
Debtors will continue to negotiate with the Informal Committee to attempt to
resolve their concerns.
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
the applicable Plan if the holders affected do not consent to the treatment
afforded them under the applicable Plan.
The Plans classify Claims and Equity Interests in the following
Classes:
Class Reorganization Plan
Class 1 Allowed Priority Non-Tax Claims, which
consists of all such Claims against
each of the Reorganizing Debtors.
Class 2 Allowed Project Debt Claims, which consists
of 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 3 Subclass 3A: Allowed Secured Bank Claims
Subclass 3B: Allowed Secured 9.25%
Debenture Claims.
Class 4 Allowed Operating Company Unsecured
Claims, which consists of all Allowed
Unsecured Claims against Operating Company
Reorganizing Debtors.
Class 5 Allowed Parent and Holding Company
Guarantee Claims, which consists of all
Claims against an Operating Company
Reorganizing Debtor that is secured by
a Lien on such Operating Company
Reorganizing Debtor's tangible or
intangible assets; provided, however,
that Project Debt Claims do not
include Claims of Prepetition Lenders,
the DIP Lenders, the holders of the
9.25% Debentures or Intercompany Claims.
Class 6 Allowed Parent and Holding Company
Unsecured Claims, which consists of all
Allowed Unsecured Claims against
Reorganizing Covanta and any Intermediate
Holding Company Debtor and the 9.25%
Deficiency Claims of Rejecting Bondholders.
Class 7 Allowed Convertible Subordinated Bond
Claims, which consists of any
Unsecured Claim that arises out of, or is
attributable to, ownership of
the Convertible Subordinated Bonds.
Class 8 Class 8 consists of all Allowed Convenience
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 by any Reorganizing Debtor,
Heber Debtor or Liquidating Debtor against
any Reorganizing Debtor, Liquidating Debtor
or Heber Debtor.
Class 10 Subordinated Claims, which consists of
all Claims subject to subordination
under section 510(b) and (c) of the
Bankruptcy Code, or certain Claims for
penalties and punitive damages.
Class 11 Equity Interests in Subsidiary Debtors,
which consists of the Equity Interests held
by any Reorganizing Debtor in any of the
Subsidiary Debtors.
Class 12 Equity Interests in Covanta Huntington,
Covanta Onondaga and DSS
Environmental.
Class 13 Old Covanta Stock Equity Interests,
which consists of all Equity Interests
of holders of Old Covanta Stock.
Class Heber Reorganization Plan
Class 1 Allowed Priority Non-Tax Claims
Class 2H Allowed GECC Secured Claims
Class 3H Allowed Secured Claims
Class 7 Allowed Unsecured Claims
Class 8 Allowed Heber Intercompany Claims
Class 9 Intercompany Claims
Class 14 Equity Interests in the Heber Debtors
Class Liquidation Plan
Class 1 Allowed Priority Non-Tax Claims, which
consists of all such Claims against
each of the Liquidating Debtors.
Class 3 Subclass 3A: Allowed Liquidation Secured
Claims, which consists of the
Secured Bank Claims and the 9.25%
Debentures Claims against each of the
Liquidating Pledgor Debtors.
Subclass 3B: Allowed Secured CSFB
Claim against Ogden FMCA.
Class 3C: Allowed Covanta Tulsa Secured
Claims against Covanta Tulsa.
Class 7 Allowed Unsecured Liquidation Claims,
which consists of all Allowed Unsecured
Liquidation Claims against the Liquidating
Debtors.
Class 9 Intercompany Claims, which consists of
Claims by any Reorganizing Debtor or
Liquidating Debtor against any Liquidating
Debtor.
Class 11 Equity Interests in Liquidating Debtors,
which consists of the Equity Interests
held in any Liquidating Debtor.
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 OF 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. Subject to the provisions of
the Plans, 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 in accordance with the applicable Plan.
All Administrative Expense Claims are subject to the applicable
Administrative Expense Claim Bar Date, as provided in the applicable Plan,
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 Dates 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 specified in the applicable
Plan. 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 28, 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 Reorganization Effective Date. Assuming that the
Plans are consummated on or before December 31, 2003, the Reorganizing Debtors,
Heber Debtors and Liquidating Debtors believe that their available cash
resources (including funds that will become available pursuant to the
contemplated sale of the Geothermal Business and funds set aside in the
Administrative Expense Claims Reserve) will be sufficient to enable them to pay
all Allowed Administrative Expense Claims as of the applicable Effective Date,
any professional fees that remain unpaid as of the applicable 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 Dates 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 Liquidating Debtors are described in
Section VII.E below and (ii) the Heber Debtors are described in Section VII.F
below.
(i) Administrative Expense Claims under the Reorganization
Plan and the Heber Reorganization Plan
Subject to the provisions of Article 2.2 of the Reorganization Plan and
of the Heber 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 Heber
Debtor (or a Reorganized Debtor) and the holder of such Administrative Expense
Claim, the holder of an Allowed Administrative Claim in the Reorganizing
Debtors' or 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) and such
holder shall have agreed upon; 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 the applicable Plan.
To the extent that the aggregate amount of the Allowed Administrative
Expense Claims against a Heber Debtor is higher than the amount of
Administrative Expense Claims accounted for, without duplication, and settled as
between the parties to the Heber Purchase Agreement, in the Working Capital
Adjustment, Covanta shall be responsible for the payment of Allowed
Administrative Expense Claims prior to the Closing Date as if such Allowed
Administrative Expense Claims were allowed as administrative expense claims
under section 503 of the Bankruptcy Code.
(ii) Contingent Administrative Expense Claims under the DIP
Financing Facility
On the Reorganization 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 DIP Order), 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 Expense 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,
as provided in the applicable Plan. 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, Heber Debtor or Liquidating Debtor; and (c) fees and
expenses incurred by (i) Retained Professionals and (ii) Persons employed by the
Reorganizing Debtors, Heber Debtors or Liquidating 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, Heber Debtors or Liquidating Debtors or serving as independent
contractors to the Reorganizing Debtors, Heber Debtors or Liquidating 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 Dates 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, Heber Debtors and Liquidating 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 deadline imposed by the applicable Plan. All such Allowed
Administrative Expense Claims shall be paid in full as provided in the
applicable Plan, or upon such terms as may be mutually agreed upon between the
holder of such an Allowed Administrative Expense Claim and the applicable
Debtor.
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 applicable Administrative Expense Bar Date, and serve
such application on counsel for the applicable Reorganized Debtors, Reorganized
Heber Debtors and Liquidating Debtors and as otherwise required by the Court and
the Bankruptcy Code on or before such date.
The Debtors expect that certain Retained Professionals, and certain
other professionals to other parties in interest in the Chapter 11 Cases, will
seek compensation for services rendered, reimbursement of expenses incurred,
award of success fees, and payments on Substantial Contribution Claims under
subsections 503(b)(2), 503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code.
In particular, the Debtors expect that their investment bankers, Chilmark
Partners, LLC ("Chilmark"), will seek payment of a restructuring fee (the
"Restructuring Fee") upon the effectiveness and consummation of one or more of
the Plans, as per the terms of the retention letter between the Debtors and
Chilmark, dated March 28, 2002, as approved and modified by order of the Court
(Docket No. 607), dated June 27, 2002. The Restructuring Fee is equal to $7
million, less any monthly fees paid to Chilmark through the date of payment of
the Restructuring Fee up to, but not in excess of, $2 million, and subject to
certain other adjustments.
(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 Administrative
Expense Claims Reserve provided that any such liabilities not incurred in the
ordinary course 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 Administrative Expense Claims 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 Reorganization 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, a Reorganized 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 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
Reorganization 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-Reorganization
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 its property.
(ii) Priority Tax Claims under the Heber Reorganization Plan
Each holder of an Allowed Priority Tax Claim for which only a Heber
Debtor is liable 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 Heber 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 applicable Heber Debtor
(or, on and after the Heber Effective Date, Reorganized Heber Debtor), the
applicable Reorganized Heber Debtor may pay any or all such Allowed Priority Tax
Claims over a period not exceeding six (6) years after the date of assessment of
such Priority Tax Claims as provided in subsection 1129(a)(9)(C) of the
Bankruptcy Code. If the applicable Heber Debtor (or, on and after the Heber
Effective Date, Reorganized Heber Debtor) elects this option as to any such
Allowed Priority Tax Claim, then the applicable Reorganized Heber Debtor 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 Heber Effective Date, (ii) six (6)
months after the date on which such Priority Tax Claim becomes an Allowed Claim,
or (iii) such longer time as may be agreed to by the holder of such Priority Tax
Claim and the applicable Heber Debtor (or, on and after the Heber Effective
Date, the Reorganized Heber Debtor).
Each holder of an Allowed Priority Tax Claim for which one or more of
the Debtors in addition to a Heber Debtor is liable (including but not limited
to Priority Tax Claims arising by virtue of one or more Heber Debtor's status as
a member of a consolidated tax group or group under common control with one or
more of the other Debtors) 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
Reorganization 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 Covanta, Covanta may pay any or all such Allowed Priority Tax Claims over a
period not exceeding six (6) years after the date of assessment of such Priority
Tax Claims as provided in subsection 1129(a)(9)(C) of the Bankruptcy Code. If
Covanta elects this option as to any such Allowed Priority Tax Claim, then
Covanta 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
Reorganization Effective Date, (ii) six (6) months after the date on which such
Priority Tax Claim becomes an Allowed Claim, or (iii) such longer time as may be
agreed to by the holder of such Priority Tax Claim and Covanta.
(iii) Priority Tax Claims under the Liquidation Plan
Subject to the consent of the requisite New Facility Lenders and
Additional New 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 Liquidation 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 Liquidation 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 Liquidation Effective Date, without premium or penalty.
2. Unimpaired Classes of Claims
The Classes listed below are Unimpaired by the Plans.
Reorganization Plan
- -------------------
Class 1: Allowed Priority Non-Tax Claims
- -------
Class 2: Allowed Project Debt Claims
- -------
Class 5: Allowed Parent and Holding Company Guarantee Claims
- -------
Class 11: Equity Interests in Subsidiary Debtors
- -------
Class 12: Allowed Equity Interests in Covanta Huntington, Covanta Onondaga
- ------- and DSS Environmental
Heber Reorganization Plan
- -------------------------
Class 1: Allowed Priority Non-Tax Claims
- -------
Class 2H: Allowed GECC Secured Claims
- -------
Class 3H: Allowed Heber Secured Claims
- --------
Class 7: Allowed Unsecured Claims
- -------
Class 8: Allowed Heber Intercompany Claims
- -------
Liquidation Plan
- ----------------
Class 1: Allowed Priority Non-Tax Claims
- -------
3. Impaired Classes of Claims and Interests
The Classes listed below are Impaired by the Plans.
Reorganization Plan
- -------------------
Class 3: Allowed Covanta Secured Claims
- -------
Class 4: Allowed Operating Company Unsecured Claims
- -------
Class 6: Allowed Parent and Holding Company Unsecured Claims
- -------
Class 7: Allowed Convertible Subordinated Bond Claims
- -------
Class 8: Allowed Convenience Class Claims
- -------
Class 9: Intercompany Claims
- -------
Class 10 Subordinated Claims
- --------
Class 13: Old Covanta Stock Equity Interests
- --------
Heber Reorganization Plan
- -------------------------
Class 9: Intercompany Claims
- -------
Class 14: Equity Interests in the Heber Debtors
- --------
Liquidation Plan
Class 3: Allowed Liquidation Secured Claims
- -------
Class 7: Allowed Unsecured Liquidation Claims
- -------
Class 9: Intercompany Claims
- -------
Class 11: Equity Interests in Liquidating 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
applicable Debtors. All Claims and Equity Interests, except Administrative
Expense 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 applicable 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
Reorganization 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. To the extent
that defaults exist in connection with any Allowed Project Debt Claims, the
Reorganized Debtors shall comply with section 1124(2) of the Bankruptcy
Code on or before the Reorganization Effective Date. Without limiting the
generality of the foregoing, the Reorganizing Debtors shall pay in Cash
thirty (30) days after the Confirmation Date of the Reorganization Plan any
Secured Project Fees and Expenses, which are defined as those reasonable
fees, costs or charges that (i) are incurred by a trustee acting on behalf
of a bondholder, bond insurer or owner participant under any indenture that
relates to an Allowed Project Debt Claim, (ii) represent fees, costs or
charges incurred after the Petition Date, (iii) are properly payable under
the applicable indenture, and (iv) have been approved by order of the
Court; provided, however, that to the extent that any Secured Project Fees
and Expenses may have been paid by third parties, then such third parties
may only seek reimbursement from the Reorganizing Debtors for payment of
such Secured Project Fees and Expenses, if and to the extent permitted by
the relevant prepetition transaction documents and the Bankruptcy Code.
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 Reorganization Effective Date shall be
enforceable against the Reorganized Debtors. The indentures, notes and all
other documents or agreements with respect to Class 2 Claims shall not be
cancelled
(iii) Class 5 - Allowed Parent and Holding Company Guarantee
Claims. On the Reorganization Effective Date, the legal, equitable and
contractual rights of the holders of Allowed Class 5 Claims will be
reinstated in full satisfaction, release and discharge of their respective
Class 5 Claims and will remain unaltered under the Reorganization Plan,
except as the Reorganizing Debtors and the holders of Allowed Class 5
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 5 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 Reorganization Effective Date shall be
enforceable against the Reorganized Debtors.
(iv) Class 11 - Equity Interests in Subsidiary Debtors.
As of the Reorganization Effective Date, Equity Interests in the Subsidiary
Debtors shall be reinstated, in full satisfaction, release, and discharge
of any Allowed Class 12 Equity Interests, and such reinstated Equity
Interests shall be evidenced by the existing capital stock, partnership
and/or membership interests.
(v) Class 12 - Allowed Equity Interests in Covanta
Huntington, Covanta Onondaga and DSS Environmental. As of the
Reorganization Effective Date, 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, and such reinstated Equity Interests shall be evidenced by
the existing capital stock, partnership and/or membership 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 CPIH Funded Debt, (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; provided, however, that with respect to the
Distribution of the remaining Subclass 3A Recovery, (i) the
New Facility Lenders in Subclass 3A 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 Additional New
Lenders in Subclass 3A shall receive their Secured Value
Distribution first in the form of New Lender Warrants and
thereafter solely in the form of New High Yield Secured
Notes; provided further that Non-Participating Lenders in
Subclass 3A shall receive their Secured Value Distribution
solely in the form of New High Yield Secured Notes and shall
not receive any Distribution of Distributable Cash or New
Lender Warrants.
Immediately prior to any Distribution to holders of Subclass
3A Claims, the settlement of the Loss Sharing Litigation as
described in Exhibit 6 annexed to the Reorganization Plan
shall be deemed effective and implemented for purposes of
Distributions thereunder.
Distribution Among Holders of Allowed Subclass 3B Claims:
--------------------------------------------------------
First, the Subclass 3B Secured Claim shall be deemed an Allowed
Secured Claim in an amount equal to the Allowed Subclass 3B
Settlement Amount and in full settlement, release and discharge
of the Allowed Secured Claims of the Accepting Bondholders, each
holder of an Allowed Subclass 3B Claim that is an Accepting
Bondholder shall, subject to payment of its pro-rata share of the
Settlement Distribution, receive its Pro Rata Subclass Share of
Distributions of the Subclass 3B Accepting Bondholder Recovery;
provided, however, that with respect to the Subclass 3B Accepting
Bondholder Recovery, (i) the New Facility Lenders in Subclass 3B
that are Accepting Bondholders, 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 Additional New Lenders in
Subclass 3B that are Accepting Bondholders, if any, 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 that are Accepting Bondholders shall not
receive any Distributable Cash or any Distribution of New Lender
Warrants as part of the Secured Value Distribution. Distributions
made to each Accepting Bondholder of such holder's Allowed
Subclass 3B Claim shall be subject to adjustment and modification
in accordance with the provisions of the 9.25% Settlement,
including the waiver of the 9.25% Deficiency Claims and any
subordination benefits with respect to the Convertible
Subordinated Bonds, and payment of such holder's pro-rata share
of the Settlement Distribution to the holders of Allowed Class 6
Claims as provided under the Reorganization Plan.
Second, in the event that the aggregate amount of Subclass 3B
Claims held by Rejecting Bondholders is equal to or greater than
$10 million, the Subclass 3B Claim of each Rejecting Bondholder
shall be deemed a Disputed Secured Claim, allowance thereof shall
be subject to determination pursuant to the 9.25% Debentures
Adversary Proceeding, and on the Reorganization Effective Date,
the Reorganizing Debtors shall deliver the Subclass 3B Rejecting
Bondholder Recovery into a Reserve Account in accordance with
Section 8.4 of the Reorganization Plan and be held subject to
Distribution pursuant to Section 8.6 of the Reorganization Plan.
Third, in the event that the aggregate amount of Subclass 3B
Claims held by Rejecting Bondholders is less than $10 million,
the Subclass 3B Claim of each Rejecting Bondholder shall be
deemed an Allowed Secured Claim in its full amount and in full
settlement, release and discharge of the Allowed Secured Claims
of the Rejecting Bondholders, on the Reorganization Effective
Date, each holder of an Allowed Subclass 3B Claim that is a
Rejecting Bondholder shall receive its Pro Rata Subclass Share of
Distributions of the Subclass 3B Rejecting Bondholder Recovery;
provided, however, that with respect to the Subclass 3B Rejecting
Bondholder Recovery, (i) the New Facility Lenders in Subclass 3B
that are Rejecting Bondholders, 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 Additional New Lenders in
Subclass 3B that are Rejecting Bondholders, if any, 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 that are Rejecting Bondholders shall not
receive any Distributable Cash or any Distribution of New Lender
Warrants as part of the Secured Value Distribution. In the event
that the aggregate amount of Subclass 3B Claims held by Rejecting
Bondholders is less than $10 million, the Distributions made to
each Rejecting Bondholder of such holder's Allowed Subclass 3B
Claim shall not be subject to adjustment and modification in
accordance with the provisions of the 9.25% Settlement, nor shall
they receive a release of claims asserted in the 9.25% Debentures
Adversary Proceeding (remaining subject to liability to the
holders of Class 6 Claims for the Settlement Distribution).
(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,
on 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 Liquidation Effective Date, or as
soon thereafter as practicable, Ogden
FMCA shall cause to be transferred,
pursuant to Section 6.1(c) of the
Liquidation Plan, to CSFB, in its
capacity as holder of the Allowed
Secured CSFB Claim, the Ogden FMCA
Collateral.
3. Class 3C. Class 3C consists of the Allowed Covanta Tulsa
Secured Claims against Covanta Tulsa:
On the Liquidation Effective Date, or as
soon thereafter as practicable, Covanta
Tulsa shall cause to be transferred,
pursuant to Section 6.1(d) of the
Liquidation Plan, to the Covanta Tulsa
Secured Parties as holders of the Allowed
Covanta Tulsa Secured Claims, the Tulsa
Collateral in full settlement, release
and discharge of the Class 3C Claims.
(ii) Class 4 - Allowed Operating Company Unsecured
Claims. On the Distribution Date, each holder of an Allowed Class 4
Claim shall receive, in full settlement, release and discharge of its
Class 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
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 in
Section 4.5 of the Reorganization Plan.
(iii) Class 6 - Allowed Parent and Holding Company
Unsecured Claims. In consideration of the agreement by the holders of
Class 6 Claims to waive any claims, including all alleged avoidance
actions, that might be brought against the holders of Subclass 3A
Claims and to settle the 9.25% Debentures Adversary Proceeding in
accordance with the terms of the 9.25% Settlement, and to secure the
support of the holders of Allowed Class 6 Claims for confirmation of
this Reorganization Plan, the holders of Allowed Class 3 Claims have
agreed to provide the holders of Allowed Class 6 Claims from the value
that would otherwise have been distributable to the holders of Allowed
Class 3 Claims under this Reorganization Plan, so that 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, Distributions consisting of (i) such holder's Pro Rata Class
Share of Class 6 Warrants, (ii) such holder's Pro Rata Class Share of
Class 6 CPIH Preferred Stock, (iii) such holder's Pro Rata Class Share
of the CPIH Participation Interest, and (iv) such holders Pro Rata
Class Share of the proceeds, if any, with respect to the Class 6
Litigation Claims. Additionally, each holder of an Allowed Class 6
Claim (a) shall receive from each Accepting Bondholder, in full
satisfaction, release and discharge of its rights with respect to the
9.25% Debentures Adversary Proceeding against each Accepting
Bondholder, a Distribution consisting of such holder's Pro Rata Share
of the Settlement Distribution and (b) may receive a further
Distribution with respect to the Subclass 3B Rejecting Bondholder
Recovery subject to the resolution of the 9.25% Debentures Adversary
Proceeding, in accordance with Section 8.6(b) of the Reorganization
Plan. With respect to the Distribution to holders of Allowed Class 6
Claims (including any Distribution with respect to the Settlement
Distribution), the Reorganizing Debtors shall have the option to make
all or any portion of the Distribution either directly to the holder
of such Allowed Class 6 Claim or through a depository or trust
arrangement that provides holders of Allowed Class 6 Claims with the
equivalent economic benefits they would have received through a direct
Distribution; provided, however, that the costs of implementing and
maintaining any such depository or trust arrangement shall be paid for
from the proceeds of the Distribution to holders of Allowed Class 6
Claims. 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 Section
4.7 of the Reorganization Plan.
Creditors are referred to Section VIII.I below for an estimate
of the amount of Allowed Claims in Class 6, and the risks that Allowed Claims in
Class 6 may materially exceed the Debtors' estimates,
(iv) Class 7 (Reorganization Plan) -
Allowed Convertible Subordinated Bond Claims. On the Distribution
Date, each holder of an Allowed Class 7 Claim shall not receive
any Distributions from the Reorganizing Debtors or retain any
property under the Reorganization Plan in respect of Class 7
Claims, on account of its Class 7 Claim.
(v) Class 7 (Liquidation Plan) - Allowed Unsecured
Liquidation Claims. The holders of Class 7 Claims shall not be
entitled to receive any Distribution under the Liquidation Plan,
provided, however, that with respect to Allowed Class 7 Claims for and
to the extent to which insurance is available, such 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.
(vi) 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 payment in Cash, in an amount equal to seventy-five (75%) of
the Allowed amount of such Class 8 Claim.
(vii) 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 Reorganization 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 Reorganization Effective Date, all Subclass 9B
Claims shall, in the sole discretion of the applicable
Reorganizing Debtor or Reorganized Debtor, either be: (a)
preserved and reinstated, (b) released waived and discharged, (c)
contributed to the capital of the obligee corporation, or (d)
distributed to the obligee corporation. On the Reorganization
Effective Date, all Subclass 9C Claims shall be deemed cancelled
or waived in exchange for the Reorganizing Debtors' undertaking
certain obligations in connection with the Heber Reorganization
Plan.
(B) Liquidation Plan: Under the Liquidation
Plan, Class 9 consists of all Intercompany Claims. On the
Liquidation Effective Date, all Intercompany Claims under the
Liquidation Plan shall be cancelled, annulled and extinguished
(viii) Class 10 -Subordinated Claims. As of the
Reorganization 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, on account of such
Claims. All instruments evidencing Subordinated Claims shall be
cancelled, annulled or extinguished.
(ix) Class 11 - Equity Interests in the Liquidating
Debtors. The holders of Equity Interests in each Liquidating Debtor
shall not be entitled to receive any Distribution or retain any
property under the Liquidation Plan, and on the Liquidation Effective
Date such Equity Interests shall be cancelled, annulled and
extinguished.
(x) 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.
(c) Unimpaired Classes of Claims under the Heber
Reorganization Plan
(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)
such other less favorable terms as Covanta and the holder of an
Allowed Priority Non-Tax Claim agree; provided, however, that no such
agreement shall impose any obligation upon the Reorganized Heber
Debtors beyond the payment of amounts calculated in accordance with
the Working Capital Adjustment.
(ii) Class 2H - Allowed GECC Secured Claims.
The holder of the Allowed Subclass 2H-A Claims shall retain,
unaltered, the legal, equitable and contractual rights, including,
without limitation, any valid and perfected Liens that secure such
Allowed Claim, provided, however, that the assets of the Heber Debtors
subject to the GECC Liens may be sold, subject to such GECC Liens, as
part of the Geothermal Sale contemplated by the Heber Reorganization
Plan. Covanta shall pay to each holder of an Allowed Subclass 2H-B
Claim, in full settlement, release and discharge of its Subclass 2H-B
Claim, either (i) Cash, on the Heber Effective Date, in an amount
equal to such Allowed Subclass 2H-B Claim, or (ii) such other less
favorable terms as Covanta and the holder of an Allowed GECC Secured
HGC/HFC Claim agree; provided, however, that no such agreement shall
impose any obligation upon the Reorganized Heber Debtors beyond the
payment of amounts calculated in accordance with the Working Capital
Adjustment.
(iii) Class 3H - Allowed Heber Secured Claims. On the
Heber Effective Date, the legal, equitable and contractual rights of
the holders of Allowed Class 3H Claims will be reinstated in full
satisfaction, release and discharge of their respective Class 3H
Claims and will remain unaltered, except as the relevant Heber Debtor
(or, on or after the Heber Effective Date, Reorganized Heber Debtor)
and the holders of Allowed Class 3H 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 3H 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 Heber Effective Date shall be enforceable
against the Reorganized Heber Debtors. In the lieu of the foregoing,
any Heber Debtor (or, on or after the Heber Effective Date,
Reorganized Heber Debtor) may, at its election, make a Cash payment to
the holder of an Allowed Class 3H Claim equal to the full amount of
the holder's Allowed Class 3H Claim, together with interest at the
legal rate to the extent required by law, in full settlement, release
and discharge of such Class 3H Claim.
(iv) Class 7 - Allowed Unsecured Claims. On the
Distribution Date, each holder of an Allowed Class 7 Claim shall
receive, in full settlement, release and discharge of its Class 7
Claim, a Cash payment equal to the full amount of its Allowed Class 7
Claim, together with interest at the legal rate to the extent required
by law.
(v) Class 8 - Heber Intercompany Claims. The legal,
equitable and contractual rights of holders of Heber Intercompany
Claims in respect of such claim shall not be affected, altered or
Impaired under the Heber Reorganization Plan.
(d) Impaired Classes of Claims under the Heber
Reorganization Plan.
(i) Class 9 - Intercompany Claims. Under the Heber
Reorganization Plan, Class 9 consists of all Intercompany Claims. On
the Heber 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.
(ii) Class 14 - Equity Interests in Heber Debtors.
Class 14 consists of all Equity Interests in the Heber Debtors.
Holders of Allowed Class 14 Equity Interests shall not receive any
Distribution or retain any property under the Heber Reorganization
Plan in respect of Class 14 Equity Interests; except any such Equity
Interests shall continue to be held by the Heber Debtor or Reorganized
Heber Debtor that originally held such Equity Interests, which Equity
Interests shall contiFnue to be evidenced by the existing capital
stock, partnership interests 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, each
Heber Debtor and each Liquidating Debtor.
Subject to the provisions of Sections 5.5 of the Reorganization Plan
and the Liquidation Plan, the Reorganizing 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 and Liquidating
Debtors reserve the right to alter, amend, modify, revoke or withdraw the Plans
as they apply to any particular Debtor.
Subject to the provisions of Section 13.4 of the Heber Reorganization
Plan, the Heber Debtors reserve the right, without prejudice to the Proposed
Buyers' rights under the Heber Purchase Agreement and in accordance with the
Bankruptcy Code and the Bankruptcy Rules, to revoke, withdraw, amend or modify
the Heber Reorganization Plan or the Heber Purchase Agreement (in accordance
with its terms) at any time prior to the entry of the Heber Confirmation Order;
provided that the Heber Reorganization Plan shall be in form and substance
reasonably satisfactory to the Proposed Buyers. Additionally, the Heber Debtors
reserve the right, without prejudice to the Proposed Buyers' rights under the
Heber Purchase Agreement, to revoke, withdraw, amend or modify the Heber
Reorganization Plan as it applies to any particular Heber Debtor.
After the entry of the applicable Confirmation Order, the Debtors may,
upon order of the Court, amend or modify the Reorganization Plan, the Heber
Reorganization Plan or the Liquidation Plan, in accordance with section 1127(b)
of the Bankruptcy Code and the applicable Plan, 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 Reorganization Plan, the
Heber Reorganization Plan and the Liquidation Plan to redesignate Debtors as
Reorganizing Debtors, Heber Debtors or Liquidating Debtors at any time prior to
ten (10) days prior to the applicable 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 applicable Confirmation
Hearing one or more Debtors from the Reorganization Plan, the Heber
Reorganization Plan and the Liquidation Plan, and to thereafter file a plan
solely with respect to such Debtor.
