EXHIBIT 99.4
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
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:
In re: :
: Chapter 11 Case Nos.
KAISER ALUMINA AUSTRALIA CORPORATION and : 02-10432 and 02-10438
KAISER FINANCE CORPORATION, : Jointly Administered Under
: Case No. 02-10429 (JKF)
Debtors. :
:
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DISCLOSURE STATEMENT
PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE
WITH RESPECT TO THE THIRD AMENDED JOINT PLAN OF LIQUIDATION
FOR KAISER ALUMINA AUSTRALIA CORPORATION
AND KAISER FINANCE CORPORATION
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
- and -
Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
Dated: February 28, 2005
DISCLOSURE STATEMENT, DATED FEBRUARY 28, 2005
SOLICITATION OF VOTES
WITH RESPECT TO THE
THIRD AMENDED JOINT PLAN OF LIQUIDATION
FOR
KAISER ALUMINA AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION
(WHOLLY OWNED SUBSIDIARIES OF KAISER ALUMINUM & CHEMICAL CORPORATION)
----------
THE BOARDS OF DIRECTORS OF KAISER ALUMINA AUSTRALIA CORPORATION ("KAAC")
AND KAISER FINANCE CORPORATION ("KFC" AND, TOGETHER WITH KAAC, THE "DEBTORS")
BELIEVE THAT THE THIRD AMENDED JOINT PLAN OF LIQUIDATION FOR KAISER ALUMINA
AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION, DATED FEBRUARY 25, 2005
AND ATTACHED HERETO AS EXHIBIT I (THE "PLAN") IS IN THE BEST INTERESTS OF
CREDITORS. ALL CREDITORS ENTITLED TO VOTE ON THE PLAN ARE URGED TO VOTE IN FAVOR
THEREOF. A SUMMARY OF THE VOTING INSTRUCTIONS IS SET FORTH BEGINNING AT PAGE 61
OF THIS DISCLOSURE STATEMENT. MORE DETAILED INSTRUCTIONS ARE CONTAINED ON THE
BALLOTS DISTRIBUTED TO CREDITORS ENTITLED TO VOTE ON THE PLAN. TO BE COUNTED,
YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED AND RECEIVED BY 5:00 P.M., EASTERN
TIME, ON APRIL 5, 2005 OR SUCH OTHER TIME OR DATE IDENTIFIED ON YOUR BALLOT (THE
"VOTING DEADLINE"), UNLESS EXTENDED.
THE CREDITORS' COMMITTEE HAS INDEPENDENTLY CONCLUDED THAT THE PLAN IS IN
THE BEST INTERESTS OF CREDITORS AND URGES CREDITORS TO VOTE IN FAVOR OF THE
PLAN.
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THE CONFIRMATION AND EFFECTIVENESS OF THE PROPOSED PLAN ARE SUBJECT TO
MATERIAL CONDITIONS PRECEDENT, SOME OF WHICH MAY NOT BE SATISFIED. SEE "ANSWERS
TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT -- WHAT MUST HAPPEN
BEFORE THE PLAN CAN BE CONSUMMATED?" AND "VOTING AND CONFIRMATION OF THE PLAN --
CONFIRMATION -- ACCEPTANCE OR CRAMDOWN." THERE IS NO ASSURANCE THAT THESE
CONDITIONS WILL BE SATISFIED OR WAIVED.
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No person is authorized by either of the Debtors in connection with the
Plan or the solicitation of acceptances of the Plan to give any information or
to make any representation other than as contained in this Disclosure Statement
or incorporated by reference or referred to herein, and, if given or made, such
information or representation may not be relied upon as having been authorized
by either of the Debtors. The delivery of this Disclosure Statement will not
under any circumstances imply that the information herein is correct as of any
time subsequent to the date hereof. The Debtors will make available to creditors
entitled to vote on acceptance of the Plan such additional information as may be
required by applicable law prior to the Voting Deadline.
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ALL CREDITORS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I, PRIOR TO
SUBMITTING BALLOTS PURSUANT TO THIS SOLICITATION.
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The summaries of the Plan and the other documents contained in this
Disclosure Statement are qualified by reference to the Plan itself, the Exhibit
thereto and other documents summarized herein, all as Filed prior to approval of
this Disclosure Statement.
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The information contained in this Disclosure Statement, including the
information regarding the history, businesses and operations of the Debtors, is
included for purposes of soliciting acceptances of the Plan, but, as to
contested matters and adversary proceedings, is not to be construed as
admissions or stipulations, but rather as statements made in settlement
negotiations.
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FORWARD-LOOKING STATEMENTS: THIS DISCLOSURE STATEMENT INCLUDES
FORWARD-LOOKING STATEMENTS BASED LARGELY ON THE CURRENT EXPECTATIONS OF THE
DEBTORS ABOUT FUTURE EVENTS. THE WORDS "BELIEVE," "MAY," "WILL," "ESTIMATE,"
"CONTINUE," "ANTICIPATE," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY
THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THE FORWARD-LOOKING EVENTS AND CIRCUMSTANCES DISCUSSED IN THIS
DISCLOSURE STATEMENT MAY NOT OCCUR AND ACTUAL EVENTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. THE DEBTORS UNDERTAKE
NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
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THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
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ALL CAPITALIZED TERMS IN THIS DISCLOSURE STATEMENT NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO THEM IN THE PLAN.
TABLE OF CONTENTS
PAGE
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INTRODUCTION............................................................. 1
ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT..... 4
OVERVIEW OF THE PLAN..................................................... 14
Introduction.......................................................... 14
Summary of Classes and Treatment of Claims and Interests.............. 15
Guaranty Subordination Dispute........................................ 19
7-3/4% SWD Revenue Bond Dispute....................................... 19
Sources and Uses of Cash.............................................. 20
Sources of Cash.................................................... 20
Uses of Cash....................................................... 20
KFC Claim Against KACC................................................ 24
Additional Information Regarding Assertion and Treatment of
Administrative Claims and Priority Tax Claims...................... 25
Administrative Claims.............................................. 25
Administrative Claims in General................................ 25
US Trustee Fees................................................. 25
Bar Dates for Administrative Claims............................. 26
QAL Purchase Agreement.......................................... 26
Intercompany Claims Settlement Payments......................... 26
PBGC Administrative Claim....................................... 26
Priority Tax Claims................................................ 27
Reserves for Payment of Certain Potential Administrative Claims
and Priority Tax Claims......................................... 27
Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees................. 27
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS................. 27
Background............................................................ 27
Note Guarantees....................................................... 28
OPERATIONS DURING THE CHAPTER 11 CASES................................... 28
First Day Relief...................................................... 28
Cash Management Order.............................................. 29
Joint Venture Order................................................ 29
Bankruptcy Petitions of the 2003 Debtors.............................. 30
Appointment of the Committees and Future Claimants' Representatives... 30
Creditors' Committee............................................... 30
Asbestos Claimants' Committee and Certain Other Appointed
Representatives................................................. 31
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(continued)
PAGE
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Assumption and Assignment or Rejection of Executory Contracts and
Unexpired Leases................................................... 31
Claims Process and Bar Dates.......................................... 31
Postpetition Financing................................................ 32
Strategic Plan to Sell Commodities Assets............................. 32
The Sale of the QAL Interests and Liquidation of KAAC................. 32
Certain Australian Tax Matters........................................ 33
Agreements with Labor Regarding Pension and Retiree Medical Benefits.. 34
PBGC Claims........................................................... 34
Intercompany Claims Settlement........................................ 35
Guaranty Subordination Dispute........................................ 36
7-3/4% SWD Revenue Bond Dispute....................................... 39
GENERAL INFORMATION CONCERNING THE PLAN.................................. 40
Substantive Consolidation............................................. 40
KFC Claim against KACC................................................ 41
Executory Contracts and Unexpired Leases to be Rejected............... 41
Releases, Limitation of Liability, Injunctions and Preservation of
Insurance.......................................................... 41
Release of Claims and Termination of Interests; Limitation of
Liability....................................................... 41
Injunctions........................................................ 43
Preservation of Insurance.......................................... 43
No Discharge....................................................... 43
Means for Implementation of the Plan.................................. 43
Liquidating Transactions........................................... 43
Corporate Action................................................... 44
No Revesting of Assets............................................. 44
Recourse Solely to Trust Accounts.................................. 44
Release of Liens................................................... 44
Exemption from Certain Taxes....................................... 45
Distribution Trust.................................................... 45
Creation of the Distribution Trust................................. 45
Distribution Trust Assets.......................................... 45
Purposes of the Distribution Trust................................. 45
Tax Treatment...................................................... 46
Trust Accounts..................................................... 46
Distribution Trust Expenses Account............................. 46
Priority Claims Trust Account................................... 47
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TABLE OF CONTENTS
(continued)
PAGE
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Unsecured Claims Trust Account.................................. 48
Disputed Claims Reserve......................................... 48
Undeliverable Property Trust Account............................ 49
Risks Associated with Funding of Trust Accounts................. 49
Powers of the Distribution Trustee................................. 50
General Powers.................................................. 50
Right to Object to Claims....................................... 51
Right to Pursue Causes of Action................................ 51
Right to Vote the Retained Portion of the KFC Claim............. 51
Limitation on Liability and Indemnification of Distribution
Trustee......................................................... 51
Removal and Resignation of the Distribution Trustee; Filling of
Vacancy......................................................... 52
Compensation of the Distribution Trustee........................... 52
Books and Records; Reports and Tax Filings......................... 52
Books and Records............................................... 52
Reports to be Filed with the Bankruptcy Court................... 52
Tax Returns and Payments........................................ 53
Term of the Distribution Trust..................................... 53
DISTRIBUTIONS UNDER THE PLAN............................................. 54
Method of Distributions to Holders of Allowed Claims.................. 54
Delivery of Distributions............................................. 54
Generally.......................................................... 54
Special Provisions for Distributions to Holders of Public Note
Claims.......................................................... 54
Undeliverable or Unclaimed Distributions.............................. 54
Means of Cash Payments................................................ 55
Timing and Calculation of Amounts to Be Distributed................... 55
Allowed Claims Other Than Unsecured Claims......................... 55
Allowed Unsecured Claims in Subclass 3A; Certain Payments From the
Public Note Distributable Consideration......................... 55
Plan Accepted by Subclass 3A and Subclass 3B.................... 55
Plan Rejected by Subclass 3A or Subclass 3B..................... 56
Allowed Unsecured Claims in Subclass 3B............................ 56
Plan Accepted by Subclass 3A and Subclass 3B.................... 56
Plan Rejected by Subclass 3A or Subclass 3B..................... 56
Allowed Unsecured Claims in Subclass 3C and Subclass 3D............ 56
7-3/4% SWD Revenue Bonds........................................... 57
Plan Accepted by Subclass 3A.................................... 57
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TABLE OF CONTENTS
(continued)
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Plan Rejected by Subclass 3A.................................... 57
No De Minimis Distributions........................................ 57
Compliance with Tax Requirements................................... 58
Setoffs .......................................................... 58
Compensation and Reimbursement for Services Related to Distributions.. 58
Payments Limited to Trust Accounts.................................... 58
Insufficient Assets................................................... 58
Distributions of Securities........................................... 59
Disputed Claims....................................................... 59
Prosecution of Objections to Claims................................ 59
Treatment of Disputed Claims....................................... 59
VOTING AND CONFIRMATION OF THE PLAN...................................... 60
General............................................................... 60
Voting Procedures and Requirements.................................... 60
Confirmation Hearing.................................................. 61
Confirmation.......................................................... 61
Acceptance or Cramdown............................................. 62
Best Interests Test................................................ 62
Generally....................................................... 62
Liquidation Analysis............................................ 63
Feasibility........................................................ 63
Compliance with Applicable Provisions of the Bankruptcy Code....... 63
Modification or Revocation of the Plan............................. 64
Alternatives to Confirmation and Consummation of the Plan............. 64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN...... 64
General............................................................... 64
U.S. Federal Income Tax Consequences to Holders of Claims............. 65
Recognition of Gain or Loss........................................ 65
In General...................................................... 65
Post-Effective Date Cash Distributions.......................... 65
Bad Debt and/or Worthless Securities Deduction.................. 66
Pending Payments................................................... 66
Payments Other than Pending Payments............................... 66
Certain Other Tax Consequences for Holders of Claims.................. 66
Receipt of Pre-Effective Date Interest............................. 66
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(continued)
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Installment Method................................................. 66
Information Reporting and Backup Withholding....................... 67
Importance of Obtaining Professional Tax Assistance................... 67
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS............... 67
General............................................................... 67
Bankruptcy Code Exemptions from Registration Requirements............. 67
Initial Offer and Sale............................................. 67
Subsequent Transfers............................................... 68
ADDITIONAL INFORMATION................................................... 68
RECOMMENDATION AND CONCLUSION............................................ 69
v
TABLE OF EXHIBITS
Exhibit I - Third Amended Joint Plan of Liquidation for Kaiser Alumina
Australia Corporation and Kaiser Finance Corporation
vi
INTRODUCTION
The Debtors are seeking approval of the Plan, a copy of which is attached
hereto as Exhibit I. This Disclosure Statement is submitted by the Debtors in
connection with the solicitation of acceptances of the Plan.
The confirmation of a plan of reorganization or liquidation, which is the
vehicle for satisfying the rights of holders of claims against and interests in
a debtor, is the overriding purpose of a chapter 11 case. Chapter 11 may be used
to either reorganize or conduct an orderly liquidation of a debtor's business.
The Plan provides for the orderly liquidation and dissolution of the Debtors.
The primary objectives of the Plan are to:
- maximize the value of the ultimate recoveries to all creditor groups
on a fair and equitable basis;
- settle, compromise or otherwise dispose of certain Claims and other
disputes on terms that the Debtors believe to be fair and reasonable
under the circumstances and in the best interests of their respective
Estates and creditors and Kaiser Aluminum & Chemical Corporation
("KACC"), as the sole stockholder of KAAC, and KAAC, as the sole
stockholder of KFC; and
- effectuate the orderly liquidation and dissolution of the Debtors.
The Plan provides for, among other things, (a) the classification and
treatment of Claims and Interests; (b) the establishment of the Distribution
Trust to make distributions in accordance with the Plan; (c) the creation and
administration of the Trust Accounts; and (d) the liquidation of the Debtors.
PLEASE REFER TO THE CHART BEGINNING ON PAGE 15 OF THIS DISCLOSURE STATEMENT
FOR A SUMMARY OF THE PROPOSED TREATMENT OF EACH CLASS OF CLAIMS AND INTERESTS.
If the Plan is confirmed and consummated in accordance with its terms,
among other things:
- holders of Allowed Administrative Claims, Allowed Priority Tax Claims
and Allowed Priority Claims in Class 1 will receive Cash from the
Priority Claims Trust Account in the amount of their respective
Allowed Claim without interest or penalty;
- holders of Allowed 9-7/8% Senior Note Claims and 10-7/8% Senior Note
Claims in Subclass 3A:
- if both Subclass 3A and Subclass 3B vote to accept the Plan, will
receive from the Unsecured Claims Trust Account their respective
Pro Rata Share of the Public Note Distributable Consideration
(i.e., the Public Note Percentage of the Cash and other property
in the Unsecured Claims Trust Account) remaining after first
giving effect to the following payments by the Distribution
Trustee from the Public Note Distributable Consideration:
- the payment to be made to the 7-3/4% SWD Revenue Bond
Indenture Trustee for the benefit of the holders of the
7-3/4% SWD Revenue Bonds pursuant to Section 2.5 of the Plan
(the "7-3/4% SWD Revenue Bonds Payment");
- the payment of the reasonable out-of-pocket expenses
(including attorneys' fees) incurred and paid by the
plaintiffs in the 7-3/4% SWD Revenue Bond Dispute in
connection with the Chapter 11 Cases and the chapter 11
cases of the Other Kaiser Debtors, including in connection
with the 7-3/4% SWD Revenue Bond Dispute and that certain
civil action currently pending before the United States
District Court for the Eastern District of Louisiana styled
Paul J. Guillot, et al. v. Credit Suisse First Boston, LLC,
and numbered 03-0797 in accordance with the Plan up to an
amount which, when aggregated with any amount payable under
the comparable provision of the AJI/KJC Plan, will not
exceed $500,000 (the "7-3/4% SWD Revenue Bond Plaintiffs'
Expense Payments");
- to the extent not otherwise paid under the AJI/KJC Plan, the
payment of the aggregate fees and expenses of the 9-7/8%
Senior Note Indenture Trustee, the 10-7/8% Senior Note
Indenture Trustee and the counsel for the Ad Hoc Group in
accordance with the Plan (the "Senior Notes Fee Payments");
and
- the payment of $8.0 million to be made to the Senior
Subordinated Note Indenture Trustee for the benefit of the
holders of Senior Subordinated Note Claims; or
- if either Subclass 3A or Subclass 3B fails to accept the Plan,
will receive that portion of the Public Note Distributable
Consideration to which the Bankruptcy Court determines they are
entitled, provided the distributions ultimately made to a holder
of an Allowed Senior Note Claim will be reduced by such holder's
proportional share of the Senior Notes Fee Payments and, if the
Bankruptcy Court determines that holders of Allowed Senior
Subordinated Note Claims are not entitled to any portion of the
Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue
Bond Payment (or a reservation in lieu thereof), if any, and any
7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;
- holders of Allowed Senior Subordinated Note Claims in Subclass 3B:
- if both Subclass 3A and Subclass 3B vote to accept the Plan, will
receive their respective Pro Rata Share of $8.0 million to be
paid to the Senior Subordinated Note Indenture Trustee, provided
that any and all fees or expenses payable to the Senior
Subordinated Note Indenture Trustee pursuant to the Senior
Subordinated Note Indenture will, in all events, be payable
solely from such $8.0 million; or
- if either Subclass 3A or Subclass 3B fails to accept the Plan,
will receive that portion, if any, of the Public Note
Distributable Consideration to which the Bankruptcy Court
determines they are entitled, provided any distributions
ultimately made to a holder of an Allowed Senior Subordinated
Note Claim may be reduced by such holder's proportional share of
any and all fees and expenses payable to the Senior Subordinated
Note Trustee pursuant to the Senior Subordinated Note Indenture,
which will, subject to such Trustee's right to seek payment by
the Debtors of such fees and expenses pursuant to section
503(b)(5) of the Bankruptcy Code, be payable solely from such
distributions;
- Pension Benefit Guaranty Corporation (the "PBGC"), as the holder of
the PBGC Claims in Subclass 3C, will receive the PBGC Percentage of
the Cash and other property in the Unsecured Claims Trust Account; and
- holders of Allowed Other Unsecured Claim in Subclass 3D will receive
their respective Pro Rata Share of the Other Unsecured Claims
Percentage of the Cash and other property in the Unsecured Claims
Trust Account.
As the foregoing indicates, in general, all holders of Claims will have
recourse, if any, only to the Cash and other property in the applicable Trust
Accounts. The Debtors will cease to exist as legal entities following
consummation of the Plan. See "Overview of the Plan -- Summary of Classes and
Treatment of Claims and Interests."
SUBJECT TO THE PROVISIONS OF SECTION 2.11 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH TO BE DISTRIBUTED IN CONNECTION WITH THE
PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN FAVOR OF THE PLAN WILL BE DEEMED TO
FOREVER RELEASE AND WAIVE ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES,
DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION AND LIABILITIES (OTHER THAN THE RIGHT
TO ENFORCE THE DEBTORS' OR THE DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN
AND THE CONTRACTS, INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS
DELIVERED THEREUNDER), WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED
2
OR CONTINGENT, MATURED OR UNMATURED, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN,
THEN EXISTING OR THEREAFTER ARISING IN LAW, EQUITY OR OTHERWISE, THAT ARE BASED
IN WHOLE OR IN PART ON ANY ACT, OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING
PLACE ON OR PRIOR TO THE EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE
CHAPTER 11 CASES OR THE PLAN THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE
CREDITORS' COMMITTEE, ITS MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY
OF THEIR RESPECTIVE PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ADVISORS, ATTORNEYS, ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER
REPRESENTATIVES, ACTING IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (A) ACTS OR
OMISSIONS OF ANY SUCH PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT; (B) IF THE HOLDERS OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE
DETERMINED BY THE ORDER CONTEMPLATED BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B)
TO BE ENTITLED TO A DISTRIBUTION IN RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF
ANY SUCH PERSON RELATED TO OR GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF
THE CONTRACTUAL SUBORDINATION DISPUTES; OR (C) CONTRACTUAL OBLIGATIONS OF, OR
LOANS OWED BY, ANY SUCH PERSON TO A DEBTOR. SEE "GENERAL INFORMATION CONCERNING
THE PLAN -- RELEASES, LIMITATION OF LIABILITY, AND INJUNCTIONS -- RELEASE OF
CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF LIABILITY."
EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST OR THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS PERMITTED PURSUANT TO (A) ABOVE; (C)
CREATING, PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS,
THE DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN. SEE "GENERAL INFORMATION
CONCERNING THE PLAN -- LEGAL EFFECTS OF THE PLAN -- RELEASES, LIMITATION OF
LIABILITY, AND INJUNCTIONS -- INJUNCTIONS."
BY AN ORDER OF THE BANKRUPTCY COURT DATED FEBRUARY 28, 2005, THIS
DISCLOSURE STATEMENT HAS BEEN APPROVED AS CONTAINING "ADEQUATE INFORMATION" FOR
CREDITORS OF THE DEBTORS IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE.
THE BANKRUPTCY CODE DEFINES "ADEQUATE INFORMATION" AS "INFORMATION OF A KIND,
AND IN SUFFICIENT DETAIL, AS FAR AS IS REASONABLY PRACTICABLE IN LIGHT OF THE
NATURE AND THE HISTORY OF THE DEBTOR AND THE CONDITION OF THE DEBTOR'S BOOKS AND
RECORDS, THAT WOULD ENABLE A HYPOTHETICAL REASONABLE INVESTOR TYPICAL OF HOLDERS
OF CLAIMS OR INTERESTS OF THE RELEVANT CLASS TO MAKE AN INFORMED JUDGMENT ABOUT
THE PLAN . . . ." 11 U.S.C. SECTION 1125(A)(1).
THE DEBTORS' BOARDS OF DIRECTORS BELIEVE THAT THE PLAN IS IN THE BEST
INTERESTS OF CREDITORS UNDER THE CIRCUMSTANCES. ALL CREDITORS ENTITLED TO
3
VOTE ARE URGED TO VOTE IN FAVOR OF THE PLAN BY NO LATER THAN 5:00 P.M., EASTERN
TIME, ON APRIL 5, 2005 OR SUCH OTHER TIME OR DATE IDENTIFIED ON YOUR BALLOT.