If, prior to the applicable Confirmation Date, any term or provision of
any 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
applicable Confirmation Orders 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 any Plan, 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. The
form of Secured Value Distribution will vary depending upon whether the holder
of an Allowed Class 3 Claim is a New Facility Lender, an Additional New Lender
or a Non-Participating Lender with respect to the Exit Financing Facilities.
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. The Reorganization Plan also implements the 9.25%
Settlement, which will potentially resolve the 9.25% Debentures Adversary
Proceeding pursuant to which the Creditors Committee had challenged the validity
and enforceability of the security interest asserted by and on behalf of the
9.25% Debenture Holders. Members of Subclass 3B may waive their rights to
receive a certain portion of their Distribution or elect to opt out of
participation in the 9.25% Settlement. In the event that holders of 9.25%
Debenture Claims with claims in excess of $10 million opt out of the 9.25%
Settlement, the 9.25% Debentures Adversary Proceeding shall continue with
respect to such holders, and the Reorganizing Debtors will be obligated to
reimburse counsel for the Creditors Committee and counsel for the Informal
Committee for fees and expenses, each in an amount up to $250,000 in connection
with the continuation of such litigation. Payment of such fees and expenses will
be subject to approval by order of the Court.
1. 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 Master Credit Facility and the Intercreditor Agreement.
2. Voting Rights with Respect to Class 3 Distributions and the Settlement
Agreements under the Reorganization Plan
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; provided, however, that the
Ballots distributed to holders of Subclass 3B Secured Claims shall permit each
such holder the opportunity to elect treatment as a Rejecting Bondholder, it
being understood that any such holder who does not expressly make such election
by properly marking the Ballot shall be deemed an Accepting Bondholder.
E. Implementation of the Reorganization Plan
1. Continued Corporate Existence
Each of the Reorganized Debtors will continue to exist after the
Reorganization 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 is incorporated and pursuant to the respective
certificate of incorporation and bylaws in effect prior to the Reorganization
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
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, statutory
restrictions, valid restrictions pursuant to constituting documents, 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. The
material terms of the Reorganization Plan Notes, Reorganization Plan Equity
Securities and Reorganization Plan Warrants are as follows:
(a) Debt and 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 Reorganization 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 between $30 million and $35 million
with a maturity date eight (8) years after the Reorganization Effective Date.
Interest will be payable semi-annually at an interest rate of 7.5%. Annual
amortization payments of approximately $3.9 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 Reorganization Effective Date. Interest will be payable
semi-annually at the rate of four percent (4%).
Reorganization Plan Warrants: The Reorganization Plan Warrants will be
issued by Reorganized Covanta on the Reorganization Effective Date in accordance
with the terms of the Reorganization Plan, which shall entitle a holder to
receive upon exercise 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
exercise date over the fair market value of a single share of Reorganized
Covanta Common Stock on the Reorganization Effective Date. The Reorganization
Plan Warrants may be exercised, in full or in part, at the option of each
holder, at any time during the two year period commencing on January 1, 2014, or
earlier in the event of certain occurrences, such as sale of all or
substantially all of the company or the company becoming ineligible to file
Federal income tax returns as a subchapter S entity. The Reorganization Plan
Warrants are also subject to certain restrictions on transfer, as described in
Section IX.A.3(b), and other terms and conditions of the Reorganization Plan
Warrant Agreement, which is 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 Reorganization 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
(a) 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. The Reorganized Debtors intend to retain various parent guarantees
relating, among other things, to financial, operating and performance agreements
for certain CPIH subsidiaries.
(b) The Reorganizing Debtors will undertake a corporate restructuring
in connection with Covanta Warren. Pursuant to such restructuring, CERC and
Covanta OPWH, Reorganizing Debtors which together own 100% of the equity in
Covanta Warren, will sell such equity to two other Debtors holding no assets or
liabilities, which would operate as holding companies for Covanta Warren. The
Reorganizing Debtors are contemplating designating Covanta Equity of Stanislaus,
Inc. ("Covanta Stanislaus") and Covanta Equity of Alexandria/Arlington, Inc.
("Covanta Alexandria/Arlington"), currently Liquidating Debtors, as such holding
companies for Covanta Warren. In such event, the Debtors would redesignate
Covanta Stanislaus and Covanta Alexandria/Arlington as Reorganizing Debtors.
5. Revesting of Corporate Assets
The Reorganized 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 Reorganization Effective Date. Assets revested in the
Reorganizing Debtors shall include all ownership interest of any Reorganizing
Debtor in any Subsidiary Debtor, by virtue of the deemed consolidation of the
Reorganizing Debtors for purposes of the Reorganization Plan, subject to the
terms of the corporate restructuring described below.
6. Directors and Officers of Reorganized Covanta and CPIH
(a) On the Reorganization 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 and CPIH shall
consist initially of those persons identified in a filing submitted to the Court
by the Reorganizing Debtors prior to the Plans Confirmation Hearing.
(c) The officers of the Reorganized Debtors and the directors of
the Reorganized Debtors other than Reorganized Covanta and CPIH that are in
office immediately before the Reorganization Effective Date shall continue to
serve immediately after the Reorganization 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 Reorganization
Effective Date, without any requirement of further action by stockholders or
other owners of the Reorganized Debtors.
7. Certificate of Incorporation and Bylaws
The certificates of incorporation and bylaws of the Reorganized 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
Reorganization Effective Date, the Reorganized 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 as originally filed may be filed
after the Confirmation Date and may become effective on or prior to the
Reorganization Effective Date.
8. Employment, Retirement and Other Agreements
Employment Agreements
---------------------
Pursuant to applicable provisions of the Bankruptcy Code, the
Reorganization Plan currently contemplates the rejection of all existing
prepetition employment agreements.
Retirement Plans
----------------
Following the Reorganization 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
Reorganization Effective Date. For a more in-depth discussion of the Pension
Plan and SEIU Pension Plan please refer to Section III.A.
Following the Reorganization 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 Reorganization 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 a majority of the small group of former senior executives participating 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. The Company does not believe that such an adjustment in benefits falls
within the scope of section 1114 of the Bankruptcy Code, but this position may
be challenged by the affected retirees.
With respect to approximately five (5) of the core retirees, however,
the Company is in the process of advising such retirees that it is the Company's
belief that the retiree medical coverage such retirees currently receive is not
protected 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. It is possible that the affected retirees may challenge this position.
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 are otherwise
obligated to provide such benefits.
Following the Reorganization 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.
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
Reorganization 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 Reorganization
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 Reorganization 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.
9. Management Agreements
On the Reorganization 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% of the Post-Closing Cash, if any, in
excess of Distributable Cash. On or shortly after the Reorganization Effective
Date, Reorganized Covanta shall establish the "Covanta Management Incentive
Plan." The Covanta Management Incentive Plan is a long term management incentive
plan based upon the value of Reorganized Covanta Common Stock, which shall be
approved by the Board of Directors of Reorganized Covanta, the economic effect
of which shall equally dilute the value of the Reorganization Plan Warrants and
the outstanding shares of Reorganized Covanta Common Stock.
For these purposes, "Distributable Cash" means an amount of cash
equal to the lesser of (i) $60 million and (ii) the Post-Closing Cash. For these
purposes, "Post-Closing Cash" shall mean an amount of domestic cash determined
on the Effective Date equal to Free Cash minus Exit Costs. For these purposes,
"Free Cash" means the total amount of Cash held by the Reorganizing Debtors on
the Reorganization Effective Date after consummation of the Geothermal Sale and
immediately prior to giving effect to the payment of Exit Costs or any other
Distributions or transactions contemplated by the Reorganization Plan; provided,
however that Free Cash does not include the Post-Confirmation Working Capital or
any other Cash as to which usage by the Reorganizing Debtors is restricted in
any manner pursuant to the terms of any applicable agreements to which the
Reorganized Debtors are party, including, without limitation, any project
financing or operating agreements or the Heber Reorganization Plan.
The terms of certain post-Reorganization Effective Date management
incentive, employment and non-competition agreements are currently under
discussion by the Company and its various creditor constituencies.
10. Corporate Action
Each of the matters provided for under the Reorganization Plan
involving the corporate structure of the Reorganizing Debtors or corporate
action to be taken by or required of the Reorganizing Debtors will, as of the
Reorganization Effective Date, as the case may be, 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 Reorganization Effective Date, ratified in all
respects without any requirement of further action by stockholders, creditors,
or directors of the Reorganizing Debtors.
11. 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 Reorganization 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.
12. New Common Stock, Plan Notes and Collateral Documents; Further
Transactions
On the Reorganization 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 Reorganization 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.
13. 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 Reorganization
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 to 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 in amounts of up 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 IRS 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.
14. Preservation of Causes of Action
On and after the Reorganization Effective Date, and except as may
otherwise be agreed to by the Reorganizing Debtors or as provided in the
Reorganization Plan, 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 (other than holders of Unsecured Claims against the
Reorganizing Debtors) and rights of the Reorganizing 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 541, 542, 544, 545, 548, 549, 550 and 553 of the Bankruptcy Code. The
Reorganized 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 may, in
their discretion, offset any such claim held against a Person against any
payment due such Person under this Reorganization Plan; provided, however, that
any claims of any of the Reorganizing Debtors arising before the applicable
Petition Date shall first be offset against Claims against any of the
Reorganized Debtors arising before the applicable Petition Date.
On and after the Reorganization Effective Date, counsel for the
Creditors Committee shall serve as Class 6 Representative for purpose of
evaluating the Class 6 Litigation Claims. The Class 6 Representative shall have
the exclusive right to enforce any such Class 6 Litigation Claim as it deems
appropriate to be brought. On and after the Reorganization Effective Date, the
Reorganizing Debtors shall be responsible for payment of reasonable legal fees
and expenses to the Class 6 Representative incurred in connection with the
evaluation and enforcement of any such Class 6 Litigation Claims in an amount up
to $150,000, subject to order of the Court; provided, however, that reasonable
fees and expenses incurred by the Class 6 Representative in excess of $150,000
may be recovered, subject to order of the Court, from the proceeds of any
settlement or recoveries received in connection with any such Class 6 Litigation
Claim.
15. 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
Reorganization 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 shall remain
obligated with respect to liens, security interests or encumbrances in property
of the Reorganized 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.
The indentures, notes and all other documents or agreements with
respect to Class 2 Claims shall not be cancelled.
16. Exclusivity Period
The Reorganizing Debtors will retain the exclusive right to amend or
modify the Reorganization Plan, and to solicit acceptances of any amendments to
or modifications of the Reorganization Plan, through and until the Effective
Dates.
17. Reorganizing Debtors' Reservation of Rights with Respect to the Manner of
Certain Distributions
Pursuant to the Reorganization Plan, the Reorganizing Debtors have
reserved their right with respect to the Distributions to holders of Allowed
Class 6 Claims (including any Distribution included as part of the Settlement
Distribution), to make all or any portion of such Distribution, at the option of
the Reorganizing Debtors, either directly to the holders of Allowed Class 6
Claim or through a depository or trust arrangement that provides the holders of
Allowed Class 6 Claims with the equivalent economic benefits they would have
received through a direct Distribution; provided, however, that the costs of
implementing any such depository or trust arrangement shall be paid for from the
proceeds of the Distributions that holders of Allowed Class 6 Claims would
otherwise be entitled to receive.
18. Deemed Consolidation for Procedural, Administrative and Voting Purposes
The Reorganization Plan does not provide for the substantive
consolidation of the Reorganizing Debtors' Estates. Subject to the occurrence of
the Reorganization Effective Date, the Reorganizing 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; (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 Heber Reorganization Plan
1. Implementation of the Geothermal Sale
The implementation of the Heber Reorganization Plan is predicated upon
the approval by the Court of the Geothermal Sale, and the consummation thereof
under the Heber Reorganization Plan. The terms and conditions of the Geothermal
Sale are incorporated therein and shall be deemed included as part of the Heber
Reorganization Plan for all purposes. The following description of the
Geothermal Sale is a summary of the Heber Purchase Agreement and is qualified in
its entirety by the terms thereof and by the terms of any Heber Alternative
Transaction. Furthermore, to the extent any term used in this section is not
defined herein, it shall have the meaning ascribed to such term in the Heber
Reorganization Plan.
(a) The Heber Purchase Agreement provides for a base purchase
price of $170,000,000, which amount is subject to adjustment as provided in the
Heber Purchase Agreement.
(b) The Heber Purchase Agreement provides for the sale of the
Equity Interests in the Heber Debtors, which corresponds to all of the
respective ownership interests of the Debtor Sellers in the Heber Debtors.
(c) As a condition to Closing, the Debtors must receive Court
approval of, among other things, the (i) sale of the Geothermal Business as
contemplated by the Heber Purchase Agreement; (ii) Break-Up Fee and Expense
Reimbursement (which approval was obtained on September 29, 2003); (iii)
assumption by the respective Heber Debtors of the contracts set forth in
Schedule 3.3(a) to the Heber Purchase Agreement; and (iv) assignment of the O&M
Contracts by the Debtor Operators to the Proposed Buyers. In addition, the
Debtors shall have received formal approval of the DIP Lenders, consenting to
the consummation of the transactions contemplated in the Heber Purchase
Agreement and releasing security interests granted to them pursuant to the DIP
Security Agreement.
(d) Among other things, at the Closing, the following events
shall occur:
(i) The Debtor Sellers shall sell, convey, assign,
transfer and deliver their respective Equity Interests in SIGC One
Sub, SIGC Two Sub, HFC Project Company and HGC Project Company to the
Proposed Buyers as provided in the Heber Purchase Agreement, which
Equity Interests shall continue to be evidenced by the existing
partnership or membership interests;
(ii) Equity Interests in Amor and SIGC Project Company
shall be held by the Heber Debtor that originally held such Equity
Interests, which Equity Interests shall continue to be evidenced by
the existing partnership or membership interests;
(iii) Proposed Buyers shall deliver to the Sellers an
amount that, together with the Initial Deposit, equals the Purchase
Price, by wire transfer of immediately available funds to an account
designated by the Sellers;
(iv) the Heber Debtors will assume all executory
contracts and unexpired leases relating to the Geothermal Business to
which they are parties (except for contracts previously assumed),
which contracts and leases will be transferred to the Proposed Buyers
through their acquisition of the ownership interests in the Heber
Debtors.
(v) Certain of the Debtor Sellers and certain of the
Debtor Operators will assume and assign certain contracts relating to
the Geothermal Business to the Proposed Buyers. The Debtor Operators
will assign their previously assumed O&M Contracts to the Proposed
Buyers.
(vi) To the extent not already paid, Covanta shall
cause all undisputed Cure Amounts and HFC Settlement Payments to be
paid to holder of such Claims.
2. Authorization of Transfer of Equity Interests
On the Heber Effective Date, the Debtor Sellers will be authorized to
sell, convey, assign, transfer and deliver their respective Equity Interests in
SIGC One Sub, SIGC Two Sub, HFC Project Company and HGC Project Company without
the need for further corporate action, and in accordance with the Heber Purchase
Agreement. Furthermore, Amor and SIGC Project Company will be authorized and
will reinstate their respective Equity Interests.
3. Cancellation of Existing Equity Securities and Agreements
Except for purposes of evidencing a right to distributions under the
Heber Reorganization Plan or otherwise provided under the Heber Reorganization
Plan, on the Heber Effective Date, all the agreements and other documents
evidencing (i) any Claims or rights of any holder of a Claim against the
applicable Heber Debtor, including all indentures and notes evidencing such
Claims and (ii) any options or warrants to purchase Equity Interests, obligating
the applicable Heber Debtor to issue, transfer or sell Equity Interests or any
other capital stock of such Heber Debtor, shall be cancelled; provided, however,
that notwithstanding the foregoing, the Reorganized Heber Debtors shall remain
obligated with respect to the GECC Liens and Permitted Encumbrances in property
of the Reorganized Heber Debtors in accordance with Article IX of the Heber
Reorganization Plan.
4. Directors and Officers
Each of the directors and officers of each of the Heber Debtors shall
resign their positions on or prior to the Heber Effective Date. At or before
the Heber Confirmation Hearing, the Proposed Buyers shall comply with the
applicable provisions of section 1129(a)(5) of the Bankruptcy Code.
5. Deemed Consolidation for Procedural and Administrative Purposes
The Heber Reorganization Plan does not provide for the substantive
consolidation of the Heber Debtors' Estates. Subject to the occurrence of the
Heber Effective Date, the Heber Debtors shall be deemed consolidated for the
following purposes under the Heber Reorganization Plan: (i) as provided with
respect to Class 14 Equity Interests, no Distributions shall be made under the
Heber Reorganization Plan on account of Equity Interests in Amor and SIGC
Project Company; and (ii) in some instances, Claims against more than one Heber
Debtor have been grouped together into a single Class of Claims for voting and
distribution purposes. Such deemed consolidation, however, shall not affect: (i)
the legal and organizational structure of the Reorganized Heber Debtors; (ii)
the ownership interest of any Heber Debtor in any other Heber 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 Heber Reorganization Plan or the
instruments and documents issued in connection with the Heber Reorganization
Plan.
6. Continued Corporate Existence/Vesting of Assets
Each of the Heber Debtors shall, as a Reorganized Heber Debtor,
continue to exist after the Effective Date as a separate legal entity, with all
powers of a corporation, limited liability company or general or limited
partnership, as the case may be, under the laws of their respective states of
incorporation or organization and without prejudice to any right to alter or
terminate such existence (whether by merger or otherwise) under such applicable
state law. The Reorganized Heber Debtors shall be revested with their assets as
provided in Section 11.1 of the Heber Reorganization Plan, subject to the GECC
Liens and Permitted Encumbrances.
7. Conversion To Limited Liability Company Status
Prior to the Heber Effective Date, the Heber Debtors that are stock
corporations shall be authorized to convert into limited liability companies,
and shall not have elected to be taxed as a corporation following such
conversion, provided, however, that Heber Debtors shall have no such obligation
unless the Proposed Buyers have given adequate assurance that the Closing shall
occur.
8. Amended Organizational Documents
On the Effective Date, the Reorganized Heber Debtors will be authorized
to, and will, 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 will
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.
9. Settlements
Except to the extent the Court has entered a separate order providing
for such approval, the Confirmation Order will constitute an order (a) approving
as a compromise and settlement pursuant to section 1123(b)(3)(A) of the
Bankruptcy Code and Bankruptcy Rule 9019, any settlement agreements entered into
by any Heber Debtor or any other Person as contemplated in confirmation of the
Heber Reorganization Plan, and (b) authorizing the Heber Debtors' execution and
delivery of all settlement agreements entered into or to be entered into by any
Heber Debtor or any other Person as contemplated by the Heber Reorganization
Plan and all related agreements, instruments or documents to which any Heber
Debtor is a party.
10. Payment of GECC Secured HGC/HFC Claims
On or prior to the Heber Effective Date, the Heber Debtors and Covanta
shall have paid all GECC Secured HGC/HFC Claims.
11. Payment of Covanta Power Pacific, Inc. Debt.
On or prior to the Closing Date, Covanta shall have repaid all amounts
outstanding under the Loan Agreement, dated as of April 10, 1998, among Ogden
Power Pacific, Inc. and Bayerische Vereinsbank, AG, New York Branch and the
lenders referred to therein, as amended.
12. Corporate Action
Each of the matters provided for under the Heber Reorganization Plan
involving the corporate structure of the Heber Debtors or corporate action to be
taken by or required of the Heber Debtors will, as of the Heber 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 Heber Effective
Date, ratified in all respects without any requirement of further action by
stockholders, creditors, or directors of the Heber Debtors.
13. Exclusivity Period
The Heber Debtors will retain the exclusive right to amend or modify
the Heber Reorganization Plan, and to solicit acceptances of any amendments to
or modifications of the Heber Reorganization Plan, through and until the Heber
Effective Date, without prejudice to the Proposed Buyers' rights under the Heber
Purchase Agreement.
G. 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 (some of which Claims shall be
treated as Class 6 Litigation Claims under the Reorganization Plan)) 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 $3,000,000 of the Cash subject to the transfers described
above be transferred to the Operating Reserve and the Administrative Expense
Claims 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 Residual 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.G.1 above, the Debtors currently
contemplate that on the Liquidation 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 up to $3,000,000 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 for the Liquidation Plan and the Administrative Expense Claims
Reserve for the Liquidation Plan in the amounts of $500,000 for the Operating
Reserve and up to $2,500,000 for the Administrative Claims Expense Reserve,
provided, however, to the extent that the sum of all the Cash in the accounts of
the Liquidating Debtors is less than the amounts required by Liquidating Debtors
to fund the Operating Reserve and the Administrative Expense Claims Reserve set
forth above on the Liquidation Effective Date, then (i) the Liquidating Trustee
shall transfer the sum of all such Cash in the Liquidating Debtors' accounts
first to the Operating Reserve until it is funded in the amount of $500,000 and
second to the Administrative Expense Claims Reserve and (ii) Reorganized Covanta
shall transfer the Operating Reserve Deficiency Amount to the Operating Reserve
and the Administrative Expense Claims Reserve until such accounts are funded as
described above. Based on (i) the aggregate amount of Administrative Expense
Claims that the Liquidating Debtors expect will be filed against the Liquidating
Debtors in accordance with Article II of the Liquidation Plan, (ii) the Priority
Tax Claims and Non-Priority Tax Claims that have been asserted against the
Liquidating Debtors and (iii) the anticipated fees and expenses of the
Liquidating Trustee and the Oversight Nominee, the Liquidating Debtors believe
that the funding of the Operating Reserve and the Expense Claims Reserve in an
aggregate amount of up to $3 million will be sufficient to fund the
implementation of the Liquidation Plan in accordance with Sections 9.14(b) and
9.14(c) of the Liquidation Plan.
3. Transfer of Liquidation Assets
On the Liquidation 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 and the Administrative Expense Claims Reserve. In accordance
with section 1141 of the Bankruptcy Code and except as otherwise provided by the
Liquidation Plan or the Liquidating Trust Agreement, upon the Liquidation
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 Liquidation 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, and except as otherwise provided in
the Liquidation Plan.
5. Distribution of the Covanta Tulsa Collateral
The Liquidation Plan provides that on the Liquidation Effective Date,
or as soon thereafter as practicable, Covanta Tulsa shall cause to be
transferred to the Covanta Tulsa Secured Parties, as holders of the Allowed
Covanta Tulsa Secured Claims, the Tulsa Collateral free and clear of all Claims
and Equity Interests, in accordance with section 1141 of the Bankruptcy Code.
6. Dissolution of the Liquidating Debtors
Following the transfers contemplated by the Secured Creditor Direction
and 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.
7. 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 Court on or
before ten (10) days prior to the Plans Confirmation Hearing. The Liquidating
Trustee's appointment shall become effective upon the occurrence of the
Liquidation 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 or any Cash transferred
to the Operation Reserve or the Administrative Expense Claims Reserve, 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 in accordance with Section
9.3 of the Liquidation Plan, 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
Liquidation 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 transferred to Reorganized Covanta pursuant to the
Secured Creditor Direction or the DIP Lender Direction (some of which Claims
shall be treated as Class 6 Litigation Claims under the Reorganization Plan).
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
Liquidation 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 his or her 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 the 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, the Operating Reserve and the Administrative
Expense Claims Reserve. The Office of the United States Trustee has advised the
Debtors that at the Plans Confirmation Hearing, it will request the posting of a
defalcation bond for the performance of the Liquidating Trustee in the amount of
cash held in the Disputed Claims Reserve, the Operating Reserve and the
Administrative Expense Claims Reserve. The Debtors estimate the cost of a
defalcation bond to be approximately $1.00 per $1,000.00 in amount of such bond.
(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 Liquidation Effective
Date, the Liquidating Trustee shall establish the Operating Reserve in
order to pay all Priority Tax Claims, Priority Non-Tax Claims of the
Liquidating Debtors and any Oversight Nominee Expenses and Dissolution
Expenses. The Operating Reserve shall be funded in an amount not to exceed
$500,000, 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.
(iii) The Administrative Expense Claims Reserve.
On the Liquidation Effective Date, the Liquidating Trustee will establish
the Administrative Expense Claims Reserve in order to pay all
Administrative Expense Claims of the Liquidating Debtors. The
Administrative Expense Claims Reserve shall be funded in an amount up to
$2,500,000, pursuant to the Secured Creditor Direction. 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
Administrative Expense Claims 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 he or she
deems necessary to carry out the intentions and purposes, and to give full
effect to the provisions, of the Liquidation Plan.
8. 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 Court on or before ten (10) days prior to the
Plans Confirmation Hearing. The appointment of the Oversight Nominee shall
become effective upon the occurrence of the Liquidation 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.
9. Exclusivity Period
The Debtors will retain the exclusive right to amend or modify the
Liquidation Plan, and to solicit acceptances of any amendments to or
modifications of the Liquidation Plan, through and until the Liquidation
Effective Date.
H. Distributions and Disputed Claims under the Reorganization Plan
1. Time of Distributions
Unless otherwise provided in the Reorganization Plan, any Distributions
and deliveries to be made hereunder shall be made on the Reorganization
Effective Date or as soon thereafter as is practicable. In the event that any
payment or act under the Reorganization Plan is required to be made or performed
on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
but shall be deemed to have been completed as of the initial due date.
2. Distribution Record Date
As of the close of business on the applicable Distribution Record Date,
the applicable Reorganizing Debtor's books and records for each of the Classes
of Claims or Equity Interests as maintained by such Reorganizing Debtor or its
respective agent, or, in the case of the 9.25% Debentures, the Indenture Trustee
therefor, shall be deemed closed, and there shall be no further changes in the
record holders of any of the Claims or Equity Interests. The applicable
Reorganizing Debtor shall have no obligation to recognize any transfer of Claims
or Equity Interests occurring on or after the applicable Distribution Record
Date. The applicable Reorganizing Debtor shall be entitled to recognize and deal
for all purposes hereunder only with those record holders stated in the books
and records of the applicable Reorganizing Debtor or its respective agent, or,
in the case of the 9.25% Debentures, the Indenture Trustee thereof, as of the
close of business on the Distribution Record Date, to the extent applicable.
3. 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.
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.
4. 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 Reorganization 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 Reorganization 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.
5. 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 is 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, 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.
6. DeMinimis Distributions
Unless written request addressed to the Reorganized Debtors or
Disbursing Agent is received within one hundred and twenty (120) days after the
Reorganization Effective Date, the Disbursing Agent or such other entity
designated by such Reorganized Debtor as a Disbursing Agent on or after the
Reorganization 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 Plan Equity Securities and Warrants
combined to be distributed on any Distribution Date under the Reorganization
Plan on account of such Claim is less than $100. 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 $100 will have its
Claim for such Distribution discharged and will be forever barred from asserting
any such Claim against the Reorganized Debtors or their respective property. Any
Cash, Reorganization Plan Notes or Reorganization Plan Equity Securities and
Warrants not distributed pursuant to Section 7.8 of the Reorganization Plan will
become the property of the Reorganized Debtors free of any Liens, encumbrances
or restrictions thereon.
7. 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.
8. Objections to Claims
Unless otherwise ordered by the Court after notice and a hearing, the
Reorganizing 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 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.
9. 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.
10. Resolution of Disputed Claims and Equity Interests
Unless otherwise ordered by the Court after notice and a hearing, the
Reorganizing 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 Reorganization Effective Date; provided,
however, that such one hundred and twenty (120) day period may be automatically
extended by the Reorganizing 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 the
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 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 on or before the Administrative Expense Claim Bar Date. The Reorganizing
Debtors, Reorganized 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 Reorganization Effective Date. In
the event the Reorganizing Debtors or Reorganized 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 that is paid or payable by the Reorganizing Debtors
in the ordinary course of business.
11. 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
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 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.
12. Reserve Account for Disputed Claims
On and after the Reorganization 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 the 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 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.
13. Subclass 3B Rejecting Bondholder Recovery
Members of Subclass 3B will have the opportunity to reject
being included as a settling party pursuant to the 9.25% Settlement by expressly
marking the appropriate box on their Ballot (the "Subclass 3B Rejecting
Bondholders"). In the event that the Claims of Subclass 3B Rejecting Bondholders
are equal to or greater than $10 million, the Subclass 3B Rejecting Bondholder
Recovery shall be held in a Reserve Account in accordance with the
Reorganization Plan subject to resolution of the 9.25% Debentures Adversary
Proceeding.
In the event of entry of a Final Order in connection with the
9.25% Debentures Adversary Proceeding establishing the validity of the Lien
asserted on behalf of the holders of the 9.25% Debentures, each holder of an
Allowed Subclass 3B Secured Claim that was a Rejecting Bondholder shall receive
a Pro Rata Share of the Distribution of the Subclass 3B Rejecting Bondholder
Recovery from the Subclass 3B Reserve Account. In the event of entry of a Final
Order in the 9.25% Debentures Adversary Proceeding determining that the Lien
asserted on behalf of the holder of the 9.25% Debentures did not exist, was
invalid or otherwise avoided, then the Subclass 3B Rejecting Bondholder Recovery
held in the Subclass 3B Reserve Account shall be Distributed (i) first, so that
each holder of a Subclass 3B Claim that was a Rejecting Bondholder shall receive
a Distribution with an Estimated Recovery Value equal to the Estimated Recovery
Value that such holder would have received on the Effective Date with respect to
an Allowed Class 6 Claim of the same principal amount, and (ii) second, the
balance of the Subclass 3B Rejecting Bondholder Recovery that remains after
making distributions in accordance with clause (i) of this sentence shall be
divided as follows: (A) pro rata to each holder of an Allowed Class 6 Claim,
additional distributions of Excess Distributable Cash, if any, New High Yield
Secured Notes, New CPIH Funded Debt, Reorganized CPIH Preferred Stock, and
Additional Class 3 Warrants in an amount such that each holder of an Allowed
Class 6 Claim will receive the Pro Rata Share of the Settlement Distribution it
would have received had all Rejecting Bondholders been Accepting Bondholders;
(B) pro-rata to Allowed Subclass 3A Claims, any remaining Cash; and (C) pro-rata
among holders of Allowed Subclass 3A Claims and holders of Allowed Class 6
Claims on a ratio of 9 to 1, the remaining balance of the Subclass 3B Rejecting
Bondholder Recovery.
In the event there are Rejecting Bondholders holding an
aggregate amount of Subclass 3B Claims in excess of $10 million, the
Reorganizing Debtors shall be obligated after the Confirmation Date to reimburse
counsel for the Creditors Committee and counsel for the Informal Committee for
fees and expenses each in an amount up to $250,000 for purposes of enabling
continuation of the 9.25% Debentures Adversary Proceeding, subject to approval
of such fees and expenses by order of the Court.
Without regard to the aggregate amount of Subclass 3B Claims
held by Rejecting Bondholders, the $450,000 limitation on the use of cash
collateral imposed on the payment of fees to counsel to the Creditors Committee
in connection with the 9.25% Debentures Adversary Proceeding as set forth in the
Stipulation and Consent Order Authorizing Creditors Committee to Use Cash
Collateral to Investigate and Prosecute the Adversary Proceeding Filed by the
Committee on Behalf of the Debtors with Respect to the Existence of the 9 1/4
Debentureholders Alleged Lien on the Debtors' Assets, Confirming the Entitlement
of the Informal Committee and of the Indenture Trustee to Receive Without Risk
of Disgorgement Fees and Expenses, and Certain Other Matters (Docket No. 1088)
shall no longer apply, and the Confirmation Order shall provide for the
Reorganizing Debtors to pay all then unpaid fees and expenses incurred by
counsel for the Creditors Committee in prosecuting the 9.25% Debentures
Adversary Proceeding, subject only to approval of such fees and expenses by
order of the Court as part of its review of fees and expenses for all Retained
Professionals in these Chapter 11 Cases.
14. 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 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 Reorganization 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.
15. Release of Funds from Disputed Claims Reserve
If at any time or from time to time after the Reorganization
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' 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 the
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 the Reorganization Plan.
16. 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 Reorganization Effective Date. Subject to the Court
determination that any such Claim is Allowed, the Reorganized 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 or, on and after the Reorganization Effective Date, the Reorganized
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 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, Reorganized 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, Reorganized
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 that is incurred and payable by the Reorganizing
Debtors or Reorganized Debtors in the ordinary course of business.
(b) DIP Financing Facility Claims
On the Reorganization 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 DIP Order 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 steps 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.
I. Distributions and Disputed Claims under the Heber Reorganization Plan
1. Time of Distributions
Except as otherwise provided under the Heber Reorganization Plan or
ordered by the Court, Distributions under the Heber Reorganization Plan will be
made on the Distribution Date.
2. Manner of Payment Under Heber Reorganization Plan
All Distributions of Cash to the holders of Allowed Claims against each
of the Heber Debtors under the Heber Reorganization Plan will be made as
provided in the Heber Reorganization Plan and will be accounted for and adjusted
between the parties to the Heber Purchase Agreement as and to the extent
contemplated in accordance with the applicable terms of the Working Capital
Adjustment. Any Cash payments may be accomplished by a check or wire transfer or
as otherwise required or provided in applicable agreements.
3. Inquiries Concerning Distributions
Following the Heber Effective Date, requests for payment of
Distributions, or inquiries with respect thereto, shall be directed in the first
instance to the Reorganized Heber Debtors. The Reorganized Heber Debtors shall
promptly inform Covanta of any such requests or inquiries that relate to
payments for which Covanta may be responsible.
4. Surrender of Securities or Instruments
As a condition to receiving any Distribution under the Heber
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 applicable Reorganized Heber Debtor or its designee at least ten (10)
Business Days prior to the Heber Effective Date, unless such certificated
instrument or note is being reinstated or being left unimpaired under the Heber
Reorganization Plan. Any entity that is so required to surrender 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
applicable Reorganized Heber Debtor or furnish a bond in form, substance and
amount reasonably satisfactory to the applicable Reorganized Heber Debtor before
the first anniversary of the Heber Effective Date, shall be deemed to have
forfeited all rights and Claims and may not participate in any Distribution
under the Heber Reorganization Plan in respect of such Claim. Any other holder
of an Allowed Claim who fails to take such action as reasonably required by the
Reorganized Heber Debtor or its designee to receive its Distribution under the
Heber Reorganization Plan before the first anniversary of the Heber Effective
Date, or such earlier time as otherwise provided for in the Heber Reorganization
Plan, may not participate in any Distribution under the Heber Reorganization
Plan in respect of such Claim. Any Distribution forfeited under the Heber
Reorganization Plan shall become property of the Reorganized Heber Debtors. Upon
the Heber Effective Date, the GECC Liens with respect to the Equity Interests in
SIGC One Sub, SIGC Two Sub, Amor and SIGC Project Company, shall be deemed
transferred to the membership interests in such entities without further
corporate action, in accordance with the terms of the Heber Purchase Agreement.
5. Delivery of Distributions
Distributions to holders of Allowed Claims shall be made at the
Distribution 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 Heber Debtor is notified of such holder's then current
address, at which time all missed Distributions shall be made to such holder
without interest 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 be used to satisfy the costs of administering and fully
consummating the Heber Reorganization Plan or become property of the applicable
Reorganized Heber Debtor, and the holder of any such Claim shall not be entitled
to any other or further distribution under the Heber Reorganization Plan on
account of such Claim.
6. No Distribution Pending Allowance
Notwithstanding any other provision of the Heber Reorganization Plan,
no Cash shall be distributed under the Heber 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.
7. Resolution of Disputed Claims and Equity Interests
Unless otherwise ordered by the Court after notice and a hearing, the
Heber Debtors, the Reorganized Heber Debtors and Covanta 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 Heber Effective Date;
provided, however, that such one hundred and twenty (120) day period may be
automatically extended by the Reorganized 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
the Heber Reorganization Plan. Notwithstanding any authority to the contrary, an
objection to a Claim shall be deemed properly served on the holder thereof if
service is effected on the holder thereof 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 Heber Debtors
and Proposed Buyers on or before the Administrative Expense Claim Bar Date. The
Heber Debtors, Reorganized Heber Debtors, Covanta or the United States Trustee
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 Heber Effective Date. In the event that any such
claim objection is filed, the Court shall determine the Allowed amount of any
such Administrative Expense Claim.
8. Estimation of Certain Claims
The Heber Debtors, Reorganized Heber Debtors or Covanta 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 such
requester has 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 Heber Debtors, Reorganized Heber Debtors
or Covanta, as the case may be, 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
necessarily exclusive of one another.
9. Reserve Account for Disputed Claims
Following the Heber Effective Date, Covanta shall hold in one or more
Disputed Claims Reserves, for each Class in which there are any Disputed Claims,
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 pro rata
under the Heber Reorganization 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 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.
10. Allowance of Disputed Claims
With respect to any Disputed Claim that is subsequently deemed Allowed,
on the Distribution Date for any such Claim, Covanta 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 that such
holder would have been entitled to recover pro rata under the Heber
Reorganization Plan if such Claim had been an Allowed Claim on the Heber
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.
11. Release of Funds from Disputed Claims Reserve
If at any time or from time to time after the Effective Date, there
shall be Cash in a Disputed Claims Reserve account in an amount in excess of the
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 the Heber Reorganization Plan, such excess funds, and the Pro Rata
Class Share of net interest in respect thereof, shall become property of
Covanta.
J. 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 Liquidation 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 Liquidation 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 $3,000,000 shall remain in the
accounts of the Liquidating Debtors, and shall be transferred to the Operating
Reserve and the Administrative Expense Claims 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 J.3 below.
2. Time of Distributions
Except as otherwise provided for in the Liquidation Plan, by the
Secured Creditor Direction 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 Priority Tax Claims and Priority Non-Tax
Claims from the Operating Reserve and as to Administrative Expense Claims from
the Administrative Expense Claims Reserve or (ii) any subsequent Liquidation
Distribution Date. The Initial Liquidation Distribution Date shall occur on the
later of the Liquidation Effective Date (or as 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 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. In the event that any payment or
act under the Liquidation Plan is required to be made or performed on a date
that is not a Business Day, then the making of such payment or the performance
of such act may be completed on the next succeeding Business Day, but shall be
deemed to have been completed as of the initial due date.
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, which were not otherwise transferred pursuant 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 Liquidation Effective Date) and
counsel for the Liquidating Trustee (if after the Liquidation 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 Liquidation 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.
K. Treatment of Executory Contracts and Unexpired Leases; Bar Date for
Rejection Damage Claims
1. General Treatment
(a) Reorganizing Debtors: For the Rejecting Debtors, on the
Reorganization 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, filed as Exhibit 9.1A(s) of the
Reorganization Plan, as may be amended, 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 at or prior to the Plans Confirmation Hearing. The
Rejecting Debtors expressly reserve the right to add or remove executory
contracts and unexpired leases to or from the Rejecting Debtors' Schedule of
Assumed Contracts and Leases at any time prior to the Reorganization Effective
Date. The listing of a document on the Rejecting Debtors' Schedule of Assumed
Contracts and Leases shall not constitute an admission that such document is an
executory contract or unexpired lease or that the Reorganizing Debtors have any
liability thereunder.
For the Assuming Debtors, on the Reorganization 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, filed as Exhibit 9.1B(s) of the Reorganization Plan, as may be
amended, 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 at or prior
to the Plans Confirmation Hearing. The Assuming Debtors expressly reserve the
right to add or remove executory contracts and unexpired leases to or from the
Assuming Debtors' Schedule of Rejected Contracts and Leases at any time prior to
the Reorganization Effective Date. The listing of a document on the Assuming
Debtors' Schedule of Assumed Contracts and Leases shall not constitute an
admission that such document is an executory contract or unexpired lease or that
the Reorganizing Debtors have any liability thereunder.
Each executory contract and unexpired lease listed or to be
listed on 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 that such document is an executory contract or unexpired
lease or that the Reorganizing Debtors have any liability thereunder.
(b) Heber Debtors: For the Heber Debtors, upon the Heber
Effective Date, all Heber Debtor Contracts, including the Heber Debtor Contracts
identified on Exhibit B attached thereto and the mineral rights leases and
related agreements identified on Exhibit C attached thereto, shall be deemed
assumed by the Heber Debtor that is a party to such Heber Debtor Contract;
except for any contract or lease that (a) has been previously assumed or
rejected pursuant to a Final Order of the Court, (b) is specifically designated
as a contract or lease on the Heber Debtors' Schedule of Rejected Contracts and
Leases, or (c) is the subject of a separate motion to assume or reject filed
under section 365 of the Bankruptcy Code by one of the Heber Debtors at or prior
to the Heber Confirmation Hearing. Any affiliate of a Heber Debtor that is a
party to a Heber Debtor Contract shall assign its rights and obligations under
such Heber Debtor Contract to Buyers at Closing, provided that such Heber Debtor
Contract is assumed pursuant to the Heber Reorganization Plan. The Heber Debtors
may amend Exhibits B and C to add or delete any contract or lease at or prior to
the Heber Confirmation Hearing. Additionally, upon the Heber Effective Date, the
Heber Debtor Contracts identified on Exhibit F thereto, which previously have
been assumed by Final Order of the Court, shall be transferred through the
transfer of Equity Interests in the Heber Debtors to the applicable Proposed
Buyers pursuant the terms of the Heber Purchase Agreement.
Certain of the Debtor Sellers and certain of the Debtor
Operators are also parties, along with the Heber Debtors, to certain of the
Heber Debtor Contracts or parties to various other contracts relating to the
Geothermal Business. Such Additional Contracts are identified on Exhibit D
attached to the Heber Reorganization Plan. In accordance with section 365(f) of
the Bankruptcy Code, upon the Heber Effective Date, the Additional Contracts
shall be assumed and assigned to the Proposed Buyers pursuant to the terms of
the Heber Purchase Agreement or a Heber Alternative Transaction. In addition,
upon the Heber Effective Date, the Debtor Operators shall assign to the Proposed
Buyers the O&M Contracts identified on Exhibit E. The listing of a document on
Exhibits D and E thereto shall not constitute an admission that such document is
an executory contract or unexpired lease or that the Heber Debtors have any
liability thereunder. The Heber Debtors may amend Exhibits D and E to add or
delete any contract or lease at or prior to the Heber Confirmation Hearing.
(c) Liquidating Debtors: For Liquidating Debtors, on the
Liquidation 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 a contract or lease on the
Schedule of Assumed Contracts and Leases, filed as Exhibit 5 of the Liquidation
Plan, as may be amended; (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. On the Effective 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 Reorganization Effective Date.
The Liquidating Debtors reserve the right to add or remove executory contracts
and unexpired leases to or from the Schedule of Assumed Contracts and Leases at
any time prior to the Liquidation Effective Date.
2. Cure of Defaults
(a) Reorganizing and Liquidating Debtors: 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 applicable 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. Any party failing to object to the proposed cure amount fifteen (15)
days following service of the proposed cure amount by the Debtors shall be
forever barred from asserting, collecting, or seeking to collect any amounts in
excess of the proposed cure amount against the Reorganizing Debtors or
Reorganized Debtors. 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.
(b) Heber Debtors: Exhibits B, C, D and E of the Heber
Reorganization Plan, set forth the Cure Amounts necessary to cure any and all
defaults existing under each of the contracts identified thereto pursuant to
section 365(b) of the Bankruptcy Code, as determined by the Heber Debtors and
the Debtors, based upon a review of their books and records and the relevant
documents. The Cure Amounts shall be final and binding on the parties identified
on Exhibits B, C, D and E thereto (or their successors and assigns) and shall
not be subject to further dispute or audit based on performance prior to the
time of assumption, irrespective of whether such assumed executory contract or
unexpired lease contains an audit clause; provided, however, that the terms of
the HFC Royalty Settlement Order shall control the Cure Amounts owed to parties
to the HFC Royalty Settlement, including Cure Amounts fixed in additional
settlement agreements contemplated and authorized by such Order. The holders of
Heber Royalty Settled Claims shall be entitled to receive both the Cure Amounts
and the HFC Royalty Settlement Payments.
Any objection to (i) assumption, assignment or rejection of
the contracts or leases pursuant to the Heber Reorganization Plan or (ii) Cure
Amounts must be in writing, shall state with particularity the reasons for the
objection or response, and shall be filed with the Court and served upon
co-counsel to the Debtors on or before seven (7) days prior to the Heber
Confirmation Hearing. Only those objections that have been timely filed and
served will be considered by the Court at the Heber Confirmation Hearing.
Objections to Cure Amounts must state with specificity the Cure Amount the
objecting party believes is required and provide appropriate documentation in
support thereof. If no objection to a particular Cure Amount is timely received,
the Cure Amount set forth on Exhibits B, C, D, and E shall be controlling
notwithstanding anything to the contrary in any such contract or lease, and the
counterparty thereto shall be forever barred from asserting any other claim
arising prior to the assumption or assumption and assignment against the
Debtors, the Heber Debtors, the Reorganized Heber Debtors or the Buyer as to
such Cure Amounts; provided, however, that the terms of the HFC Royalty
Settlement Order shall control the Cure Amounts owed to parties to the HFC
Royalty Settlement, including Cure Amounts fixed in additional settlement
agreements contemplated and authorized by such Order. In the event of a dispute
regarding any Cure Amount or the ability of the Heber Debtor or other Debtors to
assume and/or assign a particular contract or lease, including providing
adequate assurance of future performance, the applicable Debtor may determine to
reject such contract or lease and otherwise will provide for payments required
by section 365(b)(1) of the Bankruptcy Code only after the entry of a Final
Order resolving such dispute
3. Approval of Assumption of Certain Executory Contracts
(a) Reorganizing and Liquidating Debtors: Subject to
Sections 9.1 and 9.2 of the Reorganization Plan and Sections 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 shall be
assumed by and, as applicable, assigned to the relevant Reorganizing or
Liquidating Debtors as of the applicable Effective Date. Except as may otherwise
be ordered by the Court, the Reorganizing Debtors and Liquidating Debtors shall
have the right to cause any assumed executory contract or unexpired lease to
vest in the Reorganized Debtor designated for such purpose by the Reorganizing
Debtors and Liquidating Debtors.
(b) Heber Debtors: Subject to Sections 9.1, 9.2 and 9.3 of
the Heber Reorganization Plan, the executory contracts and unexpired leases of
the Heber Debtors listed on Exhibits B, C, D and E thereto shall be assumed by
the Heber Debtors and, as applicable, assigned to the relevant Buyer as of the
Heber Effective Date. Except as may otherwise be ordered by the Court, the Heber
Debtors shall have the right to cause any assumed executory contract or
unexpired lease to vest in the Reorganized Heber Debtor designated for such
purpose by the 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
(a) Reorganizing Debtors and Liquidating Debtors: 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.
(b) Heber Debtors: Claims arising out of the rejection of an
executory contract or unexpired lease pursuant to Section 9.1 of the Heber
Reorganization Plan must be filed with the Court no later than the later of (i)
fifteen (15) days after the Heber Effective Date, and (ii) fifteen (15) days
after 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 Debtors, the Heber Debtors or the Reorganized Heber Debtors.
6. Deemed Consents of Debtors' Executory Contracts, Unexpired Leases,
Licenses or Permits
Unless a counterparty to an executory contract, unexpired lease,
license or permit objects to the applicable Debtor's assumption thereof in
writing on or before seven (7) days prior to the applicable Confirmation
Hearing, then, unless such executory contract, unexpired lease, license or
permit has been rejected by the applicable Debtor or will be rejected by
operation of the Reorganization Plan, the Heber Reorganization Plan, or the
Liquidation Plan, the Reorganized Debtors, the Reorganized Heber Debtors and
Reorganized Covanta (as assignee of all executory contracts and unexpired leases
assumed by the Liquidating Debtors), shall enjoy all the rights and benefits
under each such executory contract, unexpired lease, license and permit without
the necessity of obtaining such counterparty's written consent to assumption or
retention of such rights and benefits
7. Reorganizing and Liquidating Debtors' Reservation of Rights Under
Insurance Policies and Bonds
The enforceability by beneficiaries of (i) any insurance policies that
may cover Claims against any Reorganizing or Liquidating Debtor, or (ii) any
bonds issued to assure the performance of any such 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.
8. Survival of Reorganizing and Liquidating Debtors' Corporate Indemnities
Any obligations of any of the Reorganizing or Liquidating Debtors
pursuant to the applicable Debtor's corporate charters and bylaws or agreements
entered into any time prior to the applicable 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 applicable Plan. Such obligations shall be deemed and
treated as executory contracts to be assumed by the applicable Debtor pursuant
to the applicable Plan, 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.
L. Effect of Confirmation
1. Revesting of Reorganization Assets
Upon the applicable 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 free and clear of all Claims,
Liens, encumbrances, charges and other interests, and all property of each Heber
Debtor's Estate shall vest in the applicable Reorganized Heber Debtor, free and
clear of all Claims, Liens, encumbrances, charges and other interests, except
with respect to the GECC Liens or Permitted Encumbrances (each as defined in the
Heber Reorganization Plan) to the extent provided in the relevant Plan and 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 or Heber Reorganization Plan.
2. Discharge under the Plans
(a) Discharge under the Reorganization Plan. Upon the
Reorganization Effective Date and in consideration of the distributions to be
made under the Reorganization Plan, except as otherwise expressly provided in
the Reorganization Plan or in the Confirmation Order, 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, 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' or Reorganized 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 Reorganization 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.
(b) Discharge under the Heber Reorganization Plan. Upon the Heber
Effective Date and in consideration of the distributions to be made under the
Heber Reorganization Plan, except as otherwise expressly provided in the Heber
Reorganization Plan or in the Confirmation Order, each holder (as well as any
trustees and agents on behalf of each holder) of a Claim shall be deemed to have
forever waived, released and discharged each of the Heber Debtors, to the
fullest extent permitted by section 1141 of the Bankruptcy Code, of and from any
and all Claims, rights and liabilities (other than the right to enforce the
Heber Debtors' or Reorganized Heber Debtors' obligations under the Heber
Reorganization Plan or under the Heber Reorganization 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 Heber Confirmation Date.
Upon the Heber 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 each of the Heber Debtors and
Reorganized Heber Debtors, and any of their assets, properties, successors in
interest, affiliates or assigns
(c) 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, Heber 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 Reorganization
Effective Date, the Reorganizing 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 present or former officers, directors,
employees, partners, members, advisors, attorneys, financial advisors,
accountants, investment bankers and other professionals, and the Creditors
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 Reorganization Effective Date in any way relating to the Reorganizing
Debtors, the Heber Debtors, the Liquidating Debtors, the Chapter 11 Cases, the
Reorganization Plan, the Heber Reorganization Plan or the Liquidation Plan.
The Debtors have been informed by counsel to the Creditors Committee
that the Creditors Committee might object at the Plans Confirmation Hearing to
the above-stated release provision as improperly broad to the extent that it
releases certain third parties, including the Debtors' officers and directors,
from any claims, including prepetition claims under U.S. securities laws, in
connection with the Debtors. The Debtors believe that this release provision is
appropriate and in compliance with all relevant provisions of the Bankruptcy
Code, as they expect to demonstrate at the Plans Confirmation Hearing.
(b) Releases under the Heber Reorganization Plan. As of the Heber
Effective Date, the Heber 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 any and all of the (i) Debtors, (ii) the Debtors' present or former
officers, directors, employees, partners, members, advisors, attorneys,
financial advisors, accountants, investment bankers and other professionals,
(iii) the DIP Lenders and the DIP Agents and (iv) the Creditors 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 Heber Effective Date in any way relating to the Reorganizing Debtors, the
Liquidating Debtors, the Heber Debtors, the Heber Debtors' Chapter 11 Cases, the
Reorganization Plan, the Liquidation Plan or the Heber Reorganization Plan.
(c) Releases under the Liquidation Plan. On the Liquidation
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 Liquidation Effective Date in
any way relating to the Reorganizing Debtors, the Heber Debtors, the Liquidating
Debtors, the Chapter 11 Cases, or the Reorganization Plan, the Heber
Reorganization Plan or the Liquidation Plan.
4. Exculpation
As more fully described in the Plans, as of the applicable Effective
Date, none of (i) the Liquidating Debtors, Reorganizing Debtors, Heber Debtors,
Reorganized Debtors or Heber 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
Equity 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 of,
the Chapter 11 Cases; formulating, negotiating or implementing the Plans;
formulating, negotiating or implementing the Geothermal Sale; 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 Reorganization Effective Date and
except as otherwise provided therein or in the Confirmation Order, all persons
who have held, hold, or may hold Claims against or Equity Interests in the
Reorganizing Debtors, Heber Debtors or Liquidating 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 Reorganization 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,
Reorganized Debtors, or Person entitled to exculpation under Section 11.7 of the
Reorganization Plan, (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 or Reorganized Debtors, (iii) creating, perfecting, or
enforcing any encumbrance of any kind against any such Reorganizing Debtor or
Reorganized 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 or Reorganized Debtor or against the
property or interests in property of any such Reorganizing Debtor or Reorganized
Debtor on account of any such Claim or Equity Interest, (v) commencing or
continuing any action against the Reorganized Debtors in any manner or forum in
respect of such Claim or Equity Interest that does not comply or is inconsistent
with the Reorganization Plan, and (vi) taking any actions to interfere with the
implementation or consummation of the Reorganization Plan; provided that nothing
herein 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 or any Person entitled to exculpation under Section 11.7
of the Reorganization Plan have any liability or obligation for any Claim
against or Equity Interest in any of the Reorganizing Debtors arising prior to
the Reorganization 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 Reorganization
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 or any Person entitled to
exculpation under Section 11.7 of the Reorganization Plan on account of or in
respect of any of the Reorganizing 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 this Section 11.9 of the Reorganization Plan.
(b) Injunction under the Heber Reorganization Plan. Section 11.8
of the Heber Reorganization Plan provides that upon the Heber Effective Date
with respect to the Heber Reorganization Plan and except as otherwise provided
therein or in the Confirmation Order, all persons who have held, hold, or may
hold Claims against or Equity Interests in the 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 Heber 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 Heber Debtor, Reorganized Heber
Debtors, Person entitled to exculpation under the Heber Reorganization Plan or
any of their assets, properties, successors in interest, affiliates or assigns,
(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 Heber Debtor or
Reorganized Heber Debtors or any of their assets, properties, successors in
interest, affiliates or assigns, (iii) creating, perfecting, or enforcing any
encumbrance of any kind against any Heber Debtor or Reorganized Heber Debtors or
any of their assets, properties, successors in interest, affiliates or assigns
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 Heber Debtor or Reorganized Heber Debtors or any of their successor
in interests, affiliates or assigns or against the property or interests in
property of any such Heber Debtor or Reorganized Heber Debtor on account of any
such Claim or Equity Interest, (v) commencing or continuing any action against
the Reorganized Heber Debtors or any of their assets, properties, successors in
interest, affiliates or assigns in any manner or forum in respect of such Claim
or Equity Interest that does not comply or is inconsistent with the Heber
Reorganization Plan, and (vi) taking any actions to interfere with the
implementation or consummation of this Heber Reorganization Plan; provided that
nothing therein 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 Heber Debtors, their assets, properties, successors in interest,
affiliates or assigns have any liability or obligation for any Claim against or
Equity Interest in any of the Heber Debtors arising prior to the Heber Effective
Date, other than in accordance with the provisions of the Heber Reorganization
Plan. In addition, except as otherwise provided in the Heber Reorganization Plan
or the Confirmation Order, on and after the Heber Effective Date, any
individual, firm, corporation, limited liability company, partnership, company,
trust or other entity, including any successor of such entity, will be
permanently enjoined from commencing or continuing in any manner, any litigation
against the Reorganized Heber Debtors or any of their assets, properties,
successors in interest, affiliates or assigns on account of or in respect of any
of the Heber Debtors' prepetition liabilities or other liabilities satisfied
pursuant to the Heber Reorganization Plan. By accepting Distributions pursuant
to the Heber Reorganization Plan, each holder of an Allowed Claim or Allowed
Equity Interest receiving Distributions pursuant to the Heber Reorganization
Plan will be deemed to have specifically consented to the injunctions set forth
therein.
6. Reorganized Debtors' Rights of Action
On and after the Reorganization Effective Date, and except as may
otherwise be agreed to by the Reorganizing Debtors or as provided in the
Reorganization Plan, 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 Reorganizing 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. The
Reorganized 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 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 Reorganizing Debtors arising before the applicable
Petition Date shall first be offset against Claims against any of the
Reorganized Debtors arising before the applicable Petition Date.
M. 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 Paragraph 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 Paragraph VII.I.5(b) of the Liquidation Plan 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 or Heber Debtor may, in accordance with the
provisions of the Reorganization Plan, the Heber 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 or the Heber 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
or Heber 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 or Heber Debtor may possess against such holder;
and provided, further that any Claims of each Reorganizing Debtor or Heber
Debtor arising before the applicable Petition Date shall only be set off against
Claims against such Reorganizing Debtor or Heber Debtor arising before the
applicable Petition Date.