The requirements for confirmation of the Plan under the Bankruptcy Code,
including the vote of creditors to accept the Plan and certain of the statutory
findings that must be made by the Bankruptcy Court, are described in "Voting and
Confirmation of the Plan." Confirmation of the Plan and the occurrence of the
Effective Date are also subject to a number of significant conditions, which are
set forth in the Plan and summarized in "Answers To Certain Questions About The
Plan And Disclosure Statement -- What must happen before the Plan can be
consummated?" There is no assurance that these conditions will be satisfied or
waived.
ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT
The information presented in the answers to the questions set forth below
is qualified in its entirety by reference to the full text of this Disclosure
Statement, including the Plan attached hereto as Exhibit I. ALL CREDITORS
ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS
ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I,
PRIOR TO SUBMITTING A BALLOT OR BALLOTS TO ACCEPT OR REJECT THE PLAN.
WHAT IS THIS DOCUMENT AND WHY AM I RECEIVING IT?
On February 12, 2002, KACC and KFC, along with their parent companies and
certain of their affiliates, filed petitions for relief under chapter 11 of the
Bankruptcy Code. The reasons the Debtors Filed for such protection are described
under "Certain Events Preceding the Debtors' Chapter 11 Filings." In connection
with their proposed liquidation pursuant to chapter 11, the Debtors have
prepared the Joint Plan of Liquidation attached as Exhibit I to this Disclosure
Statement (i.e., the Plan), which sets forth in detail the proposed treatment of
the Claims of the Debtors' creditors and the Interests of KACC, as the sole
stockholder of KAAC, and KAAC, as the sole stockholder of KFC. This Disclosure
Statement describes the terms of, and certain other material information
relating to, the Plan.
This Disclosure Statement is being delivered to you in connection with the
Debtors' solicitation of votes with respect to the Plan because either (a) you
are the holder of, or have otherwise asserted, a Claim or Claims against either
or both of the Debtors or (b) you are the holder of a 7-3/4% SWD Revenue Bond.
This Disclosure Statement is intended to provide you with information sufficient
to make an informed to decision as to whether to vote to accept or reject the
Plan (to the extent you are eligible to do so).
AM I ELIGIBLE TO VOTE TO ACCEPT OR REJECT THE PLAN?
You are entitled to vote to accept or reject the Plan only if you hold an
Allowed Unsecured Claim (or an Unsecured Claim which has been temporarily
allowed for voting purposes) against one or both Debtors. In accordance with
section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority
Tax Claims have not been classified and thus are excluded from the Classes, and
if you are a holder of an Administrative Claim or Priority Tax Claim, you are
not eligible to vote with respect to the Plan. If you hold a Priority Claim or a
Secured Claim against either Debtor, because you are receiving Cash or property
equal in value to the allowed amount of such Claim, you are deemed to have
accepted the Plan and may not vote with respect to it. While the Plan includes a
proposed settlement of certain claims asserted by holders of 7-3/4% SWD Revenue
Bonds (see "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute), such holders do not have Claims against the Debtors and, accordingly,
are not entitled to vote on the Plan. Because such proposed settlement will
affect Other Kaiser Debtors, a motion seeking approval of the settlement will be
Filed, and such holders and other creditors or claimants affected by such
settlement may file an objection to it with the Bankruptcy Court on or prior to
April 5, 2005. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."
WHY SHOULD I VOTE TO ACCEPT THE PLAN?
KAAC has entered into an agreement to sell its interests in QAL and, upon
the consummation of such sale, will no longer be an operating entity. See
"Operations During the Chapter 11 Cases -- The Sale of the QAL
4
Interests and Liquidation of KAAC." Following such sale, KAAC's only remaining
assets will be Cash and its Interest in its wholly owned non-operating
subsidiary, KFC. KFC is not an operating company and has no material assets
other than its claim against KACC described below. See "-- KFC Claim Against
KACC." As such, the only alternatives to confirmation and consummation of the
Plan are conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code. The Debtors believe that
the confirmation and consummation of the Plan is in the best interests of the
Debtors' stakeholders and is preferable to either alternative.
CHAPTER 7 LIQUIDATION
The Debtors believe that the Plan provides for the liquidation of the
Debtors in a manner significantly more efficient than would occur in the event
the Chapter 11 Cases were converted to cases under chapter 7 of the Bankruptcy
Code. KFC has no material assets other than a claim against KACC, which will be
subject to treatment under KACC's plan of reorganization and, upon consummation
of the sale of KAAC's interests in QAL (the "QAL Interests"), KAAC's Estate will
have been substantially liquidated and converted to Cash proceeds, subject only
to receipt of the proceeds, if any, received from the successful prosecution,
settlement, or collection of Recovery Actions (the "Recovery Action Proceeds").
The Debtors are not aware of the existence of any claim against a third party
that would constitute a Recovery Action. Further, the Debtors have been informed
that the Creditors' Committee conducted an analysis of potential preference
actions and determined that there were no viable preference actions concerning
payments made by the Debtors. The Debtors believe that conversion to chapter 7
of the Bankruptcy Code would result in additional costs relating to the
appointment of a chapter 7 trustee, likely delays in distributions to all
creditors who would be entitled to receive a distribution under the Plan (thus
reducing the present value of such distributions) and diminished recoveries for
holders of Allowed Unsecured Claims. See "Voting and Confirmation of the Plan --
Confirmation -- Best Interests Test."
ALTERNATIVE CHAPTER 11 LIQUIDATION
The Plan has been negotiated by the Debtors and representatives of certain
of the Debtors' most significant creditors, including the Creditors' Committee
(a committee appointed by the Bankruptcy Court to represent the interests of the
Debtors' unsecured creditors), which has independently concluded that the Plan
is in the best interests of creditors. Therefore, the Debtors believe that
negotiating an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code is unlikely to alter significantly the relative treatment of
Claims. The Debtors believe that negotiating such an alternative plan would
result in additional professional costs in connection with such negotiations,
likely delays in distributions to all creditors who would be entitled to receive
a distribution under the Plan (thus reducing the present value of such
distributions) and potentially diminished recoveries for holders of Allowed
Unsecured Claims.
HOW DO I VOTE TO ACCEPT OR REJECT THE PLAN?
If you are the holder of an Allowed Unsecured Claim (other than a holder of
a Senior Note Claim or Senior Subordinated Note Claim held through a nominee)
against one or both of the Debtors and are, therefore, entitled to vote on the
Plan, complete, execute and return your Ballot or Ballots in accordance with the
instructions to Logan & Company, Inc., 546 Valley Road, Upper Montclair, New
Jersey 07043 (unless another address is set forth on the preaddressed enveloped
provided to you) on or prior to 5:00 P.M. Eastern Time, on April 5, 2005 (unless
another time or date is identified on your Ballot). If your vote is not received
by that time and date, it will not be counted. If you are the holder of a Senior
Note Claim or Senior Subordinated Note Claim held in the name of a broker,
dealer, commercial bank, trust company or other nominee, you must complete and
deliver to such nominee the Ballot or Ballots provided to such holder in order
to vote on the Plan; we urge you to deliver such Ballot or Ballots to your
nominee holder or holders no later than the date identified on such Ballot or
Ballots in order to ensure that your vote will be counted. If you are entitled
to vote and you did not receive a Ballot, received a damaged Ballot or lost your
Ballot, please call the Debtors' voting agent, Logan & Company, at (973)
509-3190. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."
5
WHAT IF I'M ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN AND DON'T?
In general, within any particular Class of Claims, only those holders who
actually vote to accept or reject the Plan will affect whether the Plan is
accepted by the requisite holders of Claims in such Class. In order for the Plan
to be accepted by each Subclass of Class 3 (Unsecured Claims), the holders
representing at least two-thirds in dollar amount and a majority in number of
Allowed Claims in each such Subclass held by holders of such Claims who actually
vote to accept or reject the Plan must vote to accept the Plan. Thus, if you
hold an Unsecured Claim, your failure to vote in respect of such Claim will
count as neither a vote for acceptance nor a vote for rejection of the Plan. See
"Voting and Confirmation of the Plan -- Confirmation -- Acceptance or Cramdown."
WHAT HAPPENS IF THE PLAN IS NOT ACCEPTED BY EACH CLASS ENTITLED TO VOTE ON THE
PLAN?
If the holders of each Class of Claims entitled to vote on the Plan (i.e.,
Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D) reject the Plan, the Plan
will not be confirmed or consummated in its present form. However, as long as
the requisite holders of Claims in at least one such Subclass vote to accept the
Plan, the Debtors may seek confirmation pursuant to the "cramdown" provisions of
the Bankruptcy Code (which will require a determination by the Bankruptcy Court
that that the Plan is "fair and equitable" and "does not discriminate unfairly"
as to each nonaccepting Subclass). The Debtors believe that the Plan satisfies
the "cramdown" provisions of the Bankruptcy Code and, in any case, have reserved
the right to modify the Plan to the extent that confirmation thereunder requires
modification. See "Voting and Confirmation of the Plan -- Confirmation --
Acceptance or Cramdown."
WHAT WILL I ACTUALLY RECEIVE IN RESPECT OF MY CLAIM IF THE PLAN IS CONFIRMED AND
GOES EFFECTIVE?
If you are the holder of an Allowed Claim against either Debtor, what you
will actually receive, if anything, in respect of such Claim will depend on the
classification of that Claim. For detailed information about the classification
and treatment of creditors under the Plan, see "Overview of the Plan -- Summary
of Classes and Treatment of Claims and Interests."
Unlike the holders of Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims or Allowed Secured Claims against the Debtors,
holders of Allowed Claims in Subclass 3A, Subclass 3B, Subclass 3C and Subclass
3D will not receive Cash or property in an amount equal to 100% of the amount of
their Claims.
HOLDERS OF ALLOWED SENIOR NOTE CLAIMS IN SUBCLASS 3A
If the Plan is accepted by both Subclass 3A and Subclass 3B
If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Note Claim will be entitled to a distribution of its Pro Rata
Share of the Public Note Distributable Consideration remaining after first
giving effect to certain payments by the Distribution Trustee from the Public
Note Distributable Consideration as discussed below. For purposes of the Plan,
(a) the term "Public Note Distributable Consideration" means the Public Note
Percentage of the Cash and other property in the Unsecured Claims Trust Account;
(b) the term "Public Note Percentage" means (i) 68% less (ii) 68% of the Other
Unsecured Claims Percentage; (c) the term "Other Unsecured Claims Percentage"
means the percentage equal to the ratio of (i) the aggregate amount of all
Allowed Other Unsecured Claims to (ii) the sum of (A) the aggregate amount of
all Allowed Other Unsecured Claims and (B) $1,237,237,000; and (d) the term "Pro
Rata Share" means, when used with reference to a distribution to a holder of an
Allowed Claim in a Subclass of Class 3, that share of the Cash or other property
to be distributed on account of all Allowed Claims in such Subclass so that the
ratio of (i)(A) the amount of Cash or other property to be distributed on
account of the particular Allowed Claim to (B) the amount of such Allowed Claim,
is the same as the ratio of (ii)(A) the aggregate amount of Cash or other
property to be distributed on account of all Allowed Claims in such Subclass to
(B) the aggregate amount of all Allowed Claims in such Subclass.
The Unsecured Claims Trust Account will be funded with the Debtors' Cash
remaining after (a) the payment of reasonable fees, costs and expenses incurred
by the Distribution Trustee in connection with the
6
performance of its duties in accordance with the Plan and the Distribution Trust
Agreement; (b) the distribution of Cash or property in accordance with the Plan
to holders of Claims having a higher priority than Claims in Subclass 3A,
Subclass 3B, Subclass 3C or Subclass 3D; and (c) any payment required to be made
by the Debtors to KACC in accordance with the Intercompany Claim Settlement
("Intercompany Settlement Payments"). In addition, the Unsecured Claims Trust
Account will hold the Retained Portion of the KFC Claim and, when received, any
distributions ultimately made by KACC in respect of the Retained Portion of the
KFC Claim. After the Public Note Distributable Consideration is calculated as
described above, to determine the Cash and other property to be distributed to
holders of Senior Note Claims, the following payments must first be deducted
from the Public Note Distributable Consideration:
- the 7-3/4% SWD Revenue Bonds Payment;
- the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;
- the Senior Notes Fee Payments; and
- the payment of the $8.0 million to be made to the Senior Subordinated
Note Indenture Trustee for the benefit of the holders of Senior
Subordinated Note Claims.
Notwithstanding anything contained in the Plan to the contrary, no distributions
in respect of the Retained Portion of the KFC Claim will be made, and the
Retained Portion of the KFC Claim will be held in the Unsecured Claims Trust
Account, until receipt by the Distribution Trustee of distributions in respect
thereof from KACC pursuant to a confirmed plan of reorganization of KACC or
otherwise; upon receipt from KACC of such distributions in respect of the
Retained Portion of the KFC Claim, in-kind distributions consisting of the
property so received by the Distribution Trustee from KACC will be made to
holders of Allowed Claims in Subclass 3A, Subclass 3C and Subclass 3D in
accordance with the terms of the Plan.
Accordingly, if the Plan is accepted by both Subclass 3A and Subclass 3B,
the recovery by holders of Allowed Senior Note Claims will depend upon a number
of factors, including:
- the amount of Cash ultimately available to the Estates of the Debtors;
- the amount of Distribution Trust Expenses;
- the amount of Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims;
- the amount of the 7-3/4% SWD Revenue Bonds Payment;
- the amount of the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
Payments;
- the amount of the Senior Notes Fee Payments;
- the amount of the Intercompany Settlement Payments, if any;
- the aggregate amount of Allowed Other Unsecured Claims, if any; and
- the value of any property distributed by KACC in respect of the
Retained Portion of the KFC Claim.
See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims.
7
Pursuant to the AJI/KJC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the AJI/KJC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the AJI/KJC Plan.
If the Plan is rejected by either Subclass 3A or Subclass 3B
If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of 9-7/8% Senior Note Claims and 10-7/8% Senior Note Claims in Subclass 3A will
receive that portion of the Public Note Distributable Consideration to which the
Bankruptcy Court determines they are entitled in respect of such Claims. The
distributions ultimately made to a holder of an Allowed Senior Note Claim will
be reduced by such holder's proportional share of:
- the Senior Notes Fee Payments;
- any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments; and
- if the Bankruptcy Court determines that holders of Allowed Senior
Subordinated Note Claims are not entitled to any portion of the Public
Note Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment
(or reservation in lieu thereof), if any. See "-- What will I receive
in respect of my 7-3/4% SWD Revenue Bond if the Plan is confirmed and
goes effective and when will I receive it?"
In such event, the recovery by holders of Allowed Senior Notes Claims will
depend on the determination of the Bankruptcy Court with respect to the relative
entitlement of the holders of Senior Note Claims and Senior Subordinated Note
Claims to the Public Note Distributable Consideration, as well as the factors
listed above. See "Overview of the Plan -- Sources and Uses of Cash" for the
Debtors' current estimates of Cash available for distribution to holders of
Allowed Senior Note Claims and Allowed Senior Subordinated Note Claims.
HOLDERS OF ALLOWED SENIOR SUBORDINATED NOTE CLAIMS IN SUBCLASS 3B
If the Plan is accepted by both Subclass 3A and Subclass 3B
If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of $8.0
million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture).
Pursuant to the AJI/KJC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the AJI/KJC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the AJI/KJC Plan.
If the Plan is rejected by either Subclass 3A or Subclass 3B
If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of Senior Subordinated Note Claims in Subclass 3B will receive that portion, if
any, of the Public Note Distributable Consideration to which the Bankruptcy
Court determines they are entitled in respect of such Claims, provided any
distributions ultimately made to a holder of an Allowed Senior Subordinated Note
Claim may be reduced by such holder's proportional share of any and all fees and
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture, which will, subject to such Trustee's right to seek
payment by the Debtors of such fees and expenses pursuant to section 503(b)(5)
of the Bankruptcy Code, be payable solely from such distributions. Accordingly,
as with the recoveries by holders of Allowed Senior Notes Claims in the scenario
in which either the Subclass 3A or Subclass 3B fails to accept the Plan, the
recovery by the holders of Allowed Senior Subordinated Note Claims in this
situation will depend on a number of factors, including:
8
- the amount of Cash ultimately available to the Estates of the Debtors;
- the amount of Distribution Trust Expenses;
- the amount of Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims;
- the amount of the Intercompany Settlement Payments, if any;
- the aggregate amount of Allowed Other Unsecured Claims, if any;
- the value of any property distributed by KACC in respect of the
Retained Portion of the KFC Claim; and
- the determination of the Bankruptcy Court with respect to the relative
entitlement of the holders of 9-7/8% Senior Note Claims, 10-7/8%
Senior Note Claims and Senior Subordinated Note Claims to the Public
Note Distributable Consideration.
See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims and Allowed Senior Subordinated Note Claims.
THE PBGC, AS THE HOLDER OF THE PBGC CLAIMS IN SUBCLASS 3C
The PBGC, as holder of the PBGC Claims in Subclass 3C, will receive the
PBGC Percentage of the Cash in the Unsecured Claims Trust Account. For purposes
of the Plan, the term "PBGC Percentage" means (a) 32% less (b) 32% of the Other
Unsecured Claims Percentage.
Accordingly, as with the recoveries by holders of Allowed Senior Note
Claims discussed above, the recovery by the PBGC, as the holder of the PBGC
Claims, will depend upon a number of factors, including:
- the amount of Cash ultimately available to the Estates of the Debtors;
- the amount of Distribution Trust Expenses;
- the amount of Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims;
- the amount of the Intercompany Settlement Payments, if any;
- the aggregate amount of Allowed Other Unsecured Claims, if any; and
- the value of any property distributed by KACC in respect of the
Retained Portion of the KFC Claim.
See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to the PBGC in respect of the PBGC
Claims in Subclass 3C.
HOLDERS OF OTHER UNSECURED CLAIMS IN SUBCLASS 3D
A holder of an Allowed Other Unsecured Claim will receive its Pro Rata
Share of the Other Unsecured Claims Percentage of the Cash in the Unsecured
Claims Trust Account.
9
Accordingly, as with the recoveries by holders of Senior Note Claims and by
the PBGC as the holder of the PBGC Claims discussed above, the recoveries by
holder of Other Unsecured Claims will depend upon a number of factors,
including:
- the amount of Cash ultimately available to the Estates of the Debtors;
- the amount of Distribution Trust Expenses;
- the amount of Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims;
- the amount of the Intercompany Settlement Payments, if any; and
- the value of any property distributed by KACC in respect of the
Retained Portion of the KFC Claim.
Although several Other Unsecured Claims have been asserted, the Debtors believe
that such Claims are either de minimis in amount or will not constitute
allowable Claims; however, no assurance can be given that all Claims that the
Debtors believe not to be allowable will be disallowed in their entirety. See
"Overview of the Plan -- Sources and Uses of Cash."
WHAT WILL I RECEIVE IF MY CLAIM IS DISPUTED?
No distributions will be made in respect of any Claim that is Disputed
until that Claim becomes an Allowed Claim, if ever. See "Distributions Under the
Plan -- Treatment of Disputed Claims."
IS THERE A PARTICULAR RECORD DATE FOR DETERMINING WHO WILL BE ENTITLED TO
RECEIVE DISTRIBUTIONS UNDER THE PLAN IN RESPECT OF AN ALLOWED CLAIM?
Under the Plan, distributions in respect of an Allowed Claim will be made
only to the holder of that Claim as of the close of business on the Confirmation
Date (the "Distribution Record Date"). Neither the Debtors nor the Distribution
Trustee will recognize any purported transfer of a Claim following the
Distribution Record Date.
WHEN WILL I RECEIVE WHAT I AM ENTITLED TO RECEIVE IN RESPECT OF MY CLAIM IF THE
PLAN IS CONFIRMED AND GOES EFFECTIVE?
HOLDERS OF ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS
If you are the holder of an Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is allowed as of the Effective Date, you
will receive the distribution to which you are entitled under the Plan on
account of such Claim on or promptly after the Effective Date. If you are the
holder of a Secured Claim, Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is a Disputed Claim as of the Effective
Date, to the extent such Claim becomes an Allowed Claim after the Effective
Date, you should receive the distribution to which you are entitled under the
Plan on or promptly after the Quarterly Distribution Date next following the
date on which such Claim is allowed.
HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A
If you are the holder of a Senior Note Claim and the Plan is accepted by
both Subclass 3A and Subclass 3B, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of Senior Note Claims that are
allowed as of the Effective Date will be calculated as if each Disputed Other
Unsecured Claim were an Allowed Other Unsecured Claim in its Face Amount as of
the Effective Date. In addition, on or promptly after each Quarterly
Distribution Date, you may receive an additional distribution on account of such
Claim in an amount equal to: (a) the amount of Cash and other
10
property that you would have been entitled to receive pursuant to the Plan if
such Claim and each other Unsecured Claims allowed prior to such Quarterly
Distribution Date had been allowed as of the Effective Date minus (b) the
aggregate amount of Cash and other property previously distributed to you on
account of such Claim. See "Distributions Under the Plan -- Timing and
Calculation of Amounts to Be Distributed." All distributions to holders of
Senior Note Claims under the Plan will be made by the Distribution Trustee to
the applicable Indenture Trustee, which will thereafter forward such
distributions to such holders in due course.
If you are the holder of an Allowed Senior Note Claim and the Plan is not
accepted by either Subclass 3A or Subclass 3B, the timing of the distribution to
which you will be entitled in respect of such Claim will depend upon when the
Bankruptcy Court makes the determination contemplated by the Plan to be made in
such circumstance.
HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B
If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is accepted by both Subclass 3A and Subclass 3B, you will receive the
distribution to which you are entitled under the Plan on account of such Claim
on or promptly after the Effective Date as described in this paragraph. On the
Effective Date, the Senior Subordinated Note Indenture Trustee will receive a
Cash payment in the amount of $8.0 million for the benefit of the holders of the
Allowed Senior Subordinated Note Claims. The Senior Subordinated Note Indenture
Trustee is entitled to deduct its fees and expenses from such payment prior to
making distributions to holders of Senior Subordinated Note Claims. In due
course following the Effective Date, the Senior Subordinated Note Indenture
Trustee will distribute to each holder of an Allowed Senior Subordinated Note
Claim its Pro Rata Share of such payment as reduced by any fees and expenses so
deducted. See "Distributions Under the Plan -- Timing and Calculation of Amounts
to Be Distributed."
If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is not accepted by either Subclass 3A or Subclass 3B, the timing of the
distribution, if any, to which you may be entitled in respect of such Claim will
depend upon when the Bankruptcy Court makes the determination contemplated by
the Plan to be made in such circumstance.
HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D
If you are the holder of the PBGC Claims or an Other Unsecured Claim that
is allowed as of the Effective Date, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of the PBGC Claims and Other
Unsecured Claims that are allowed as of the Effective Date will be calculated as
if each Disputed Other Unsecured Claim were an Allowed Other Unsecured Claim in
its Face Amount as of the Effective Date. If you are the holder of an Other
Unsecured Claim that is a Disputed Claim as of the Effective Date, to the extent
such Claim becomes an Allowed Claim after the Effective Date, you should receive
an initial distribution on account of such Claim on or promptly after the
Quarterly Distribution Date next following the date on which such Claim was
allowed. In addition, on or promptly after each Quarterly Distribution Date, if
you are the holder of the PBGC Claims or an Other Unsecured Claim and have
already received your initial distribution in respect of such Claim, you may
receive an additional distribution on account of such Claim in an amount equal
to: (a) the amount of Cash and other property that you would have been entitled
to receive pursuant to the Plan if such Claim and each other Unsecured Claims
allowed prior to such Quarterly Distribution Date had been allowed as of the
Effective Date minus (b) the aggregate amount of Cash and other property
previously distributed to you on account of such Claim. See "Distributions Under
the Plan -- Timing and Calculation of Amounts to Be Distributed."
WHAT WILL I RECEIVE IN RESPECT OF MY 7-3/4% SWD REVENUE BOND IF THE PLAN IS
CONFIRMED AND GOES EFFECTIVE AND WHEN WILL I RECEIVE IT?
If (a) Subclass 3A votes to accept the Plan and (b) unless the holders of
Senior Note Claims otherwise agree pursuant to a settlement, all holders of
Allowed Senior Note Claims are entitled under the Plan to identical treatment in
respect of contractual subordination claims under the Senior Subordinated Note
Indenture, then, on the Effective Date, an amount equal to the Settlement
Percentage of the Cash in the Unsecured Claims Trust Account that would
otherwise have been distributed in respect of the Senior Subordinated Note
Claims but which, after
11
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be distributed to holders of Senior Note Claims will be paid to the 7-3/4%
SWD Revenue Bond Indenture Trustee for the benefit of the holders of the 7-3/4%
SWD Revenue Bonds pursuant to Section 2.5 of the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment). For purposes of the Plan, the term "Settlement
Percentage" means the percentage equaling the ratio of (a) $4,000,000 to (b)
50.78% of the Public Note Percentage of the Cash in the Unsecured Claims Trust
Account. Notwithstanding the foregoing, in no event will the amount so paid,
when aggregated with any amount payable under any comparable provision of the
AJI/KJC Plan, exceed $8.0 million. If the Debtors do not File a separate motion,
the Plan will serve as a motion pursuant to Bankruptcy Rule 9019 seeking entry
of an order approving the settlement described above. Unless an objection to
such settlement is made in writing by any creditor or claimant affected thereby,
Filed with the Bankruptcy Court and served on the parties identified in Section
12.6 of the Plan on or before April 5, 2005, such order (which will be the
Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing.
If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined by an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with its determination of the relative entitlement of the
holders of Senior Note Claims and Senior Subordinated Note Claims to the Public
Note Distributable Consideration; provided that if the determination with
respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such payment
has not been made by the Bankruptcy Court prior to the Effective Date, then, in
order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.
Any payment described above (i.e., the 7-3/4% SWD Revenue Bond Payment)
would be made to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit
of the holders of 7-3/4% SWD Revenue Bonds. The 7-3/4% SWD Revenue Bond
Indenture Trustee is entitled to deduct its fees and expenses from any such
payment prior to making distributions to holders of 7-3/4% SWD Revenue Bonds.
However, if the 7-3/4% SWD Revenue Bond Payment is required to be made to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of the holders of the
7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) of the Plan, then the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payments will made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Senior Note
Claims, up to an amount which, when aggregated with any amount payable under the
comparable provision of the AJI/KJC Plan, does not exceed $500,000. Fees and
expenses in excess of such amount may be deducted from amounts otherwise payable
to or for the benefit of holders of 7-3/4% SWD Revenue Bonds. Nothing in the
Plan will prejudice the rights of the plaintiffs in the 7-3/4% SWD Revenue Bond
Dispute to seek recoveries (a) from amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or the AJI/KJC
Plan or (b) from, or in respect of amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser Debtor other
than AJI or KJC. In due course following its receipt of any such payment, the
7-3/4% SWD Revenue Bond Indenture Trustee will distribute to each holder of
7-3/4% SWD Revenue Bonds its proportionate share of any such payment, as reduced
by any fees and expenses so deducted.
See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."
WILL MY RIGHTS AGAINST THE OTHER KAISER DEBTORS BE AFFECTED BY THE PLAN?
Nothing in the Plan, including acceptance or rejection of the Plan by
Subclass 3A or Subclass 3B, will be deemed to affect any person's claim against
or interest in any of the debtors in the Kaiser Cases except the Debtors (the
"Other Kaiser Debtors") or any of their respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives, acting in such capacity, or any
rights, including contractual subordination rights, that any person may have in
respect of any such claim against or interest in any such Other Kaiser Debtor.
12
WHAT WILL MY TAX CONSEQUENCES BE IF THE PLAN IS CONSUMMATED?
For a summary of certain potential U.S. federal income Tax consequences of
the Plan, see "Certain Federal Income Tax Consequences of Consummation of the
Plan." The summary contained in this Disclosure Statement does not contain any
information with respect to potential state, local or foreign Tax consequences
to creditors of the Debtors. For these reasons and others, including because Tax
consequences are in many cases uncertain and may vary depending on a creditor's
individual circumstances, the discussion of the Tax consequences of the Plan
contained in this Disclosure Statement is not intended in any way to be Tax
advice - or otherwise to be a substitute for careful Tax planning with a
professional. You are urged to consult with your own Tax advisor regarding the
U.S. federal, state, local and foreign Tax consequences of the Plan.
WHAT MUST HAPPEN BEFORE THE PLAN CAN BE CONSUMMATED?
In order for the Plan to be effective, certain events must occur. The Plan
contains conditions to both the confirmation of and the effectiveness of the
Plan.
CONFIRMATION
The Debtors and Creditors' Committee have agreed that, before the
Bankruptcy Court can confirm the Plan, each of the following must have occurred
(or the requirement that it have occurred must have been waived in accordance
with the Plan):
- the Confirmation Order must have been entered on the docket of the
Clerk of the Bankruptcy Court in form and substance acceptable to the
Debtors and the Creditors' Committee;
- all Exhibits to the Plan must be in form and substance satisfactory to
the Debtors and the Creditors' Committee; and
- the Intercompany Claims Settlement must be effective.
In addition, there are a number of substantial confirmation requirements under
the Bankruptcy Code that must be satisfied for the Plan to be confirmed,
including either the acceptance of the Plan by the requisite holders of Claims
in each of Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D (i.e.,
acceptance by holders of at least two-thirds in dollar amount and a majority in
number of Claims held by holders actually voting) or, if the Plan is not
accepted by each such Subclass of Class 3, the acceptance of the Plan by the
requisite holders of Claims in at least one such Subclass and the determination
by the Bankruptcy Court that the Plan is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting Subclass. See "Voting and
Confirmation of the Plan -- Confirmation."
EFFECTIVENESS
In addition, the Debtors and Creditors' Committee have agreed that the Plan
will not be consummated until each of the following has occurred (or the
requirement that it occur has been waived in accordance with the Plan):
- the Confirmation Order must have become a Final Order;
- the sale of the QAL Interests pursuant to the QAL Purchase Agreement
must have been consummated;
- the Creditors' Committee and the Debtors must have agreed upon the
amount of the reserves contemplated by Section 8.10(a) and Section
8.11(a) of the Plan (see "Overview of the Plan -- Sources and Uses of
Cash");
- the Liquidating Transactions must have been consummated;
13
- all funds due and owing to or by the Debtors under the Intercompany
Claims Settlement must have been paid in accordance with its terms;
- the Distribution Trustee must have been appointed and must have
accepted such appointment;
- the Distribution Trust Agreement must have been executed and the Trust
Accounts must have been established; and
- all other actions, documents, consents and agreements necessary to
implement the Plan must have been effected, obtained and/or executed.
WHEN WILL THE PLAN BE CONFIRMED? WHEN WILL THE PLAN BE EFFECTIVE?
CONFIRMATION
A hearing in the Bankruptcy Court relating to the confirmation of the Plan
is currently scheduled for April 13, 2005. This hearing may be continued or
adjourned, however, and even if it is held, there is no guaranty that the
Bankruptcy Court will find that the requirements of the Bankruptcy Code with
respect to confirmation have been met. See "Voting and Confirmation of the Plan
- -- Confirmation Hearing" and "Voting and Confirmation of the Plan --
Confirmation." In addition, the additional conditions to confirmation set forth
in the Plan must be satisfied or waived in accordance with the Plan before the
Plan can be confirmed. Thus, there is no way to predict with any certainty when,
if ever, confirmation will actually occur.
EFFECTIVE DATE
Even if the Plan is confirmed on April 13, 2005, there are a number of
additional conditions which must be satisfied or waived before the Plan can be
consummated. While the Debtors have assumed an Effective Date of April 30, 2005
for purposes of this Disclosure Statement, no assurance can be given as to if or
when the Effective Date will actually occur.
WHAT WILL HAPPEN TO KAAC AND KFC IF THE PLAN IS CONSUMMATED?
The Debtors will be liquidated if the Plan is consummated. Once the QAL
Interests have been sold, the Debtors will no longer have any material ongoing
activities or operations. Thus, upon the transfer of the Distribution Trust
Assets to the Distribution Trust, the Debtors will be dissolved and their assets
will be distributed in accordance with the Plan. See "General Information
Concerning the Plan -- Means for Implementation of the Plan -- Liquidating
Transactions."
WHAT HAPPENS IF THE PLAN ISN'T CONFIRMED OR DOESN'T BECOME EFFECTIVE?
The Debtors expect that all of the conditions to confirmation of the Plan
or the Effective Date will be satisfied (or waived in accordance with the Plan).
However, there is no guaranty that the Plan will be consummated. Although the
Debtors intend to take all acts reasonably necessary to satisfy the conditions
to the confirmation of the Plan and the Effective Date that are within the
Debtors' control, if, for any reason, the Plan is not confirmed or the Effective
Date does not occur, the Debtors may be forced to convert the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code or propose an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code.
OVERVIEW OF THE PLAN
INTRODUCTION
The following is a brief overview of certain material provisions of the
Plan. This overview is qualified in its entirety by reference to the provisions
of the Plan, which is attached hereto as Exhibit I, and the Distribution Trust
Agreement, which is an Exhibit thereto. See "Additional Information." For a
description of certain other
14
significant terms and provisions of the Plan, see "General Information
Concerning the Plan" and "Distributions Under the Plan."
SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS
The table below summarizes: (a) the classification of Claims and Interests;
(b) the estimated aggregate amount of Claims in each of Class 1, Class 2 and
Subclass 3D; (c) the actual aggregate amount of Allowed Claims in each of
Subclass 3A, Subclass 3B and Subclass 3C; (d) the aggregate amount and nature of
distributions to holders of Claims or Interests in each Class; and (e) the
estimated percentage recovery for each of Subclass 3A, Subclass 3B and Subclass
3C. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims have not been classified and thus are excluded
from the Classes. For a discussion of certain additional matters related to
Administrative Claims and Priority Tax Claims, see " -- Additional Information
Regarding Assertion and Treatment of Administrative Claims and Priority Tax
Claims." The estimated aggregate amount of Claims set forth in the table below
with respect to each of Class 1, Class 2 and Subclass 3D is based on the
Debtors' estimate of the maximum aggregate amounts of such Claims that the
Debtors believe will be allowed.
Each "Estimated Aggregate Claims Amount" shown in the table below is based
upon the Debtors' preliminary review of Claims Filed on or before the January
31, 2003 general Bar Date and the Debtors' books and records and may be
substantially revised following the completion of a further analysis of the
Claims Filed. See "Operations During the Chapter 11 Cases -- Claims Process and
Bar Dates." In addition, certain Disputed Claims that the Debtors do not believe
are allowable ultimately may be allowed by the Bankruptcy Court.
The "Estimated Percentage Recovery" shown in the table with respect to
Subclass 3C is the quotient of the estimated Cash to be distributed to the PBGC,
as the holder of Allowed Claims in that Subclass, divided by the aggregate
amount of Allowed Claims in such Subclass. The recoveries for holders of Allowed
Claims in both Subclass A and Subclass 3B will vary depending on, among other
things, whether both Subclass 3A and Subclass 3B accept the Plan and, if either
Subclass 3A or Subclass 3B fails to accept the Plan, the determination of the
Bankruptcy Court with respect to the relative entitlement of the holders of
Senior Note Claims and Senior Subordinated Note Claims to the Public Note
Distributable Consideration. See "-- Sources and Uses of Cash" below for
estimates of the percentage recovery for Subclass 3A and Subclass 3B in four
different scenarios. See "Answers to Certain Questions About the Plan and
Disclosure Statement -- What will I actually receive if the Plan is confirmed
and goes effective?" for a discussion of other factors that may affect the
recoveries of holders of Allowed Unsecured Claims.
It is presently anticipated that, pursuant to the Legacy Liability
Agreements (as defined below) and the Intercompany Claims Settlement, the holder
or holders of the KFC Claim will receive an aggregate of approximately one-third
of 25% of the residual value of reorganized KACC after the satisfaction of any
and all administrative, priority and secured claims against KACC and after
taking into account, among other things, the satisfaction of claims of the PBGC
against Kaiser Aluminum & Chemical of Canada Limited and any use of KACC assets
to settle asbestos, silica and other tort claims against KACC. See "Operations
During the Chapter 11 Cases -- Agreements with Labor Regarding Pension and
Retiree Medical Benefits" and "-- Intercompany Claims Settlement." The portion
of the KFC Claim which KFC will ultimately retain will depend upon the amount of
Cash and other property which the master tort trust established in connection
with the plan or plans of reorganization or Kaiser Aluminum Corporation ("KAC")
and/or KACC receives pursuant to those plans. Because no plan or plans of
reorganization for KAC or KACC have yet been proposed and the residual value of
reorganized KACC has not yet been determined, no "Estimated Percentage Recovery"
shown in the table below reflects any value for distributions that may
ultimately be made to KFC in respect of the Retained Portion of the KFC Claim.
See "-- KFC Claim Against KACC."
15
DESCRIPTION AND AMOUNT OF CLAIMS
OR INTERESTS AGAINST THE DEBTORS TREATMENT
-------------------------------- ---------
- - Class 1 - Priority Claims: Claims against Unimpaired. On the later of the Effective Date and
either of the Debtors entitled to priority in the date on which a Priority Claims is allowed,
payment pursuant to section 507(a) of the each holder of an Allowed Priority Claim will be
Bankruptcy Code that are not Administrative entitled to receive either (a) Cash from the
Claims or Priority Tax Claims. Priority Claims Trust Account in the amount of
such holder's Allowed Priority Claim without
interest or penalty or (b) such other treatment as
may be agreed upon in writing by such holder and
the Debtors or the Distribution Trustee.
Estimated Aggregate Claims Amount: $0
- - Class 2 - Secured Claims: Claims against Unimpaired. On the later of the Effective Date and
either of the Debtors secured by a Lien on the date on which a Secured Claim is allowed, each
property in which such Debtor's Estate has an holder of an Allowed Secured Claim will be
interest or that is subject to setoff under entitled to receive either (a) Cash from the
section 533 of the Bankruptcy Code, to the Priority Claims Trust Account in an amount equal
extent of the value of the Claim holder's to such Allowed Secured Claim, including such
interest in such Estate's interest in such interest as is required to be paid pursuant to
property or to the extent of the amount section 506(b) of the Bankruptcy Code, or (b) the
subject to setoff, as applicable, as collateral securing such Allowed Secured Claim and
determined pursuant to section 506(a) and, if Cash from the Priority Claims Trust Account in an
applicable, section 1129(b) of the Bankruptcy amount equal to such interest as is required to be
Code. paid pursuant to section 506(b) of the Bankruptcy
Code.
Estimated Aggregate Claims Amount: $0
16
DESCRIPTION AND AMOUNT OF CLAIMS
OR INTERESTS AGAINST THE DEBTORS TREATMENT
-------------------------------- ---------
- - Subclass 3A - Senior Note Claims: Claims Impaired; depends on whether the Plan is accepted
against either of the Debtors under or in by both Subclass 3A and Subclass 3B.
respect of either (x) the 9-7/8% Senior Notes
and the 9-7/8% Senior Note Indenture or (y) On the Effective Date, if both Subclass 3A and
the 10-7/8% Senior Notes and the 10-7/8% Subclass 3B vote to accept the Plan, each holder
Senior Note Indentures. of an Allowed Senior Note Claim will be entitled
to receive Cash from the Unsecured Claims Trust
Account equal to its Pro Rata Share of the Public
Note Distributable Consideration remaining after
first giving effect to the following payments on
the Effective Date by the Distribution Trustee
from the Public Note Distributable Consideration:
(a) the payment to be made to the 7-3/4% SWD
Revenue Bond Indenture Trustee for the benefit of
the holders of the 7-3/4% SWD Revenue Bonds in
accordance with the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment) and the payment of all fees
and expenses payable to the plaintiffs in the
7-3/4% SWD Revenue Bond Dispute in accordance with
the Plan (i.e., the 7-3/4% SWD Revenue Bond
Plaintiffs' Expense Payments); (b) the payment of
all fees and expenses payable to the 9-7/8% Senior
Note Indenture Trustee, the 10-7/8% Senior Note
Indenture Trustee and the counsel for the Ad Hoc
Group in accordance with the Plan (i.e., the
Senior Notes Fee Payments); and (c) the payment of
$8.0 million to be made to the Senior Subordinated
Note Indenture Trustee for the benefit of the
holders of Senior Subordinated Note Claims.
If either Subclass 3A or Subclass 3B fails to
accept the Plan: (a) the holders of Senior Note
Claims will not become entitled to receive the
distribution described in the immediately
preceding paragraph; and (b) the Bankruptcy Court
will enter an order (which will be the
Confirmation Order) pursuant to which the
Bankruptcy Court will determine the respective
entitlement of the holders of Allowed 9-7/8%
Senior Note Claims, Allowed 10-7/8% Senior Note
Claims, Allowed Senior Subordinated Note Claims
and, if applicable under Section 2.5(b) of the
Plan, 7-3/4% SWD Revenue Bonds to the Public Note
Distributable Consideration. The distributions
ultimately made to a holder of an Allowed Senior
Note Claim as described in this paragraph will be
reduced by such holder's proportional share of the
Senior Notes Fee Payments and, if the Bankruptcy
Court determines that holders of Allowed Senior
Subordinated Note Claims are not entitled to any
portion of the Public Note Distributable
Consideration, any 7-3/4% SWD Revenue Bond Payment
(or a reservation in lieu thereof in accordance
with the Plan) and the 7-3/4% SWD Revenue Bond
Plaintiffs' Expense Payments.
Aggregate Allowed Claims Amount: Estimated Percentage Recovery: Varies (see
$414,121,172.73 "--Sources and Uses of Cash")
17
DESCRIPTION AND AMOUNT OF CLAIMS
OR INTERESTS AGAINST THE DEBTORS TREATMENT
-------------------------------- ---------
- - Subclass 3B - Senior Subordinated Note Impaired; depends on whether the Plan is accepted
Claims: Claims against either of the Debtors by both Subclass 3A and Subclass 3B.
under or in respect of the Senior
Subordinated Notes and the Senior On the Effective Date, if both Subclass 3A and
Subordinated Note Indenture. Subclass 3B vote to accept the Plan, each holder
of an Allowed Senior Subordinated Note Claim will
be entitled to receive its Pro Rata Share of $8.0
million in Cash to be paid to the Senior
Subordinated Note Indenture Trustee, provided that
any and all fees or expenses payable to the Senior
Subordinated Note Indenture Trustee pursuant to
the Senior Subordinated Note Indenture will, in
all events, be payable solely from such $8.0
million.
If either Subclass 3A or Subclass 3B fails to
accept the Plan: (a) the holders of Senior
Subordinated Note Claims will not become entitled
to receive the distribution described in the
immediately preceding paragraph; and (b) the
Bankruptcy Court will enter an order (which will
be the Confirmation Order) pursuant to which the
Bankruptcy Court will determine the respective
entitlement of the holders of Allowed 9-7/8%
Senior Note Claims, Allowed 10-7/8% Senior Note
Claims, Allowed Senior Subordinated Note Claims
and, if applicable under Section 2.5(b) of the
Plan, 7-3/4% SWD Revenue Bonds to the Public Note
Distributable Consideration. Any distributions
ultimately made to a holder of an Allowed Senior
Subordinated Note Claim as described in the
immediately preceding sentence may be reduced by
such holder's proportional share of any and all
fees and expenses payable to the Senior
Subordinated Note Indenture Trustee pursuant to
the Senior Subordinated Note Indenture, which
will, subject to such Trustee's right to seek
payment by the Debtors of such fees and expenses
pursuant to section 503(b)(5) of the Bankruptcy
Code, be payable solely from such distributions.
Aggregate Allowed Claims Amount: Estimated Percentage Recovery: Varies (see
$427,200,000.00 "--Sources and Uses of Cash")
- - Subclass 3C - PBGC Claims: Claims (other than Impaired. On the Effective Date, the PBGC as
Administrative Claims) of the PBGC against holder of the PBGC Claims will be entitled to
either of the Debtors arising from, or receive the PBGC Percentage of the Cash and,
relating to, the pension plans which were or subject to Section 2.10 of the Plan, other
are maintained by any of the Other Kaiser property in the Unsecured Claims Trust Account.
Debtors in the Kaiser Cases and guaranteed by
the PBGC.
Allowed Claim Amount: $616,000,000.00 Estimated Percentage Recovery: 17.3% to 18.6%
- - Subclass 3D - Other Unsecured Claims: Claims Impaired. On the Effective Date, each holder of an
against either of the Debtors that are not Allowed Other Unsecured Claim will be entitled to
Administrative Claims, Priority Claims, receive a Pro Rata Share of the Other Unsecured
Priority Tax Claims, Secured Claims, Claims Percentage of the Cash and, subject to
Intercompany Claims, Senior Note Claims, Section 2.10 of the Plan, other property in the
Senior Subordinated Note Claims or the PBGC Unsecured Claims Trust Account.
Claims.
Estimated Aggregate Claims Amount: $0
- - Class 4 - Intercompany Claims: Claims held by Impaired. On the Effective Date, each holder of an
any Other Kaiser Debtor against either of the Intercompany Claim will be entitled to receive the
Debtors. treatment set forth in the Intercompany Claims
Settlement.
- - Class 5 - Interests in the Debtors: Stock Impaired. No property will be distributed to, or
ownership interests in either of the Debtors, retained by, KACC as the holder of the Interests
or rights to acquire the same, and any Claim in KAAC on account of such Interests or KAAC as
arising therefrom. the holder of the Interests in KFC on account of
such Interests, and such Interests will be
canceled on the Effective Date.