4. Satisfaction of Subordination Rights under the Reorganization Plan
All Claims against the Reorganizing Debtors and all rights and claims
between or among Claimholders relating in any manner whatsoever to distributions
on account of Claims against the Reorganizing 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 Reorganization 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
Reorganization Plan.
5. Dissolution of the Creditors Committee
As of the Reorganization Effective Date, the Creditors 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 Creditors Committee's attorneys, accountants, and other
agents, shall terminate.
6. Management of the Reorganized Debtors
The identity of each of the nominees to serve on the Board of Directors
of Reorganized Covanta shall be announced fifteen (15) days prior to the
applicable Confirmation Hearing. In accordance with section 1129(a)(5) of the
Bankruptcy Code, as part of such announcement, the Reorganizing Debtors shall
disclose (i) the identity and affiliations of any individual proposed to serve,
after the Reorganization Effective Date, as a director or officer of the
Reorganized Debtors, and (ii) the identity of any "insider" (as such term is
defined in section 101(31) of the Bankruptcy Code) who shall be employed and
retained by the Reorganized Debtors and the nature of any compensation for such
insider. Subject to the preceding sentence, the officers of the Reorganizing
Debtors and the directors of the Reorganizing Debtors other than Covanta that
are in office immediately before the Reorganization Effective Date shall
continue to serve immediately after the Reorganization Effective Date in their
respective capacities.
7. Payment of Statutory Fees
All fees payable pursuant to section 1930 of title 28 of the United
States Code shall be paid through the entry of a final decree closing these
cases.
As provided in the Plans, unless relieved of any of these obligations
by further order of the Court, the Reorganized Debtors, Covanta (as defined in
the Heber Reorganization Plan) or the Liquidating Trustee (as defined in the
Liquidation Plan), as applicable, shall be responsible for the timely payment of
fees incurred pursuant to 28 U.S.C. ss. 1930(a)(6), and after the applicable
Confirmation Date, such entities shall file with the Court and serve on the
United States Trustee a quarterly disbursement report for each quarter, or
portion thereof, until a final decree closing the chapter 11 cases has been
entered, or the cases dismissed or converted to another chapter, in a format
prescribed by and provided by the United States Trustee.
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 applicable 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 their 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. Although the
Court has determined that the Disclosure Statement and the balloting procedures
are 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 Exhibit H 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 Exhibits D, E and F to this Disclosure
Statement cover Reorganized Covanta, its Reorganized Debtor 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 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' operations. These
variations may be material and may adversely affect the ability of the
Reorganized Debtors to make payments with respect to post-Reorganization
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 Business
In order to fund the cost of emerging from Chapter 11 protection, the
Debtors have determined to pursue a sale of the Geothermal Business pursuant to
the Heber Sale Motion or the Heber Reorganization Plan, in accordance with the
Court-approved competitive bidding and auction procedures. The Geothermal Sale
is an integral part of the Reorganization Plan and the Heber Reorganization Plan
and the Reorganizing Debtors' and the Heber Debtors' successful emergence from
Chapter 11 protection. Failure to sell the Geothermal Business 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 Business is valuable and attractive, and anticipate that they will
successfully complete the Geothermal Sale. Nevertheless, there can be no
assurance that the Debtors will successfully sell the Geothermal Business, which
might prevent consummation of the Reorganization Plan and the Heber
Reorganization Plan.
E. WTE Projects Restructuring and Litigation
As discussed in Section VI.C.10 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 has obtained court approval of
the proposed restructurings. In addition, and as discussed in Section VI.C.14
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 Reorganization Plan
and obtain sufficient Cash resources for post-Reorganization 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
The Debtors' estimates of what distributions certain Classes of
creditors will receive under the Plans, and under the Reorganization Plan in
particular, depend on numerous assumptions concerning the ultimate amount of
Allowed Claims in certain Classes. Similarly, the value of the securities being
issued under the Plans depends in significant part upon the amount of Cash
available to the Reorganized Debtors upon emergence and thereafter, which in
turn depends in significant part upon the amount of Cash required to satisfy
certain types of Claims.
There can be no assurance that the estimated Claim amounts set forth
herein and in the exhibits hereto are correct, and the actual Allowed amounts of
Claims probably will differ from the estimates. Moreover, the estimated amounts
are subject to numerous risks, uncertainties and assumptions. Should several of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, the actual Allowed amounts of Claims may materially vary from those
estimated herein.
Although all of the Debtors' estimates of Allowed Claims are
susceptible to risk and uncertainty, two types of Claims are particularly
susceptible to risk and uncertainty, and any allowance of Claims in those
Classes in amounts materially in excess of the Debtors' estimates would have a
significant negative impact on the distributions received by certain Classes of
creditors, and also may have a significant negative impact on the value of the
securities being issued under the Plans. Those two types of Claims are (i)
Allowed Priority Tax Claims, and (ii) Allowed Class 6 Parent and Holding Company
Unsecured Claims.
(i) Priority Tax Claims
The Debtors are estimating that the amount of Priority Tax Claims
(which, as contemplated in the Bankruptcy Code, are not separately classified
under the Plans) will be in the aggregate no more than $35 million. The bulk of
that amount is attributable to Claims asserted by the IRS. Although the Debtors
believe that their estimates of Priority Tax Claims are conservative and that
Priority Tax Claims ultimately will be allowed at the lower end of the Debtors'
estimates, there can be no assurance that the IRS Claims will not be allowed in
amounts materially greater than the Debtors' estimates. In particular, certain
of the Debtors' older tax returns have been the subject of an IRS review and
audit for more than a decade, and the likely outcome of that review and audit
process cannot be determined with a high degree of precision. In addition, the
time for the IRS to review and audit certain more recent returns has not
expired. Finally, if one or more of the Reorganizing Debtors is unable to
successfully reorganize and the Debtors cease to operate certain Projects, the
Debtors may suffer significant adverse tax consequences. Any one these factors
could lead to the allowance of Priority Tax Claims in amounts materially
exceeding the Debtors' estimates.
(ii) Class 6 Allowed Parent and Holding Company Unsecured Claims
The Debtors are estimating that the amount of Class 6 Unsecured Claims
will range in the aggregate from $125 million to $500 million. Material Claims
within this Class of Claims that the Debtors believe may be Allowed include: (a)
general unsecured and uncontested trade claims of at least $15 - $20 million;
(b) the Claims of holders of Convertible Subordinated Debentures (estimated at
$155 million), if those Claims are not subordinated; (c) Claims relating to the
Debtors' rejection of their obligations related to their Tulsa Facility
(estimated at $50 million); (d) the deficiency claims of the lenders under the
Master Credit Facility and the holders of 9.25% Debentures, to the extent not
waived pursuant to the Plans or by agreement; and (e) indemnity and
reimbursement claims asserted against the Debtors by entities that pre-petition
issued insurance policies and bonds for the benefit of the Debtors and current
or former affiliates (estimated at $40 million). In addition, several hundred
million dollars in tort and other litigation Claims have been asserted by the
holders of Parent and Holding Company Unsecured Claims; although the Debtors
contest liability for these Claims and believe them to be without merit, as with
any litigation Claims there is likelihood that some of these Claims will be
allowed in material amounts. Finally, the Debtors' estimates assume a successful
restructuring of most of the Debtors' projects that are subject to material
disputes or pending restructuring proposals. Although the Debtors believe that
their estimates of Class 6 Claims are conservative and that Class 6 Claims
ultimately will be allowed at the lower end of the Debtors' estimates, there can
be no assurance that Class 6 Claims will not be Allowed at the higher end of the
Debtors' estimates, or even allowed in amounts materially greater than the high
end of the Debtors' estimates.
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 New High Yield
Secured Notes, Reorganization Plan Unsecured Notes, Tax Notes, Reorganization
Plan Warrants, New CPIH Funded Debt 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 that 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 Qualification; 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, would incur significant amounts of
unanticipated tax liabilities and would not have the financial capability to
satisfy such tax liabilities and its outstanding debt 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's 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 a
course of action 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.
3. Predecessor Plans
Generally, the IRC requires that qualified plans credit participants
with "vesting service" for the periods during which such participants are
employed by the qualified plan sponsor or any member of its controlled group.
However, vesting credit need not be given for service rendered by a plan
participant prior to the adoption of the plan or a "predecessor plan." A
"predecessor plan" of the ESOP would generally be any tax-qualified plan
terminated within five (5) years prior to, or after, the date the ESOP is
established and in which an ESOP participant also participated. The Company does
not believe that it has or will have any plan that would be deemed a predecessor
plan of the ESOP for "vesting service" purposes with the result that the ESOP
will only be required to recognize service rendered by participants since the
ESOP's adoption. However, if the IRS were to take a different position or if
certain qualified plans sponsored by the Debtors were to be terminated within
the five (5) year period immediately following the Reorganization Effective
Date, the predecessor plan rules and regulations might apply so that ESOP would
be required to recognize for vesting purposes service rendered by participants
prior to the adoption of the ESOP. Such recognition could result in accelerated
vesting and required distributions to participants of account balances up to
five (5) years sooner than currently contemplated by the Reorganization Plan.
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 Creditors 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 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 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.
C. Subsequent Transfers of Reorganization Plan Warrants
The Reorganization Plan Warrants will be subject to restrictions on
transferability. See Section X.A.3(b) for further discussion.
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 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 IRC, 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
1. Taxation of Reorganized Covanta as an S corporation
Upon implementation of the Reorganization Plan, on the Reorganization
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 Reorganization 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. It is expected that Covanta will
have a substantial amount of net unrealized built-in gain as of such date. 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" below. Reorganized Covanta would 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 any of 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 is not 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 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, and 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 Covanta 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 presumably should not be considered in assessing
the classification of the Covanta Notes. Nonetheless, there can be no assurance
that this position 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, on a net basis, in cash, as well as in stock, will be treated as a
call option subject to these rules.
If the special rules under the Treasury Regulations are applicable to
the Reorganization Plan Warrants, the Reorganization Plan Warrants should not be
considered to constitute a second class of stock. Under these special 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. It is also
expected that, to the extent the Reorganization Plan Warrants are transferable
or, at the election of a Holder, are held by a designated entity, the terms and
arrangements will be structured in a way that is intended not to cause a new
testing date to occur. While there can be no assurance that the IRS would agree
with this position, it would appear that if the special rules under the Treasury
regulations were applicable to the Reorganization Plan Warrants, the
Reorganization Plan Warrants should not be considered a second class of stock.
Alternatively, if the Reorganization Plan Warrants are 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 a more
conventional call option, which provides the holder with an unrestricted right
to acquire stock of the company upon exercise, 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 United States federal income tax purposes.
While it is anticipated that such liquidations will generally be done on a
tax-free basis, in certain cases the S corporation and Qsub elections will give
rise to the recognition of taxable gain that may give rise to federal income tax
liability and, at least in one instance, cause a tax liability to be incurred
for state corporate income taxes. 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
IRC, 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
The following is a summary of the principal United States federal
income tax consequences of the Reorganization Plan that may be relevant to a
beneficial holder of an Allowed Claim that is a citizen or resident of the
United States or a domestic corporation or otherwise subject to United States
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 United
States 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 Reorganized CPIH Preferred Stock, CPIH Participation
Interests or the Reorganization Plan Notes issued pursuant to the Reorganization
Plan and does not address the United States federal income tax treatment of
Holders that acquire such instruments subsequent to the Reorganization Effective
Date. This discussion generally assumes that the Reorganization Plan Warrants,
the Reorganized CPIH Preferred Stock, the CPIH Participation Interests and the
Reorganization Plan Notes will be held as "capital assets" within the meaning of
Section 1221 of the IRC.
For United States 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
Allowed Claims, the Reorganization Plan Warrants, the Reorganized CPIH Preferred
Stock, and the Reorganization Plan Notes constitute "securities in a corporation
a party to a reorganization" for the purposes of IRC Section 354 ("Section 354
Securities").
The rules for determining whether an obligation constitutes a
"security" for purposes of IRC Section 354 are unclear. The term security is not
defined in the IRC 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 IRC 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 IRC 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.
While it would appear that the Allowed Secured 9.25% Debenture Claims,
with an initial term of thirty (30) years, are Section 354 Securities and that
the Reorganization Plan Warrants received in exchange for Allowed Claims are not
Section 354 Securities, the status of the New High Yield Secured Notes, with an
initial term of seven (7) years, as Section 354 Securities is unclear. Each
Holder is urged to consult its tax advisor regarding the status the New High
Yield Secured Notes as a Section 354 Securities.
1. Consequences to Holders of Allowed Claims (other than Holders of Allowed
Secured 9.25% Debenture Claims who treat the New High Yield Secured Notes as
Section 354 Securities)
The exchange of Allowed Claims for some combination of Cash,
Reorganization Plan Notes, New CPIH Funded Debt, Reorganized CPIH Preferred
Stock, CPIH Participation Interests and Reorganization Plan Warrants will be a
fully taxable transaction.
The tax consequences of that 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 Allowed Claim constitutes a claim for
principal or interest, (ii) the origin of the Allowed Claim, (iii) the type of
consideration received in exchange for the Allowed 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 Allowed Claim. However, as a general matter, Holders of 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 Allowed
Claims tendered upon the consummation of the Plan. Any such gain or loss should
constitute ordinary income or loss unless such Allowed Claim is a capital asset.
If the 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 (except with
respect to amounts attributable to market discount and amounts received
attributable to accrued but unpaid interest, which will constitute ordinary
income).
A Holder's adjusted tax basis in an Allowed Claim generally will equal
the amount paid for such 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 Allowed Claim. The amount realized in the exchange will be the fair
market value of the Reorganized CPIH Preferred Stock, Reorganization Plan
Warrants, CPIH Participation Interests and New CPIH Funded Debt received plus
the issue price of the Covanta Notes received (determined as described below
under "Holding and Disposing of Reorganized CPIH Preferred Stock, Reorganization
Plan Warrants, CPIH Participation Interests 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 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
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 Reorganized CPIH Preferred Stock,
Reorganization Plan Warrant, CPIH Participation Interest or New CPIH Funded Debt
will be the fair market value of such instrument at the time of the exchange. A
Holder's tax basis in any Covanta Note received will equal the issue price of
such Note. The holding period for any Reorganized CPIH Preferred Stock,
Reorganization Plan Warrant, CPIH Participation Interest or Reorganization Plan
Note received generally will begin the day following the issuance of such
instrument.
2. Consequences to Holders of Allowed Secured 9.25% Debenture Claims who
treat the New High Yield Secured Notes as Section 354 Securities
If the New High Yield Secured Notes are treated as Section 354
securities for United States federal income tax purposes, then the exchange of
Allowed Secured 9.25% Debenture Claims for New High Yield Secured Notes and any
other consideration will constitute a recapitalization that qualifies as a
tax-free reorganization with meaning of IRC 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,
Reorganized CPIH Preferred Stock, or Reorganization Plan Warrants received in
the exchange will be treated as boot, in an amount equal to the sum of (i) the
issue price of the Reorganization Plan Unsecured Notes received and (ii) the
fair market value of the other consideration received. 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 and the Reorganization
Plan Unsecured Notes received, 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 boot received, if any, 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 the Reorganization Plan Unsecured Notes will be their
issue price and a Holder's tax basis in other consideration received will be the
fair market value of such other consideration at the time of the exchange. The
holding period for any Reorganization Plan Warrant, Reorganized 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 Reorganized CPIH Preferred Stock,
Reorganization Plan Warrants, CPIH Participation Interests 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 Funded Debt
depends on whether a substantial amount of the New CPIH Funded Debt is 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 are 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 the New CPIH Funded Debt were traded on an established
market, the issue price of the New CPIH Funded Debt would equal the fair market
value of such New CPIH Funded Debt. If neither the Allowed Claim, the Covanta
Notes for which such Claim is exchanged, nor the New CPIH Funded Debt 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 IRC 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 United States 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 original issue discount
("OID") for United States federal income tax purposes. If any of the
Reorganization Plan Notes are treated as being issued with OID, Holders will be
required to include in ordinary gross income the sum of "daily portions" of OID
on such Notes. The daily portions of OID are determined by allocating to each
day in any accrual period a ratable portion of the OID allocable to that accrual
period.
As described above under "Holding and Disposing of Reorganized CPIH
Preferred Stock, Reorganization Plan Warrants and Reorganization Plan Notes -
Issue Price of the Reorganization Plan Notes," Covanta expects the 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
Unsecured Notes and the New CPIH Funded Debt to be qualified stated interest, it
is expected that the issue price of such Notes will be equal to their stated
redemption price at maturity so that neither the Reorganization Plan Unsecured
Notes nor the New CPIH Funded Debt will be issued with OID. In the case of the
New High Yield Secured Notes, it is unclear if all stated interest should be
treated as qualified stated interest. If all or a significant portion of stated
interest on the New High Yield Secured Notes is not treated as qualified stated
interest, the New High Yield Secured Notes will be treated as 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 New CPIH Funded
Debt in an exchange and has a tax basis in such Debt that is less than the issue
price of such Debt 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 that acquired its Allowed Secured 9.25% Debenture Claims at a
market discount, and that received New High Yield Secured Notes in an exchange
that qualifies as a recapitalization, 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 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 exceeds such Notes' 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
New High Yield Secured Notes.
(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
A Holder will not recognize gain or loss for United States federal income
tax purposes upon the exercise of Reorganization Plan Warrants, other than
through a cash settlement or potentially through a net-share settlement, as
discussed below, except to the extent of cash paid to a Holder in lieu of
fractional shares. The Holder's tax basis in Reorganized Covanta Common Stock
received upon an exercise of the Reorganization Plan Warrants will equal the
amount of the exercise price paid, plus the Holder's tax basis in the
Reorganization Plan Warrants. The Holder's holding period for the acquired
Reorganized Covanta Common Stock will begin the day after exercise. Cash
received in lieu of fractional shares should be treated as a payment in exchange
for the fractional share interest, in which case a Holder will recognize
short-term capital gain or loss equal to the difference, if any, between the
amount of cash received and the tax basis allocable to the fractional share
interest.
If the Reorganization Plan Warrants are settled in cash, a Holder of
Reorganization Plan Warrants will realize capital gain upon the settlement in an
amount equal to the difference between the cash received and the Holder's tax
basis in such 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.
The tax consequences of a net-share settlement of the Reorganization Plan
Warrants are uncertain. Holders may be required to recognize capital gain for
United States federal income tax purposes in an amount equal to the fair market
value of all or a portion of the Reorganized Covanta Common Stock received.
Holders should consult their tax advisors regarding the proper treatment for
United States federal income tax purposes of a net-share settlement of the
Reorganization Plan Warrants.
If a Holder allows a Reorganization Plan Warrant to expire unexercised, the
Holder will recognize capital loss equal to the amount of the Holder's basis in
such Reorganization Plan Warrant.
The terms of the Reorganization Plan Warrants are subject to adjustment
under certain circumstances. If such adjustments entitle Holders to receive a
larger proportionate share of the earnings and profits or assets of Reorganized
Covanta, such Holders, under certain circumstances, may be deemed under IRC
Section 305 to have received a constructive dividend to the extent of
Reorganization Covanta's current and accumulated earnings and profits. Holders
should consult their tax advisors regarding the proper treatment for United
States federal income tax purposes of adjustments of the terms of the warrants.
(f) Consequences of Holding CPIH Participation Interests
The tax treatment of the CPIH Participation Interests for United States
federal income tax purposes is unclear. Holders should consult their tax
advisors regarding the proper treatment for United States federal income tax
purposes of holding CPIH Participation Interests.
(g) Dividends Received on Reorganized CPIH Preferred Stock
Generally, a distribution by CPIH with respect to the Reorganized 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.
(h) Sale of Reorganized CPIH Preferred Stock and Reorganization
Plan Warrants
Upon the sale or exchange of Reorganized 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 Reorganized 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 REORGANIZATION PLAN, THE HEBER REORGANIZATION PLAN AND
THE LIQUIDATION PLAN AND THE BEST INTERESTS TEST
A. Feasibility of the Plans
To confirm the Reorganization Plan and the Heber 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 the Heber Reorganization Plan, and, therefore, that the
Reorganization Plan and the Heber Reorganization Plan are 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 have prepared financial Projections through December 31,
2007, as set forth in Exhibits D, E and F attached to this Disclosure Statement.
The Projections indicate that the Reorganizing Debtors should have sufficient
cash flow to pay and service their debt obligations and to fund their
operations. Accordingly, the Reorganizing 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 caution that no representations can be made as to the accuracy of the
Projections or as to the Reorganizing 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. 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' financial results. Therefore, the actual results may vary
from the projected results and the variations may be material and adverse. See
Section VIII, for a discussion of certain risk factors that may affect financial
feasibility of the Reorganization Plan.
2. The Heber Reorganization Plan
The Heber Reorganization Plan provides for the sale of the Geothermal
Business in accordance with the Heber Purchase Agreement or a Heber Alternative
Transaction. The Debtors believe the Proposed Buyers to have the financial
ability to close the transaction and the operational expertise to manage the
projects. In addition, the Debtors have received an earnest money deposit of
$8,500,000, representing 5% of the purchase price provided in the Heber Purchase
Agreement. In light of the foregoing, the Debtors believe that the Heber
Reorganization Plan satisfies the feasibility requirement of section 1129(a)(11)
of the Bankruptcy Code.
3. 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 is planned, the
Liquidating Debtors believe that the Liquidation Plan meets the feasibility
requirement. In addition, the Liquidating Debtors believe that the
Administrative Expense Claims Reserve, which will be funded in an amount up to
$2,500,000, will be sufficient to satisfy all Administrative Expense Claims that
may be asserted against the Liquidating Debtors and that the Operating Reserve,
which will be funded in an amount not to exceed $500,000, will be sufficient to
satisfy all Priority Tax Claims, Priority Non-Tax Claims, Dissolution Expenses
and Oversight Nominee Expenses.
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 Equity 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
Equity Interests has accepted a plan if holders of such Equity Interests holding
at least two-thirds in amount actually voting have voted to accept 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
A copy of the Reorganization Valuation Analysis is attached to this
Disclosure Statement as Exhibit G.
E. Application of the Best Interests Test to the Liquidation Valuation
Analysis and the Valuation of the Reorganized Debtors
A Liquidation Valuation Analysis prepared with respect to the
Reorganizing Debtors is attached as Exhibit H to this Disclosure Statement. The
Reorganizing 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 Reorganizing 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 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 Reorganizing Debtors believe that, (i) after taking into
account the Liquidation Valuation Analysis and the valuation analysis of the
Reorganized 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 Reorganizing Debtors' assets
under a chapter 7 liquidation, the Plans meet the "best interests" test of
section 1129(a)(7) of the Bankruptcy Code. The Reorganizing Debtors believe that
the members of each impaired class will receive at least as much under the Plans
as 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 as going concerns,
rather than a forced liquidation, and the consummation of the Heber
Reorganization Plan will allow the realization of more value for the
Reorganizing Debtors' assets. Moreover, creditors such as the Reorganizing
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 Reorganizing Debtors. All of these factors lead to the
conclusion that recoveries under the Plans would be at least as much as, and in
many cases significantly greater than, the recoveries available in a chapter 7
liquidation.
F. The Best Interests Test and the Liquidating Debtors
As all of the assets of the Liquidating Debtors are secured by the
first priority liens held by the Secured Bank Lenders (including the Prepetition
Lenders and the DIP Lenders) and the 9.25% Debenture Holders, under a chapter 7
liquidation, no holder of claims, other than the Secured Bank Lenders and the
9.25% Debenture Holders, would be entitled to any recovery. Thus, as to the
holders of claims against the Liquidating Debtors, other than the Secured Bank
Lenders and the 9.25% Debenture Holders, the best interests test is satisfied,
because they would not be entitled to a greater distribution under chapter 7
than they are entitled to under the Liquidation Plan. Additionally, the
Liquidation Plan currently contemplates that the Secured Bank Lenders and 9.25%
Debenture Holders are waiving any Distribution under the Liquidation Plan in
return for their treatment under the Reorganization Plan, because such waiver
shall enhance their Reorganization Plan Distribution. Thus, the Liquidating
Debtors believe that, in consideration of the added expense and delay a chapter
7 liquidation could cause and the added benefit of enhancing their Distributions
under the Reorganization Plan, the best interests test is satisfied as to the
Secured Bank Lenders and the 9.25% Debenture Holders.
G. 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 under
the Liquidation Plan, (ii) holders of Equity Interests in the Subsidiary Debtors
and the Liquidating Debtors in Class 11 under the Liquidation Plan, (iii)
holders of Intercompany Claims against the Heber Debtors in Class 9 of the Heber
Reorganization Plan, (iv) holders of Equity Interests in the Heber Debtors in
Class 14 of the Heber Reorganization Plan, and (v) holders of Old Covanta Stock
Equity Interests in Class 12 under the Reorganization Plan are receiving no
Distributions on account of such Claims and Equity Interests under the
applicable Plan, their votes are not being solicited and they are deemed to have
rejected the applicable Plan 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.
H. Conditions to Confirmation and/or Consummation of the Plans
1. Conditions to Confirmation of the Reorganization Plan and Liquidation
Plan
The following are conditions precedent to confirmation of the
Reorganization Plan and Liquidation Plan. 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 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 Intercompany Claims held by the Reorganizing Debtors, the Heber Debtors or
the Liquidating Debtors against (i) the Liquidating Debtors and any of their
respective, present or former officers, employees, attorneys, accountants,
financial advisors, investment bankers or agents and (ii) the other persons or
entities identified in Section 12.6 of the Liquidation Plan will be fully
settled and released as of the Liquidation Effective Date;
(f) The Confirmation Order shall contain a ruling that each
of the Liquidating Debtors Intercompany 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 12.6 of the Liquidation
Plan will be fully settled and released as of the applicable Effective Date;
(g) The Confirmation Order shall contain a ruling that each
of the Heber Debtors' Intercompany Claims against (i) other Reorganizing 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, to the extent and only for the periods provided for in
Section 11.10 of the Reorganization Plan, will be fully settled and released as
of the Reorganization Effective Date;
(h) the Confirmation Order shall contain a ruling that each
of the Reorganizing Debtors Claims against (i) the Reorganizing 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, treated in accordance with Section 4.9(b)(II) of the
Reorganization Plan;
(i) The entry of the Confirmation Order with respect to the
Heber Reorganization Plan in form and substance reasonably satisfactory to the
Reorganizing Debtors.
2. Conditions to Confirmation of the Heber Reorganization Plan
The following are conditions precedent to confirmation of the Heber
Reorganization Plan. These conditions may be satisfied or waived by the Heber
Debtors in accordance with Article X of the Heber Reorganization Plan without
prejudice to the Proposed Buyers' rights under the Heber Purchase Agreement:
(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 and the Heber
Reorganization Plan shall be in form and substance, reasonably acceptable to the
Heber Debtors, Proposed Buyers and DIP Agents;
(c) All material provisions, terms and conditions of the
Heber Reorganization Plan are approved in the Confirmation Order;
(d) The Confirmation Date shall occur no later than
December 15, 2003;
(e) The Confirmation Order shall authorize and approve the
Geothermal Sale and contain a finding that the Geothermal Sale shall be deemed
to be incorporated into and consummated under the Heber Reorganization Plan for
all purposes;
(f) The Confirmation Order shall authorize all other
transactions contemplated therein and the Plan Documents in order to effectuate
the Heber Reorganization Plan or that are necessary or appropriate to effectuate
the Heber Reorganization Plan.
3. Conditions Precedent to the Reorganization Effective Date
Each of the following is a condition precedent to the occurrence of the
Reorganization 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, and the Liquidating Debtors, and (iii) provide that
the Liquidating Debtors, the Reorganizing Debtors and the Reorganized 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, the Reorganization Plan and the Heber Reorganization Plan;
(b) The conditions precedent to the Liquidation Effective Date
shall have been satisfied or waived in accordance with the terms and provisions
of the Liquidation Plan;
(c) The conditions precedent to the Heber Effective Date shall
have been satisfied or waived in accordance with the terms and provisions of the
Heber Reorganization Plan. 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 desirable to effectuate
the Reorganization Plan and the transactions contemplated hereunder shall have
been obtained;
(f) Reorganized Covanta Common Stock shall have been delivered to
the ESOP in accordance with the terms of the 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, unless such execution or delivery has been waived by the
parties thereby.