18
GUARANTY SUBORDINATION DISPUTE
Litigation relating to the relative priority of holders of Senior Note
Claims and holders of Senior Subordinated Note Claims to payments by certain
subsidiaries of KACC that guaranteed the Senior Notes and the Senior
Subordinated Notes, including the Debtors (i.e., the Guaranty Subordination
Dispute), is currently pending before the Bankruptcy Court. See "Operations
During the Chapter 11 Cases -- Guaranty Subordination Dispute." The Plan
contains the following proposed settlement of the Guaranty Subordination
Dispute: If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder
of an Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of
$8.0 million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture) and a holder of an
Allowed Senior Note Claim will receive its Pro Rata Share of the Public Note
Distributable Consideration remaining after giving effect to the payment of the
$8.0 million to be made to the holders of Senior Subordinated Note Claims, the
7-3/4% SWD Revenue Bond Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
Payment and the Senior Notes Fee Payments. If either Subclass 3A or Subclass 3B
fails to accept the Plan, the Bankruptcy Court will resolve the Guaranty
Subordination Dispute with respect to the Debtors and determine the
distributions from the Public Note Distributable Consideration to be made to the
holders of Claims in Subclass 3A and any distributions from the Public Note
Distributable Consideration to be made to holders of Claims in Subclass 3B. In
such event, the distributions ultimately made to a holder of an Allowed Senior
Note Claim will be reduced by such holder's proportional share of the Senior
Notes Fee Payments and, if the Bankruptcy Court determines that holders of
Allowed Senior Subordinated Note Claims are not entitled to any portion of the
Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment (or
reservation in lieu thereof), if any, and any 7-3/4% SWD Revenue Bond
Plaintiffs' Expense Payment. Similarly, any distributions ultimately made to a
holder of an Allowed Senior Subordinated Note Claim may be reduced by such
holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Trustee pursuant to the Senior Subordinated Note
Indenture. If the Bankruptcy Court is required to resolve the Guaranty
Subordination Dispute as described above, parties involved in that litigation
could appeal the Bankruptcy Court's ruling and request a stay that, if granted,
would prohibit, pending the conclusion of any such appeal, the distribution of
some or all of the Public Note Distributable Consideration to be distributed to
holders of Claims in Subclass 3A or Subclass 3B in accordance with such ruling.
Similarly, pursuant to the AJI/KJC Plan, if holders of both the Senior Note
Claims and the Senior Subordinated Note Claims vote to accept the AJI/KJC Plan,
then an additional $8.0 million will be paid to the Senior Subordinated Note
Indenture Trustee for the benefit of holders of Senior Subordinated Note Claims
(resulting in aggregate consideration of $16.0 million if the Plan is also
accepted by the holders of the Senior Note Claims and the Senior Subordinated
Note Claims), with such amount to be paid from consideration that would
otherwise be distributed to holders of Allowed Senior Note Claims under the
AJI/KJC Plan, and the holders of Senior Note Claims would receive a specified
percentage of the Cash available for distribution to the holders of unsecured
claims (less certain payments or reservations of payment therefrom). If the
holders of the Senior Note Claims or the Senior Subordinated Note Claims fail to
accept the AJI/KJC Plan, the Bankruptcy Court would resolve the Guaranty
Subordination Dispute with respect to AJI and KJC and determine the
distributions to be made to the holders of Senior Note Claims and any
distributions to be made to holders of Senior Subordinated Note Claims under the
AJI/KJC Plan.
7-3/4% SWD REVENUE BOND DISPUTE
If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be distributed to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds pursuant to Section 2.5 of the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment). Notwithstanding the foregoing, in no event will the
amount so paid, when aggregated
19
with any amount payable under any comparable provision of the AJI/KJC Plan,
exceed $8.0 million. If the Debtors do not File a separate motion, the Plan will
serve as a motion pursuant to Bankruptcy Rule 9019 seeking entry of an order
approving the settlement described above. Unless an objection to such settlement
is made in writing by any creditor or claimant affected thereby, Filed with the
Bankruptcy Court and served on the parties identified in Section 12.6 of the
Plan on or before April 5, 2005, such order (which will be the Confirmation
Order) may be entered by the Bankruptcy Court. In the event any such objections
are timely Filed, a hearing with respect thereto will occur at the Confirmation
Hearing.
If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined in an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with the determinations contemplated by Sections
2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided that if the determination
with respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such
payment has not been made by the Bankruptcy Court prior to the Effective Date,
then, in order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.
See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."
SOURCES AND USES OF CASH
SOURCES OF CASH
The Cash available in the Debtors' Estates to fund the Plan will come from:
(a) the net Cash proceeds to be received by the Debtors in connection with the
sale of the QAL Interests pursuant to the QAL Purchase Agreement (after taking
into account the costs and expenses of the sale payable by KAAC in accordance
with the Intercompany Claims Settlement), together with any interest thereon and
earnings from the investment thereof, (the "QAL Proceeds"); and (b) the Recovery
Action Proceeds. See "Operations During the Chapter 11 Cases -- The Sale of the
QAL Interests and Liquidation of KAAC" and "Operations During the Chapter 11
Cases -- Intercompany Claims Settlement."
The Debtors currently estimate that, as of the Effective Date, the QAL
Proceeds will be approximately $396.0 million. The Debtors are not aware of any
Recovery Actions (and the Creditors' Committee has independently determined that
there are no viable preference actions concerning payments made by the Debtors)
and, accordingly, it has been assumed that the Recovery Action Proceeds will be
zero.
USES OF CASH
As more fully described below, the Debtors' Cash as of the Effective Date
(which, for this purpose, is assumed to occur on April 30, 2005) will be used to
(a) fund the Distribution Trust Expenses Account to enable the Distribution
Trustee to pay Distribution Trust Expenses; (b) fund the Priority Claims Trust
Account to enable the Distribution Trustee to pay the Allowed Administrative
Claims, Allowed Priority Tax Claims, Allowed Priority Claims and Allowed Secured
Claims in accordance with the Plan; (c) make any Intercompany Settlement
Payments; and (d) then fund the Unsecured Claims Trust Account with any
remaining Cash. The Debtors and the Creditors' Committee currently anticipate
that available Cash will be applied initially as follows (in millions):
20
Estimated Available Cash...................................... $396.0
Estimated Funding of Distribution Trust Expenses Account... ($1.0)
Estimated Funding of Priority Claims Trust Account......... ($21.0) - ($25.0)*
Estimated Net Intercompany Settlement Payments............. ($26.5) - ($37.5)**
----------------
Estimated Cash Remaining to Initially Fund Unsecured Claims
Trust Account.............................................. $332.5 - $347.5
================
- ----------
* Includes reserves of $4.0 million to $7.0 million for Professional Fee
Claims, reserves of $10.0 million for potential indemnity claims under the
QAL Purchase Agreement, reserves of $6.0 million for payment of alternative
minimum Tax and reserves of $1.0 million to $2.0 million for payment of a
portion of service fees of financial advisors, but does not include any
reserves for payments to the Australian Tax Office in respect of the sale
of the QAL Interests or the payment of the $14.0 million Allowed
Administrative Claims of the PBGC. Currently, the Debtors are not aware of
any facts which would give rise to a claim for indemnification under the
QAL Purchase Agreement and believe that the reserves in respect of such
potential indemnity claims will ultimately be transferred into the
Unsecured Claims Trust Account and be available for distribution to holders
of Allowed Unsecured Claims. See "Operations During the Chapter 11 Cases--
The Sale of QAL Interests and Liquidation of KAAC." The Debtors do not
believe any payments to the Australian Tax Office should be required;
however, it is possible that the Australian Tax Office could take a
different position. If, prior to the Effective Date, it has not been
definitively determined that no such payments will be required, the funding
of the Priority Claims Trust Account will include reserves for potential
payments to the Australian Tax Office, and such reserves could be material
in amount. See "Operations During the Chapter 11 Cases-- Certain Australian
Tax Matters." It is anticipated that, as contemplated by the Intercompany
Claims Settlement, KACC will pay to the PBGC the $14.0 million aggregate
amount of the PBGC's Allowed Administrative Claim prior to the Effective
Date and, accordingly, such Claim will not be required to be paid from the
Priority Claims Trust Account. See "-- Additional Information Regarding
Assertion and Treatment of Administrative Claims and Priority Tax Claims --
Administrative Claims -- PBGC Administrative Claim" and "Operations During
the Chapter 11 Cases -- PBGC Claims."
** Reflects an aggregate of $47.5 million in Intercompany Settlement Payments
reduced by estimated net credits of approximately $10.0 million to $21.0
million in the aggregate as provided in the Intercompany Claims Settlement.
Prior to the Effective Date, the Debtors and Creditors' Committee will
agree on the actual amount of the Debtors' Cash to be used for the initial
funding of the Distribution Trust Expenses Account in order to ensure the
payment of Distribution Trust Expenses. The actual amount of Distribution Trust
Expenses to be incurred prior to termination of the Distribution Trust may vary
materially from the amount of such initial funding. If the Distribution Trustee
at any time determines that the Cash balance of the Distribution Trust Expenses
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee may transfer additional Cash from the Unsecured Claims
Trust Account (to the extent Cash remains available therein) to the Distribution
Expenses Account. If, on the other hand, the Distribution Trustee determines
that the Cash balance of the Distribution Trust Expenses Account is in excess of
the amount that will be sufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, may transfer
such excess Cash to the Unsecured Claims Trust Account.
Prior to the Effective Date, the Debtors and Creditors' Committee will
agree on the actual amount of the Debtors' Cash to be used for the initial
funding of the Priority Claims Trust Account in order to ensure the payment of
Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Priority
Claims and Allowed Secured Claims. Under the Intercompany Claims Settlement, the
Debtors are responsible for, among other things, (a) the payment of third-party
costs that are incurred after June 30, 2004 solely in connection with the
administration of the
21
Chapter 11 Cases, (b) the payment of all foreign Taxes, transfer Taxes and
recording fees payable by KAAC as a result of the sale of the QAL Interests and
all other foreign Taxes payable by the Debtors, (c) the payment of any amount
determined to be payable to the purchaser of the QAL Interests in respect of any
indemnity or other claims of such purchaser under the QAL Purchase Agreement,
(d) the payment of any alternative minimum Tax due as a result of the sale by
AJI and KJC of their interests in Alumina Partners of Jamaica ("Alpart") and the
sale of the QAL Interests, and (e) a portion of the success fees of the
financial advisors retained by KACC and its affiliates and by the Creditors'
Committee. Accordingly, the initial funding of the Priority Claims Trust Account
will include reserves for such items as determined by the Debtors and the
Creditors' Committee. See "Operations During the Chapter 11 Cases -- The Sale of
the QAL Interests and Liquidation of KAAC," "Operations During the Chapter 11
Cases -- Intercompany Claims Settlement," and "Operations During the Chapter 11
Cases -- Certain Australian Tax Matters." The actual amounts of Allowed
Administrative Claims, Allowed Priority Tax Claims, Allowed Priority Claims and
Allowed Secured Claims could vary materially from the amount of the initial
funding of the Priority Claims Trust Account. If at any time the Distribution
Trustee determines that the Cash balance of the Priority Claims Trust Account is
insufficient to make all payments payable therefrom in accordance with the terms
of the Plan and the Distribution Trust Agreement, the Distribution Trustee will
transfer an amount equal to the shortfall from the Unsecured Claims Trust
Account (to the extent Cash remains available therein) to the Priority Claims
Trust Account. If, on the other hand, the Distribution Trustee determines that
the Cash balance of the Priority Claims Trust Account is in excess of the amount
that will be sufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, may transfer
such excess Cash to the Unsecured Claims Trust Account.
The Debtors and the Creditors' Committee currently estimate that, assuming
the Effective Date occurs on or prior to June 30, 2005, the Intercompany
Settlement Payments will be $47.5 million and that approximately $10.0 million
to $21.0 million will be credited against the Intercompany Settlement Payments.
Accordingly, it is projected that net Intercompany Settlement Payments will be
approximately $26.5 million to $37.5 million.
Assuming (a) aggregate actual payments from the Distribution Trust Expenses
Account are $1.0 million (the amount with which such account is estimated to be
initially funded), (b) aggregate actual payments from the Priority Claims Trust
Expenses Account are between $11.0 million (which assumes that the $10.0 million
to be initially reserved for payments in respect of potential claims for
indemnification under the QAL Purchase Agreement is ultimately released in its
entirety for distribution to holders of Allowed Unsecured Claims) and $25.0
million (which assumes that the $10.0 million to be initially reserved for
payments in respect of potential claims for indemnification under the QAL
Purchase Agreement is used in its entirety to make such payments and,
accordingly, that no portion thereof is ever released for distribution to
holders of Allowed Unsecured Claims), (c) aggregate actual Intercompany
Settlement Payments are between $26.5 million and $37.5 million (as estimated
above), the Debtors and the Creditors' Committee currently estimate that the
Unsecured Claims Trust Account ultimately would be funded with an aggregate of
$332.5 million to $357.5 million. No assurance can be given (a) that the actual
amount of Cash to be used for funding the Distribution Trust Expenses Account or
the Priority Claims Trust Account or the actual amount of Intercompany
Settlement Payments and related credits will not vary materially from the
estimates thereof indicated above, (b) that the initial funding of the
Distribution Trust Expenses Account and the Priority Claims Trust Account will
be made in the amount of the estimates indicated above, or (c) that, regardless
of the amount of initial funding of such Trust Accounts, the actual payments
payable therefrom will not vary materially from the amount of such initial
funding, increasing Cash ultimately available for distribution from the
Unsecured Claims Trust Account to the extent actual payments are less than such
initial funding and decreasing Cash ultimately available for distribution from
the Unsecured Claims Trust Account to the extent actual payments are greater
than such initial funding. In particular, no assurance can be given (a) that
actual funding of the Priority Claims Trust Account will not materially exceed
the estimates indicated above after taking into account any reserves that may
ultimately be required in connection with payments potentially due to the
Australian Tax Office in respect of the sale of the QAL Interests, which
reserves could be material in amount, (b) as to whether any payments will
ultimately be required to be made from the Priority Claims Trust Account to the
Australian Tax Office in respect of the sale of the QAL Interests, or (c) if
such payments in respect of the sale of the QAL Interests are ultimately
required, as to the amount thereof. Nor can any assurance be given (a) as to
whether any of the $10.0 million reserved for payments in respect of potential
claims for indemnification under the QAL Purchase Agreement will be released for
distribution to holders of Allowed Unsecured Claims or (b) if any of such
reserve is ultimately released for distribution to holders of Allowed Unsecured
Claims, as to the amount so released. See "Operations During the Chapter 11
Cases -- Certain Australian Tax Matters."
22
Based on the various estimates indicated above and assuming there are no
Allowed Unsecured Claims, the aggregate Cash ultimately to be distributed to the
PBGC, as the holder of the PBGC Claims, would be $106.4 million to $114.4
million, and $226.1 million to $243.1 million would remain available for
distribution to holders of Senior Note Claims and Senior Subordinated Note
Claims and, if applicable, holders of 7-3/4% SWD Revenue Bonds. The aggregate
Cash ultimately to be distributed to holders of Senior Note Claims and Senior
Subordinated Note Claims depends on, among other things, whether Subclass 3A and
Subclass 3B vote to accept the Plan and, if either Subclass 3A or Subclass 3B
fails to accept the Plan, the outcome of the Guaranty Subordination Dispute. See
"Operations During the Chapter 11 Cases -- Guaranty Subordination Dispute." The
chart below indicates, based on the various estimates indicated above and
assuming there are no Allowed Other Unsecured Claims, the aggregate Cash
ultimately to be distributed to holders of Senior Note Claims and Senior
Subordinated Note Claims in each of the following four scenarios: (a) Subclass
3A and Subclass 3B vote to accept the Plan ("Scenario A"); (b) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
the 9-7/8% Senior Note Indenture Trustee, the 10-7/8% Senior Note Indenture
Trustee and the Ad Hoc Group (collectively, the "Senior Note Parties") in the
Guaranty Subordination Dispute such that the Senior Subordinated Note Claims are
subordinated to the Senior Note Claims ("Scenario B"); (c) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
the Senior Subordinated Note Indenture Trustee in the Guaranty Subordination
Dispute such that the Senior Subordinated Note Claims and the Senior Note Claims
are treated on a pari passu basis ("Scenario C"); and (d) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
Liverpool Limited Partnership, a holder of 9-7/8% Senior Notes and Senior
Subordinated Notes ("Liverpool"), on all positions asserted by Liverpool in the
Guaranty Subordination Dispute such that the Senior Subordinated Note Claims are
ultimately determined by the Bankruptcy Court to be subordinated, but only to
$100 million of the current principal amount of the 9-7/8% Senior Notes and not
to any of the 10-7/8% Senior Notes ("Scenario D") (in each case, in millions).
Estimated Aggregate Cash Distribution
-------------------------------------------------------------
Scenario A* Scenario B* Scenario C Scenario D**
------------- ------------- ------------- -------------
10-7/8% Senior Note Claims ........ $120.6-$130.1 $124.9-$134.5 $ 62.6-$67.3 $ 62.6-$67.3
9-7/8% Senior Note Claims ......... $ 93.8-$101.2 $ 97.2-$104.6 $ 48.7-$52.3 $126.2-$131.3
Senior Subordinated Note Claims ... $ 8.0 -- $114.8-$123.4 $ 37.3-$44.7
- ----------
* Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders
of Senior Note Claims otherwise agree pursuant to a settlement, all holders
of Allowed Senior Note Claims are entitled under the Plan to identical
treatment in respect of contractual subordination claims under the Senior
Subordinated Note Indenture, and the recoveries of holders of Senior Note
Claims reflect reductions of $3.7 million in Scenario A and $4.0 million in
Scenario B for payment of the 7-3/4% SWD Revenue Bond Payment, but do not
reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments, which
could be up to $0.5 million. See "Operations During the Chapter 11 Cases --
7-3/4% SWD Revenue Bond Dispute."
** The estimated recoveries were calculated based on the assumption that
Liverpool prevails on each of its currently asserted positions. If
Liverpool does not prevail on certain of these positions, the estimated
distributions to the 9-7/8% Senior Note Claims would be reduced.
Calculation of the contractual subordination payments includes claims for
postpetition interest and an allocation of such payments proportionally
between KAAC, on the one hand, and AJI and KJC, on the other hand, based on
the estimated value distributable in respect of Public Note Claims under
each of the Plan and the AJI/KJC Plan.
Although the Debtors and the Creditors' Committee believe that either no Other
Unsecured Claims will ultimately be allowed or any Allowed Other Unsecured
Claims will be de minimis, in the event Other Unsecured Claims that have been
asserted are not disallowed prior to the Effective Date, Disputed Claims
Reserves would have to be established in respect of Subclass 3D, thereby further
reducing the initial Cash distributions to be made to holders of Senior
23
Note Claims, to holders of Senior Subordinated Note Claims in certain
circumstances and to the PBGC. See "General Information Concerning the Plan --
Means for Implementation of the Plan -- Trust Accounts."
The chart below indicates, based on the estimated Cash distributions
indicated above, the estimated percentage recovery by holders of Senior Note
Claims and Senior Subordinated Note Claims in each of Scenario A, Scenario B,
Scenario C and Scenario D (computed as the quotient of the estimated Cash to be
distributed to all holders of the applicable Claims divided by the aggregate
amounts of such Claims allowed pursuant to Section 2.7 of the Plan).
Estimated Aggregate Cash Distribution
-----------------------------------------------------
Scenario A* Scenario B* Scenario C Scenario D**
----------- ----------- ---------- ------------
10-7/8% Senior Note Claims ........ 51.8%-55.9% 53.6%-57.7% 26.9%-28.9% 26.9%-28.9%
9-7/8% Senior Note Claims ......... 51.8%-55.9% 53.6%-57.7% 26.9%-28.9% 69.6%-72.4%
Senior Subordinated Note Claims ... 1.9% -- 26.9%-28.9% 8.7%-10.5%
- ----------
* Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders of
Senior Note Claims otherwise agree pursuant to a settlement, all holders of
Allowed Senior Note Claims are entitled under the Plan to identical
treatment in respect of contractual subordination claims under the Senior
Subordinated Note Indenture, and the recoveries of holders of Senior Note
Claims reflect reductions of $3.7 million in Scenario A and $4.0 million in
Scenario B for payment of the 7-3/4% SWD Revenue Bond Payment, but do not
reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments, which
could be up to $0.5 million. See "Operations During the Chapter 11 Cases--
7-3/4% SWD Revenue Bond Dispute."
** The estimated recoveries were calculated based on the assumption that
Liverpool prevails on each of its currently asserted positions. If
Liverpool does not prevail on certain of these positions, the estimated
distributions to the 9-7/8% Senior Note Claims would be reduced.
Calculation of the contractual subordination payments includes claims for
postpetition interest and an allocation of such payments proportionally
between KAAC, on the one hand, and AJI and KJC, on the other hand, based on
the estimated value distributable in respect of Public Note Claims under
each of the Plan and the AJI/KJC Plan.
KFC CLAIM AGAINST KACC
The KFC Claim is a general unsecured claim held by KFC against KACC in the
amount of $1.106 billion. Under the Intercompany Claims Settlement, the KFC
Claim will, subject to certain rights of the United States government to object,
be allowed in such amount and will receive the same treatment as allowed general
unsecured claims under any plan of reorganization of KACC. It is presently
anticipated that, pursuant to the Legacy Liability Agreements and the
Intercompany Claims Settlement, the holder or holders of the KFC Claim will
receive an aggregate of approximately one-third of 25% of the residual value of
reorganized KACC after the satisfaction of any and all administrative, priority
and secured claims against KACC and after taking into account, among other
things, the satisfaction of claims of the PBGC against Kaiser Aluminum &
Chemical of Canada Limited any use of KACC assets to settle asbestos, silica and
other tort claims against KACC. See "Operations During the Chapter 11 Cases --
Agreements with Labor Regarding Pension and Retiree Medical Benefits" and "--
Intercompany Claims Settlement." Because no plan of reorganization for KACC has
yet been proposed and the residual value of reorganized KACC has not yet been
determined, no assurance can be given as to whether or when any distribution
will be made in respect of the KFC Claim or, if a distribution is made, as to
the value thereof.
Seventy-five percent of the KFC Claim will be assigned by KFC to a master
tort trust established in connection with the plan or plans of reorganization
for KAC and KACC on the effective date of such plan or plans if such plan or
plans provide that such master tort trust or trusts will receive no more than
the following:
24
- a Cash distribution of $13.0 million or less; and
- the stock of KAE Trading, Inc. (an Other Kaiser Debtor, the sole asset
of which will be, as of the effective date of such plan or plans,
certain real property located in Louisiana and rights under a related
lease or other property having a value not greater than $1.0 million)
and no other equity interests.
If a plan or plans of reorganization for KAC and KACC which provide that such
master tort trust or trusts will receive more than the Cash and other property
listed above are confirmed and become effective, KFC will be entitled to retain
the entire KFC Claim, and, in such circumstance, the United States, on behalf of
certain agencies thereof, will be permitted to object to the allowance of the
KFC Claim within 30 days after the effective date of such plan or plans. While
no plan or plans of reorganization for KAC or KACC have yet been proposed, the
Debtors believe that such master tort trust or trusts will receive no more than
the Cash and other property listed above and, as a consequence, KFC will be
entitled to retain only 25% of the KFC Claim and the United States will not be
permitted to object to the allowance thereof.