4. Conditions Precedent to the Heber Effective Date
The following are conditions precedent to the occurrence of the Heber
Effective Date under the Heber Reorganization Plan, each of which may be
satisfied or waived in accordance with Section 10.3 of the Heber Reorganization
Plan, without prejudice to the Proposed Buyers' rights under the Heber Purchase
Agreement. For the avoidance of doubt, terms used but not defined in this
subsection shall have the meaning ascribed to such terms in the Heber
Reorganization Plan.
(a) The Confirmation Order shall: (i) have become a Final
Order and (ii) be in form and substance reasonably satisfactory to the Heber
Debtors, Proposed Buyers and DIP Agents and (iii) provide that the Debtors,
Heber Debtors and Reorganized Heber Debtors are authorized and directed to take
all actions necessary or appropriate to enter into, implement and consummate the
Heber Reorganization Plan, including the Geothermal Sale contemplated by the
Heber Purchase Agreement, or as applicable, a Heber Alternative Transaction;
(b) All conditions precedent to the Closing of the
Geothermal Sale pursuant to the Heber Purchase Agreement or a Heber Alternative
Transaction, including the release and waiver by the DIP Lenders of the Heber
Debtors from any claims under DIP Financing Facility and the security interests
granted in support of the DIP Financing Facility over Equity Interests in, and
assets of, the Heber Debtors, shall have been satisfied or waived in accordance
with the provisions therein (other than a condition precedent related to the
Heber Effective Date);
(c) Any regulatory approval, including approvals under the
Hart-Scott-Rodino Antitrust Act of 1976, as amended, that is necessary or
desirable to effectuate the Heber Reorganization Plan and the transactions
contemplated thereunder shall have been obtained;
(d) Covanta 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
Unsecured Claims and Cure Amounts and (ii) to deposit Cash in the Disputed
Claims Reserve in respect of any Administrative Expense Claims, Priority Non-Tax
Claims and Unsecured Claims that are Disputed Claims;
(e) All documents, instruments and agreements provided for
under, or necessary to implement, this Heber Reorganization Plan shall have been
executed and delivered by the parties thereto, in form and substance
satisfactory to the Heber Debtors, unless such execution or delivery has been
waived by the parties benefited thereby.
5. Conditions Precedent to the Liquidation Effective Date
The Liquidating Debtors intend that the Liquidation Effective Date will
be the Reorganization Effective Date. The following are conditions precedent to
the occurrence of the Liquidation Effective Date under the Liquidation Plan,
each of which may be satisfied or waived in accordance with Section 10.3 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 Plans Confirmation Hearing;
(c) The conditions precedent to the Reorganization Effective Date
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.
I. 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 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 applicable Confirmation Date or the
applicable 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.
Without prejudice to the Proposed Buyers' rights under the Heber
Purchase Agreement, the Heber Debtors may waive any of the foregoing conditions
set forth in Article X of the Heber Reorganization Plan without leave of or
notice to the Court and without any formal action other than proceeding with
confirmation of the Heber Reorganization Plan or emergence from bankruptcy.
J. 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 applicable 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 presently afford holders of Claims
the potential for the greatest realization on the Debtors' assets and,
therefore, are in the best interests of such holders, provided that, with
respect to the Heber Reorganization Plan, the Debtors are continuing to assess
whether the Geothermal Sale may best be accomplished through the Heber
Reorganization Plan or through the Heber Sale Motion. As the Debtors have an
obligation seek to maximize recoveries for creditors generally, the Debtors
will, consistent with their business judgment, continue to consider alternative
transactions that would permit recoveries to creditors greater than those
expected under the Plans.
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
April 1, 2004.
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 H 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 Equity Interests as great a
realization potential as do the Plans.
XIII. VOTING REQUIREMENTS
On October 3, 2003, the Court entered the Disclosure Statement Order,
among other things, approving this Disclosure Statement and the Short-Form
Disclosure Statement, setting voting procedures and scheduling the Heber
Confirmation Hearing and Plans 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
conjunction with this section of this Disclosure Statement. No Ballots will be
distributed with the Heber Reorganization Plan because no holders of Claims
against or Equity Interests in the Heber Debtors are entitled to vote, given
that all such holders are Unimpaired (other than the holders of Intercompany
Claims and Equity Interests in the Heber Debtors, which are insiders of the
Heber Debtors and are deemed to reject to the Heber Reorganization Plan).
If you have any questions about (i) the procedure for voting your Claim
or Equity Interest or with respect to the packet of materials that you have
received, (ii) the amount of your Claim or your Equity Interest holdings, or
(iii) if you wish to obtain, at your own expense, unless otherwise specifically
required by Bankruptcy Rule 3017(d), an additional copy of any of the Plans,
this Disclosure Statement or any appendices or exhibits to such documents,
please contact:
Bankruptcy Services LLC
757 Third Avenue, 3rd Floor
New York, NY 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 Bankruptcy Rule 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 Equity 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 Plans are "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 holders of Claims against and Equity
Interests, 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 Reorganization Plan and the Liquidation Plan by the
requisite votes, the Court must still make an independent finding that such
Plans satisfy these requirements of the Bankruptcy Code, that such Plans are
feasible, and that such Plans are in the best interests of the holders of Claims
and Equity Interests against and in the applicable Debtors.
ALL PERSONS ENTITLED TO VOTE ON THE REORGANIZATION PLAN OR THE
LIQUIDATION PLAN MUST TIMELY SUBMIT THEIR BALLOT(S) TO THE BALLOTING 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 A 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 on the Reorganization Plan and the
Liquidation Plan
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 allowance of such
claim or interest, and (2) the claim or interest is impaired by the plan. 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 holders of Claims against and Equity Interests (i) Classes
7, 9, 10 and 13 of the Reorganization Plan and (ii) Classes 7, 9 and 11 of the
Liquidation Plan (which Classes are deemed to reject the Plan to which their
Claim or Equity Interest relates), the holder of a Claim that is "impaired"
under either the Reorganization Plan or the Liquidation Plan is entitled to vote
to accept or reject the Plan to which the Claim or Equity Interest relates if
(1) the Plan provides 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 holder has timely
filed a Proof of Claim as to which no objection has been filed, or (c) such
holder has timely filed a motion pursuant to Bankruptcy Rule 3018(a) seeking
temporary allowance of such Claim for voting purposes only and the Debtor has
not opposed the motion, or objected to allowance of 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
Disclosure Statement 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 6 and Class
8.
Only Class 3 of the Liquidation Plan is Impaired under, and entitled to
vote to accept or reject, the Liquidation Plan.
No Classes of the Heber Reorganization Plan are entitled to vote on
such Plan. All Classes of non-insider Claims against the Heber Debtors are
Unimpaired, and as such no holders of Claims against the Heber Debtors is
entitled to vote on the Heber Reorganization Plan.
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, holders
of Claims and Equity Interests in such Classes are deemed to reject the Plans,
and the votes of such holders will not be solicited: Classes 7, 9, 10 and 13 of
the Reorganization Plan, Classes 9 and 14 of the Heber 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 a Plan.
XIV. CONCLUSION
A. Hearings on and Objections to Confirmation
1. Confirmation Hearings
The hearing on confirmation of the Heber Reorganization Plan has been
scheduled for November 19, 2003 at 2:00 p.m. (Prevailing Eastern Time). The
hearing on confirmation of the Reorganization Plan and Liquidation Plan has been
scheduled for December 3, 2003 at 2:00 p.m. (Prevailing Eastern Time). Such
hearings may be adjourned from time to time by announcing such adjournment in
open court, all without prior 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
http://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 such hearings, without further notice to parties
in interest in accordance with the terms of such Plans.
2. Dates Set for Filing Objections to Confirmation of the Plans
The time by which all objections to confirmation of the Heber
Reorganization Plan must be filed with the Court and received by the parties
listed in the Confirmation Hearing Notice has been set for November 12, 2003, at
4:00 p.m. (Prevailing Eastern Time). The time by which all objections to
confirmation of the Reorganization Plan and the Liquidation 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 provide for an equitable and early distribution to creditors
of the Debtors, preserve the value of the business as a going concern, and
preserve the jobs of the Debtors' 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 REORGANIZATION PLAN OR THE LIQUIDATION
PLAN TO WHICH YOUR CLAIM RELATES.
Dated: October 3, 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)...........................................................................................................69
5
5.75% Convertible Bearer Debentures..............................................................................23
5.75% Convertible Debentures.....................................................................................23
5.75% Convertible Registered Debentures..........................................................................23
6
6% Convertible Bearer Debentures.................................................................................23
6% Convertible Debentures........................................................................................23
6% Convertible Registered Debentures.............................................................................23
9
9.25% Beneficial Owners...........................................................................................4
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..................................................................................................37
9.25% Indenture Trustee..........................................................................................37
9.25% Nominee's Agents............................................................................................4
9.25% Nominees....................................................................................................4
9.25% Settlement.....................................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.......................................................................................................3
Allied...........................................................................................................41
Allied Acquired Companies........................................................................................33
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
Approval Hearing.................................................................................................ix
Arenas...........................................................................................................26
Argentine Assets.................................................................................................vi
Arrowhead Pond...................................................................................................ix
Assuming Debtors.................................................................................................xi
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
Bank of America Bar Date......................................................................................xlvii
Bank of America Bar Date Order................................................................................xlvii
Bankruptcy Code..................................................................................................ii
Bankruptcy Rules.....................................as defined in the Reorganization Plan and the Liquidation Plan
Board............................................................................................................12
Broad Severance Plan.............................................................................................19
Business Day.........................................as defined in the Reorganization Plan and the Liquidation Plan
Business Plan....................................................................................................44
C
call option.....................................................................................................110
Canadian Court...................................................................................................39
Cash.................................................as defined in the Reorganization Plan and the Liquidation Plan
Casino Iguazu....................................................................................................vi
CCAA.............................................................................................................39
CEO..............................................................................................................19
CERCLA...........................................................................................................11
Chapter 11 Cases..................................................................................................v
Chilmark.........................................................................................................51
Chinese Station..................................................................................................12
CIT..............................................................................................................35
CIT Lease........................................................................................................35
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.............................................................................................................111
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, the Heber Reorganization Plan and the Liquidation Plan
Confirmation Hearing...................................as defined in the Reorganization Plan and Liquidation Plan.
Confirmation Hearing Notice.......................................................................................2
Confirmation Order..............................................................................................vii
Contract Schedules...............................................................................................xi
Convenience Claims............................................................as defined in the Reorganization Plan
Convertible Debentures Bar Date...............................................................................xlvii
Core Operations..................................................................................................44
Core Retiree Program.............................................................................................20
Corel Centre.....................................................................................................vi
County...........................................................................................................12
Court............................................................................................................iv
Covanta..........................................................................................................iv
Covanta Babylon..................................................................................................40
Covanta Concerts Bar Date.....................................................................................xlvii
Covanta Concerts Bar Date Order...............................................................................xlvii
Covanta Energy Americas, Inc..................................................as defined in the Reorganization Plan
Covanta Lake.....................................................................................................39
Covanta Notes...................................................................................................109
Covanta Onondaga.................................................................................................34
Covanta Tulsa....................................................................................................35
Covanta Union....................................................................................................36
Covanta Unsecured Claims......................................................as defined in the Reorganization Plan
Covanta Warren...................................................................................................34
CPIH.............................................................................................................64
CPIH Borrower Guaranty...........................................................................................64
CPIH Borrowers...................................................................................................64
CPIH Facilities..................................................................................................64
CPIH Revolver Facility...........................................................................................64
CPIH Term Loan Facility..........................................................................................64
CPPI.............................................................................................................10
CSE..............................................................................................................39
CSFB.............................................................................as defined in the Liquidation Plan
CSP..............................................................................................................39
Cure.............................................................................................................49
D
D&P..............................................................................................................vi
Debtor Operators.................................................................................................10
Debtors..........................................................................................................iv
DIP Agents...........................................as defined in the Reorganization Plan and the Liquidation Plan
DIP Final Order..................................................................................................27
DIP Financing Facility...........................................................................................27
Disbursing Agent..............................................................as defined in the Reorganization Plan
Disclosure Statement.............................................................................................ii
Disclosure Statement Order........................................................................................1
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
Dissolution Expenses.............................................................as defined in the Liquidation Plan
Distributable Cash...............................................................................................68
Distributions........................................as defined in the Reorganization Plan and the Liquidation Plan
Domestic Borrower Guaranty.......................................................................................64
Domestic Borrowers...............................................................................................64
Domestic Facilities..............................................................................................64
DSS Environmental.............................................................as defined in the Reorganization Plan
DTC...............................................................................................................4
E
Effective Date.......................................as defined in the Reorganization Plan and the Liquidation Plan
Employee Bar Date.............................................................................................xlvii
Employee Bar Date Order.......................................................................................xlvii
Energy Select Plan...............................................................................................17
Energy Services 401(k) Plan......................................................................................16
Environmental Regulatory Laws....................................................................................11
Environmental Remediation Laws...................................................................................11
Equity Bonds.....................................................................................................24
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...............................................................................................32
Existing L/C Facility............................................................................................64
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......................................21
First Amended Bar Date........................................................................................xlvii
First Amended Schedules.......................................................................................xlvii
First Amendment..................................................................................................28
Fourth Amendment.................................................................................................28
Free Cash........................................................................................................68
Fresh Start Reporting Adjustments...............................................................................104
G
GECC.............................................................................................................30
General Bar Date Order........................................................................................xlvii
Geothermal Business..............................................................................................ix
Geothermal Project...............................................................................................ix
H
Heber Alternative Transaction....................................................................................ix
Heber Bidding Procedures Order...................................................................................ix
Heber Confirmation Objection Deadline.............................................................................5
Heber Debtor Dismissal...........................................................................................ix
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 Effective Date...........................................................................................viii
Heber Purchase Agreement.........................................................................................ix
Heber Reorganization Plan........................................................................................ii
Heber Sale Motion................................................................................................ix
Heber Sellers....................................................................................................10
Hennepin Plan....................................................................................................16
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
Historical Financial Results......................................................................................2
Holder..........................................................................................................111
I
Impaired.............................................as defined in the Reorganization Plan and the Liquidation Plan
In re Ogden New York Services, Inc., et al., Case Nos. 02-40826 (CB), et al.......................................v
Indenture Trustee.............................................................as defined in the Reorganization Plan
Informal Committee...............................................................................................xv
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...........................................................................................x
Intercreditor Amendment..........................................................................................28
Interim Petition Date............................................................................................iv
Intermediate Holding Company Debtors..........................................as defined in the Reorganization Plan
IRC..............................................................................................................14
IRS..............................................................................................................15
IRS Bar Date..................................................................................................xlvii
IRS Bar Date Order............................................................................................xlvii
K
KERP.............................................................................................................18
KKR..............................................................................................................32
L
La Rural Fairgrounds.............................................................................................vi
Lake County......................................................................................................39
Lake Facility....................................................................................................39
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 Effective Date.....................................................................................viii
Liquidation Expenses.............................................................as defined in the Liquidation Plan
Liquidation Plan.................................................................................................ii
Liquidation Secured Claims.......................................................as defined in the Liquidation Plan
Liquidation Valuation Analysis....................................................................................2
Loss Sharing Litigation..............................as defined in the Reorganization Plan and the Liquidation Plan
LTIP.............................................................................................................18
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.............................................................................................66
New CPIH Revolver Facility....................................................as defined in the Reorganization Plan
New Debtor Schedules..........................................................................................xlvii
New Debtors Bar Date..........................................................................................xlvii
New Debtors Bar Date Order....................................................................................xlvii
New High Yield Secured Notes.....................................................................................65
New L/C Facility.................................................................................................64
New Lender Warrants...........................................................as defined in the Reorganization Plan
New Revolver Facility............................................................................................64
NOLs............................................................................................................111
Non-Core Retiree Program.........................................................................................20
Non-Priority Subclass 3A Claims...............................................as defined in the Reorganization Plan
Non-Qualified Plans..............................................................................................17
Non-Rolled Tranche B Letters of Credit...........................................................................28
Notice Agent.....................................................................................................43
Notice of Designation............................................................as defined in the Liquidation Plan
O
OCRRA............................................................................................................34
OEES.............................................................................................................41
Ogden Ground.....................................................................................................12
Ogden New York...................................................................................................12
Onondaga Facility................................................................................................34
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..........................................................................................................22
Original Debtors..............................................................................................xlvii
Original Schedules............................................................................................xlvii
Oversight Nominee................................................................as defined in the Liquidation Plan
Oversight Nominee Expenses.......................................................as defined in the Liquidation Plan
P
Palladium........................................................................................................39
PBGC.............................................................................................................14
Pension Plan.....................................................................................................14
Person...............................................as defined in the Reorganization Plan and the Liquidation Plan
Petition Date....................................................................................................iv
Plan Documents................................................................as defined in the Reorganization Plan
Plans............................................................................................................ii
Plans Confirmation Hearing.......................................................................................xi
Plans Confirmation Objection Deadline.............................................................................5
pooled...........................................................................................................22
Post-Confirmation Collateral..................................................as defined in the Reorganization Plan
PPAs..............................................................................................................8
Prepetition Collateral............................................................................................x
Prepetition Lenders..................................as defined in the Reorganization Plan and the Liquidation Plan
Priority Bank Claims.............................................................................................39
Priority Bank Lenders.........................................................as defined in the Reorganization Plan
Priority Non-Tax Claims.......................................................as defined in the Reorganization Plan
Priority Tax Claims..............................................................................................52
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......................................................................................................ix
Proposed Buyers..................................................................................................ix
PRPs.............................................................................................................12
Q
Qualified Plans..................................................................................................16
R
Reinstated L/C Facility.......................................................as defined in the Reorganization Plan
Rejecting Bondholders............................................................................................xi
Rejecting Debtors................................................................................................xi
Reorganization Effective Date..................................................................................viii
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
Reorganization Valuation Analysis.................................................................................2
Reorganized Company.............................................................................................101
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
Reorganizing Debtors..........................................................as defined in the Reorganization Plan
Reorganizing Debtors Intercompany Claims.............as defined in the Reorganization Plan and the Liquidation Plan
Replacement Liens................................................................................................29
Residual Liquidation Assets......................................................................................ix
Resource 401(k) Plan.............................................................................................15
Resource Pension Plan............................................................................................16
Resource Plan....................................................................................................17
Restructuring Fee................................................................................................51
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...................................................................................................18
Retiree Medical Programs.........................................................................................20
Risk Factors....................................................................................................iii
S
Savings Plan.....................................................................................................15
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.......................................................................................xlvii
Second Amended Schedules......................................................................................xlvii
Section 354 Securities..........................................................................................111
Secured Bank Lenders.............................................................................................vi
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
Securities Act..................................................................................................106
Security Fund....................................................................................................15
SEIU Pension Plan................................................................................................14
Select Plan......................................................................................................17
Sellers..........................................................................................................ix
Service Agreements................................................................................................8
Severance Plan...................................................................................................18
Short-Form Disclosure Statement...................................................................................3
SIGC Energy I.....................................................................................................9
SIGC Energy II....................................................................................................9
SIGC Interests....................................................................................................9
SIGC Operator....................................................................................................10
SIGC Project.....................................................................................................10
SIGC Project Company.............................................................................................10
SIGC Seller.......................................................................................................9
Site.............................................................................................................12
Sixth Amendment..................................................................................................29
SOP 90-7.........................................................................................................21
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...............................................................................................16
T
testing date....................................................................................................110
The Disputed Claims Reserve......................................................as defined in the Liquidation Plan
the Effective Date............................................................as defined in the Reorganization Plan
Third Amended Bar Date........................................................................................xlvii
Third Amended Schedules.......................................................................................xlvii
Third Amendment..................................................................................................28
TIN.............................................................................................................116
Town.............................................................................................................40
Tranche A........................................................................................................27
Tranche A Letter of Credit Sublimit..............................................................................29
Tranche B........................................................................................................28
Tranche C Obligations............................................................................................28
Tulsa Facility...................................................................................................35
U
U.S. Trust.......................................................................................................vi
U.S. Trust Agreement.............................................................................................vi
Unimpaired...........................................as defined in the Reorganization Plan and the Liquidation Plan
Union Authority..................................................................................................36
Union Facility...................................................................................................36
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.................................................................................................34
Warren Facility..................................................................................................34
WTE...............................................................................................................8
EXHIBIT A
Reorganizing Debtors' Joint Plan of Reorganization
EXHIBIT B
Heber Debtors' Joint Plan of Reorganization
EXHIBIT C
Liquidating Debtors' Joint Plan of Liquidation
EXHIBIT D
PROJECTED FINANCIAL INFORMATION FOR REORGANIZING
COVANTA ENERGY CORPORATION
JANUARY 1, 2003 THROUGH DECEMBER 31, 2007
Projected Financial Information for Reorganizing Covanta Energy Corporation
General Purpose and Reliance
To demonstrate the feasibility of the Plan of Reorganization, the
Reorganizing Debtors have prepared the attached Projections for Fiscal Years
2003 through 2007. The Projections indicate that the Reorganizing Debtors should
have sufficient cash flow and access to a revolving line of credit to service
its debt obligations and fund its operations. Accordingly, the Reorganizing
Debtors believe that the Plan of Reorganization satisfies the feasibility
requirement of section 1129(a)(11) of the Bankruptcy Code. However, the
Reorganizing Debtors caution that no representations can be made as to the
accuracy of the Projections or as to the Reorganizing 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. 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 or favorably affect the Reorganizing Debtors' financial results.
Therefore, the actual results may vary from the projected results and the
variations may be material and adverse.
See the Covanta Energy Corporation ("Covanta " or the "Company")
December 31, 2002 Form 10-K and June 30, 2003 Form 10-Q (both filed with the
Securities Exchange Commission (the "SEC") and incorporated by reference into
the Disclosure Statement) and Section VIII of the Disclosure Statement for a
discussion of the reorganizing business and certain risk factors that may affect
financial feasibility of the Plan of Reorganization.
The Projections are based on numerous assumptions including the timing,
confirmation and consummation of the Joint Plans of Reorganization and
Liquidation in accordance with their terms, the anticipated future performance
of the Reorganizing Debtors, industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Reorganizing 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 is approved by the Bankruptcy Court may affect the
actual financial results of the Reorganizing Debtors' operations. These
variations may be material and may adversely affect the ability of the
Reorganizing 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.
The Reorganizing Debtors do not intend to update these Projections;
thus, the Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Projections.
ALTHOUGH THE REORGANIZING DEBTORS HAVE USED THEIR BEST EFFORTS TO
ENSURE THE ACCURACY OF THE PROJECTIONS, THE PROJECTIONS HAVE NOT BEEN AUDITED
NOR PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR COMPLIANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, THE PUBLISHED GUIDELINES OF THE SECURITIES AND
EXCHANGE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS.
THE 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 REORGANIZING DEBTORS' CONTROL. THE REORGANIZING DEBTORS CAUTION THAT NO
REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THESE PROJECTIONS OR TO THE
REORGANIZING DEBTORS' ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS
INEVITABLY WILL NOT MATERIALIZE. FURTHERMORE, 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. THE
INFORMATION CONTAINED IN THE PROJECTIONS IS BY ITS NATURE FORWARD-LOOKING AND
CONTAINS ESTIMATES, ASSUMPTIONS AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT
FROM ACTUAL, FUTURE RESULTS.
The Projections contain forward-looking statements relating to future
events and future performance of the Company within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 including, without limitation, statements regarding the Reorganizing
Debtors' (including its management and Board of Directors) expectations,
beliefs, intentions or future strategies and statements that contain such words
as "expects," "anticipates," "intends," "believes," "estimates," "projects," or
similar language. Such forward-looking statements are inherently uncertain, and
actual results could differ materially from those anticipated in such
forward-looking statements. All forward-looking statements included in the
Projections are based on information available to the Reorganizing Debtors on
the date hereof, and the Reorganizing Debtors assume no obligation to update any
forward-looking statements. The Reorganizing Debtors caution the users of these
Projections that its reorganized business and financial performance are subject
to very substantial risks and uncertainties. The factors that could cause actual
results to differ materially from those suggested by any such statements
include, but are not limited to, those discussed or identified from time to time
in the Company's public filings with the SEC and, more generally, general
economic conditions, including changes in interest rates and the performance of
the financial markets, changes in domestic and foreign laws, regulations and
taxes, changes in competition and pricing environments, and regional or general
changes in asset valuations.
Basis for the Business Plan
In order to adequately evaluate the long-term prospects of its 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 waste-to-energy expansion projects and the
corporate forecast to establish the business plan.
These efforts culminated in the Company's strategic business plan (the
"Business Plan"), of which the primary components are: (i) maintenance of its
core operations (existing customers, letters of credit, suppliers, employees and
operations); (ii) disposal of the remaining non-core assets; and (iii) corporate
overhead cost consistent with the business plan.
The Projections assume that the Reorganizing Debtors emerge from
Chapter 11 on December 31, 2003 consistent with the Draft Plan of Reorganization
initially filed on September 8, 2003 with the United States Bankruptcy Court for
the Southern District of New York.
The Draft Plan of Reorganization contemplates:
1. Continued operation of the Company's domestic waste-to-energy and
other facilities;
2. Selling the Company's geothermal facility assets before emergence;
3. Undertaking a corporate restructuring, in which all of the current
international independent power operations become direct or indirect
subsidiaries of Covanta Power International Holdings ("CPIH") and
management of such operations are maintained at CPIH. The financial
projections assume this will result in the deconsolidation of CPIH for
tax and financial reporting purposes;
4. Conversion of most domestic entities from "C" to "S" corporations;
5. Contribution of reorganized Covanta Common Stock to an Employee Stock
Ownership Plan;
6. Settlement of all restructuring costs, including allowed priority and
administrative claims;
7. Distribution of cash, new debt and securities to pre-petition
creditors as stipulated in the Draft Plan of Reorganization,
including:
- Distributable Cash and Excess Distributable Cash,
- New High Yield Secured Notes,
- New Lender Warrants and Additional Class 3 Warrants,
- New CPIH Funded Debt, and
- Reorganized CPIH Preferred Stock;
8. Re-instatement of certain other pre-petition liabilities with various
terms, including interest rate, maturities and amortization;
9. Discharge of all other pre-petition claims; and
10. Entering into new credit facilities for the Domestic Borrowers and
CPIH Borrowers which will provide the Company with Letter of Credit
capacity and a revolving line of credit for liquidity.
Presentation of the Business Plan
The presented business plan includes (i) in Exhibit E, the pro-forma
historical results for the period from January 1, 2002 through June 30, 2003
based upon the current Covanta accounting and reporting policies; (ii) in this
Exhibit, forecast results for 2003 based upon current Covanta accounting and
reporting policies; and (iii) in this Exhibit, projected results for 2004
through 2007 based upon preliminary Fresh Start accounting and reporting
estimates (see Accounting Polices and Assumptions below).
Pro-Forma Historical Results. Pro-forma historical results for January
1, 2002 through June 30, 2003 are found in Exhibit E of the Disclosure
Statement. The Covanta annual audited historical results, as published in the
Covanta Form 10-K filed with the SEC, were adjusted for entities not to be
included within the Reorganizing Debtors to arrive at these pro-forma historical
results which are on a basis consistent with the Projections found in this
Exhibit. The major pro-forma adjustments to the historical results were as
follows:
1. The results from the geothermal projects were removed, since it is
expected that these projects will be sold to a third party prior to
emergence. The results from the international independent power assets
were removed. Under the Plan of Reorganization, the Reorganizing
Debtors will own 100% of the common stock of CPIH. CPIH will own all
of the prior Covanta international independent power assets. The
Reorganizing Debtors have accounted for their investment in CPIH on
the basis of the equity method of accounting within "Investments In
and Advances to Investees and Joint Ventures." It is assumed that no
value, future equity earnings or cash distributions will be realized
from these projects.
2. The results from the Catalyst New Martinsville hydroelectric project
have been removed, since the Reorganizing Debtors' involvement in the
project is ending in the fourth quarter of 2003.
3. The results from the Non-Core businesses have been removed consistent
with the Plan of Liquidation.
Forecast Results for 2003. These forecasts, found in this Exhibit, are
based upon (i) the current Covanta accounting and reporting polices without
regard to the required Fresh Start Accounting and Reporting adjustments to be
required upon emergence; and (ii) the pro-forma adjustments described above.
As contemplated in the Plan of Reorganization, the expected gross
proceeds of approximately $170 million from the sale of the geothermal projects
have been applied towards the funding of the various emergence exit costs.
Therefore, the cash and earned surplus balance in the projected December 31,
2003 balance sheet is understated by the amount of these proceeds.
Projected Results for 2004 through 2007. These projections, also found
in this Exhibit, are based upon (i) the preliminary Fresh Start accounting and
reporting estimates described below and (ii) the Company's Business Plan
described above.