Under the Plan, no distribution in respect of the Retained Portion of the
KFC Claim will be made, and the Retained Portion of the KFC Claim will be held
in the Unsecured Claims Trust Account, until receipt by the Distribution Trustee
of distributions in respect thereof from KACC pursuant to a confirmed plan of
reorganization of KACC or otherwise, and then in-kind distributions consisting
of the property received by the Distribution Trustee from KACC in respect of the
Retained Portion of the KFC Claim will be made to holders of Allowed Claims in
Subclass 3A, Subclass 3C and Subclass 3D in accordance with the terms of the
Plan.
ADDITIONAL INFORMATION REGARDING ASSERTION AND TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS
ADMINISTRATIVE CLAIMS
Administrative Claims in General
Except as otherwise provided in the Plan or unless otherwise agreed by the
holder of an Administrative Claim and the applicable Debtor or the Distribution
Trustee, each holder of an Allowed Administrative Claim will receive, in full
satisfaction of its Administrative Claim, Cash from the Priority Claims Trust
Account in an amount equal to the allowed amount of such Administrative Claim
either (a) on or promptly after the Effective Date or (b) if the Administrative
Claim is not allowed as of the Effective Date, on or promptly after the date
that is 30 days after the date on which (i) an order allowing such
Administrative Claim becomes a Final Order or (ii) a Stipulation of Amount and
Nature of Claim is executed by the Distribution Trustee and the holder of the
Administrative Claim.
Administrative Claims include Claims for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date in preserving the respective Estates and
operating the business of each of the Debtors; (b) Professional Fee Claims; and
(c) US Trustee Fees. Except as provided in the Intercompany Claims Settlement,
no Intercompany Claim will constitute an Administrative Claim.
US Trustee Fees
On or before the Effective Date, Administrative Claims for fees payable
pursuant to 28 U.S.C. Section 1930, as determined by the Bankruptcy Court at the
Confirmation Hearing, will be paid by the applicable Debtor or the Distribution
Trustee in Cash equal to the amount of such Administrative Claims. All fees
payable pursuant to 28 U.S.C. Section 1930 will be paid by the Distribution
Trustee in accordance with the Plan from the Priority Claims Trust Account until
the closing of the Chapter 11 Cases pursuant to section 350(a) of the Bankruptcy
Code.
25
Bar Dates for Administrative Claims
As provided in the Administrative Claim Bar Date Order, any holder of an
Administrative Claim against a Debtor that was required to File and serve a
request for payment of such Administrative Claim and that does not File and
serve such a request in accordance with the Administrative Claim Bar Date Order
by the Administrative Claim Bar Date, will be forever barred from asserting such
Administrative Claim against the Debtors, the Distribution Trustee or the
property of any of them, or the Trust Accounts, and such Administrative Claim
will be deemed waived and released as of the Effective Date. Objections to an
Administrative Claim must be Filed by the Distribution Trustee and served on the
requesting party by the later of (a) 45 days after the Effective Date and (b) 60
days after the Filing of the request for payment of an Administrative Claim.
Except as otherwise set forth in the Plan or in the Intercompany Claims
Settlement, professionals or other entities asserting a Professional Fee Claim
for services rendered solely with respect to the Debtors before the Effective
Date must File and serve on the Debtors and the Distribution Trustee and such
other entities who are designated by the Bankruptcy Rules, the Confirmation
Order or other order of the Bankruptcy Court an application for final allowance
of such Fee Claim no later than 60 days after the Effective Date. Objections,
including any objections by the US Trustee, to any Professional Fee Claim must
be Filed and served on the Distribution Trustee and the requesting party by the
later of (a) 90 days after the Effective Date and (b) 30 days after the Filing
of the applicable request for payment of the Professional Fee Claim. To the
extent necessary, the Confirmation Order will amend and supersede any previously
entered order of the Bankruptcy Court regarding the payment of Professional Fee
Claims (other than the Intercompany Claim Settlement Order) solely with respect
to the Debtors.
To the extent that any professional has provided services in the Kaiser
Cases, the Bar Date for Professional Fee Claims in Section 2.2 of the Plan
relates only to such professional's fees for services and reimbursement of
expenses reasonably allocable by such professional solely to the Debtors and not
otherwise treated pursuant to the Intercompany Claims Settlement Order; Claims
relating to such professional's fees for services and reimbursement of expenses
to the Other Kaiser Debtors may be sought against the estates of such Other
Kaiser Debtors. The failure of a professional to allocate any particular charges
to the Debtors will not foreclose, waive or affect in any way the professional's
right to seek allowance and payment of such charges from the Other Kaiser
Debtors.
QAL Purchase Agreement
From and after the Effective Date, any amounts payable by KAAC under the
QAL Purchase Agreement, including any amounts that become payable in respect of
indemnification claims, will be paid in full in Cash from the Priority Claims
Trust Account in accordance with the applicable provisions of the QAL Purchase
Agreement. The Distribution Trust will have no claim against KACC, for
contribution or otherwise, as a result of any such payment. "Operations During
the Chapter 11 Cases -- The Sale of the QAL Interests and Liquidation of KAAC."
Intercompany Claims Settlement Payments
From and after the Effective Date, certain obligations, including
obligations relating to success fees of financial advisors retained by the
Debtors and the Creditors' Committee, alternative minimum Tax due as a result of
the sale of the QAL Interests and AJI and KJC's interests in Alpart, foreign
Taxes, transfer Taxes and recording fees payable by KAAC as a result of the sale
of the QAL Interests and third-party costs incurred after June 30, 2004 solely
in connection with the Chapter 11 Cases and the chapter 11 cases of AJI and KJC,
will be paid in full in Cash from the Priority Claims Trust Account in
accordance with the applicable provisions of the Intercompany Claims Settlement.
See "Operations During the Chapter 11 Cases -- Intercompany Claims Settlement."
PBGC Administrative Claim
Pursuant to paragraph 10 of the PBGC Settlement Agreement, the PBGC will
have an Allowed Administrative Claim against KAAC and KFC and, on the Effective
Date, if neither KACC nor any of the Other Kaiser Debtors has paid to the PBGC
$14.0 million in full as required by Section 7.10 of the Intercompany Claims
Settlement, then the PBGC will receive, in full satisfaction of such Allowed
Administrative Claim, Cash from the Priority Claims Trust Account in the amount
of $14.0 million less any portion of such amount that has been
26
previously paid to the PBGC by KACC or any of the Other Kaiser Debtors. It is
anticipated that KACC will pay to the PBGC the $14.0 million aggregate amount of
such Allowed Administrative Claims prior to the Effective Date. See "Operations
During the Chapter 11 Cases -- PBGC Claims."
PRIORITY TAX CLAIMS
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless otherwise
agreed by the holder of a Priority Tax Claim and the applicable Debtor or the
Distribution Trustee, each holder of an Allowed Priority Tax Claim will receive,
in full satisfaction of its Priority Tax Claim, the full amount thereof in Cash,
without postpetition interest or penalty, from the Priority Claims Trust Account
as soon as practicable after the later of (a) the Effective Date and (b) the
date on which the Priority Tax Claim becomes an Allowed Claim. Notwithstanding
the foregoing, the holder of an Allowed Priority Tax Claim will not be entitled
to receive any payment on account of any penalty arising with respect to or in
connection with the Allowed Priority Tax Claim. Any such Claim or demand for any
such penalty (a) will be subject to treatment in Subclass 3D and (b) the holder
of an Allowed Priority Tax Claim will not be entitled to assess or attempt to
collect such penalty from the Debtors, the Distribution Trustee, their
properties or the Trust Accounts (other than as the holder of a Subclass 3D
Claim).
RESERVES FOR PAYMENT OF CERTAIN POTENTIAL ADMINISTRATIVE CLAIMS AND
PRIORITY TAX CLAIMS
As part of the initial funding of the Priority Claims Trust Accounts, the
Debtors will include reserves for payments in respect of certain potential
Administrative Claims and, in certain circumstances, Priority Tax Claims. See
"Overview of the Plan -- Sources and Uses of Cash."
SENIOR NOTE INDENTURE TRUSTEE AND AD HOC GROUP COUNSEL FEES AND EXPENSES; 7-3/4%
SWD REVENUE BOND PLAINTIFFS' FEES
The Senior Notes Fee Payments will be made out of the Public Note
Distributable Consideration. No later than two Business Days prior to the
Effective Date, each of the 9-7/8% Senior Note Indenture Trustee, the 10-7/8%
Senior Note Indenture Trustee and counsel for the Ad Hoc Group must furnish to
the Creditors' Committee and the Debtors information in respect of such fees and
expenses incurred and estimated to be incurred through the Effective Date.
In addition, if the 7-3/4% SWD Revenue Bond Payment is required to be made
under the first sentence of Section 2.5(a) of the Plan, the 7-3/4% SWD Revenue
Bond Plaintiffs' Expense Payments will be made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Claims in
Subclass 3A; provided, however, that in no case will the amount of the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payment, when aggregated with any
comparable amount payable under the AJI/KJC Plan, exceed $500,000; provided
further, however, that nothing in the Plan will prejudice the rights of such
plaintiffs to seek additional recoveries (i) from amounts otherwise to be paid
to or for the benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or
the AJI/KJC Plan or (ii) from, or in respect of amounts otherwise to be paid to
or for the benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser
Debtor other than AJI or KJC. No later than two Business Days prior to the
Effective Date, the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute must
furnish to the Creditors' Committee, the Debtors, the 9-7/8% Senior Note
Indenture Trustee and the 10-7/8% Senior Note Indenture Trustee information in
respect of such fees and expenses incurred and estimated to be incurred through
the Effective Date.
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS
BACKGROUND
KAC, through its wholly owned subsidiary KACC and the subsidiaries of KACC,
has historically been one of the leading international producers and marketers
of alumina, primary aluminum and fabricated aluminum products, operating
worldwide in all principal aspects of the aluminum industry - the mining of
bauxite, the refining of bauxite into alumina, the production of primary
aluminum from alumina and the manufacture of both fabricated and semi-fabricated
aluminum products. KAAC is a direct wholly owned subsidiary of KACC. KAAC
currently owns a 20% interest in QAL, an Australian corporation that operates an
alumina refinery at Gladstone in
27
Queensland, but has entered into an agreement to sell such interests (i.e., the
QAL Interests) (which agreement and sale were approved by an order of the
Bankruptcy Court dated November 8, 2004). For a discussion of the sale by KAAC
of the QAL Interests, see "Operations During the Chapter 11 Cases -- The Sale of
the QAL Interests and Liquidation of KAAC." KFC is a direct wholly owned
subsidiary of KAAC and operates to coordinate financing for QAL. KFC's only
assets are Intercompany Claims against certain Other Kaiser Debtors, including
the $1.106 billion Intercompany Claim against KACC (i.e., the KFC Claim), the
majority of which KFC may be required to assign to a master tort trust
established in connection with the plan or plans of reorganization of KAC and/or
KACC. For further information about the KFC Claim, see "Overview of the Plan --
KFC Claims Against KACC" and "Operations During the Chapter 11 Cases --
Intercompany Claims Settlement."
On February 12, 2002 (the "Petition Date"), KAC, KACC and 13 of their
subsidiaries, including the Debtors, Filed for relief under chapter 11 of the
Bankruptcy Code. On March 15, 2002, two additional affiliates (collectively with
the previously-Filed debtors, the "Original Debtors") of KAC and KACC commenced
their respective chapter 11 cases. Nine other affiliates (collectively, the
"2003 Debtors") commenced their voluntary chapter 11 cases on January 14, 2003.
The Filing of these cases was necessitated by the liquidity and cash flow
problems that arose in late 2001 and early 2002. KAC and its subsidiaries were
facing significant near-term debt maturities at a time of unusually weak
aluminum industry business conditions, depressed aluminum prices and a broad
economic slowdown that was further exacerbated by the events of September 11,
2001. In addition, KAC and its subsidiaries had become increasingly burdened by
asbestos litigation and growing legacy obligations for retiree medical and
pension costs. The confluence of these factors created continuing operating
losses and negative cash flows, which resulted in lower credit ratings and an
inability to access the capital markets.
NOTE GUARANTEES
The Debtors, together with certain other subsidiaries of KACC, are
guarantors of KACC's obligations under the 9-7/8% Senior Note Indenture and
10-7/8% Senior Note Indentures (collectively, the "Senior Notes Indentures") and
the Senior Subordinated Note Indenture (collectively with the Senior Notes
Indentures, the "Public Note Indentures"). Upon the commencement of KACC's
chapter 11 case, the debt issued pursuant to each Public Note Indenture was
accelerated and the trustee under each Public Note Indenture had the right to
proceed to collect on the debt issued pursuant to such Public Note Indenture.
During the Chapter 11 Cases, certain litigation was initiated involving the
relative rights of the holders of the Senior Subordinated Notes and the holders
of the 9-7/8% Senior Notes and the 10-7/8% Senior Notes. See "Operations During
the Chapter 11 Cases -- Guaranty Subordination Dispute." Litigation was also
initiated in order to determine the rights of the 7-3/4% SWD Revenue Bonds in
relation to the Senior Subordinated Notes. See "Operations During the Chapter 11
Case -- 7-3/4% SWD Revenue Bond Dispute."
OPERATIONS DURING THE CHAPTER 11 CASES
FIRST DAY RELIEF
On the Petition Date, the Original Debtors Filed a number of motions and
other pleadings (collectively, the "First Day Motions"). Certain of the most
significant First Day Motions are briefly described below. The First Day Motions
were designed to meet the Original Debtors' goals of:
- continuing their and their nondebtor subsidiaries' operations with as
little disruption and loss of productivity as possible;
- maintaining the confidence and support of the Original Debtors' and
their nondebtor subsidiaries' customers, employees, vendors,
suppliers, service providers, contractors and other key groups;
- maintaining good relations in the communities served by the Original
Debtors and their nondebtor subsidiaries' businesses; and
- obtaining necessary postpetition financing.
28
The First Day Motions included:
- motions relating to case administration included the appointment of
counsel, the appointment of a claims and noticing agent, and the
approval of interim compensation procedures for professionals;
- a motion seeking authority to pay prepetition wages and other benefits
to or on behalf of the Original Debtors' employees and independent
contractors;
- a motion seeking authority to retain and pay ordinary course
professionals;
- a motion seeking authority to continue the Original Debtors' workers'
compensation insurance programs and pay certain prepetition workers'
compensation claims, premiums and related expenses;
- a motion seeking authority to pay or honor prepetition obligations to
customers;
- a motion seeking authority to pay prepetition claims of certain
critical vendors and service providers;
- a motion seeking approval of (a) the Original Debtors' cash management
system; (b) certain intercompany transactions with and transfers to
affiliates; (c) the use of existing bank accounts, business forms, and
investment and deposit guidelines; and (d) the priority of
postpetition Intercompany Claims, as discussed below under "-- Cash
Management Order"; and
- a motion seeking approval to continue funding certain joint venture
affiliates, including QAL, as discussed below under "-- Joint Venture
Order".
All of the First Day Motions ultimately were granted on the Petition Date or
shortly thereafter.
CASH MANAGEMENT ORDER
Prior to the Petition Date, the Original Debtors utilized certain
centralized cash management systems in the day-to-day operation of their
businesses. These cash management systems included an overall centralized cash
management system maintained by KACC, as well as certain cash management
subsystems maintained by certain of their subsidiaries and business units. These
cash management systems provided well-established mechanisms for the collection,
concentration, management and disbursement of funds used in the Original
Debtors' businesses.
On February 13, 2002, the Bankruptcy Court entered an interim order
authorizing the Original Debtors to maintain these systems on a postpetition
basis and, on July 23, 2002, entered a final order authorizing the continued use
and maintenance of the centralized cash management system (the "Cash Management
Order"). In addition, the Cash Management Order authorized the Original Debtors
to continue their ordinary course transactions with, and transfers of Cash to,
their nondebtor affiliates. In connection with this relief, the Cash Management
Order accorded superpriority status to any Intercompany Claims among the
Original Debtors and nondebtor affiliates that arose after the Petition Date as
a result of the intercompany transactions made through the Original Debtors'
cash management system.
JOINT VENTURE ORDER
As of the Petition Date, much of the bauxite, alumina and primary aluminum
utilized by KACC and its subsidiaries was produced at overseas facilities owned
through five nondebtor joint venture affiliates, of which KACC held, directly or
indirectly, less than a 100% ownership interest (collectively, the "Joint
Ventures"). QAL, described above in "Certain Events Preceding the Debtors'
Chapter 11 Cases -- Background," was one of the Joint Ventures. Certain of the
Original Debtors were obligated to purchase products from the Joint Ventures and
to fund the Joint Ventures' cash costs for raw materials, labor and other
operational costs, as well as capital expenditures,
29
Taxes, debt service and working capital. Failure to purchase products from, or
fund the costs of, a Joint Venture would have been a default under the relevant
Joint Venture agreements, which, in turn, could have lead to the forfeiture of
the Original Debtors' interests in the Joint Venture. As a consequence, the
Original Debtors sought and obtained an interim order dated February 13, 2002
authorizing them to continue ordinary course transactions with, and pay
prepetition claims of, the Joint Ventures and, on July 23, 2002, obtained a
final order authorizing them to do so (the "Joint Venture Order").
BANKRUPTCY PETITIONS OF THE 2003 DEBTORS
The 2003 Debtors commenced their respective chapter 11 cases in order to,
among other reasons, protect their assets against statutory liens that might
have arisen and been enforced by the PBGC against them as a result of KACC's
failure to make a $17.0 million contribution to its salaried employee retirement
plan in January 2003 as required under the Employee Retirement Income Security
Act of 1974, as amended. In connection with these filings, the Bankruptcy Court
authorized 2003 Debtors to continue to make payments in the normal course of
business (including payments of pre-Filing date amounts), including payments of
wages and benefits, payments for items such as materials, supplies and freight
and payments of taxes. The Bankruptcy Court also extended the relief provided
under the Cash Management Order and Joint Venture Order to the 2003 Debtors.
APPOINTMENT OF THE COMMITTEES AND FUTURE CLAIMANTS' REPRESENTATIVES
CREDITORS' COMMITTEE
On February 25, 2002, the US Trustee appointed the Creditors' Committee.
The Creditors' Committee acts as such in all of the Kaiser Cases (including the
Chapter 11 Cases). The membership of the Creditors' Committee has been amended
three times during the Kaiser Cases; the current members of, and advisors to,
the Creditors' Committee are:
COMMITTEE MEMBERS: COUNSEL:
J.P. Morgan Trust Company, N.A., Lisa G. Beckerman, Esq.
as Indenture Trustee Akin, Gump, Strauss, Hauer & Feld, L.L.P.
6525 West Campus Oval Road 590 Madison Avenue
New Albany, OH 43054 New York, NY 10022
Law Debenture Trust Company of New William P. Bowden, Esq.
York, as Indenture Trustee Ashby & Geddes
767 Third Avenue, 31st Floor 222 Delaware Avenue
New York, NY 10017 P.O. Box 1150
Wilmington, DE 19899
U.S. Bank National Association,
as Indenture Trustee FINANCIAL ADVISORS:
180 East 5th Street
St. Paul, MN 55101 Amit R. Patel
Houlihan Lokey Howard & Zukin
United Steelworkers of America 1930 Century Park West
Five Gateway Center Los Angeles, CA 90067
Pittsburgh, PA 15222
ASBESTOS EXPERTS:
Pension Benefit Guaranty Corporation
1200 K Street, N.W. Charles E. Bates
Washington, D.C. 20005 Bates White & Ballantine
2001 K Street, N.W., Suite 700
Farallon Capital Management LLC Washington, D.C. 20006
1 Maritime Plaza, Suite 1325
San Francisco, CA 94111
30
Dwight Asset Management Company
100 Bank Street
Burlington, VT 05401
ASBESTOS CLAIMANTS' COMMITTEE AND CERTAIN OTHER APPOINTED REPRESENTATIVES
On February 25, 2002, the US Trustee appointed a statutory committee of
asbestos claimants (the "Asbestos Claimants' Committee"). On January 27, 2003,
the Bankruptcy Court entered an order appointing Martin J. Murphy as legal
representative for future asbestos claimants (the "Future Asbestos Claimants'
Representative"). On August 26, 2003, the Bankruptcy Court entered an order
appointing an official committee of retired employees (the "Retirees'
Committee"). On June 22, 2004, the Bankruptcy Court entered an order appointing
a legal representative for future silica and coal tar pitch volatile claimants
(the "Future Silica Claimants' Representative"). While each of these
appointments has been made in the administratively consolidated chapter 11 cases
of the Original Debtors and Additional Debtors, the Debtors do not believe that
they have any liability with respect to the claims that are the subject of the
respective roles of the Asbestos Claimants' Committee, the Future Asbestos
Claimants' Representative or the Future Silica Claimants' Representative and no
Claims in respect thereof have been asserted (other than several Claims asserted
by insurance carriers that are being challenged by the Debtors and that are
expected to be disallowed).
ASSUMPTION AND ASSIGNMENT OR REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
As debtors in possession, the Debtors have the right under section 365 of
the Bankruptcy Code, subject to the approval of the Bankruptcy Court, to assume,
assume and assign, or reject executory contracts and unexpired leases. Section
365 of the Bankruptcy Code provides generally that a debtor may assume, assume
and assign, or reject an executory contract at any time before the confirmation
of a plan of reorganization, but the Bankruptcy Court, on the request of a party
in interest, may order the debtor to determine whether to assume or reject a
particular executory contract within a specified period of time. In addition,
section 365 of the Bankruptcy Code further provides that a debtor is given until
60 days after the date of commencement of its bankruptcy to decide whether to
assume, assume and assign, or reject an unexpired lease of nonresidential real
property. This period may be extended for "cause."
On April 11, 2002, the Bankruptcy Court entered an order granting the
Original Debtors' motion to extend the time within which they may assume, assume
and assign, or reject an unexpired lease of nonresidential property until the
Confirmation Date to allow them to evaluate further their executory contracts
and unexpired leases. On April 17, 2003, the Bankruptcy Court entered an order
granting the same relief to the 2003 Debtors.
As described below in "-- The Sale of the QAL Interests and Liquidation of
KAAC," the QAL Interests have been sold and all executory contracts related to
QAL have been assumed and assigned in connection therewith. KAAC does not
believe it has any material executory contracts or unexpired leases that will
not be assumed and assigned in connection with the sale of the QAL Interests,
but, in any case, any remaining executory contracts of KAAC will be deemed
rejected pursuant to the Plan.
CLAIMS PROCESS AND BAR DATES
In May 2002, the Debtors and thirteen of the Other Kaiser Debtors filed
their Schedules, identifying the assets and liabilities of their respective
estates. These Schedules have been amended from time to time subsequent to these
initial filings. In March 2003, the 2003 Debtors filed their respective
Schedules. The Bankruptcy Court set the following bar dates for the filing of
proofs of claim in the Kaiser Cases: (a) January 31, 2003 as the last date by
which holders of prepetition claims against the Original Debtors (other than
asbestos-related personal injury, noise-induced hearing loss and coal tar pitch
volatiles claims) could file their claims; (b) May 15, 2003 as the last date by
which holders of prepetition claims against the 2003 Debtors (other than
asbestos-related personal injury, noise-induced hearing loss and coal tar pitch
volatiles claims) could file their claims; and (c) February 29, 2004 as the last
date by which holders of noise-induced hearing loss and coal tar pitch volatiles
prepetition claims against KACC could file their claims. No bar date has been
established for the filing of asbestos-related personal injury claims.
31
POSTPETITION FINANCING
On the Petition Date, the Original Debtors (including the Debtors) entered
into a postpetition financing agreement arranged by Bank of America, N.A. and,
in March 2003, the 2003 Debtors were added as co-guarantors. That financing
facility provided for a secured, revolving line of credit through February 13,
2005. On February 11, 2005, the Bankruptcy Court approved a replacement
financing agreement for certain of the Other Kaiser Debtors. The replacement
facility was arranged by J.P. Morgan Securities Inc. and provides for a secured,
revolving line of credit in the principal amount of $200.0 million through the
earlier of February 11, 2006, the effective date of a plan of reorganization for
the Other Kaiser Debtors or the voluntary termination of the financing facility
by the Other Kaiser Debtors. Because the Debtors will be liquidating their
assets and will have no working operations, the Debtors are not parties to the
replacement financing agreement and the lenders under the replacement financing
agreement have no Liens on the Cash held by the Debtors.
STRATEGIC PLAN TO SELL COMMODITIES ASSETS
In September 2002, KAC and KACC prepared a strategic plan for their
business operations. That plan envisioned the sale of some or all of their
bauxite, alumina and primary aluminum assets and the reorganization around their
fabricated products business. Thereafter, the strategic plan was shared with the
Creditors' Committee, the Asbestos Claimants' Committee and the Future Asbestos
Claimants' Representative. After these parties completed considerable due
diligence, they each indicated that they did not oppose the strategic plan.
In furtherance of the strategic plan, the Debtors and the Other Kaiser
Debtors have sold or are in the process of selling their interests in the Joint
Ventures other than Anglesey Aluminium Limited. In July 2004, KACC, KJC, AJI and
certain of their affiliates sold their interests in Alpart for approximately
$331.7 million, subject to certain adjustments. In October 2004, KACC sold its
alumina refinery in Gramercy, Louisiana and the interests of Kaiser Bauxite
Company in and related to Kaiser Jamaica Bauxite Company for consideration of
approximately $23.0 million, subject to certain adjustments. Also in October
2004, certain of the Other Kaiser Debtors sold their interests in Volta
Aluminium Company Limited, which owns a primary aluminum smelter on the coast of
Ghana. In November 2004, the Bankruptcy Court approved the sale of KAAC's
interests in and related to QAL, which operates an alumina refinery in
Queensland, Australia that is one of the most competitive refineries in the
world. The QAL Interests consist of: (a) ownership of 20% of the outstanding
shares of QAL; and (b) rights and obligations under a variety of contracts to
which KACC, KAAC and/or Kaiser Aluminium International, Inc. ("KAII") are
parties, including financing, bauxite supply and alumina sales contracts. See "
- -- The Sale of the QAL Interests and Liquidation of KACC."
THE SALE OF THE QAL INTERESTS AND LIQUIDATION OF KAAC
Following an extensive marketing process that included providing notices to
Comalco Limited ("Comalco"), another stockholder of QAL entitled a right of
first opportunity ("RFO") if at any time KACC wished to sell or otherwise
dispose of all or any part of the QAL Interests, in June 2004, KACC, KAAC and
KAII filed a motion (the "First Sale Motion") to approve the sale of the QAL
Interests pursuant to an action with a reserve price of $525.0 million. No bids
were received for the QAL Interests and in August 2004 the First Sale Motion was
withdrawn.
Shortly thereafter, KACC approached Comalco and other potential purchasers
to continue the sale process for the QAL Interests. On September 23, 2004, KACC,
KAAC and KAII filed motions to approve a two-pronged approach to the sale of the
QAL Interests. First, KACC signed a "stalking horse" agreement to sell the QAL
Interests to Comalco Aluminium Limited, a subsidiary of Comalco, for a base
price of $308.0 million in Cash plus purchase of certain alumina and bauxite
inventories and subject to certain working capital adjustments, and the
assumption of KACC's obligations in respect of approximately $60.0 million of
QAL debt. Pursuant to the agreement, all existing alumina sales contracts and
other agreements relating to QAL would be transferred to Comalco Aluminium
Limited. The agreement was supplemented by a letter agreement in which Comalco
Aluminium Limited's parent companies agree that execution of the stalking horse
agreement satisfied - or that such parties otherwise waived - rights that they
would otherwise have had under the RFO and further contained certain
understandings in respect to the exercise of transfer consent rights (the
"Letter Agreement."). Unless waived or satisfied, these rights could have
potentially delayed the sale process for a significant period of time, during
which
32
delay the market value of the QAL Interests could have decreased, thereby
reducing recoveries to creditors and jeopardizing the closing of any sale of the
QAL Interests. The stalking horse agreement also includes a provision for KACC's
payment of a termination fee of $11.0 million (the "Termination Fee") to Comalco
Aluminium Limited upon the sale of the QAL Interests pursuant to the auction
process if Comalco Aluminium Limited was not the ultimate purchaser.
Separately, KACC negotiated an agreement with Glencore AG ("Glencore")
whereby Glencore agreed that its wholly owned subsidiary, Pegasus Queensland
Acquisition Pty Limited ("Pegasus"), would submit a qualified auction bid for
the QAL Interests, with a base price of $400.0 million in Cash and otherwise on
the terms and conditions of the stalking horse agreement described above. KACC
agreed to pay to Glencore a fee of approximately $7.7 million (the "Glencore
Fee") upon submission of that qualified bid. On September 28, 2004, the
Bankruptcy Court approved the motions to select Comalco Aluminium Limited as the
stalking horse bidder in an auction for the QAL Interests and to approve the
Termination Fee and Glencore Fee. An auction was held on October 28, 2004.
Pegasus timely submitted its bid and received the Glencore Fee and Alumina &
Bauxite Company Ltd. ("ABC Ltd."), an affiliate of RUSAL Holding Ltd., was
selected as the successful bidder, with a bid with a base price of $401.0
million in Cash and otherwise on terms similar to the stalking horse agreement
described above.
Following the auction, ABC Ltd., KACC and KAAC entered into a definitive
purchase agreement reflecting such bid, which agreement is subject to customary
closing conditions, including receipt of required governmental approvals and
third-party consents. The agreement contains customary representations and
warranties for a transaction involving the sale of a minority stake. Under the
agreement, KACC and KAAC agreed to indemnify ABC Ltd. from, among other things,
breaches of such representations and warranties. Subject to certain limited
exceptions, the maximum liability of KACC and KAAC for indemnification in
respect of breaches of representations and warranties is $10.0 million. The
Intercompany Claims Settlement provides that KAAC will satisfy any such
indemnification or other obligations under the QAL Purchase Agreement and, in
such event, will have no claim against KACC for contribution.
By an order dated November 8, 2004, the Bankruptcy Court approved the
purchase agreement with ABC Ltd. and the transactions contemplated thereby and
authorized KACC and KAAC, in the event such agreement is terminated, to enter
into the purchase agreement submitted by Pegasus with its bid and to consummate
the transactions contemplated thereby. The closing of the sale of the QAL
Interests is expected to occur during the first quarter of 2005.
In December 2004, Comalco Aluminium Limited's parent companies indicated
that they were not yet prepared to consent to the sale of the QAL Interests
because of purported issues surrounding ABC Ltd.'s ability to guarantee its
obligations to QAL. Subsequently, Comalco Aluminium Limited's parent companies
requested a number of amendments to QAL-related agreements as a condition to
granting their consent to the sale. As a consequence, KAAC and KACC Filed a
motion to enforce the Letter Agreement with Comalco Aluminium Limited's parent
companies (the "Enforcement Motion"). A hearing to consider the Enforcement
Motion is scheduled for March 21, 2005.
CERTAIN AUSTRALIAN TAX MATTERS
The Australian Tax Office could assert that the Debtors owe Taxes for one
or more taxable periods through Effective Date, including Taxes resulting from
the sale of the QAL Interests. The Debtors believe that a Claim for Taxes
resulting from the sale of the QAL Interests is unlikely because they believe
that the sale price to be received pursuant to the QAL Purchase Agreement will
not be sufficient to produce taxable gain under Australian Tax laws; however, no
assurance can be given (a) that the Australian Tax Office will not take a
different position and assert a Claim that the Debtors owe Taxes as a result of
the sale of the QAL Interests or (b) that if the Australian Tax Office does
assert such a Claim, as to the amount of such Claim, which could be material, or
as to the amount of Taxes, if any, that may ultimately be determined to be due
and owing to the Australian Tax Office in connection with such Claim. The Plan
provides that any and all Taxes determined to be due and owing to the Australian
Tax Office from either Debtor to the Australian Tax Office for any taxable
period (including interest and penalties, if any) will be treated as Allowed
Priority Tax Claims (if they relate to prepetition periods) or Allowed
Administrative Claims (if they relate to the administrative period), and will be
paid in full in Cash from the Priority Claims Trust Account
33
following the determination of the amount or amounts of such Tax liabilities.
Interest and penalties associated with any such Tax liability will be determined
and calculated for purposes of the Plan under applicable Australian law. (Until
this determination has been made, any Claim for Taxes by the Australian Tax
Office will be treated under the Plan as a Disputed Claim.) See "Overview of the
Plan -- Sources and Uses of Cash."
AGREEMENTS WITH LABOR REGARDING PENSION AND RETIREE MEDICAL BENEFITS
In January 2004, KACC and one of the Other Kaiser Debtors filed motions
with the Bankruptcy Court for a distress termination of all of their domestic
hourly pension plans and to terminate or substantially modify postretirement
medical obligations for both salaried and certain hourly employees. KACC
subsequently reached agreements (collectively, the "Legacy Liability
Agreements") with the Retirees' Committee and representatives from the unions
representing the hourly employees of KACC. The Legacy Liability Agreements
provided for the termination of existing salaried and hourly retiree benefit
plans (including medical) and provided salaried and hourly retirees with an
opportunity either to pay premiums for continued medical coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (i.e., COBRA continuation
coverage) or to elect coverage pursuant to voluntary employee beneficiary
association trusts, to which KACC has, and will continue to contribute, a
certain amount of Cash and to which KAC will contribute a certain portion of the
equity it issues upon the consummation of its chapter 11 plan. Under the Legacy
Liability Agreements, the parties also agreed to the termination of their
then-existing hourly pension plans and to the terms of one or more replacement
pension plans.
During the first half of 2004, the Bankruptcy Court entered orders
approving each of the Legacy Liability Agreements, subject to certain
conditions, including Bankruptcy Court approval of the Intercompany Claims
Settlement (described below) in a form acceptable to the Debtors, the Other
Kaiser Debtors and the Creditors' Committee. On June 1, 2004, the Bankruptcy
Court entered an order making the Legacy Liability Agreements effective,
notwithstanding that the Intercompany Claims Settlement had not then been agreed
upon or approved, and authorizing the Other Kaiser Debtors to proceed with the
implementation of those agreements, subject to certain termination rights
granted to the Creditors' Committee. As a result of the PBGC Settlement
Agreement (described below), KACC and the United Steelworkers of America,
AFL-CIO-CLC later agreed to certain modifications of their Legacy Liability
Agreement, which the Bankruptcy Court approved on November 8, 2004, subject to
finalization of a form of order. The Bankruptcy Court entered the order on
February 1, 2005.
PBGC CLAIMS
The PBGC is a wholly owned United States government corporation that
administers the defined benefit pension plan termination insurance program under
ERISA. Pursuant to federal statute, KACC and each member of its controlled group
are jointly and severally liable to the PBGC for amounts that KACC is required
to contribute to any of the Kaiser pension plans. The controlled group includes
each of KAAC and KFC, as well as all of the Other Kaiser Debtors.
In January 2003, the PBGC filed claims against Debtors and the Other Kaiser
Debtors on behalf of each of the eight Kaiser pension plans, which included: (a)
claims for estimated unfunded benefit liabilities, totaling approximately $620.0
million; (b) unliquidated claims for missed statutory insurance premiums; and
(c) a $17.1 million claim for minimum funding contributions related to the
salaried pension plan and unliquidated claims for minimum funding contributions
related to the remaining Kaiser pension plans.
Although the Bankruptcy Court, in conjunction with approving the Legacy
Liability Agreements, had determined that the financial requirements for a
distress termination of certain of the pension plans had been satisfied and had
authorized the implementation of replacement defined contribution plans as
negotiated in the Legacy Liability Agreements, the termination of the pension
plans and implementation of the replacements plans remained subject to the
PBGC's determination that the statutory requirements had been satisfied. In
March 2004, the PBGC appealed the Bankruptcy Court's ruling that the Debtors and
the Other Kaiser Debtors had met the financial requirements for a distress
termination with respect to certain of the Kaiser pension plans. The PBGC also
informed the Debtors and the Other Kaiser Debtors that it believed that the
replacement pension plans negotiated in the Legacy Liability Agreements did not
comply with the PBGC's policies.
34
On October 14, 2004, the Debtors and the Other Kaiser Debtors entered into
the PBGC Settlement Agreement, pursuant to which the PBGC approved the
termination of the largest of the Kaiser pension plans that had not previously
been terminated (two of the Kaiser pension plans had been terminated by the PBGC
prior to that date) and KACC retained, and agreed to continue, the remaining
smaller pension plans. In addition, the PBGC Settlement Agreement provides for,
among other things: (a) the PBGC's issuance of a letter indicating that it
intends to take no action with respect to the replacement pension plans; (b) the
payment by KACC of amounts necessary to satisfy the minimum funding requirements
under applicable law for the retained pension plans; (c) the allowance of
administrative claims in the aggregate amount of $14.0 million against the
Debtors and the Other Kaiser Debtors with the exception of AJI and KJC; and (d)
the allowance of unsecured claims against the Debtors and the Other Kaiser
Debtors for $616.0 million for unfunded benefit liabilities under the terminated
plans and statutory premiums, provided that the PBGC's recovery from the Estates
of the Debtors in respect of the PBGC Claims is limited to the PBGC Percentage
of the Cash or other property in the Unsecured Claims Trust. On January 25,
2005, the Bankruptcy Court entered an order approving the PBGC Settlement
Agreement. On February 3, 2005, the Senior Subordinated Note Indenture Trustee
Filed a notice of appeal in respect of such order and a notice of appeal of the
Bankruptcy Court's order denying its motion for reconsideration of the
Bankruptcy Court's stay of the Senior Subordinated Note Indenture Trustee's
objection to certain PBGC Claims. See "Overview of the Plan -- Summary of
Classes and Treatment of Claims and Interests" for a description of the
treatment of the PBGC Claims.
INTERCOMPANY CLAIMS SETTLEMENT
The operations of KAC and its subsidiaries, which included transactions
with foreign joint ventures and the use of a centralized cash management system,
gave rise to a significant number of intercompany transactions, which were
accounted for as intercompany receivables and payables. Because many of the
intercompany accounts reflected an aggregate of activity over many years, the
account balances for these intercompany receivables and payables in many cases
were substantial, in some cases aggregating more than a $1.0 billion. In
addition to the complex nature of the transactions and the significant amounts
involved, there were numerous legal theories and arguments that could be
advanced to support varying treatments of all or a portion of these intercompany
account balances or to apply principles of setoff or recoupment to eliminate or
substantially reduce certain of these intercompany account balances. Issues also
existed with respect to postpetition Intercompany Claims, including, among other
issues: (a) whether to "synchronize" the petition dates for the Original Debtors
and the Additional Debtors or otherwise how to treat Intercompany Claims that
arose after the commencement of the chapter 11 cases of the Original Debtors in
2002 but prior to the commencement of chapter 11 cases of the 2003 Debtors; and
(b) how certain costs or services funded by KACC but accruing to the benefit of
the Debtors and Other Kaiser Debtors as well (e.g., professional fees and costs
incurred in the chapter 11 cases and overhead costs) should be allocated among
the Debtors and the Other Kaiser Debtors.
On October 5, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee entered into a settlement and release agreement which
resolves all of these issues (i.e., the Intercompany Claims Settlement), thereby
eliminating the potential costs, uncertainties and potential delays that could
have resulted had each of these issues been left for resolution through
litigation. On October 14, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee jointly Filed a motion to approve the Intercompany Claims
Settlement (the "Joint Motion"). Objections to the Joint Motion were Filed by
numerous parties, many of which were resolved by a January 27, 2005 amendment to
the Intercompany Claims Settlement. The Bankruptcy Court entered an order
approving the Intercompany Claims Settlement on February 1, 2005, which order
was modified on February 15, 2005.
The material terms of the Intercompany Claims Settlement (as amended)
specifically relating to the Debtors include, among others, the following:
- upon the effectiveness of the Intercompany Claims Settlement, various
offsets and transfers will be effected, with the ultimate economic
effect that Intercompany Claims held by or against the Debtors will be
released except as otherwise described below;
- KACC will have an Allowed Administrative Claim against KAAC in the
amount of $45.0 million, subject to certain adjustments, including
reductions (a) to the extent that KACC receives positive
35
net cash flow from KACC after June 30, 2004 and prior to the closing
of the sale of the QAL Interests, (b) in respect of KACC's
reimbursement Claim for payment of the Glencore Fee, and (c) to the
extent that positive net cash flow from Alpart is not set off against
amounts otherwise owed to KACC by AJI and KJC under the Intercompany
Claims Settlement, which reductions are expected to reduce such Claim
to $24.0 million to $35.0 million;
- if the Plan becomes effective on or before June 30, 2005, KAAC will
pay an additional $2.5 million to KACC;
- KAAC is responsible for a portion of the success fees of the financial
advisors retained by the Debtors and the Creditors' Committee and any
alternative minimum Tax due as a result of the sale of AJI and KJC's
interests in Alpart and the sale of the QAL Interests and any foreign
Taxes, transfer Taxes and recording fees payable by KAAC as a result
of the sale of the QAL Interests and the Debtors are responsible for
all other foreign taxes payable by them, whether for current or prior
years;
- seventy-five percent of KFC's unsecured claim against KACC in respect
of certain intercompany loans (i.e., the KFC Claim) will be assigned
by KFC to a master tort trust or trusts on the effective date of a
plan or plans of reorganization for KAC and KACC if such plan or plans
provide that such master tort trust or trusts will receive no more
than: (a) a Cash distribution of $13.0 million or less and (b) the
stock of KAE Trading, Inc. (an Other Kaiser Debtor, the sole asset of
which will be, as of the effective date of such plan or plans, certain
real property located in Louisiana and rights under a related lease or
other property having a value not greater than $1.0 million);
- the KFC Claim will be allowed in the amount of $1.106 billion (subject
to the right of the United States, on behalf of certain agencies
thereof, to object to such allowance within 30 days after the
effective date of a plan or plans of reorganization for KAC and KACC,
if the master tort trust or trusts do not receive 75% of the KFC Claim
as described above) and will receive the same treatment as allowed
general unsecured claims under any plan of reorganization for KACC;
and
- the Debtors are responsible for the payment of third-party costs of
administration of the Chapter 11 Cases incurred after June 30, 2004.
For a detailed discussion of the Intercompany Claims Settlement, see the Joint
Motion, and for a summary thereof, see the supplemental notice regarding the
hearing on the Joint Motion (the "Supplemental Notice"), which was served on all
parties in interest on December 27-28, 2004. The Joint Motion and the
Supplemental Notice, as well as the January 27, 2005 amendment to the
Intercompany Claims Settlement, are available to the public over the Internet on
the Document Website (www.kaiseraluminum.com).
The Intercompany Claims Settlement does not affect any claim by either
Debtor against any of its non-debtor affiliates or by any such affiliate against
a Debtor. The only such claim of which the Debtors are aware is a claim of less
than $5,000 against KAAC by Kaiser Australia Pty, Ltd., a non-debtor,
wholly-owned subsidiary of KACC; the Debtors anticipate that this claim will be
waived by Kaiser Australia Pty, Ltd. on the Effective Date.
GUARANTY SUBORDINATION DISPUTE
In 1993, KACC issued $400.0 million of the Senior Subordinated Notes, which
were guaranteed by certain KACC subsidiaries, including the Debtors (such
guaranty being referred to herein as the "Subsidiary Guaranty"). The Senior
Subordinated Note Indenture contains, among other things, a detailed definition
of "Senior Indebtedness," debt subordination provisions and guaranty provisions.
Under the Senior Subordinated Note Indenture, holders of the Senior Subordinated
Notes agreed "that all direct or indirect payments or distributions on or with
respect to the Notes...is [sic]...subordinated...to the prior payment in
full...of all Senior Indebtedness of the Company" and (b) "that all payments
pursuant to [the Subsidiary Guaranty] are...subordinated...to the prior payment
in full...of all Senior Indebtedness of such [s]ubsidiary [g]uarantor."
36
On August 16, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion (the "Guaranty Subordination Classification Motion") with the Bankruptcy
Court to determine the classification of the Senior Subordinated Note Claims
under any plans of reorganization filed by the Debtors and the Other Kaiser
Debtors that made the Subsidiary Guaranty. The Guaranty Subordination
Classification Motion asserted that the obligations to the holders of 9-7/8%
Senior Notes and 10-7/8% Senior Notes in respect of the Subsidiary Guaranty do
not constitute "Senior Indebtedness" under the applicable definitions in the
Senior Subordinated Note Indenture and that, accordingly, the obligations on the
guaranty of the Senior Subordinated Notes (i.e., the Subsidiary Guaranty) and
the guaranties of the 9-7/8% Senior Notes and 10-7/8% Senior Notes are entitled
to pari passu distributions under plans of reorganization filed by the Debtors
and the Other Kaiser Debtors that made the Subsidiary Guaranty (including the
Plan).