Operational cash flow is presented on the Projected Statements of
Operations as the Reorganizing Debtors believe this is an important measure to
understand the Projections. Operational cash flow is the net cash flow generated
by the Reorganizing Debtors prior to only recourse debt interest and principal
amortization and income taxes.
Accounting Policies and Assumptions
Pursuant to 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"), the Projections incorporate "Fresh
Start Accounting and Reporting" principles which the Reorganizing Debtors will
be required to adopt upon emergence from bankruptcy. These "Fresh Start
Accounting and Reporting" principles provide, among other things, that the
Reorganizing Debtors' assets and liabilities be recorded at fair value.
The Fresh Start Accounting and Reporting Adjustments included in the
Projections are the preliminary estimates to adjust the Reorganizing Debtors'
capital structure and its assets and liabilities to their estimated fair values
in accordance with the current Plan of Reorganization and the Valuation Analysis
in Exhibit D.
New Accounting Pronouncements: In January 2003, the Financial
Accounting Standards Board (the "FASB") issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46
clarifies the application of Accounting Research Bulletin No. 51 "Consolidated
Financial Statements," and applies immediately to any variable interest entities
created after January 31, 2003 and to variable interest entities in which an
interest is obtained after that date. Based on current operations, the
Reorganizing Debtors do not expect the adoption of FIN No. 46 to have a material
effect of their financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies the accounting and reporting for derivative
instruments, including certain derivatives embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS No. 133"). The amendments in SFAS No. 149 require
that contracts with comparable characteristics be accounted for similarly. SFAS
No. 149 clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative according to SFAS No. 133
and when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. In addition, SFAS No. 149 amends the
definition of an "underlying" to conform it to language used in FIN No. 45 and
amends certain other existing pronouncements. The provisions of SFAS No. 149
that relate to SFAS No. 133 "Implementation Issues" that have been effective for
periods that began prior to June 15, 2003 should continue to be applied in
accordance with their respective effective dates. The requirements of SFAS No.
149 are effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The Reorganizing
Debtors do not expect the adoption of SFAS No. 149 to have a material effect on
their financial position and results of operations.
The Projections do not take into consideration the potential for
changes in the current Covanta accounting policies and procedures as described
in its December 31, 2002 Form 10K filed with the SEC and incorporated by
reference into the Disclosure Statement. Adoption of different policies and
procedures by the Reorganizing Debtors could result in a significant difference
in the actual Fresh Start Accounting and Reporting adjustments.
Use of Estimates: The preparation of projections requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses as well as disclosure of policies and
contingencies. Actual results and conclusions could differ from those estimates.
Significant estimates include management's estimate of the fair value of assets
and liabilities and the estimated useful lives of long-lived assets.
Cash and Cash Equivalents: Cash and cash equivalents include all cash
balances and highly liquid investments having original maturities of three
months or less. During the Projection period, draws under the New Revolver
Facility are assumed in order to maintain a $10 million cash balance. In
general, cash in excess of $10 million will be restricted in accordance with the
Credit Facilities described in the Plan of Reorganization.
Long-Term Debt: In the Projections, long-term debt consists of the
reinstatement of certain pre-petition claims for $267.5 million of debt with the
various terms, including interest rate, maturities, warrants and initial
issuance discount, described in the Plan of Reorganization.
Contracts and Revenue Recognition: Service revenues primarily include
the fees earned under contracts to operate and maintain facilities and to
service the project debt, with additional fees earned based upon waste processed
above guaranteed levels. Revenue from the sale of electricity and steam are
earned and are recorded based upon output delivered and capacity provided at
rates specified under contract terms or prevailing market rates.
Receivables generally are due from credit worthy municipal entities and
utilities.
Long-term unbilled service receivables relate to company owned
waste-to-energy facilities and are discounted in recognizing the present value
for services performed currently in order to service the project debt.
Property, Plant and Equipment: Property, plant, and equipment is stated
at estimated fair value at emergence. For financial reporting purposes,
depreciation is calculated by the straight-line method over the estimated useful
lives of the assets, which range generally from three years for computer
equipment to 40 years for waste-to-energy facilities. Leasehold improvements are
amortized by the straight-line method over the terms of the leases or the
estimated useful lives of the improvements as appropriate. Landfills are
amortized based on the quantities deposited into each landfill compared to the
total estimated capacity of such landfill.
Landfill capping costs and other asset retirement obligations are
accounted for in accordance with SFAS No. 143 "Accounting for Asset Retirement
Obligations."
Project Debt: Project debt associated with the financing of
waste-to-energy facilities is generally arranged by municipalities through the
issuance of tax-exempt revenue bonds.
Payment obligations for the project debt associated with
waste-to-energy facilities owned by the Company are limited recourse to the
operating subsidiary and non-recourse to the Company, subject to construction
and operating performance guarantees and commitments. These obligations are
secured by the revenues pledged under various indentures and are collateralized
principally by a mortgage lien and a security interest in each of the respective
waste-to-energy facilities and related assets.
Restricted Funds: Restricted funds represent proceeds from the
financing and operations of waste-to-energy facilities. Funds are held in trust
and released as expenditures are made or upon satisfaction of conditions
provided under the respective trust agreements.
Service Contracts: Service contracts are stated at estimated fair value
at emergence and included within goodwill and other intangibles on the projected
balance sheets. For financial reporting purposes, amortization is calculated by
the straight-line method over the remaining contract terms that range from 4 to
15 years at January 1, 2004.
Investments In and Advances to Investees and Joint Ventures: The
Reorganizing Debtors are party to joint venture agreements through which the
Reorganizing Debtors have equity investments in several operating projects. The
joint venture agreements generally provide for the sharing of operational
control as well as voting percentages. The Reorganizing Debtors record its share
of earnings from its equity investees on a pre-tax basis and records its share
of the investee's income taxes in income tax expense (benefit).
Investment in the Prior Covanta International Independent Power
Business: Under the Plan of Reorganization, the Reorganizing Debtors will own
100% of the common stock of CPIH. CPIH will hold all of the prior Covanta
international independent power assets. In the Projections, based upon the Plan
of Reorganization, the Reorganizing Debtors have accounted for its investment in
CPIH on the one-line equity basis within "Investments In and Advances to
Investees and Joint Ventures" with no value or future equity earnings and cash
distributions assumed.
If this investment was required to be consolidated under SFAS No. 94
"Consolidation of all Majority-Owned Subsidiaries," Emerging Issues Task Force
("EITF") 96-16 "Investor's Accounting for an Investee when the Investor has a
Majority of the Voting Interest but the Minority Shareholders have Certain
Approval or Veto Rights," FIN No. 46 or any other current or future accounting
standard, net equity and income/(loss) would likely be unchanged, but additional
assets, debts, operating results and interest and minority interest expense
would need to be reflected in the actual reported results.
New Lender Warrants and Additional Class 3 Warrants: In the
Projections, in accordance with EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," the
Reorganizing Debtors have accounted for these instruments (as described in the
Plan of Reorganization) within shareholders' equity.
Management and Employee Compensation: Pursuant to applicable provisions
of the Bankruptcy Code, the Plan of Reorganization currently contemplates the
rejection of all existing prepetition employment agreements.
The terms of certain Post-Effective Date management incentive, employee
and non-competition agreements are currently under discussion by the Company and
its various creditor constituencies.
The pension and post-retirement obligations and costs of the
Reorganizing Debtors have been developed from actuarial valuations. Inherent in
these valuations are key assumptions including discount rates, expected return
on plan assets and medical trend rates. Changes in these assumptions are
primarily influenced by factors outside the Reorganizing Debtors' control and
can have a significant effect on the actual results reported.
Guarantees: SOP 90-7 and FIN 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an interpretation of FASB Statements No. 5, 57 and 107 and rescission
of FIN No. 34" require that a guarantor recognize, at the inception of a
guarantee (other than a guarantee of its own performance) a liability for the
fair value of the obligation undertaken in issuing the guarantee. Currently, the
Reorganizing Debtors are aware of approximately $22 million of guarantees
related to the CPIH international subsidiaries that are required to be
recognized at fair value. However, the Reorganizing Debtors have not done so
within the Projections as this fair value is not material.
If the Reorganizing Debtors become aware of additional guarantees
requiring recognition, net equity would likely be unchanged but the fair value
of liabilities and assets recorded would increase. FIN 45 does not prescribe a
specific approach for subsequently measuring the guarantor's recognized
liability over the term of the related guarantee but the increased asset value
generally would be charged to income as depreciation or amortization over the
remaining useful life of the related asset.
Income Taxes: In 2004 through 2007 the Reorganizing Debtors plan to
file an annual consolidated Federal income tax returns (to include all eligible
United States subsidiary companies) as an S Corporation owned by an Employee
Stock Ownership Plan, as contemplated in the Plan of Reorganization there will
be no Federal income tax liability for the Reorganizing Debtors. Further, as the
Reorganizing Debtors have no current intention to sell any material assets
within ten years, there are no Federal deferred tax liabilities reflected in the
Projections. The deferred tax liabilities included in the Projections relate
entirely to state tax obligations.
Reorganizing Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Projected Statements of Operations
Pre-Emergence
(prior to Fresh Post-Emergence
Start (including estimated Fresh
Adjustments) Start Adjustments)
------------ ---------------------------------------------------------------
For the Years ended December 31, 2003
(in Thousands of Dollars) Forecast 2004 2005 2006 2007
Total Revenues ................................ $ 572,852 $ 582,857 $ 669,547 $ 709,287 $ 659,044
--------- --------- --------- --------- ---------
Plant operating expenses ...................... 345,968 352,365 360,613 367,276 374,261
Construction costs ............................ 12,335 - 73,172 104,439 49,546
Depreciation and amortization ................. 51,482 66,373 68,791 70,596 73,420
Debt service charges-net ...................... 61,356 42,305 39,694 36,933 33,345
Other operating costs and expenses ............ 8,198 1,500 1,500 1,500 1,500
Selling, administrative and general
expenses ...................................... 31,384 32,098 29,295 28,872 29,590
--------- --------- --------- --------- ---------
Total costs and expenses ...................... 510,723 494,641 573,065 609,616 561,662
--------- --------- --------- --------- ---------
Equity in income from unconsolidated
investments ................................... 549 1,433 2,224 2,658 2,166
--------- --------- --------- --------- ---------
Operating income .............................. 62,678 89,649 98,706 102,329 99,548
--------- --------- --------- --------- ---------
Interest expense-net .......................... (38,617) (34,768) (35,592) (34,717) (33,663)
Reorganization items .......................... (65,371) - - - -
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations before taxes
and minority interests ...................... (41,310) 54,881 63,114 67,612 65,885
Income taxes .................................. (5,816) (3,143) (4,358) (5,721) (5,900)
Minority interests ............................ (3,007) (6,599) (6,652) (6,639) (6,572)
--------- --------- --------- --------- ---------
Net income (loss) ............................. $ (50,133) $ 45,139 $ 52,104 $ 55,252 $ 53,413
========= ========= ========= ========= =========
--------------------------------------------------------------
Operational cash flow ....................... $ 25,036 $ 40,175 $ 48,131 $ 52,571
========= ========= ========= =========
Reorganizing Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Projected Balance Sheets
Pre-Emergence
(prior to Fresh Post-Emergence
Start (including estimated Fresh Start
Adjustments) Adjustments)
------------ --------------------------------------------------------------------
December 31, Fresh Start January 1, December December December December
(in Thousands of Dollars) 2003 Adjustments 2004 31, 2004 31, 2005 31, 2006 31, 2007
Assets:
Current assets:
Cash and cash equivalents.................. $ 1,128 $ 8,872 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Restricted funds held in trust. ........... 85,237 - 85,237 89,320 95,486 98,370 111,131
Receivables. .............................. 181,968 (60,802) 121,166 121,064 120,272 121,584 122,611
Deferred income taxes...................... 35,581 (35,581) - - - - -
Prepaid expenses and other current assets.. 63,305 - 63,305 68,615 74,282 80,134 86,191
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total current assets. ..................... 367,219 (87,511) 279,708 288,999 300,040 310,088 329,933
Property, plant and equipment - net......... 1,212,728 (471,085) 741,643 727,762 706,099 681,872 656,477
Restricted funds held in trust............. 122,008 - 122,008 122,008 122,008 122,008 106,792
Unbilled service and other receivables..... 111,364 (106,761) 4,603 14,894 17,910 19,232 20,877
Goodwill and other intangibles. ........... 30,663 428,369 459,032 421,310 383,589 345,868 308,146
Investments in and advances to investees and
joint ventures............................. 11,703 (9,181) 2,522 2,955 3,679 5,338 7,003
Other assets............................... 48,874 (13,182) 35,692 35,571 35,452 35,333 35,333
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total Assets............................... $1,904,559 $(259,351) $1,645,208 $1,613,499 $1,568,777 $1,519,739 $1,464,561
============== ============ =========== ========== ========== ========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Current liabilities:
Current debt............................... $ - $ 1,166 $ 1,166 $ 16,551 $ 18,836 $ 13,653 $ 5,081
Current portion of project debt. .......... 72,577 - 72,577 75,937 84,315 85,270 86,905
Accounts payable........................... 19,813 - 19,813 20,063 20,257 20,528 20,936
Accrued expenses and other................. 196,739 (60,751) 135,988 134,263 127,885 128,824 129,031
Deferred income............................ 38,270 (9,001) 29,269 29,269 29,269 29,269 29,269
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total current liabilities.................. 327,399 (68,586) 258,813 276,083 280,562 277,544 271,222
Long-term debt............................. 0 266,334 266,334 264,825 263,315 261,805 260,296
Project debt............................... 824,550 13,064 837,614 755,308 666,191 577,669 488,802
Deferred income taxes...................... 270,612 (245,612) 25,000 24,000 23,000 22,000 21,000
Deferred income. .......................... 129,304 (129,304) - - - - -
Other liabilities.......................... 71,115 146,332 217,447 208,519 199,490 190,255 180,882
Liabilities subject to compromise. ........ 545,965 (545,965) - - - - -
Minority interests. ....................... 1,081 (1,081) - (375) (1,025) (2,029) (3,549)
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total Liabilities. ........................ 2,170,026 (564,818) 1,605,208 1,528,360 1,431,533 1,327,244 1,218,653
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total Shareholders' Equity................. (265,467) 305,467 40,000 85,139 137,244 192,495 245,908
-------------- ------------ ----------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity. $1,904,559 $ (259,351) $1,645,208 $1,613,499 $1,568,777 $1,519,739 $1,464,561
============== ============ =========== ========== ========== ========== ==========
Reorganizing Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Projected Statement of Cash Flows
Pre-Emergence
(prior to Fresh Post-Emergence
Start (including estimated Fresh
Adjustments) Start Adjustments)
------------ -------------------------------------------------
For the Years ended December 31,
(in Thousands of Dollars) 2003 2004 2005 2006 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). ................................... $ (50,133) $ 45,139 $ 52,104 $ 55,252 $ 53,413
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided
By Operating Activities of Continuing Operations:
Reorganization items ................................. 65,371 - - - -
Payment of reorganization items. ..................... (53,273) - - - -
Depreciation. ........................................ 50,342 28,652 31,069 32,875 35,699
Amortization. ........................................ 8,828 37,721 37,721 37,721 37,721
Deferred income taxes................................ (3,684) (1,000) (1,000) (1,000) (1,000)
Equity in income from unconsolidated investments. ... (549) (1,433) (2,224) (2,658) (2,166)
Minority interest expense............................ 3,007 3,120 3,183 3,198 3,175
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Receivables. ......................................... (821) 103 791 (1,312) (1,029)
Other current assets.................................. (5,286) (5,310) (5,667) (5,852) (6,056)
Unbilled receivables.................................. 7,818 (10,291) (3,016) (1,322) (1,646)
Other assets. ....................................... 119 119 119 119
Deferred
income........................................ (9,001) - - - -
Increase (Decrease) in Liabilities:
Accounts payable. .................................... 1,707 250 193 271
Accrued expenses & other current liabilities. ........ 2,922 (1,725) (6,375) 939 616
Distributions to minority interests................... (3,184) (3,495) (3,833) (4,201) (4,695)
Other non-current liabilities ........................ 3,380 (8,926) (9,030) (9,236) (9,372)
--------------- ------------ ------------- ------------ ------------
Net cash provided by operating activities............. 17,563 82,924 94,035 104,794 104,660
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in facilities............................ (14,121) (14,770) (9,406) (8,650) (10,301)
Distributions from investees and joint ventures...... 2,000 1,000 1,500 1,000 500
--------------- ------------ ------------- ------------ ------------
Net cash used in investing activities................. (12,121) (13,770) (7,906) (7,650) (9,801)
CASH FLOWS FROM FINANCING ACTIVITIES:
Recourse debt repaid................................. - (1,166) (5,081) (5,081) (5,081)
Payment of debt. .................................... (89,073) (72,577) (75,937) (84,315) (85,270)
Amortization of premiums and discounts, net........... (2,798) (1,230) 320 1,610
Borrowings (repayments) on revolving loan............. 11,470 2,285 (5,184) (8,572)
Increase in funds held in trust...................... 5,303 (4,083) (6,166) (2,884) 2,454
--------------- ------------ ------------- ------------ ------------
Net cash used in financing activities:................ (83,770) (69,154) (86,129) (97,144) (94,859)
NET DECREASE IN CASH AND CASH EQUIVALENTS............. (78,328) - - - -
--------------- ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD...... 79,456 10,000 10,000 10,000 10,000
--------------- ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. .......... $ 1,128 $ 10,000 $ 10,000 $ 10,000 $ 10,000
=============== ============ ============= ============ ============
EXHIBIT E
DECEMBER 31, 2002 AND JUNE 30, 2003 PRO-FORMA HISTORICAL FINANCIAL
INFORMATION FOR REORGANIZING COVANTA ENERGY CORPORATION
Pro-Forma Historical Financial Information for Reorganizing
Covanta Energy Corporation
To supplement the projected financial information of the Reorganizing
Debtors (under the Plan of Reorganization) presented in Exhibit D to the
Disclosure Statement, the Reorganizing Debtors have prepared in this Exhibit
pro-forma historical financial information for the Reorganizing Debtors for
December 31, 2002 and June 30, 2003.
This pro-forma historical information is based upon the consolidated
balance sheet of Covanta Energy Corporation (included within its Form 10-K filed
with the Securities Exchange Commission ("SEC") and incorporated by reference
into the Disclosure Statement) adjusted as of that date for entities not to be
included in the Reorganizing Debtors. These entities include, but are not
limited to, the geothermal and international facility assets and the entities
within the Plan of Liquidation.
The pro-forma adjustments for entities not to be included in the
Reorganizing Debtors have been recognized by offsetting the book values of the
entities against the retained earnings of the Reorganizing Debtors.
As contemplated in the Plan of Reorganization, the expected gross
proceeds of approximately $170 million from the sale of the geothermal projects
have been applied towards the funding of the various emergence exit costs as
part of the estimated Fresh Start Accounting and Reporting adjustments within
the Projections presented in Exhibit D. Therefore, the cash and earned surplus
balances in the presented historical pro-forma balance sheets are understated by
the amount of these proceeds.
The Reorganizing Debtors have not assumed any proceeds from the
transfer of the international assets to the creditors nor the identified
entities in the Plan of Liquidation to the Liquidating Trust since none are
expected.
The Reorganizing Debtors have also not allocated any general corporate
debt, overhead or corporate balances to these entities or adjustments in order
to retain all estimated claims against the Reorganizing Debtors within the
presented financial information.
Because of this and many other factors, the attached pro-forma
information does not reflect the actual results that would have been achieved
had these entities actually been disposed of at December 31, 2001 but has only
been prepared and presented to supplement the Projections for the Reorganizing
Debtors presented in Exhibit D.
The Reorganizing Debtors do not intend to update this pro-forma
historical financial information; thus, it will not reflect the impact of any
subsequent events not already accounted for in the underlying adjustments.
ALTHOUGH THE REORGANIZING DEBTORS HAVE USED THEIR BEST EFFORTS TO
ENSURE THE ACCURACY OF THE PRO-FORMA HISTORICAL FINANCIAL INFORMATION, IT HAS
NOT BEEN AUDITED NOR PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR
COMPLIANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, THE PUBLISHED
GUIDELINES OF THE SECURITIES AND EXCHANGE COMMISSION OR THE AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PRO-FORMA HISTORICAL FINANCIAL
INFORMATION. THE PRO-FORMA HISTORICAL FINANCIAL INFORMATION, 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 SUBJECTIVE. THE REORGANIZING DEBTORS CAUTION THAT
NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THE PRO-FORMA HISTORICAL
FINANCIAL INFORMATION.
See the Covanta Energy Corporation December 31, 2002 Form 10-K and June
30, 2003 Form 10-Q, both filed with the SEC and incorporated by reference into
the Disclosure Statement, for a description and discussion of Covanta Energy
Corporation and its accounting policies.
Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Pro-forma Historical Statements of Consolidated and
Comprehensive Loss
(in Thousands of Dollars)
For the For the
Year ended Six months ended
December 31, 2002 June 30, 2003
------------------ --------------------
Total revenues ........................................ $ 586,440 $ 301,839
--------- ---------
Plant operating expenses .............................. 345,752 180,139
Construction costs .................................... 32,569 9,094
Depreciation and amortization ......................... 62,702 27,768
Debt service charges-net .............................. 60,014 31,014
Selling, general and administrative expenses .......... 29,774 17,931
Project development expenses .......................... 3,475 -
Other-net ............................................. 20,557 -
--------- ---------
Total costs and expenses .............................. 554,843 265,946
Equity in income from unconsolidated investments ...... 1,321 508
--------- ---------
Operating income ...................................... 32,918 36,401
--------- ---------
Interest expense-net .................................. (32,627)
(19,523)
Reorganization items .................................. (49,106) (22,618)
--------- ---------
Loss from continuing operations before income
taxes, minority interests, discontinued
operations and change in accounting principle ...... (48,815) (5,740)
--------- ---------
Income tax benefit .................................... 32,546 -
Minority interests .................................... (2,809) (1,484)
--------- ---------
Loss from continuing operations before
change in accounting principle ..................... (19,078) (7,224)
Cumulative effect of change in accounting principle ... (2,969) (5,539)
--------- ---------
Net loss .............................................. (22,047) (12,763)
--------- ---------
Unrealized holding losses ............................. (165) -
Minimum pension liability ............................. 88 147
--------- ---------
Comprehensive loss .................................... $ (22,124) $ (12,616)
========= =========
Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Pro-forma Historical Balance Sheets
(in Thousands of Dollars)
Per
10K Pro-forma
December 31, Pro-forma Pro-forma June 30,
2002 Adjustments December 31, 2002 2003
----------------- -------------- ---------------- -------------
Assets:
Current Assets:
Cash and cash equivalents ......................... $ 115,815 $ (36,359) $ 79,456 $ 69,912
Restricted funds held in trust .................... 92,039 (6,802) 85,237 116,788
Receivables ....................................... 259,082 (77,935) 181,147 175,857
Deferred income
taxes ............................................. 11,200 24,381 35,581 35,732
Prepaid expenses and other current assets ......... 85,997 (27,978) 58,019 62,677
----------- ----------- ----------- -----------
Total current assets: ............................. 564,133 (124,693) 439,440 460,966
Property, plant and
equipment-net ..................................... 1,661,863 (328,693) 1,333,170 1,316,527
Restricted funds held in trust .................... 169,995 (39,247) 130,748 104,864
Unbilled service and other
receivables ....................................... 147,640 (15,868) 131,772 128,522
Goodwill and other intangibles .................... 68,084 (36,542) 31,542 29,782
Investments in and advances to investees and
joint ventures .................................... 166,465 (153,311) 13,154 13,906
Other assets ...................................... 61,927 (4,987) 56,940 55,427
----------- ----------- ----------- -----------
Total Assets: ..................................... $ 2,840,107 $ (703,341) $ 2,136,766 $ 2,109,994
=========== =========== =========== ===========
Liabilities and Shareholders' Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt ................. $ 16,450 $ (16,450) $ - $ -
Current portion of project debt ................... 115,165 (34,143) 81,022 82,137
Accounts payable .................................. 23,593 (5,487) 18,106 19,050
Accrued expenses .................................. 254,964 (60,251) 194,713 238,199
Deferred income ................................... 41,402 (3,132) 38,270 34,926
----------- ----------- ----------- -----------
Total current liabilities: ........................ 451,574 (119,463) 332,111 374,312
Long-term debt .................................... 23,779 (23,779) - -
Project debt ...................................... 1,128,217 (166,539) 961,678 927,545
Deferred income taxes ............................. 249,600 24,696 274,296 270,084
Deferred income ................................... 151,000 (12,696) 138,304 133,844
Other liabilities ................................. 80,369 (33,824) 46,545 27,498
Liabilities subject to compromise ................. 892,012 (294,105) 597,907 600,026
Minority interests ................................ 35,869 (34,610) 1,259 2,743
----------- ----------- ----------- -----------
Total Liabilities: ................................ 3,012,420 (660,320) 2,352,100 2,336,052
----------- ----------- ----------- -----------
Total Shareholders' Equity (Deficit): ............. (172,313) (43,021) (215,334) (226,058)
----------- ----------- ----------- -----------
-
Total Liabilities and Shareholders' Equity
(Deficit) ......................................... $ 2,840,107 $ (703,341) $ 2,136,766 $ 2,109,994
=========== =========== =========== ===========
Covanta Energy Corporation
(Debtor in Possession) and Subsidiaries
Pro-forma Statements of Cash Flows
(in Thousands of Dollars)
For the For the
year ended six months ended
December 31, 2002 June 30, 2003
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $ (22,047) $ (12,763)
Adjustments to Reconcile Net Loss to Net Cash Provided
By Operating Activities of Continuing Operations:
Reorganization items ............................................ 49,106 22,618
Payments of reorganization items ................................ (26,928) (10,492)
Depreciation and amortization ................................... 63,004 27,725
Deferred income taxes ........................................... (7,854) (151)
Provision for doubtful accounts ................................. 3,279 949
Minority interests .............................................. 2,809 -
Amortization of financing costs ................................. 23,685 -
Equity in net income of unconsolidated investments .............. (516) -
Cumulative effect of change in accounting principle ............. 2,969 5,539
Other ........................................................... (1,211) (4,178)
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Receivables ..................................................... 17,504 4,341
Other assets .................................................... (10,997) (870)
--------- ---------
Increase(Decrease) in Liabilities:
Accounts payable ................................................ 22,923 944
Accrued expenses and other liabilities .......................... (685) 4,015
Deferred income ................................................. (7,231) (3,344)
--------- ---------
Net cash provided by operating activities: ...................... 107,810 34,333
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities available for
sale ............................................................ 646 224
Proceeds from sale of property, plant and equipment ............. 28 -
Investments in facilities ....................................... (7,285) (7,239)
--------- ---------
Net cash used in investing activities: .......................... (6,611) (7,015)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt ................................................. (76,734) (32,861)
Dividends paid .................................................. (16) -
Decrease in restricted cash ..................................... (7,942) (5,664)
Other ........................................................... - 1,663
--------- ---------
Net cash used in financing activities ........................... (84,692) (36,862)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............ 16,507 (9,544)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 62,949 79,456
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 79,456 $ 69,912
========= =========
EXHIBIT F
PROJECTED FINANCIAL INFORMATION FOR REORGANIZING
COVANTA POWER INTERNATIONAL HOLDINGS
JANUARY 1, 2003 THROUGH DECEMBER 31, 2006
Projected Financial Information for Reorganizing Covanta Power
International Holdings
General Purpose and Reliance
To further supplement the projected financial information of the
Reorganizing Debtors (under the Plan of Reorganization) presented in Exhibit D
to the Disclosure Statement, the Reorganizing Debtors have prepared in this
Exhibit F projected financial information for the Reorganizing Covanta Power
International Holdings ("CPIH") for January 1, 2003 through December 31, 2006.
The Reorganizing Debtors caution that no representations can be made as
to the accuracy of the Projections or as to the Reorganizing 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. 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 or favorably affect the Reorganizing Debtors' financial results.
Therefore, the actual results may vary from the projected results and the
variations may be material and adverse.
See the Covanta Energy Corporation ("Covanta " or the "Company")
December 31, 2002 Form 10-K and June 30, 2003 Form 10-Q (both filed with the
Securities Exchange Commission ("SEC") and incorporated by reference into the
Disclosure Statement) and Section VIII of the Disclosure Statement for a
discussion of the reorganizing business and certain risk factors that may affect
the Plan of Reorganization.