On September 3, 2004, the Senior Note Parties filed a complaint (the
"Guaranty Subordination Adversary Proceeding") with the Bankruptcy Court seeking
a declaration that any payment rights of the Senior Subordinated Note Claims are
subordinate to the Senior Note Claims, or, alternatively, a reformation of the
Senior Subordinated Note Indenture to provide that the Senior Subordinated Note
Claims are junior to the Senior Note Claims. Pursuant to the Bankruptcy Court's
order, on October 8, 2004, the Debtors and the Other Kaiser Debtors filed their
response to the Guaranty Subordination Classification Motion and an answer in
the Guaranty Subordination Adversary Proceeding (together with the Guaranty
Subordination Classification Motion, the "Guaranty Subordination Dispute") and
the Creditors' Committee filed its response to the Guaranty Subordination
Classification Motion. In their respective responses, the Debtors, the Other
Kaiser Debtors and the Creditors' Committee both supported the interpretation
advanced by the Senior Note Parties. The Senior Note Parties also filed
responses opposing the Guaranty Subordination Classification Motion. Liverpool
also Filed a response to the Guaranty Subordination Classification Motion,
asserting that only $100.0 million of the obligations to the holders of the
9-7/8% Senior Notes in respect of the Subsidiary Guaranty, plus associated
interest and fees, constitute "Senior Indebtedness" under the Senior
Subordinated Note Indenture based on the fact that there was a reduction of
$100.0 million in the credit commitment under KACC's senior credit facility at
the time the Subsidiary Guaranty was made. Liverpool therefore contends that,
other than the Subsidiary Guaranty obligations in respect of $100.0 million of
the principal amount of the 9-7/8% Senior Notes, the 10-7/8% Senior Notes, the
9-7/8% Senior Notes and the Senior Subordinated Notes are entitled to pari passu
distributions under the Plan.
In connection with the Guaranty Subordination Dispute and the 7-3/4% SWD
Revenue Bond Dispute (see "-- 7-3/4% SWD Revenue Bond Dispute"), the Senior
Subordinated Note Indenture Trustee has asserted that, even if such disputes are
ultimately resolved by the Bankruptcy Court in favor of the holders of Senior
Note Claims, under the terms of the Senior Subordinated Note Indenture,
including, but not limited to, the charging lien provisions thereunder, the
Senior Subordinated Note Indenture Trustee will be entitled to the payment of
its fees and expenses (including the fees and expenses of the Senior
Subordinated Note Indenture Trustee's professionals) from any funds otherwise
distributable to the holders of Senior Note Claims pursuant to the subordination
provisions of the Senior Subordinated Note Indenture, without prejudice to the
Senior Subordinated Note Indenture Trustee's right to assert, inter alia, that
its fees and expenses constitute an administrative expense claim within the
purview of sections 503 and 507 of the Bankruptcy Code. The Debtors do not agree
with that assertion and believe, in such circumstances, that the contractual
subordination provisions of the Senior Subordinated Note Indenture require the
payment to holders of Senior Note Claims of all amounts that would otherwise be
payable to or for the benefit of holders of Senior Subordinated Note Claims
absent such provisions and that the Debtors are not required to make any payment
in respect of the fees and expenses of the Senior Subordinated Note Indenture
Trustee; if, however, the Bankruptcy Court determines that the assertion of the
Senior Subordinated Note Indenture Trustee is correct, the ultimate recoveries
to holders of Senior Note Claims may be reduced.
On October 25, 2004, the Bankruptcy Court held a status conference on the
Guaranty Subordination Dispute and ordered the parties to attempt to
consensually resolve the Guaranty Subordination Dispute, as well as the 7-3/4%
SWD Revenue Bond Dispute, through mediation. On November 18, 2004, the parties
participated in a day-long mediation. To date, the parties to the Guaranty
Subordination Dispute have not reached a settlement, although the mediator has
not, as yet, terminated the mediation proceedings. No further mediation sessions
are currently scheduled.
On December 2, 2004, the Senior Subordinated Note Indenture Trustee Filed a
motion in the Guaranty Subordination Adversary Proceeding requesting that the
Bankruptcy Court order the parties to file briefs regarding
37
the Guaranty Subordination Dispute by January 10, 2005, and hold an oral summary
judgment argument on January 24, 2005.
On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the Guaranty Subordination Adversary
Proceeding and the 7-3/4% SWD Revenue Bond Dispute pending the completion of the
confirmation process for plans of liquidation for the Debtors, AJI and KJC and
requesting that the Guaranty Subordination Dispute be adjudicated in connection
with confirmation of such plans if the proposed settlement of the dispute
included in each such plan was not accepted. On the same date, Liverpool Filed a
motion requesting that the Bankruptcy Court either (a) consolidate litigation
concerning the Guaranty Subordination Dispute or (b) permit Liverpool to
intervene as a defendant in the Guaranty Subordination Adversary Proceeding.
On January 24, 2005, the Bankruptcy Court stayed the Guaranty Subordination
Adversary Proceeding and ruled that the Guaranty Subordination Dispute and
7-3/4% SWD Revenue Bond Dispute will be adjudicated in connection with the
confirmation of the plans of liquidation for the Debtors, AJI and KJC. The
confirmation hearing for the Plan and AJI/KJC Plan is currently scheduled for
April 13, 2005 and may be continued from time to time.
The Plan contains the following proposed settlement of the Guaranty
Subordination Dispute as it relates to the Debtors: If both Subclass 3A and
Subclass 3B vote to accept the Plan, a holder of an Allowed Senior Subordinated
Note Claim will receive its Pro Rata Share of $8.0 million (less any fees or
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture) and a holder of an Allowed Senior Note Claim will
receive its Pro Rata Share of the Public Note Distributable Consideration
remaining after giving effect to the payment of the $8.0 million to be made to
the holders of Senior Subordinated Note Claims, the 7-3/4% SWD Revenue Bond
Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment and the Senior
Notes Fee Payments. If either Subclass 3A or Subclass 3B fails to accept the
Plan, the Bankruptcy Court will resolve the Guaranty Subordination Dispute with
respect to the Debtors and determine the distributions to be made to the holders
of Claims in Subclass 3A from the Public Note Distributable Consideration and
any distributions to be made to holders of Claims in Subclass 3B from the Public
Note Distributable Consideration. In such event, the distributions ultimately
made to a holder of an Allowed Senior Note Claim will be reduced by such
holder's proportional share of the Senior Notes Fee Payments and, if the
Bankruptcy Court determines that holders of Allowed Senior Subordinated Note
Claims are not entitled to any portion of the Subclass 3A Distributable
Consideration, the 7-3/4% SWD Revenue Bond Payment (or reservation in lieu
thereof), if any, and any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment.
Similarly, any distributions ultimately made to a holder of an Allowed Senior
Subordinated Note Claim may be reduced by such holder's proportional share of
any and all fees and expenses payable to the Senior Subordinated Note Trustee,
pursuant to the Senior Subordinated Note Indenture. If the Bankruptcy Court is
required to resolve the Guaranty Subordination Dispute as described above,
parties involved in that litigation could appeal the Bankruptcy Court's ruling
and request a stay that, if granted, would prohibit, pending the conclusion of
any such appeal, the distribution of some or all of the Public Note
Distributable Consideration to be distributed to holders of Claims in Subclass
3A or Subclass 3B in accordance with such ruling.
Similarly, pursuant to the AJI/KJC Plan, if holders of both the Senior Note
Claims and the Senior Subordinated Note Claims vote to accept the AJI/KJC Plan,
then an additional $8.0 million will be paid to the Senior Subordinated Note
Indenture Trustee for the benefit of holders of Senior Subordinated Note Claims
(resulting in aggregate consideration of $16.0 million if the Plan is also
accepted by the holders of the Senior Note Claims and the Senior Subordinated
Note Claims), with such amount to be paid from consideration that would
otherwise be distributed to holders of Allowed Senior Note Claims under the
AJI/KJC Plan, and the holders of Senior Note Claims would receive a specified
percentage of the Cash available for distribution to the holders of unsecured
claims (less certain payments or reservations of payment therefrom). If the
holders of the Senior Note Claims or the Senior Subordinated Note Claims fail to
accept the AJI/KJC Plan, the Bankruptcy Court would resolve the Guaranty
Subordination Dispute with respect to AJI and KJC and determine the
distributions to be made to the holders of Senior Note Claims and any
distributions to be made to holders of Senior Subordinated Note Claims under the
AJI/KJC Plan.
38
7-3/4% SWD REVENUE BOND DISPUTE
The 7-3/4% SWD Revenue Bonds Indenture Trustee has asserted entitlement to
receive any direct or indirect payment or distribution on or with respect to the
Senior Subordinated Notes. The Debtors are guarantors of the Senior Subordinated
Notes but are not guarantors of the 7-3/4% SWD Revenue Bonds.
On January 13, 2004, the 7-3/4% SWD Revenue Bonds Indenture Trustee and
certain holders of the 7-3/4% SWD Revenue Bonds (collectively, the "7-3/4% SWD
Revenue Bond Plaintiffs") filed an adversary proceeding (i.e., the 7-3/4% SWD
Revenue Bond Dispute) against the Senior Subordinated Note Indenture Trustee and
KACC. This adversary proceeding is currently pending before the Bankruptcy
Court. At issue is whether KACC properly designated the 7-3/4% SWD Revenue Bonds
as senior indebtedness under the Senior Subordinated Note Indenture or whether
the 7-3/4% SWD Revenue Bonds are otherwise entitled to treatment as senior
indebtedness vis-a-vis the Senior Subordinated Notes. It is the position of the
7-3/4% SWD Revenue Bond Plaintiffs that the holders of the 7-3/4% SWD Revenue
Bonds have subordination claims in respect of any distributions on the Senior
Subordinated Notes under the Plan. In response to the complaint, KACC stated
that it had not been able to confirm that it provided the Senior Subordinated
Note Indenture Trustee with a written designation that the 7-3/4% SWD Revenue
Bonds constitute senior indebtedness, which designation would subordinate the
indebtedness under the Senior Subordinated Notes to the indebtedness under the
7-3/4% SWD Revenue Bonds.
On March 26, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion to dismiss the 7-3/4% SWD Revenue Bond Dispute for failure to join
necessary parties such as the Senior Note Indenture Trustee. On May 4, 2004, the
7-3/4% SWD Revenue Bond Plaintiffs filed a motion for summary judgment,
requesting that the Bankruptcy Court either: (a) declare that KACC be deemed to
have submitted the appropriate designation of senior indebtedness; (b) order
KACC to designate the 7-3/4% SWD Revenue Bonds as senior indebtedness; or (c)
declare that the 7-3/4% SWD Revenue Bonds are senior in terms of payment
priority to the Senior Subordinated Notes. Shortly thereafter, the Senior
Subordinated Note Trustee filed a motion to stay all proceedings pending the
Bankruptcy Court's decision on the motion to dismiss the 7-3/4% SWD Revenue Bond
Dispute. KACC subsequently joined the motion to stay proceedings.
On October 25, 2004, the Bankruptcy Court held a status conference on the
7-3/4% SWD Revenue Bond Dispute and ordered the parties to attempt to
consensually resolve the 7-3/4% SWD Revenue Bond Dispute, as well as the
Guaranty Subordination Dispute, through mediation. On November 18, 2004, the
parties to the 7-3/4% SWD Revenue Bond Dispute participated in a day-long
mediation but failed to reach a settlement.
On November 29, 2004, the Bankruptcy Court entered orders permitting the
Senior Note Indenture Trustee to intervene as a defendant in the proceeding and
denying the Senior Subordinated Note Indenture Trustee's motion to dismiss the
7-3/4% SWD Revenue Bond Dispute.
On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the 7-3/4% SWD Revenue Bond Dispute
and the Guaranty Subordination Adversary Proceeding pending the completion of
the confirmation process for plans of liquidation for the Debtors, AJI and KJC
and requesting that the 7-3/4% SWD Revenue Bond Dispute be adjudicated, along
with the Guaranty Subordination Dispute if necessary, in connection with the
confirmation of such plans.
On December 17, 2004, the Senior Subordinated Note Indenture Trustee filed
an answer in the 7-3/4% SWD Revenue Bond Dispute that included, among other
things: (a) a counterclaim for declaratory judgment that the 7-3/4% SWD Revenue
Bonds are not senior to the Senior Subordinated Notes; (b) a counterclaim
against the 7-3/4% SWD Revenue Bond Plaintiffs for reimbursement of legal
expenses incurred by the Senior Subordinated Note Indenture Trustee; (c) a cross
claim against KACC for indemnification in the amount of any judgment that may be
rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs against the Senior
Subordinated Note Indenture Trustee; and (d) a complaint against certain of the
Debtors and Other Kaiser Debtors for indemnification in the amount of any
judgment that may be rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs
against the Senior Subordinated Note Indenture Trustee.
39
On January 24, 2005, the Bankruptcy Court stayed the 7-3/4% SWD Revenue
Bond Dispute and ruled that the 7-3/4% SWD Revenue Bond Dispute and the Guaranty
Subordination Dispute will be adjudicated in connection with the confirmation of
the plans of liquidation for the Debtors, AJI and KJC. The confirmation hearing
for the Plan and AJI/KJC Plan is currently scheduled for April 13, 2005 and may
be continued from time to time.
In connection with the development and proposal of the Plan,
representatives of certain of the holders of Senior Note Claims and 7-3/4% SWD
Revenue Bonds entered into negotiations in an attempt to reach a settlement in
respect of the 7-3/4% SWD Revenue Bond Dispute. In early February, such
representatives reached an agreement on a proposed settlement of that Dispute.
Such settlement, as it relates to the Debtors, is reflected in the Plan as
follows: If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be paid to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds (i.e., the 7-3/4% SWD Revenue Bond Payment). Notwithstanding
the foregoing, in no event will the amount so paid, when aggregated with any
amount payable under any comparable provision of the AJI/KJC Plan, exceed $8.0
million. If the Debtors do not File a separate motion, the Plan will serve as a
motion pursuant to Bankruptcy Rule 9019 seeking entry of an order approving the
settlement described elsewhere in this Disclosure Statement. Unless an objection
to such settlement is made in writing by any creditor or claimant affected
thereby, Filed with the Bankruptcy Court and served on the parties identified in
Section 12.6 of the Plan on or before April 5, 2005, such order (which will be
the Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing. If Subclass 3A fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the rights, if any, of the holders
of 7-3/4% SWD Revenue Bonds to payments from the Public Note Distributable
Consideration will be as determined in an order of the Bankruptcy Court (which
may be the Confirmation Order) in connection with the determinations
contemplated by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided
that if the determination with respect to the rights of the holders of 7-3/4%
SWD Revenue Bonds to such payment has not been made by the Bankruptcy Court
prior to the Effective Date, then, in order to ensure the funding of such
payment, on the Effective Date the Distribution Trustee will reserve from the
Public Note Distributable Consideration any amount that may be ordered by the
Bankruptcy Court to be so reserved pending such determination. See "Overview of
the Plan -- 7-3/4% SWD Revenue Bond Dispute."
The proposed settlement also contemplates that similar provisions will be
included in the AJI/KJC Plan and that, under any plan of reorganization for
KACC, the holders of claims against KACC in respect of the 7-3/4% SWD Revenue
Bonds and the Senior Notes will share pro rata in any contractual subordination
recoveries pursuant to the Senior Subordinated Note Indenture.
GENERAL INFORMATION CONCERNING THE PLAN
THE FOLLOWING IS A SUMMARY OF SOME OF THE SIGNIFICANT ELEMENTS OF THE PLAN.
THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE PLAN ATTACHED HERETO AS EXHIBIT I AND THE
EXHIBIT THERETO.
SUBSTANTIVE CONSOLIDATION
In connection with confirmation of the Plan, the Debtors will seek
Bankruptcy Court approval of the substantive consolidation of the Debtors for
the purpose of implementing the Plan, including for purposes of voting,
confirmation and distributions to be made under the Plan. Pursuant to the
relevant order of the Bankruptcy Court: (a) all assets and liabilities of the
Debtors will be deemed merged; (b) all guarantees by, or co-obligations of, one
40
Debtor in respect of the obligations of the other Debtor will be deemed
eliminated so that any Claim against either Debtor and any guarantee by, or
co-obligation of, the other Debtor and any joint or several liability of either
of the Debtors will be deemed to be one obligation of the consolidated Debtors;
and (c) each and every Claim Filed or to be Filed in the Chapter 11 Case of
either Debtor will be deemed Filed against the consolidated Debtors and will be
deemed one Claim against and a single obligation of the consolidated Debtors.
Such substantive consolidation (other than for the purpose of implementing the
Plan) will not affect the legal and corporate structures of the Debtors, nor
will such substantive consolidation affect or be deemed to affect any
Intercompany Claim in any manner contrary to the Intercompany Claims Settlement,
nor will such substantive consolidation be deemed to affect any Other Kaiser
Debtor or claims against any Other Kaiser Debtor. Because the Debtors have
virtually the same joint creditors, creditors of the Debtors would receive
exactly the same distributions on their Claims whether or not the Debtors are
substantively consolidated. Accordingly, substantive consolidation is being
sought solely for administrative convenience.
The Plan will serve as a motion seeking entry of an order substantively
consolidating the Debtors, as described, and to the limited extent set forth in,
the immediately preceding paragraph. Unless an objection to such substantive
consolidation is made in writing by any creditor or claimant affected by the
Plan, Filed with the Bankruptcy Court and served on the parties entitled to
notice thereof pursuant to the Plan on or before April 5, 2005, or such other
date as may be fixed by the Bankruptcy Court, the substantive consolidation
order (which will be the Confirmation Order) may be entered by the Bankruptcy
Court. In the event any such objections are timely Filed, a hearing with respect
thereto will occur at the Confirmation Hearing.
KFC CLAIM AGAINST KACC
Notwithstanding anything to the contrary in the Plan, no distributions in
respect the Retained Portion of the KFC Claim will be deemed made (and the
Retained Portion of the KFC Claim will be held in the Unsecured Claims Trust
Account) until receipt of by the Distribution Trustee of distributions in
respect thereof from KACC pursuant to a confirmed plan of reorganization of KACC
or otherwise and then in-kind distributions consisting of the property received
by the Distribution Trustee from KACC in respect of the Retained Portion of the
KFC Claim will be made to holders of Allowed Claims in Subclass 3A, Subclass 3C
and Subclass 3D in accordance with the terms of the Plan. Section 4.2.f of the
Intercompany Claims Settlement is, and will be, determinative of the ownership
rights in the KFC Claim. See "Operations During the Chapter 11 Cases --
Intercompany Claims Settlement."
EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
On the Effective Date, except for an Executory Contract or Unexpired Lease
that previously was assumed and assigned or rejected by an order of the
Bankruptcy Court, each Executory Contract and Unexpired Lease entered into by a
Debtor prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.
Notwithstanding anything in the Bar Date Order or in the Administrative
Claim Bar Date Order to the contrary, if the rejection of an Executory Contract
or Unexpired Lease pursuant to the Plan gives rise to a Claim by the other party
or parties to such contract or lease, such Claim will be forever barred and will
not be enforceable against the Debtors, the Distribution Trustee, the Debtors'
Estates or the Trust Accounts unless a proof of Claim or request for payment of
Administrative Claim is Filed and served on the Distribution Trustee, pursuant
to the procedures specified in the Confirmation Order, the notice of the entry
of the Confirmation Order or another order of the Bankruptcy Court, no later
than 30 days after the Effective Date.
RELEASES, LIMITATION OF LIABILITY, INJUNCTIONS AND PRESERVATION OF INSURANCE
RELEASE OF CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF LIABILITY
SUBJECT TO THE PROVISIONS OF SECTION 2.11 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH OR OTHER PROPERTY TO BE
41
DISTRIBUTED IN CONNECTION WITH THE PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN
FAVOR OF THE PLAN WILL BE DEEMED TO FOREVER RELEASE AND WAIVE ALL CLAIMS,
OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION
AND LIABILITIES (OTHER THAN THE RIGHT TO ENFORCE THE DEBTORS' OR THE
DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN AND THE CONTRACTS,
INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS DELIVERED THEREUNDER),
WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT, MATURED OR UNMATURED,
KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THEN EXISTING OR THEREAFTER ARISING IN
LAW, EQUITY OR OTHERWISE, THAT ARE BASED IN WHOLE OR IN PART ON ANY ACT,
OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING PLACE ON OR PRIOR TO THE
EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE CHAPTER 11 CASES OR THE PLAN
THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE CREDITORS' COMMITTEE, ITS
MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY OF THEIR RESPECTIVE
PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVISORS, ATTORNEYS,
ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER REPRESENTATIVES, ACTING
IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (A) ACTS OR OMISSIONS OF ANY SUCH
PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; (B) IF THE HOLDERS
OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE DETERMINED BY THE ORDER CONTEMPLATED
BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B) TO BE ENTITLED TO A DISTRIBUTION IN
RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF ANY SUCH PERSON RELATED TO OR
GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF THE CONTRACTUAL SUBORDINATION
DISPUTES; OR (C) CONTRACTUAL OBLIGATIONS OF, OR LOANS OWED BY, ANY SUCH PERSON
TO A DEBTOR. FOR PURPOSES OF THE PLAN, "CONTRACTUAL SUBORDINATION DISPUTES"
MEANS ANY OR ALL OF THE FOLLOWING MATTERS PENDING IN THE KAISER CASES: (A) THE
7-3/4% SWD REVENUE BOND DISPUTE; (B) THE MOTION FILED ON AUGUST 14, 2004, BY THE
SENIOR SUBORDINATED NOTE INDENTURE TRUSTEE TO DETERMINE THE CLASSIFICATION OF
THE SENIOR SUBORDINATED NOTE CLAIMS UNDER ANY PLAN OF REORGANIZATION FILED BY
THE DEBTORS OR THE OTHER KAISER DEBTORS THAT GUARANTEED THE SENIOR SUBORDINATED
NOTES (INCLUDING THE PLAN); AND (C) THE ADVERSARY PROCEEDING FILED AUGUST 16,
2004, AND STYLED U.S. BANK NATIONAL ASSOCIATION V. KAISER ALUMINUM & CHEMICAL
CORPORATION, ADV. PRO. NO. 04-55115 (JFK).
As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed by the Plan, the Debtors on behalf of themselves, their
Estates, creditors and Interest holders will be deemed to release, waive and
discharge all claims and rights of any nature in connection with or related to
the Debtors, the Chapter 11 Cases or the Plan (other than the rights of the
Distribution Trustee to enforce the Plan and any contracts, instruments,
releases and other agreements and documents delivered thereunder, and to pursue
objections to and resolve Disputed Claims), whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter arising (including, without limitation,
those arising under the Bankruptcy Code), based on any act, omission or
occurrence on or before the Effective Date, against the Creditors' Committee,
its members, any Indenture Trustee, any of the Debtors' present or former
directors or officers, or any of the respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives of the Debtors, the Creditors'
Committee, its members, or the Indenture Trustees, acting in such capacity,
except for such Claims or rights based on: (a) acts or omissions of any such
person constituting gross negligence or willful misconduct; (b) if the holders
of the Senior Subordinated Note Claims are determined by the order contemplated
by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) to be entitled to a distribution in
respect to such Claims, acts or omissions of any such person related to or
giving rise to the circumstances underlying any of the Contractual Subordination
Disputes; or (c) contractual obligations of, or loans owed by, any such person
to a Debtor.