The Projections are based on numerous assumptions including the timing,
confirmation and consummation of the Joint Plans of Reorganization and
Liquidation in accordance with their terms, the anticipated future performance
of the Reorganizing Debtors, industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Reorganizing 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 is approved by the Bankruptcy Court may affect the
actual financial results of the Reorganizing Debtors' operations. These
variations may be material and may adversely affect the ability of the
Reorganizing 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.
The Reorganizing Debtors do not intend to update these Projections;
thus, the Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Projections.
ALTHOUGH THE REORGANIZING DEBTORS HAVE USED THEIR BEST EFFORTS TO
ENSURE THE ACCURACY OF THE PROJECTIONS, THE PROJECTIONS HAVE NOT BEEN AUDITED
NOR PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR COMPLIANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, THE PUBLISHED GUIDELINES OF THE SECURITIES AND
EXCHANGE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS.
THE 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 REORGANIZING DEBTORS' CONTROL. THE REORGANIZING DEBTORS CAUTION THAT NO
REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THESE PROJECTIONS OR TO THE
REORGANIZING DEBTORS' ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS
INEVITABLY WILL NOT MATERIALIZE. FURTHERMORE, 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. THE
INFORMATION CONTAINED IN THE PROJECTIONS IS BY ITS NATURE FORWARD-LOOKING AND
CONTAINS ESTIMATES, ASSUMPTIONS AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT
FROM ACTUAL, FUTURE RESULTS.
The Projections contain forward-looking statements relating to future
events and future performance of the Company within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 including, without limitation, statements regarding the Reorganizing
Debtors' (including its management and Board of Directors) expectations,
beliefs, intentions or future strategies and statements that contain such words
as "expects," "anticipates," "intends," "believes," "estimates," "projects," or
similar language. Such forward-looking statements are inherently uncertain, and
actual results could differ materially from those anticipated in such
forward-looking statements. All forward-looking statements included in the
Projections are based on information available to the Reorganizing Debtors on
the date hereof, and the Reorganizing Debtors assume no obligation to update any
forward-looking statements. The Reorganizing Debtors caution the users of these
Projections that its reorganized business and financial performance are subject
to very substantial risks and uncertainties. The factors that could cause actual
results to differ materially from those suggested by any such statements
include, but are not limited to, those discussed or identified from time to time
in the Company's public filings with the SEC and, more generally, general
economic conditions, including changes in interest rates and the performance of
the financial markets, changes in domestic and foreign laws, regulations and
taxes, changes in competition and pricing environments, and regional or general
changes in asset valuations.
Basis for the Business Plan for the International Operations
In order to adequately evaluate the long-term prospects of the
international operations and to develop its overall 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
international project facilities. The development of the overall 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 forecast of corporate support for the international operations
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 then consolidated with this corporate support forecast to establish the
international business plan.
These efforts culminated in the Company's international business plan
(the "Business Plan"), of which the primary components are: (i) maintenance of
its existing operations (existing customers, letters of credit, suppliers,
employees and operations); and (ii) overhead support cost consistent with the
business plan.
The Projections assume that the Reorganizing Debtors emerge from
Chapter 11 on December 31, 2003 consistent with the Draft Plan of Reorganization
initially filed on September 8, 2003 with the United States Bankruptcy Court for
the Southern District of New York.
The Draft Plan of Reorganization contemplates:
1. Undertaking a corporate restructuring, in which all of the current
Covanta international independent power operations become direct or
indirect subsidiaries of Covanta Power International Holdings ("CPIH")
and management of such operations are maintained at CPIH and
deconsolidated from Covanta for tax and financial reporting purposes;
2. Settlement of all restructuring costs, including allowed priority and
administrative claims; 3. Distribution of cash, new debt and
securities to pre-petition creditors as stipulated in the Draft Plan
of Reorganization, including:
- New CPIH Funded Debt, and
- Reorganized CPIH Preferred Stock;
4. Discharge of all other pre-petition claims; and
5. Entering into new credit facilities for the Reorganized Covanta
Borrowers and CPIH Borrowers which will provide the Covanta and CPIH
with Letter of Credit capacity and a revolving line of credit for
liquidity.
Presentation of the International Business Plan
The International business plan presented in this Exhibit includes (i)
forecast results for 2003 based upon current Covanta accounting and reporting
policies; and (ii) projected results for 2004 through 2006 based upon
preliminary Fresh Start accounting and reporting estimates (see Accounting
Polices and Assumptions below).
Accounting Policies and Assumptions
Pursuant to 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"), the Projections incorporate "Fresh
Start Accounting and Reporting" principles which the Reorganizing Debtors will
be required to adopt upon emergence from bankruptcy. These "Fresh Start
Accounting and Reporting" principles provide, among other things, that the
Reorganizing Debtors' assets and liabilities be recorded at fair value.
The Fresh Start Accounting and Reporting Adjustments included in the
Projections are the preliminary estimates to adjust the Reorganizing Debtors'
capital structure and its assets and liabilities to their estimated fair values
in accordance with the current Plan of Reorganization and the Valuation Analysis
in Exhibit D.
New Accounting Pronouncements: In January 2003, the Financial
Accounting Standards Board (the "FASB") issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46
clarifies the application of Accounting Research Bulletin No. 51 "Consolidated
Financial Statements," and applies immediately to any variable interest entities
created after January 31, 2003 and to variable interest entities in which an
interest is obtained after that date. Based on current operations, the
Reorganizing Debtors do not expect the adoption of FIN No. 46 to have a material
effect of their financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies the accounting and reporting for derivative
instruments, including certain derivatives embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS No. 133"). The amendments in SFAS No. 149 require
that contracts with comparable characteristics be accounted for similarly. SFAS
No. 149 clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative according to SFAS No. 133
and when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. In addition, SFAS No. 149 amends the
definition of an "underlying" to conform it to language used in FIN No. 45 and
amends certain other existing pronouncements. The provisions of SFAS No. 149
that relate to SFAS No. 133 "Implementation Issues" that have been effective for
periods that began prior to June 15, 2003 should continue to be applied in
accordance with their respective effective dates. The requirements of SFAS No.
149 are effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The Reorganizing
Debtors do not expect the adoption of SFAS No. 149 to have a material effect on
their financial position and results of operations.
The Projections do not take into consideration the potential for
changes in the current Covanta accounting policies and procedures as described
in its December 31, 2002 Form 10K filed with the SEC and incorporated by
reference into the Disclosure Statement. Adoption of different policies and
procedures by the Reorganizing Debtors could result in a significant difference
in the actual Fresh Start Accounting and Reporting adjustments.
Use of Estimates: The preparation of projections requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses as well as disclosure of policies and
contingencies. Actual results and conclusions could differ from those estimates.
Significant estimates include management's estimate of the fair value of assets
and liabilities and the estimated useful lives of long-lived assets.
Cash and Cash Equivalents: Cash and cash equivalents include all cash
balances and highly liquid investments having original maturities of three
months or less.
Long-Term Debt: In the Projections, long-term debt consists of the
reinstatement of certain pre-petition claims for $80 million of debt with the
various terms, including interest rate and maturity, described in the Plan of
Reorganization.
Contracts and Revenue Recognition: Service revenues primarily include
the fees earned under contracts to operate and maintain facilities and to
service the project debt. Revenue from the sale of electricity and steam are
earned and are recorded based upon output delivered and capacity provided at
rates specified under contract terms or prevailing market rates.
Receivables generally are due from local governmental entities and
utilities that are heavily legislated and leveraged.
Property, Plant and Equipment: Property, plant, and equipment is stated
at estimated fair value at emergence. For financial reporting purposes,
depreciation is calculated by the straight-line method over the estimated useful
lives of the assets, which range generally from three years for computer
equipment to 40 years for facilities. Leasehold improvements are amortized by
the straight-line method over the terms of the leases or the estimated useful
lives of the improvements as appropriate
Project Debt: Payment obligations for the project debt associated with
the facilities owned by the CPIH are limited recourse to the operating
subsidiary and non-recourse to the CPIH or Covanta, subject to construction and
operating performance guarantees and commitments. These obligations are secured
by the revenues pledged under various indentures and are collateralized
principally by a mortgage lien and a security interest in each of the respective
facilities and related assets.
Restricted Funds: Restricted funds represent proceeds from the
financing and operations of the facilities. Funds are held in trust and released
as expenditures are made or upon satisfaction of conditions provided under the
respective trust agreements.
Service Contracts: Service contracts are stated at estimated fair value
at emergence. For financial reporting purposes, amortization is calculated by
the straight-line method over the remaining contract terms that range from 9 to
20 years at January 1, 2004.
Investments In and Advances to Investees and Joint Ventures: The
Reorganizing Debtors are party to joint venture agreements through which the
Reorganizing Debtors have equity investments in several operating projects. The
joint venture agreements generally provide for the sharing of operational
control as well as voting percentages. The Reorganizing Debtors record its share
of earnings from its equity investees on a pre-tax basis and records its share
of the investee's income taxes in income tax expense (benefit).
Management and Employee Compensation: Pursuant to applicable provisions
of the Bankruptcy Code, the Plan of Reorganization currently contemplates the
rejection of all existing prepetition employment agreements.
The terms of certain Post-Effective Date management incentive, employee
and non-competition agreements are currently under discussion by the Company and
its various creditor constituencies.
Guarantees: SOP 90-7 and FIN 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an interpretation of FASB Statements No. 5, 57 and 107 and rescission
of FIN No. 34" require that a guarantor recognize, at the inception of a
guarantee (other than a guarantee of its own performance) a liability for the
fair value of the obligation undertaken in issuing the guarantee. Currently, the
Reorganizing Debtors are aware of approximately $22 million of Covanta
guarantees related to the CPIH international subsidiaries that are required to
be recognized at fair value. However, the Reorganizing Debtors have not done so
within the Projections as this fair value is not material.
If the Reorganizing Debtors become aware of additional guarantees
requiring recognition, net equity would likely be unchanged but the fair value
of liabilities and assets recorded would increase. FIN 45 does not prescribe a
specific approach for subsequently measuring the guarantor's recognized
liability over the term of the related guarantee but the increased asset value
generally would be charged to income as depreciation or amortization over the
remaining useful life of the related asset.
Income Taxes: For the years ended December 31, 2004 through 2006, CPIH
plans to file an annual consolidated Federal income tax return, state income and
franchise tax returns as well as the local income tax returns required by its
international projects. Approximately $30 million of deferred tax assets,
related to the excess of the tax over the book basis of fixed assets of the
foreign projects, have not been recognized in the Projections because it is not
more likely than not that the deferred tax assets could be utilized after
expiration of local tax holidays for the international projects. Income tax
expense for the years ended December 31, 2004 through 2006 includes $4.1, $9.7
and $9.2 million, respectively, for deferred taxes since the net earnings of the
international projects cannot be assumed to be permanently reinvested by CPIH
into its international projects.
Reorganizing CPIH and Subsidiaries
Projected Statements of Operations
Pre-Emergence
(prior to
Fresh Post-Emergence
Start (including estimated Fresh
Adjustments) Start Adjustments)
------------ -----------------------------------
For the Years ended December 31, 2003
(in Thousands of Dollars) Forecast 2004 2005 2006
Total Revenues ..................... $ 176,010 $ 157,940 $ 150,376 $ 149,154
--------- --------- --------- ---------
Plant operating expenses ........... 136,995 120,376 115,447 116,701
Depreciation and amortization ...... 16,463 6,738 7,834 7,834
Debt service charges-net ........... 17,116 13,036 11,155 9,335
--------- --------- --------- ---------
Total costs and expenses ........... 170,574 140,150 134,436 133,870
Equity in income from unconsolidated
investments ........................ 21,319 20,182 27,532 28,941
--------- --------- --------- ---------
Operating income ................... 26,755 37,972 43,472 44,225
Interest expense-net ............... - (5,600) (5,688) (5,531)
--------- --------- --------- ---------
Income (loss) from continuing
operations
before taxes and minority interest 26,755 32,372 37,784 38,694
Income taxes ....................... (4,909) (14,270) (18,254) (19,946)
Minority interests ................. (3,317) (5,932) (5,787) (5,642)
--------- --------- --------- ---------
Net income ......................... $ 18,529 $ 12,170 $ 13,743 $ 13,106
========= ========= ========= =========
Reorganizing CPIH and Subsidiaries
Projected Balance Sheets
Pre-Emergence
(prior to Fresh Post-Emergence
Start (including estimated Fresh Start
Adjustments) Adjustments)
------------ ----------------------------------------------------------
December 31, Fresh Start January 1, December December December
(in Thousands of Dollars) 2003 Adjustments 2004 31, 2004 31, 2005 31, 2006
Assets:
Current assets:
Cash and cash equivalents .................. $ 15,983 $ (6,453) $ 9,530 $ 22,062 $ 23,186 $ 25,084
Restricted funds held in trust ............. 294 - 294 294 294 294
Receivables ................................ 28,990 - 28,990 22,251 23,171 23,538
Other current assets ....................... 17,125 - 17,125 16,935 16,756 16,586
--------- --------- --------- --------- --------- ---------
Total current assets ....................... 62,392 (6,453) 55,939 61,542 63,407 65,502
Property, plant and equipment - net ........ 185,591 (84,642) 100,949 91,878 81,996 72,379
Restricted funds held in trust ............. 17,047 - 17,047 17,583 16,482 15,443
Unbilled service and other receivables ..... 4,992 - 4,992 4,992 4,992 4,992
Goodwill and other intangible assets ....... 9,868 (9,616) 252 187 123 61
Investments in and advances to investees
and joint ventures ......................... 124,115 (23,248) 100,867 109,096 120,408 133,101
Other assets ............................... 10 - 10 10 10 10
--------- --------- --------- --------- --------- ---------
Total Assets ............................... $ 404,015 $(123,959) $ 280,056 $ 285,288 $ 287,418 $ 291,488
========= ========= ========= ========= ========= =========
Liabilities and Shareholders Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt .......... $ 2,634 $ - $ 2,634 $ 4,937 $ 4,541 $ 4,757
Current portion of project debt ............ 13,585 - 13,585 13,153 12,740 12,500
Accounts payable ........................... - - - 4,000 3,500 3,000
Income taxes payable ....................... 10,031 - 10,031 9,962 9,895 9,831
Accrued expenses and other ................. 19,809 - 19,809 19,594 19,434 19,281
--------- --------- --------- --------- --------- ---------
Total current liabilities .................. 46,059 46,059 51,646 50,110 49,369
Long-term debt ............................. 0 80,000 80,000 75,842 69,136 64,060
Project debt ............................... 109,414 (0) 109,414 94,580 80,452 66,837
Deferred taxes payable ..................... 0 0 0 4,114 13,776 23,013
Minority interests ......................... 36,205 (21,622) 14,583 17,666 19,488 21,357
--------- --------- --------- --------- --------- ---------
Total liabilities .......................... 191,678 58,378 250,056 243,848 232,962 224,636
--------- --------- --------- --------- --------- ---------
Total Shareholder's Equity ................. 212,337 (182,337) 30,000 41,441 54,456 66,852
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholder's Equity . $ 404,015 $(123,959) $ 280,056 $ 285,289 $ 287,418 $ 291,488
========= ========= ========= ========= =========
Reorganizing CPIH and Subsidiaries
Projected Statement of Cash Flows
Pre-Emergence
(prior to Fresh Post-Emergence
Start (including estimated Fresh
Adjustments) Start Adjustments)
------------ ---------------------------------
For the Years ended December 31,
(in Thousands of Dollars) 2003 2004 2005 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 18,529 $ 12,170 $ 13,743 $ 13,106
Adjustments to Reconcile Net Income to Net Cash
Provided
By Operating Activities:
Depreciation ......................................... 15,417 6,710 7,806 7,806
Amortization ......................................... 1,414 28 28 28
Foreign currency translation adjustment .............. (790) (567) (645) (608)
Deferred income taxes ................................ - 4,114 9,662 9,237
Equity in income from unconsolidated investments ..... (22,020) (20,624) (27,922) (25,918)
Minority interests expense ........................... 3,317 5,932 5,787 5,642
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Receivables .......................................... (320) 6,739 (920) (367)
Other current assets ................................. 326 188 179 171
Increase (Decrease) in Liabilities:
Accounts payable ..................................... 2,898 (69) (67) (64)
Income taxes payable ................................. 4,000 (500) (500)
Accrued expenses & other current liabilities ......... (10,245) (215) (159) (154)
Distributions to minority interests .................. (862) (2,273) (3,391) (3,219)
-------- -------- -------- --------
Net cash provided by operating activities ............ 7,664 16,133 3,601 5,160
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in facilities ............................ (3,036)
Distributions from investees and joint ventures ...... 9,338 12,395 16,610 13,225
-------- -------- -------- --------
Net cash used in investing activities ................ 6,302 12,395 16,610 13,225
CASH FLOWS FROM FINANCING ACTIVITIES:
Recourse debt repaid ................................. (3,036) (4,761) (7,309) (5,075)
Payment of debt ...................................... (15,241) (13,585) (13,153) (12,740)
Borrowings (repayments) on revolving loan ............ 2,886 274 289
Increase (decrease) in funds held in trust ........... (11,241) (536) 1,101 1,039
-------- -------- -------- --------
Net cash used in financing activities: ............... (29,518) (15,996) (19,087) (16,487)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . (15,552) 12,532 1,124 1,898
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 31,535 9,530 22,062 23,186
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 15,983 $ 22,062 $ 23,186 $ 25,084
======== ======== ======== ========
EXHIBIT G
Reorganization Plan Valuation Analysis
Important Note on Estimates of Reorganization Value
The estimates of reorganization value discussed below are not,
and do not purport to be, appraisals or liquidation values of
the Reorganized Debtors or their assets, or estimates of the
market value that could be realized through a sale of any Plan
Securities should a market for those securities develop. Such
estimates were developed solely for purposes of formulating and
negotiating a plan of reorganization for the Debtors and
analyzing the projected recoveries under the Plan.
The Debtors have been advised by Chilmark Partners LLC ("Chilmark")
with respect to the range of estimated reorganization values of Reorganized
Covanta and Reorganized CPIH. Chilmark's valuations reflect a number of
assumptions, including a successful reorganization in a timely manner of the
businesses and finances of the Covanta Debtors, the continuation as the owner
and operator of their businesses and assets from and after the Effective Date,
the projections reflected in the Projections, the amount of available cash and
other liquidity, market conditions, and the Plan becoming effective in
accordance with its terms on a basis consistent with the estimates and other
assumptions discussed herein.
The reorganization value of Reorganized Covanta and Reorganized CPIH
discussed in this section includes the ongoing domestic and international
operating businesses, respectively, and excludes the assets and liabilities of
the Liquidating Debtors.
Reorganized Covanta
The Debtors have been advised by Chilmark with respect to the range of
estimated reorganization value of Reorganized Covanta and its debtor and
non-debtor subsidiaries (including the common equity value of Reorganized CPIH
and its subsidiaries). The total reorganization value range for ongoing
operating business was estimated by Chilmark to be approximately $280 to $315
million as of an assumed Effective Date of December 31, 2003. The reorganization
equity value, which takes into account the estimated debt balances at and beyond
the Effective Date, was estimated by Chilmark to be approximately $40 million as
of an assumed Effective Date of December 31, 2003. The foregoing Covanta
reorganization equity value (ascribed as of the date of this Disclosure
Statement) reflects, among other factors discussed below, current financial
market conditions and the inherent uncertainty as to the achievement of the
Projections.
The Plan contemplates the distribution of warrants to certain holders
of Allowed Claims. While warrants may be valued using complex mathematical
computations, these computations are based upon highly subjective assumptions,
including, among others, the estimated trading prices of the equity securities
for which the warrants may be exercised and the projected volatility of price
movements of those equity securities. Based on an assumed stock price of $40.00
per share, an estimated warrant strike price of $40.00 per warrant, a ten year
term, estimated volatility of 15%, an adjustment for a management incentive plan
that will dilute the warrant holders, and a 50% discount to account for lack of
liquidity and other non-standard warrant terms; Chilmark computed the
theoretical value of the Warrants to be approximately $7.1 million, or $7.10 per
warrant. Since the New Common Stock will be privately held by the ESOP, there
will not be an active trading market for the New Common Stock and, therefore,
there can be no assurance that the volatility of the New Common Stock will be
perceived to be 15% or that the market value of a warrant will be $7.10.
Finally, actual trading values for warrants frequently differ materially from
those values derived from mathematical computations. Accordingly, the foregoing
computation of value cannot be relied upon as a measure of realizable value of
the Warrants. See "Certain Risk Factors to be Considered - Market for
Securities."
Reorganized CPIH
The Debtors have been advised by Chilmark with respect to the range of
estimated reorganization value of Reorganized CPIH and its subsidiaries. The
total reorganization value range for ongoing operating business was estimated by
Chilmark to be approximately $95 to $125 million as of December 31, 2003. The
foregoing valuation reflects a number of assumptions, including a successful
reorganization in a timely manner, the forecasts reflected in the Projections,
the amount of available cash, market conditions and the Plan becoming effective
in accordance with its terms on a basis consistent with the estimates and other
assumptions discussed herein.
Valuation Methodology
In preparing the estimated reorganization values, Chilmark: (a)
reviewed certain historical financial information of Covanta for recent years
and interim periods; (b) reviewed certain internal financial and operating data
of Covanta relating to their long-term prospects; (c) met with certain members
of senior management of Covanta to discuss Covanta's operations and future
prospects; (d) reviewed publicly available financial data and considered the
market values of public companies that participated in the same industry as
Covanta; (e) reviewed the financial terms, to the extent publicly available, of
certain acquisitions of companies that Chilmark believes were comparable to the
operating businesses of Covanta; (f) considered certain economic and industry
information relevant to Covanta's operating businesses; (g) reviewed indicative
bids from other interested parties; (h) considered the impact of changes to
estimated claim amounts; (i) considered the impact and duration of both the
S-corporation status and ESOP structure; and (j) conducted such other analyses
as Chilmark deemed appropriate. Although Chilmark conducted a review and
analysis of Covanta's businesses, operating assets and liabilities and business
plans, Chilmark assumed and relied on the accuracy and completeness of all
financial and other information furnished to it by the Debtors and publicly
available information. In addition, Chilmark did not independently verify the
assumptions underlying the Projections or any publicly available information in
connection with such valuation.
The estimated reorganization values were prepared by Chilmark on the
basis of information in respect to the business and assets of Covanta Energy
Corporation available to Chilmark as of September 15, 2003. Estimates of
reorganization value do not purport to be appraisals, nor do they necessarily
reflect the values that might be realized if assets were to be sold.
The estimate of reorganization value prepared by Chilmark assumes that
the Reorganized Covanta and Reorganized CPIH, and their respective subsidiaries,
will continue as the owner and operator of their businesses and assets. Such
estimates were developed solely for purposes of formulation and negotiation of a
plan of reorganization and analysis of implied relative recoveries to creditors
thereunder. Such estimates do not purport to reflect or constitute appraisals,
liquidation values or estimates of the actual market value that may be realized
through the sale of any securities to be issued pursuant to the Plan, which may
be significantly different from the amounts set forth herein.
The estimates of reorganization values prepared by Chilmark reflect the
application of various valuation techniques, including, among others:
(a) a discounted cash flow analysis, in which Chilmark, using a
weighted average cost of capital and an assumed tax rate, computed the present
value of free cash flow and terminal value of Covanta;
(b) a review of indicative bids from other interested parties;
(c) a comparable company analysis, in which Chilmark analyzed the
enterprise value of public companies that Chilmark deemed generally comparable
to the operating businesses of Covanta, however given the S-corporation/ESOP
structure, there were no direct comparable companies; and
(d) a comparable transaction analysis, in which Chilmark analyzed the
financial terms of certain acquisitions of companies and sales of assets that
Chilmark believed were comparable to the operating businesses of Covanta,
however given the S-corporation/ESOP structure, there were no direct comparable
transactions.
An estimate of reorganization value is not entirely mathematical, but
rather it involves complex consideration and judgments concerning various
factors that could affect the value of an operating business. As a result, the
estimate of reorganization value set forth herein is not necessarily indicative
of actual outcomes, which may be significantly more or less favorable than those
set forth herein. Because such estimates are inherently subject to
uncertainties, none of Covanta, Chilmark or any other person assumes
responsibility for their accuracy. Depending on the results of the Debtors'
operations or changes in the financial markets, Chilmark's valuation analysis as
of the Effective Date may differ from that disclosed herein.
In addition, the valuation of newly-issued securities is subject to
additional uncertainties and contingencies, all of which are difficult to
predict. Actual market prices of such securities at issuance will depend upon,
among other things, prevailing interest rates, conditions in the financial
markets, the anticipated initial securities holding of prepetition creditors,
some of which may prefer to liquidate their investment rather than hold it on a
long-term basis, and other factors that generally influence the prices of
securities. Actual market prices of such securities also may be affected by the
Debtors' history in Chapter 11, conditions affecting the Debtors' competitors or
the industry generally in which the Debtors' participate or by other factors not
possible to predict. Accordingly, the reorganization values estimated by
Chilmark do not necessarily reflect, and should not be construed as reflecting,
values that will be attained in the public or private markets and are not
estimates of the post-reorganization market trading values. Any trading values
may be materially different from the values associated with Chilmark's valuation
analysis. Indeed there can be no assurance that any trading market will develop
for any of the forms of consideration distributed to Covanta's creditors.
Furthermore, in the event the actual Allowed Claims and the actual
distributions to claimholders differ from those assumed by the Debtors in their
recovery analysis, the actual recoveries realized by holders of Allowed Claims
could be significantly higher or lower than estimated by the Debtors.
EXHIBIT H
Hypothetical Liquidation VALUATION Analysis
Important Note on Debtor's Liquidation Analysis
The Liquidation Analysis presented below is an estimate, based
on a number of significant assumptions, of the proceeds that may
be generated in a hypothetical chapter 7 liquidation of each of
the Debtor and its debtor and non-debtor subsidiaries. The
liquidation analysis is not, and does not, purport to be a
valuation of the Debtors' assets or indicative of the values
that may be realized in an actual liquidation.
The Debtors have prepared the Liquidation Analysis in consultation with
Chilmark. The liquidation analysis presented herein (the "Liquidation Analysis")
reflects the projected outcome of the hypothetical, orderly liquidation of the
Debtors under chapter 7 of the Bankruptcy Code. The projected liquidation
proceeds to each Class was less than or equal to the estimated recoveries under
the Reorganization Plan.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by management,
are inherently subject to economic, competitive and other contingencies beyond
the control of the Debtors and management. It is possible that the time needed
to dispose of the assets could exceed the timeframes assumed in this analysis,
causing an adverse impact on the recoveries depicted herein. Similarly, other
assumptions with respect to the liquidation process may be subject to change.
Upon liquidation, there is a general risk of unanticipated events which could
have a significant impact upon projected cash receipts and disbursements. Cash
flows could be impaired due to events such as: (i) an adverse impact on clients'
perceptions; (ii) disruptions in the employee base; (iii) a loss of vendor
support and/or change in terms; (iv) an adverse affect on the relationship with
clients and energy offtake customers; and (v) the inability to find a purchaser
for a specific project within the six month liquidation period. In addition, the
proceeds from the liquidation have not been discounted to reflect any delay in
distributions following the completion of the liquidation process. Applying an
additional discount factor to the proceeds from the liquidation to account for
any such delay would result in a lower range of recoveries for certain
creditors. For all of the foregoing reasons, there can be no assurance that the
values reflected in the Liquidation Analysis or recovery percentages would be
realized if the Debtors were, in fact, liquidated in chapter 7 cases, and actual
results could vary materially from those shown in this analysis.
Liquidation Analysis Assumptions and Summary of Liquidation Recovery
The following major assumptions have been made in the liquidation analysis set
forth in this Exhibit F:
1. The liquidation of assets commences December 31, 2003 and is completed
by June 30, 2004.
2. The liquidation of the projects produce taxable income and the related
taxes are deducted from the gross proceeds to arrive at the net
liquidation proceeds available to creditors.
3. During the liquidation process, the Debtors continue to operate their
businesses as a going concern.
4. The Debtors are liquidated under the direction of a trustee appointed
by the Bankruptcy Court who will be entitled to 3% of the gross
liquidation proceeds as fees.
5. Other professionals such as brokers, attorneys and other advisors will
be utilized in order to expedite the liquidation process. These and
other direct costs related to the sales of the individual properties
and contracts are estimated at 5% of the gross liquidation values.
6. The geothermal projects are sold in accordance with the Plan for the
same proceeds, net of certain senior project-type debt and claims for
those projects. Cash on hand will be the amount forecast for December
31, 2003 plus the net proceeds from the geothermal sale.
7. Any cash generated by the projects during the liquidation period is
assumed to be consumed by operating expenses, capital expenditures and
other similar expenses.
8. Proceeds from projects assets have been calculated assuming that (i)
all projects are sold through auctions in Bankruptcy Court as
"going-concerns" and (ii) all executory contracts and unexpired leases
that have not been rejected or terminated by the Debtors are assigned
to the purchasers. As a result, all cure costs related to these
executory contracts and unexpired leases are paid out of the gross
liquidation proceeds.
9. Project-level employees will be employed by the new project owners,
and therefore, will not be entitled to severance or other termination
benefits. All corporate level employees will be severed.
10. Estimated gross proceeds from asset sales are valued at a 40% discount
to the reorganization value for the "Low" scenario and a 20% discount
for the "High" scenario.
Application of net liquidation proceeds has been made in accordance with the
priorities set forth in the Bankruptcy Code. Please see the attached summary of
liquidation recoveries by Class.
REORGANIZATION PLAN
HYPOTHETICAL LIQUIDATION ANALYSIS
(in $ millions)
Estimated Proceeds Available for Distribution
-------- --------
Low High
-------- --------
Gross proceeds $ 244.5 $ 326.0
Cash on hand 191.8 213.8
Less: Taxes Payable (250.4) (267.7)
Less: Liquidation Costs (19.6) (26.1)
Less: Priority and Administrative Claims (267.3) (106.3)
-------- --------
Net Proceeds for Secured and Unsecured Claims $ (100.9) $ 139.7
======== ========
Estimated Recovery Estimated Recovery
Average Amount Percentage
Estimated --------------------- ---------------------
Class Description of Allowed Claims Allowed Claims Low High Low High
--------------- -------- ---------- --------- --------
1 Priority Non-Tax Claims $ 0.1 $ 0.1 $ 0.1 100.0% 100.0%
2 Project Secured Claims $ 0.5 $ 0.5 $ 0.5 100.0% 100.0%
3 Secured Bank & 9.25 Debenture Claims 538.7 $ - $ 130.6 0.0% 24.2%
4 Operating Company Unsecured $ 32.5 $ - $ 9.0 [a] 0.0% 27.7%
Claims
6 Parent & Holding Unsecured Claims $ 312.5 $ - $ - 0.0% 0.0%
7 Convertible Subordinated Bond Claims $ 154.5 $ - $ - 0.0% 0.0%
[a] This recovery amount is an estimated average of the liquidation proceeds
available to the class on average. At certain debtors, the liquidation proceeds
will result in a higher recovery and at other debtors the liquidation proceeds
would be a lower recovery.
EXHIBIT I
Estimated Recovery Analysis
Important Note on Estimates of Recovery
The estimates of recovery discussed below are not, and do not
purport to be, appraisals, liquidation values, or estimates of
the market value that could be realized through a sale of any
Plan Securities should a market for those securities develop. In
addition, significant assumptions were made in estimating the
claim amounts by creditor class. Such estimates were developed
solely for purposes of formulating and negotiating a plan of
reorganization for the Debtors and analyzing the projected
recoveries under the Plan. The actual recoveries could be
materially different from the estimated recoveries due to
changes in claim amounts, Distributable Cash, actual amounts
realized for any of the Plan distributions and other items.
For purposes of preparing the Estimated Recovery Analysis, an estimate
of claims by class was necessary. For certain classes of claims, the exact
amount of claims is uncertain or unknown as of the date of this analysis. In
addition, while the Debtor has made considerable progress reconciling the claims
filed in these cases, it is expected that certain claims will be disputed. The
actual allowed claims for certain creditors may not be know for some time and
could differ from the estimates used in this analysis. Therefore, for purposes
of this analysis, the Debtors estimated the claim amounts for certain of its
creditor classes. A summary of this claims estimation is included separately in
this exhibit.
In addition to estimating the claim values, the Debtor also had to
estimate the value of certain consideration distributed to the creditors. The
recovery analysis is based on the face amount of notes and preferred stock
distributed to the creditors under the Plan. In addition, the warrants
distributed to certain classes of creditors were valued at the same value as
outlined in the Reorganization Plan and Valuation Analysis. The Estimated
Recovery Analysis illustrates the potential recovery under the various
assumptions using a high, low and average estimate for claim values. The actual
amount of value from plan distributions could be different than the assumptions
used in this Estimated Recovery Analysis.
The Estimated Recovery Analysis was performed for the Reorganizing
Debtors. In the Reorganization Plans, there are certain classes that were not
analyzed as part of the Estimated Recovery Analysis. These classes in general
are expected to either (i) receive payment or be reinstated in full
satisfaction, release and discharge of their respective claims, or (ii) receive
no distribution under the Reorganization Plans. The treatment of those creditors
not included in the Estimated Recovery Analysis is summarized in the Overview of
the Disclosure Statement.
The Reorganization Plan provides that only those holders of Class 3
Claims that participate as New Facility Lenders will receive Distributable Cash
as part of their Class 3 Distribution. For purposes of this analysis, it was
assumed that the Class 3A creditors provided 100% of the New Facility.
The Debtor expects there to be approximately $60 million of
Distributable Cash at emergence. However, the actual amount of Distributable
Cash could be higher or lower, and is dependant upon a number of events,
including but not limited to, the following:
- Net proceeds from sale of geothermal projects;
- Operating cash on hand prior to emergence;
- Amount of exit costs, including administrative costs, cure costs,
priority claims, severance;
- Amount of cash required for working capital purposes and tax reserves;
- Other cash costs associated with consummating the transactions under
the Plan.
Given the number of uncertainties in arriving at an estimated recovery,
the Debtor has provided a range of estimated recoveries. The following pages
indicate recoveries to certain creditor classes for the High, Low and Average
claims estimates. In addition, the scenario using the high end of the claims
range also assumes a lower amount of Distributable Cash.
To the extent that the amount of Distributable Cash is lower than $60 million,
then the recoveries for those creditor classes receiving the Distributable Cash
will be reduced on a dollar-for-dollar basis. For example, a $20 million
reduction in Distributable Cash would reduce the estimated recovery of the Class
3 creditors from approximately 68.5% to 64.8% (calculated on average claim
amounts and before impact of plan settlements).
ESTIMATED RECOVERY ANALYSIS - - AVERAGE CLAIM RANGE
The Estimated Recovery Analysis below was based, in part, on Reorganization
Value for Covanta and CPIH. The estimates of reorganization value discussed
below are not, and do not purport to be, appraisals or liquidation values of the
Reorganized Debtors or their assets, or estimates of the market value that could
be realized through a sale of any Plan Securities should a market for those
securities develop. Such estimates were developed solely for purposes of
formulating and negotiating a plan of reorganization for the Debtors and
analyzing the projected recoveries under the Plan.
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS BEFORE IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
1 Priority Non-Tax Claims $ 0.1 $ 0.1 $ - $ - $ - NA
2 Project Debt Claims 0.5 0.5 - - - NA
3A Secured Bank Claim 433.7 - 3.6 60.0 148.6 212.2 48.9%
3B Secured 9.25 Debenture Claims 105.0 - - - 51.4 51.4 48.9%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 538.7 - 3.6 60.0 200.0 263.6 48.9%
4 Operating Co. Unsecured Claims 32.5 - - - - NA
6 Parent & Holding Unsecured Claims 312.5 - - - - NA
7 Convertible Sub. Bond Claims 154.5 - - - - NA
8 Convenience Claims 2.1 1.6 - - - NA
Total $ 2.2 $ 3.6 $ 60.0 $ 200.0 $ 263.6
======= ========= ======== ========= =======
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
1 Priority Non-Tax Claims $ - $ - $ - $ - $ - $ 0.1 100.0%
2 Project Debt Claims - - - - - 0.5 100.0%
3A Secured Bank Claim - - 2.0 61.2 21.7 297.1 68.5%
3B Secured 9.25 Debenture Claims - - 0.5 14.8 5.3 71.9 68.5%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.5 76.0 27.0 369.0 68.5%
4 Operating Co. Unsecured Claims - 32.5 - - - 32.5 100.0%
6 Parent & Holding Unsecured Claims - - 1.1 4.0 3.0 8.1 2.6%
7 Convertible Sub. Bond Claims - - - - - - 0.0%
8 Convenience Claims - - - - - 1.6 75.0%
Total $ - $ 32.5 $ 3.6 $ 80.0 $ 30.0 $ 411.8
======== ======= ========= ======== ========= =======
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS AFTER IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
3A Secured Bank Claim $ 433.7 $ - $ 3.6 $ 60.0 $ 148.6 $ 212.2 48.9%
3B Secured 9.25 Debenture Claim 105.0 - - - 45.0 45.0 42.8%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 538.7 - 3.6 60.0 193.6 257.1 47.7%
6 Parent & Holding Unsecured Claims $ 312.5 $ - $ - $ - $ 6.4 $ 6.4
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
3A Secured Bank Claim $ - $ - $ 2.0 $ 61.2 $ 21.7 $ 297.1 68.5%
3B Secured 9.25 Debenture Claim - - 0.4 13.0 4.6 62.9 59.9%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.4 74.1 26.3 360.0 66.8%
6 Parent & Holding Unsecured Claims $ - $ - $ 1.1 $ 5.9 $ 3.7 17.1 5.5%
Note: The analysis assumes that the holders of the Secured Bank Claims provide
the new exit facility and , therefore, receive the New Lender Warrants and
Distributable Cash as part of their Secured Value Distribution
ESTIMATED RECOVERY ANALYSIS - - HIGH CLAIM RANGE
The Estimated Recovery Analysis below was based, in part, on Reorganization
Value for Covanta and CPIH. The estimates of reorganization value discussed
below are not, and do not purport to be, appraisals or liquidation values of the
Reorganized Debtors or their assets, or estimates of the market value that could
be realized through a sale of any Plan Securities should a market for those
securities develop. Such estimates were developed solely for purposes of
formulating and negotiating a plan of reorganization for the Debtors and
analyzing the projected recoveries under the Plan.
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS BEFORE IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
1 Priority Non-Tax Claims $ 0.2 $ 0.2 $ - $ - $ - NA
2 Project Debt Claims 1.0 1.0 - - - NA
3A Secured Bank Claim 448.6 - 3.6 40.0 153.8 197.4 44.0%
3B Secured 9.25 Debenture Claims 105.0 - - - 46.2 46.2 44.0%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 553.6 - 3.6 40.0 200.0 243.6 44.0%
4 Operating Co. Unsecured Claims 35.0 - - - - NA
6 Parent & Holding Unsecured Claims 500.0 - - - - NA
7 Convertible Sub. Bond Claims 154.5 - - - - NA
8 Convenience Claims 2.1 1.6 - - - NA
Total $ 2.8 $ 3.6 $ 40.0 $ 200.0 $ 243.6
======= ========= ======== ========= =======
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
1 Priority Non-Tax Claims $ - $ - $ - $ - $ - $ 0.2 100.0%
2 Project Debt Claims - - - - - 1.0 100.0%
3A Secured Bank Claim - - 2.0 61.6 21.9 282.8 63.0%
3B Secured 9.25 Debenture Claims - - 0.5 14.4 5.1 66.2 63.0%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.5 76.0 27.0 349.0 63.0%
4 Operating Co. Unsecured Claims - 35.0 - - - 35.0 100.0%
6 Parent & Holding Unsecured Claims - - 1.1 4.0 3.0 8.1 1.6%
7 Convertible Sub. Bond Claims - - - - - - 0.0%
8 Convenience Claims - - - - - 1.6 75.0%
Total $ - $ 35.0 $ 3.6 $ 80.0 $ 30.0 $ 394.9
======== ======= ========= ======== ========= =======
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS AFTER IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
3A Secured Bank Claim $ 448.6 $ - $ 3.6 $ 40.0 $ 153.8 $ 197.4 44.0%
3B Secured 9.25 Debenture Claim 105.0 - - - 40.4 40.4 38.5%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 553.6 - 3.6 40.0 194.2 237.8 43.0%
6 Parent & Holding Unsecured Claims$ 500.0 $ - $ - $ - $ 5.8 $ 5.8
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
3A Secured Bank Claim $ - $ - $ 2.0 $ 61.6 $ 21.9 $ 282.8 63.0%
3B Secured 9.25 Debenture Claim - - 0.4 12.6 4.5 57.9 55.2%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.4 74.2 26.4 340.8 61.6%
6 Parent & Holding Unsecured Claims$ $ - $ - $ 1.1 $ 5.8 $ 3.6 16.3 3.3%
Note: The analysis assumes that the holders of the Secured Bank Claims provide
the new exit facility and , therefore, receive the New Lender Warrants and
Distributable Cash as part of their Secured Value Distribution
ESTIMATED RECOVERY ANALYSIS - - LOW CLAIM RANGE
The Estimated Recovery Analysis below was based, in part, on Reorganization
Value for Covanta and CPIH. The estimates of reorganization value discussed
below are not, and do not purport to be, appraisals or liquidation values of the
Reorganized Debtors or their assets, or estimates of the market value that could
be realized through a sale of any Plan Securities should a market for those
securities develop. Such estimates were developed solely for purposes of
formulating and negotiating a plan of reorganization for the Debtors and
analyzing the projected recoveries under the Plan.
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS BEFORE IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
1 Priority Non-Tax Claims $ - $ - $ - $ - $ - NA
2 Project Debt Claims $ 0.3 0.3 - - - NA
3A Secured Bank Claim 418.7 - 3.6 60.0 147.2 210.7 50.3%
3B Secured 9.25 Debenture Claims 105.0 - - - 52.8 52.8 50.3%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 523.7 - 3.6 60.0 200.0 263.6 50.3%
4 Operating Co. Unsecured Claims 30.0 - - - - NA
6 Parent & Holding Unsecured Claims 125.0 - - - - NA
7 Convertible Sub. Bond Claims 154.5 - - - - NA
8 Convenience Claims 2.1 1.6 - - - NA
Total $ 1.8 $ 3.6 $ 60.0 $ 200.0 $ 263.6
======= ========= ======== ========= =======
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
1 Priority Non-Tax Claims $ - $ - $ - $ - $ - $ - N/A
2 Project Debt Claims - - - - - 0.3 100.0%
3A Secured Bank Claim - - 2.0 60.8 21.6 295.0 70.5%
3B Secured 9.25 Debenture Claims - - 0.5 15.2 5.4 74.0 70.5%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.5 76.0 27.0 369.0 70.5%
4 Operating Co. Unsecured Claims - 30.0 - - - 30.0 100.0%
6 Parent & Holding Unsecured Claims - - 1.1 4.0 3.0 8.1 6.5%
7 Convertible Sub. Bond Claims - - - - - - 0.0%
8 Convenience Claims - - - - - 1.6 75.0%
Total $ - $ 30.0 $ 3.6 $ 80.0 $ 30.0 $ 408.9
======== ======= ========= ======== ========= =======
ESTIMATED RECOVERIES FOR CERTAIN CREDITORS AFTER IMPACT OF PLAN SETTLEMENTS
(in $ millions) Paid at Avg. Paid at New High Yield Secured
Est. as Exit Lender Dist. Secured Value
Class Claim Cost Warrants Cash Notes Dist. %
- -------------------------------------- -------- ------- --------- -------- --------- ------- ------
3A Secured Bank Claim $ 418.7 $ - $ 3.6 $ 60.0 $ 147.2 $ 210.7 50.3%
3B Secured 9.25 Debenture Claim 105.0 - - - 46.2 46.2 44.0%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 523.7 - 3.6 60.0 193.4 256.9 49.1%
6 Parent & Holding Unsecured Claims$ 125.0 $ - $ - $ - $ 6.6 $ 6.6
(in $ millions) Paid at Excess New CPIH Reorg.
Dist. Unsecured Add'l Funded CPIH Recovery
Cash Notes Warrants Debt Pref. Stock TOTAL %
-------- --------- --------- --------- ---------- ------- ------
3A Secured Bank Claim $ - $ - $ 2.0 $ 60.8 $ 21.6 $ 295.0 70.5%
3B Secured 9.25 Debenture Claim - - 0.4 13.3 4.7 64.7 61.7%
-------- ------- --------- -------- --------- ------- ------
Total Class 3 - - 2.4 74.1 26.3 359.8 68.7%
6 Parent & Holding Unsecured Claims$ $ - $ - $ 1.1 $ 5.9 $ 3.7 17.3 13.9%
Note: The analysis assumes that the holders of the Secured Bank Claims provide
the new exit facility and , therefore, receive the New Lender Warrants and
Distributable Cash as part of their Secured Value Distribution
Estimated Claim Values
For purposes on preparing the Estimated Recovery Analysis, an estimate
of claims by class was necessary. For certain classes of claims, the exact
amount of claim is uncertain or unknown as of the date of this analysis. In
addition, while the Debtor has made considerable progress reconciling the claims
filed in these cases, it is expected that certain claims will be disputed. The
actual allowed claims for certain creditors may not be know for some time.
Therefore, for purposes of this analysis, the Debtors estimated the claim
amounts for certain of its creditor classes. A summary of this analysis is
detailed below.
(in $ millions)
Reorganization Plan
Class Description of Allowed Claims Low Average High
- -------------------------------------- ---------- ------------ ------------
1 Priority Non-Tax Claims $ - $ 0.1 $ 0.2
2 Project Debt Claims $ 0.3 $ 0.5 $ 1.0
3A Secured Bank Claim $ 418.7 $ 433.7 $ 448.6
3B Secured 9.25 Debenture Claims $ 105.0 $ 105.0 $ 105.0
4 Operating Company Unsecured Claims $ 30.0 $ 32.5 $ 35.0
6 Parent & Holding Co. Unsecured Claims $ 125.0 $ 312.5 $ 500.0
7 Convertible Subordinated Bond Claims $ 154.5 $ 154.5 $ 154.5
8 Convenience Claims $ 2.1 $ 2.1 $ 2.1
Heber Plan
Class Description of Allowed Claims Low Average High
- -------------------------------------- ---------- ------------ ------------
1 Priority Non-Tax Claims $ - $ - $ -
2HA GECC Secured SIGC Claim
2HB GECC Secured HGC/HFC Claims $ - $ 3.4 $ 6.8
3H Heber Secured Claims
7 Unsecured Claims $ 4.0 $ 5.0 $ 6.0
Liquidation Plan
Class Description of Allowed Claims Low Average High
- -------------------------------------- ---------- ------------ ------------
1 Priority Non-Tax Claims $ - $ 0.1 $ 0.2
3A Liquidation Secured Claims
3B Secured CSFB Claim against Ogden FMCA
3C Covanta Tulsa Claims
7 Unsecured Liquidation Claims & Insurance Claims $ 5.0 $ 252.5 $ 500.0
[GRAPHIC OMITTED]
EXHIBIT J
HISTORICAL FINANCIAL RESULTS
The Company's Form 10-K Annual Report for the period ended December 31,
2002 (the "2002 Form 10-K") and the Form 10-Q Quarterly Report for the period
ended June 30, 2003 (the "June 30, 2003 Form 10-Q"), contain 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 period ended June 30, 2003 and
2002.
The Company's 2002 Form 10-K and June 30, 2003 Form 10-Q are available
on the Company's website at:
http://investors.covantaenergy.com/restructure.cfm
EXHIBIT K
LIST OF DEBTORS AND DEBTORS IN POSSESSION
Reorganizing Debtors
Operating Company Debtors
Debtor Case Number
------ -----------
1. Covanta Alexandria/Arlington, Inc. 02-40929 (CB)
2. Covanta Babylon, Inc. 02-40928 (CB)
3. Covanta Bessemer, Inc. 02-40862 (CB)
4. Covanta Bristol, Inc. 02-40930 (CB)
5. Covanta Cunningham Environmental Support Services, Inc. 02-40863 (CB)
6. Covanta Energy Americas, Inc. 02-40881 (CB)
7. Covanta Energy Construction, Inc. 02-40870 (CB)
8. Covanta Energy Resource Corp. 02-40915 (CB)
9. Covanta Engineering Services, Inc. 02-40898 (CB)
10. Covanta Fairfax, Inc. 02-40931 (CB)
11. Covanta Geothermal Operations, Inc. 02-40872 (CB)
12. Covanta Heber Field Energy, Inc. 02-40893 (CB)
13. Covanta Hennepin Energy Resource Co., L.P. 02-40906 (CB)
14. Covanta Hillsborough, Inc. 02-40932 (CB)
15. Covanta Honolulu Resource Recovery Venture 02-40905 (CB)
16. Covanta Huntington Limited Partnership 02-40916 (CB)
17. Covanta Huntington Resource Recovery One Corp. 02-40919 (CB)
18. Covanta Huntington Resource Recovery Seven Corp. 02-40920 (CB)
19. Covanta Huntsville, Inc. 02-40933 (CB)
20. Covanta Hydro Energy, Inc. 02-40894 (CB)
21. Covanta Hydro Operations West, Inc. 02-40875 (CB)
22. Covanta Hydro Operations, Inc. 02-40874 (CB)
23. Covanta Imperial Power Services, Inc. 02-40876 (CB)
24. Covanta Indianapolis, Inc. 02-40934 (CB)
25. Covanta Kent, Inc. 02-40935 (CB)
26. Covanta Lake, Inc. 02-40936 (CB)
27. Covanta Lancaster, Inc. 02-40937 (CB)
28. Covanta Lee, Inc. 02-40938 (CB)
29. Covanta Long Island, Inc. 02-40917 (CB)
30. Covanta Marion Land Corp. 02-40940 (CB)
31. Covanta Marion, Inc. 02-40939 (CB)
32. Covanta Mid-Conn, Inc. 02-40911 (CB)
33. Covanta Montgomery, Inc. 02-40941 (CB)
34. Covanta New Martinsville Hydro-Operations Corp. 02-40877 (CB)
35. Covanta Oahu Waste Energy Recovery, Inc. 02-40912 (CB)
36. Covanta Onondaga Five Corp. 02-40926 (CB)
37. Covanta Onondaga Four Corp. 02-40925 (CB)
38. Covanta Onondaga Limited Partnership 02-40921 (CB)
39. Covanta Onondaga Operations, Inc. 02-40927 (CB)
40. Covanta Onondaga Three Corp. 02-40924 (CB)
41. Covanta Onondaga Two Corp. 02-40923 (CB)
42. Covanta Onondaga, Inc. 02-40922 (CB)
43. Covanta Operations of Union, LLC 02-40909 (CB)
44. Covanta OPW Associates, Inc. 02-40908 (CB)
45. Covanta OPWH, Inc. 02-40907 (CB)
46. Covanta Pasco, Inc. 02-40943 (CB)
47. Covanta Projects of Hawaii, Inc. 02-40913 (CB)
48. Covanta Projects of Wallingford, L.P. 02-40903 (CB)
49. Covanta Secure Services, Inc. 02-40901 (CB)
50. Covanta SIGC Geothermal Operations, Inc. 02-40883 (CB)
51. Covanta Stanislaus, Inc. 02-40944 (CB)
52. Covanta Tampa Bay, Inc. 02-40865 (CB)
53. Covanta Union, Inc. 02-40946 (CB)
54. Covanta Wallingford Associates, Inc. 02-40914 (CB)
55. Covanta Waste to Energy of Italy, Inc. 02-40902 (CB)
56. Covanta Water Treatment Services, Inc. 02-40868 (CB)
57. DSS Environmental, Inc. 02-40869 (CB)
58. ERC Energy II, Inc. 02-40890 (CB)
59. ERC Energy, Inc. 02-40891 (CB)
60. Heber Field Energy II, Inc. 02-40892 (CB)
61. Heber Loan Partners 02-40889 (CB)
62. OPI Quezon, Inc. 02-40860 (CB)
63. Three Mountain Operations, Inc. 02-40879 (CB)
64. Three Mountain Power, LLC 02-40880 (CB)
Covanta and Intermediate Holding Company Debtors
1. Covanta Energy Corporation 02-40841(CB)
2. Covanta Acquisition, Inc. 02-40861(CB)
3. Covanta Energy Group, Inc. 03-13707(CB)
4. Covanta Energy International, Inc. 03-13706(CB)
5. Covanta Energy West, Inc. 02-40871(CB)
6. Covanta Power Equity Corp. 02-40895(CB)
7. Covanta Power International Holdings, Inc. 03-13708(CB)
8. Covanta Projects, Inc. 03-13709(CB)
9. Covanta Systems, Inc. 02-40948(CB)
10. Covanta Waste to Energy, Inc. 02-40949(CB)
11. Covanta Water Holdings, Inc. 02-40866(CB)
12. Covanta Water Systems, Inc. 02-40867(CB)
13. Covanta Geothermal Operations Holdings, Inc. 02-40873(CB)
14. Covanta RRS Holdings, Inc. 02-40910(CB)
15. Covanta Energy Services, Inc. 02-40899(CB)
16. Covanta Energy Services of New Jersey, Inc. 02-40900(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. 02-16322 (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 Tulsa, Inc. 02-40945 (CB)
17. Covanta Waste Solutions, Inc. 02-40897 (CB)
18. Doggie Diner, Inc. 03-13684 (CB)
19. Gulf Coast Catering Company, Inc. 03-13685 (CB)
20. J.R. Jack's Construction Corporation 02-40857 (CB)
21. Lenzar Electro-Optics, Inc. 02-40832 (CB)
22. Logistics Operations, Inc. 03-13688 (CB)
23. Offshore Food Service, Inc. 03-13694 (CB)
24. OFS Equity of Alexandria/Arlington, Inc. 03-13687 (CB)
25. OFS Equity of Babylon, Inc. 03-13690 (CB)
26. OFS Equity of Delaware, Inc. 03-13689 (CB)
27. OFS Equity of Huntington, Inc. 03-13691 (CB)
28. OFS Equity of Indianapolis, Inc. 03-13693 (CB)
29. OFS Equity of Stanislaus, Inc. 03-13692 (CB)
30. Ogden Allied Abatement & Decontamination Service, Inc. 02-40827 (CB)
31. Ogden Allied Maintenance Corp. 02-40828 (CB)
32. Ogden Allied Payroll Services, Inc. 02-40835 (CB)
33. Ogden Attractions, Inc. 02-40836 (CB)
34. Ogden Aviation Distributing Corp. 02-40829 (CB)
35. Ogden Aviation Fueling Company of Virginia, Inc. 02-40837 (CB)
36. Ogden Aviation Security Services of Indiana, Inc. 03-13695 (CB)
37. Ogden Aviation Service Company of Colorado, Inc. 02-40839 (CB)
38. Ogden Aviation Service Company of Pennsylvania, Inc. 02-40834 (CB)
39. Ogden Aviation Service International Corporation 02-40830 (CB)
40. Ogden Aviation Terminal Services, Inc. 03-13696 (CB)
41. Ogden Aviation, Inc. 02-40838 (CB)
42. Ogden Cargo Spain, Inc. 02-40843 (CB)
43. Ogden Central and South America, Inc. 02-40844 (CB)
44. Ogden Cisco, Inc. 03-13698 (CB)
45. Ogden Communications, Inc. 03-13697 (CB)
46. Ogden Constructors, Inc. 02-40858 (CB)
47. Ogden Environmental & Energy Services Co., Inc. 02-40859 (CB)
48. Ogden Facility Holdings, Inc. 02-40845 (CB)
49. Ogden Facility Management Corporation of Anaheim 02-40846 (CB)
50. Ogden Facility Management Corporation of West Virginia 03-13699 (CB)
51. Ogden Film and Theatre, Inc. 02-40847 (CB)
52. Ogden Firehole Entertainment Corp. 02-40848 (CB)
53. Ogden Food Service Corporation of Milwaukee, Inc. 03-13701 (CB)
54. Ogden International Europe, Inc. 02-40849 (CB)
55. Ogden Leisure, Inc. 03-13700 (CB)
56. Ogden Management Services, Inc. 03-13702 (CB)
57. Ogden New York Services, Inc. 02-40826 (CB)
58. Ogden Pipeline Service Corporation 03-13704 (CB)
59. Ogden Services Corporation 02-40850 (CB)
60. Ogden Support Services, Inc. 02-40851 (CB)
61. Ogden Technology Services Corporation 03-13703 (CB)
62. Ogden Transition Corporation 03-13705 (CB)
63. PA Aviation Fuel Holdings, Inc. 02-40852 (CB)
64. 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)
Debtors Not Treated Under the Plans
Covanta Warren Energy Resource Co., L.P. 02-40904 (CB)