The Debtors, the Distribution Trust, the Distribution Trustee, the
Indenture Trustees and their respective directors, officers, employees and
professionals, acting in such capacity, and the Creditors' Committee, its
members and their respective professionals will neither have nor incur any
liability to any entity for any act taken or omitted to be taken in connection
with or related to the formulation, preparation, dissemination, implementation,
confirmation or consummation of the Plan, this Disclosure Statement, or any
contract, instrument, release or other agreement or document created or entered
into, or any other act taken or omitted to be taken, in connection with the
Plan; such provisions will have no effect on: (a) the liability of any entity
that would otherwise result from the failure to perform or pay any obligation or
liability under the Plan or any contract, instrument, release or other agreement
or document to be entered into or delivered in connection with the Plan; or (b)
the liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a Final Order
to have constituted gross negligence or willful misconduct.
42
INJUNCTIONS
EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST, THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS DESCRIBED IN (A) ABOVE; (C) CREATING,
PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS, THE
DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN.
PRESERVATION OF INSURANCE
Nothing in the Plan will diminish or impair the enforceability of any
insurance policies that may cover Claims against either Debtor.
Nothing in the Plan or in the Confirmation Order shall preclude any entity
from asserting in any proceeding any and all claims, defenses, rights or causes
of action that it has or may have under or in connection with any insurance
policy or insurance settlement agreement. Nothing in the Plan or the
Confirmation Order shall be deemed to waive any claims, defense, rights or
causes of action that any entity has or may have under the provisions, terms,
conditions, defenses and/or exclusions contained in such policies or
settlements.
Notwithstanding the provisions of the foregoing paragraph and the
substantial consummation of the Plan, in connection with any possible
settlements made in any of the Kaiser Cases which concern any insurance
policies, the Bankruptcy Court shall retain jurisdiction over the Chapter 11
Cases to issue or approve buybacks of such insurance policies under section 363
of the Bankruptcy Code and/or to issue or approve injunctions, releases and/or
exculpations under the Bankruptcy Code (including, without limitation, section
105 of the Bankruptcy Code) for purposes of, inter alia, protecting any such
settling insurers against claims or demands made against the Debtors. In this
regard, as between KACC and the Debtors, KACC will have full and sole right and
authority to settle, release, compromise and enter into buybacks by insurers of
insurance policies as to which the Debtors, or any of them, have or may assert
rights as an insured. The Debtors shall not be entitled to any consideration or
other value as a result of any such exercise of rights by KACC.
NO DISCHARGE
In accordance with section 1141(d)(3) of the Bankruptcy Code, the
confirmation of the Plan will not discharge either Debtor.
MEANS FOR IMPLEMENTATION OF THE PLAN
LIQUIDATING TRANSACTIONS
On the Effective Date, the Distribution Trust Assets will be transferred to
and vest in the Distribution Trust, free and clear of Claims, Liens and
Interests, except as may be otherwise provided in the Intercompany Claims
Settlement. On or after the Effective Date, the Debtors will enter into such
transactions and will take such actions as may be necessary or appropriate to
merge, dissolve or otherwise terminate the corporate existence of the Debtors.
Notwithstanding the foregoing and regardless of whether the actions in the
preceding sentence have yet been taken with respect to a particular Debtor, upon
the transfer of the Distribution Trust Assets to the Distribution Trust, the
Debtors will be deemed dissolved and their business operations withdrawn for all
purposes without any necessity of
43
filing any document, taking any further action or making any payment to any
governmental authority in connection therewith.
CORPORATE ACTION
The following (which will occur and be deemed effective as of the date
specified in the documents effectuating the same or, if no date is so specified,
the Effective Date) will be deemed authorized and approved in all respects and
for all purposes without any requirement of further action by KACC, as the sole
stockholder of KAAC, by KAAC, as the sole stockholder of KFC, by the directors
of either Debtor or by the Distribution Trustee or any other person or entity:
- the Liquidating Transactions;
- the establishment of the Distribution Trust;
- the appointment of the Distribution Trustee to act on behalf of the
Distribution Trust;
- the transfer of the Distribution Trust Assets to the Distribution
Trust;
- the creation of the Trust Accounts;
- the distribution of Cash and other property pursuant to the Plan;
- the adoption, execution, delivery and implementation of all contracts,
instruments, releases and other agreements or documents related to any
of the foregoing;
- the adoption, execution and implementation of the Distribution Trust
Agreement; and
- the other matters provided for under the Plan involving the corporate
structure of either Debtor or corporate action to be taken by, or
required of, either Debtor or the Distribution Trustee.
NO REVESTING OF ASSETS
The property of the Debtors' Estates will not revest in the Debtors on or
after the Effective Date but will vest in the Distribution Trust to be
administered by the Distribution Trustee in accordance with the Plan and the
Distribution Trust Agreement.
RECOURSE SOLELY TO TRUST ACCOUNTS
The Liquidating Transactions will not in any way merge the assets of the
Debtors' Estates, including the Trust Accounts. All Claims against the Debtors
are deemed fully satisfied in exchange for the treatment of such Claims under
the Plan, and holders of Allowed Claims against either Debtor will have recourse
solely to the applicable Trust Accounts for the payment of their Allowed Claims
in accordance with the terms of the Plan.
RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, on the Effective Date all Liens against the property of either
Estate will be fully released, and all of the right, title and interest of any
holder of such Liens, including any rights to any collateral thereunder, will
attach to and be enforceable solely against the applicable Distribution Trust
Assets held in the applicable Trust Account in accordance with, and subject to
the terms of, the Plan. All such Liens against the Distribution Trust Assets
will be fully released upon the holder of the Lien receiving its full
distribution under the Plan, or upon the Effective Date if the holder of the
Lien is not entitled to any distribution under the Plan.
44
EXEMPTION FROM CERTAIN TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, the following will not
be subject to any stamp Tax, real estate transfer Tax, sales or use Tax or
similar Tax: (a) any Liquidating Transaction; (b) the execution and
implementation of the Distribution Trust Agreement, including any transfers to
or by the Distribution Trust; or (c) the making or delivery of any deed or other
instrument of transfer under, in furtherance of or in connection with the Plan,
including any merger agreements or agreements of consolidation, disposition,
liquidation or dissolution executed in connection with any transaction pursuant
to the Plan.
DISTRIBUTION TRUST
CREATION OF THE DISTRIBUTION TRUST
On the Effective Date, the Debtors and the Distribution Trustee will enter
into the Distribution Trust Agreement, thereby creating the Distribution Trust.
The Distribution Trustee, whose identity and address will be disclosed at
least ten days prior to the Confirmation Hearing, will be selected by the
Creditors' Committee with the consent of the Debtors, and will be the exclusive
trustee of the assets of the Distribution Trust for purposes of 31 U.S.C.
Section 3713(b) and 26 U.S.C. Section 6012(b)(3), as well as the "representative
of the estate" of each of the Debtors under section 1123(b)(3)(B) of the
Bankruptcy Code.
On the Effective Date, the Debtors will transfer to the Distribution Trust
all the Distribution Trust Assets then owned by the Estates, whereupon title to
such Distribution Trust Assets will irrevocably vest in the Distribution Trust,
free and clear of Claims, Liens and Interests.
DISTRIBUTION TRUST ASSETS
The Distribution Trust Assets include: (a) the Trust Accounts and any Cash
(and any other property) held by such Trust Accounts; (b) the rights of the
Debtors under or in respect of the Intercompany Claims Settlement, the QAL
Purchase Agreement or any causes of action not released by the Plan, including
the Recovery Actions, and any proceeds thereof; and (c) the QAL Proceeds to the
extent that such funds are not included in the foregoing clauses (a) and (b).
PURPOSES OF THE DISTRIBUTION TRUST
The Distribution Trust will be established pursuant to the Distribution
Trust Agreement for the following purposes and no other:
- collecting, maintaining and administering any Distribution Trust
Assets for the benefit of the creditors and claimants of the Estates
(collectively, the "Beneficiaries");
- liquidating (including objecting to Claims and determining the proper
recipients and amounts of distributions to be made from the
Distribution Trust) and distributing the Distribution Trust Assets for
the benefit of the Beneficiaries who are determined to hold Allowed
Claims as expeditiously as reasonably possible;
- pursuing available causes of action, including Recovery Actions;
- closing the Chapter 11 Cases; and
- otherwise implementing the Plan and completing the dissolution of the
Debtors;
45
all in accordance with the Plan and the Distribution Trust Agreement. The
Distribution Trust will have no objective to, and will not, engage in the
conduct of a trade or business and will terminate upon the completion of its
liquidation and distribution duties pursuant to the terms of the Distribution
Trust Agreement.
TAX TREATMENT
The Distribution Trust is intended to be treated, for U.S. federal income
Tax purposes, in part as a liquidating trust within the meaning of Treasury
Regulations section 301.7701-4(d), for the benefit of the holders of Allowed
Claims entitled to distributions of Pending Payments (as defined below), and
otherwise as one or more disputed ownership funds within the meaning of Proposed
Treasury Regulations section 1.468B-9(a), as more specifically provided for
under the Distribution Trust Agreement. Accordingly, for all federal income Tax
purposes the transfer of Distribution Trust Assets to the Distribution Trust
will be treated as: (a) to the extent of identified amounts (excluding
undeliverable Cash) held by the Distribution Trust for distribution to holders
of Allowed Claims in specific amounts as of the date the Distribution Trust
receives the applicable Distribution Trust Assets ("Pending Payments"), a
transfer of the Pending Payments directly from the Debtors to the holders of
such Allowed Claims followed by the transfer of such Pending Payments by the
holders of Allowed Claims to the Distribution Trust in exchange for beneficial
interests in the Distribution Trust; and (b) to the extent of amounts that are
not Pending Payments, as a transfer to one or more disputed ownership funds. The
holders of Allowed Claims entitled to distributions of Pending Payments will be
treated for federal income Tax purposes as the grantors and deemed owners of
their respective shares of the Distribution Trust Assets in the amounts of the
Pending Payments and any earnings thereon.
The Distribution Trustee will be required by the Distribution Trust
Agreement to file federal Tax returns for the Distribution Trust as a grantor
trust with respect to any Pending Payments and as one or more disputed ownership
funds with respect to all other funds or other property held by the Distribution
Trust pursuant to applicable Treasury Regulations, and any income of the
Distribution Trust will be treated as subject to Tax on a current basis. The
Distribution Trust Agreement will provide that the Distribution Trustee will pay
such Taxes from the Distribution Trust Assets as required by law and in
accordance with the provisions of the Plan described in "Distributions Under the
Plan -- Treatment of Disputed Claims." In addition, the Distribution Trust
Agreement will require consistent valuation by the Distribution Trustee and the
Beneficiaries, for all federal income Tax purposes, of any property held by the
Distribution Trust. The Distribution Trust Agreement will provide that
termination of the trust will occur no later than two years after the Effective
Date, unless the Bankruptcy Court approves an extension based upon a finding
that such an extension is necessary for the Distribution Trust to complete its
claims resolution and liquidating purpose. The Distribution Trust Agreement also
will limit the investment powers of the Distribution Trustee in accordance with
IRS Rev. Proc. 94-45 and will require the Distribution Trust to distribute at
least annually to the Beneficiaries (as such may have been determined at such
time) its net income (net of any payment of or provision for Taxes), except for
amounts retained as reasonably necessary to maintain the value of the
Distribution Trust Assets or to meet Claims and contingent liabilities
(including Disputed Claims).
TRUST ACCOUNTS
On or prior to the Effective Date, the Trust Accounts will be established
in federal insured United States banks in the name of the Distribution Trustee
or one or more third-party Disbursing Agents. On the Effective Date, the Trust
Accounts and the contents thereof will be transferred to, and irrevocably vest
in, the Distribution Trust.
Distribution Trust Expenses Account
Prior to the Effective Date, the Creditors' Committee and the Debtors will
agree on the amount to be funded into the Distribution Trust Expenses Account on
the Effective Date. On the Effective Date, the Distribution Trust Expenses
Account will be funded by the transfer of Cash in such amount from the
Distribution Trust Assets. The Distribution Trustee will act as the Disbursing
Agent for the Distribution Trust Expenses Account. See "Overview of the Plan --
Sources and Uses of Cash."
Except as otherwise ordered by the Bankruptcy Court, the Distribution
Trustee, in its capacity as Disbursing Agent, will, in its reasonable
discretion, pay Distribution Trust Expenses from the Distribution Trust Expenses
Account, without the need for further Bankruptcy Court approval. Cash in the
Distribution Trust
46
Expenses Account will also be used to pay Taxes owing in respect of any amounts
included in the Distribution Trust Expenses Account in accordance with the
Distribution Trust Agreement. At least five Business Days prior to making any
payment from the Distribution Trust Expenses Account, the Distribution Trustee
will provide the Steering Committee with a notice setting forth the amount and
nature of such payment, with such notice to be accompanied by supporting
documentation in reasonable detail.
If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines, in
its reasonable discretion, that the Cash balance of the Distribution Trust
Expenses Account will be insufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee may transfer from the Unsecured Claims Trust Account (to
the extent Cash remains available therein) to the Distribution Trust Expenses
Account Cash in an aggregate amount determined by the Distribution Trustee, in
its reasonable discretion, to be necessary to ensure that the Cash balance of
the Distribution Trust Expenses Account will be sufficient to make all such
payments. To the fullest extent possible, any transfer described in this
paragraph will be accomplished in a manner intended to avoid or minimize any
adverse impact on the ability to make full distributions to holders of Allowed
Secured Claims, Allowed Administrative Claims, Allowed Priority Claims and
Allowed Priority Tax Claims or distributions to holders of Allowed Unsecured
Claims in accordance with the terms of the Plan.
If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines that
the Cash balance of the Distribution Trust Expenses Account is in excess of the
amount that will be sufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, acting through
a majority thereof, may transfer such excess Cash to the Unsecured Claims Trust
Account.
Priority Claims Trust Account
Prior to the Effective Date, the Creditors' Committee and the Debtors will
agree on the amount to be funded into the Priority Claims Trust Account on the
Effective Date. On the Effective Date, the Priority Claims Trust Account will be
funded by the transfer of Cash in such amount from the Distribution Trust
Assets. For purposes of the funding of the Priority Claims Trust Account, any
and all amounts that become payable by KAAC under the QAL Purchase Agreement,
including amounts that become payable in respect of indemnification claims, will
be treated as Allowed Administrative Claims and will be paid in full in Cash in
accordance with the applicable provisions of the QAL Purchase Agreement. For
purposes of the funding of the Priority Claims Trust Account, any and all Taxes
determined to be due and owing from the Debtors to the Australian Tax Office for
any taxable period (including interest and penalties, if any, determined and
calculated under applicable Australian law without regard to the provisions of
section 502(b)(2) of the Bankruptcy Code or any other provision of U.S. federal,
state or local law) will be treated as Allowed Priority Tax Claims or Allowed
Administrative Claims, as the case may be, and will be paid in full in Cash in
accordance with the provisions of the Plan described below in "Distributions
Under the Plan -- Timing Calculation of Amounts to Be Distributed -- Allowed
Claims Other Than Unsecured Claims in Subclass 3A, Subclass 3B and Subclass 3D;
Certain Payments From the Public Note Distributable Consideration", provided,
however, that any liability of the Debtors to the Australian Tax Office for
income or capital gains Taxes for any period shall not exceed the amount of such
Taxes, if any, determined in writing by the Australian Tax Office to be due and
payable for such period. Until such determination, any Claim for Taxes by the
Australian Tax Office will be treated as a Disputed Claim. See "Overview of the
Plan -- Sources and Uses of Cash" and "Operations During the Chapter 11 Cases --
Certain Australian Tax Matters."
Cash in the Priority Claims Trust Account will be used by the Distribution
Trustee only to (a) satisfy Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims and Allowed Secured Claims against the Estate of
KAAC or the Estate of KFC in accordance with the terms of the Plan and (b) pay
Taxes owing in respect of any amounts included in the Priority Claims Trust
Account in accordance with the Distribution Trust Agreement.
If, at any time after the initial funding of the Priority Claims Trust
Account as contemplated above, the Distribution Trustee determines, in its
reasonable discretion, that the Cash balance of the Priority Claims Trust
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee will transfer from the Unsecured Claims Trust Account (to
47
the extent Cash remains available therein) to the Priority Claims Trust Account
Cash in an amount determined by the Distribution Trustee, in its reasonable
discretion, to be necessary to ensure that the Cash balance of the Priority
Claims Trust Account will be sufficient to so make all such payments. To the
fullest extent possible, any transfer described in this paragraph will be
accomplished in a manner intended to avoid or minimize any adverse impact on the
ability to make distributions to holders of Allowed Unsecured Claims in
accordance with the Plan.
If, at any time after the initial funding of the Priority Claims Trust
Account described above, the Distribution Trustee determines that the Cash
balance of the Priority Claims Trust Account is in excess of the amount that
will be sufficient to make all payments payable therefrom in accordance with the
Plan and the Distribution Trust Agreement, the Distribution Trustee, with the
consent of the Steering Committee, acting through a majority thereof, may
transfer such excess Cash to the Unsecured Claims Trust Account, except that no
amounts included in the Priority Claims Trust Account in connection with any
potential obligation under the QAL Purchase Agreement for which KAAC and KACC
are jointly and severally liable may be so transferred without the consent of
KACC until the applicable survival period with respect to such obligation has
expired.
Unsecured Claims Trust Account
On the Effective Date, after the initial funding of the Distribution Trust
Expenses Account as described in "Distribution Trust Expenses Account" above and
the initial funding of the Priority Claims Trust Account as described in
"Priority Claims Trust Account" above, the Distribution Trustee will (a) from
the Distribution Trust Assets, make any Intercompany Settlement Payments and (b)
thereafter fund the Unsecured Claims Trust Account with the remainder of the
Distribution Trust Assets, including the Retained Portion of the KFC Claim, all
as provided in the Distribution Trust Agreement.
Cash and other property in the Unsecured Claims Trust Account will be used
by the Distribution Trustee only to (a) satisfy Allowed Unsecured Claims against
the Estate of KAAC or the Estate of KFC in accordance with the terms of the
Plan, (b) pay amounts to be deducted from the Public Note Distributable
Consideration in accordance with the terms of the Plan, and (c) pay Taxes owing
in respect of any amounts included in the Unsecured Claims Trust Account.
Disputed Claims Reserve
It is currently contemplated that, on the Effective Date, in connection
with the initial funding of the Priority Claims Trust Account as described
above, the Distribution Trustee will designate, with the consent of the
Creditors' Committee and KACC, a specified portion of such initial funding as a
Disputed Claims Reserve to be retained in such Trust Account to satisfy any
Disputed Administrative Claims, Disputed Priority Tax Claims, Disputed Priority
Claims and Disputed Secured Claims against the Estate of KAAC or the Estate of
KFC in accordance with the Plan, if, as and when they are allowed or, to the
extent such Disputed Claims are not allowed, to satisfy Claims that are allowed
in accordance with the terms of the Plan. In connection with any subsequent
transfer of Cash to the Priority Claims Trust Account as described above, the
Distribution Trustee will designate amounts so transferred, to the extent they
are not identified as Pending Payments, as Disputed Claims Reserves to be
retained in such Trust Account to satisfy Disputed Administrative Claims,
Disputed Priority Tax Claims, Disputed Priority Claims and Disputed Secured
Claims against the Estate of KAAC or the Estate of KFC in accordance with the
Plan, if, as and when they are allowed or, to the extent such Disputed Claims
are not allowed, to satisfy Claims that are allowed in accordance with the terms
of the Plan.
Further, it is contemplated that on the Effective Date, in connection with
the initial funding of the Unsecured Claims Trust Account as contemplated above,
the Distribution Trustee will designate a specified portion of such initial
funding as a Disputed Claims Reserve to be retained in such Trust Account to
satisfy any Disputed Unsecured Claims against the Estate of KAAC of the Estate
of KFC in accordance with the terms of the Plan, if, as and when they are
allowed or, to the extent such Disputed Claims are not allowed, to satisfy
Claims that are allowed in accordance with the terms of the Plan. In connection
with any subsequent transfers of Cash to the Unsecured Claims Trust Account in
accordance with the Distribution Trust Agreement, the Distribution Trustee will
designate all amounts so transferred, to the extent not identified as Pending
Payments, as Disputed Claims Reserves to be retained in such Trust Account to
satisfy the Disputed Unsecured Claims against the Estate of KAAC or the Estate
48
of KFC in accordance with the terms of the Plan, if, as and when they are
allowed or, to the extent such Disputed Claims are not allowed, to satisfy
Claims that are allowed in accordance with the terms of the Plan.
Any Cash or other property that becomes available to the Distribution Trust
following the Effective Date, including as a result of (a) the receipt of any
non-Cash property in respect of the Retained Portion of the KFC Claim, (b) the
receipt of any dividends or other distributions on account of securities held in
the Unsecured Claims Trust Account, or (c) the receipt of any income or interest
generated by the investment of Cash held in the Unsecured Claims Trust Account,
will be deposited in the Unsecured Claims Trust Account.
Undeliverable Property Trust Account
After the Effective Date, if any distribution to a holder of an Allowed
Unsecured Claim is returned to the Distribution Trustee as undeliverable, the
Distribution Trustee will deposit the undeliverable Cash or other property in
the Undeliverable Property Trust Account. The Distribution Trustee will hold
such funds and property, in a book-entry sub-account in the Undeliverable
Property Trust Account, for the benefit of such holder. Until such holder
notifies the Distribution Trustee in writing of its then-current address, as
contemplated by the Distribution Trust Agreement, no attempt will be made to
deliver subsequent distributions to such holder and any such distributions that
such holder would otherwise be entitled to receive instead will be transferred
from the Unsecured Claims Trust Account to the Undeliverable Property Trust
Account and credited to such book-entry sub-account. Any dividends or other
distributions on account of undeliverable securities held in such book-entry
sub-account will also be held in such book-entry sub-account for the benefit of
such holder until such holder notifies the Distribution Trustee in writing of
its then-current address. All Cash (including dividends or other distributions
on account of undeliverable securities) held in such book-entry sub-account for
the benefit of such holder will be invested by the Distribution Trustee in a
manner consistent with the investment and deposit guidelines set forth in the
Distribution Trust Agreement. Any income or interest generated from such
investment activities will be held in such book-entry sub-account for the
benefit of such holder until such holder notifies the Distribution Trustee in
writing of its then-current address as contemplated by the Distribution Trust
Agreement. Subject to the provisions of the Distribution Trust Agreement
relating to the forfeiture of certain undeliverable distributions, when such
holder notifies the Distribution Trustee in writing of its then-current address
as contemplated by the Distribution Trust Agreement, the Distribution Trustee
will deliver to such holder all Cash and other property contained in such
book-entry sub-account (net of provision for Taxes owing in respect of amounts
included in such book-entry sub-account in accordance with the Distribution
Trust Agreement). In the event such holder's right to assert a claim for
undeliverable distributions is forfeited as contemplated by the Distribution
Trust Agreement, all Cash and other property contained in such book-entry
sub-account will be transferred from the Undeliverable Property Trust Account to
the Unsecured Claims Trust Account for redistribution to holders of Allowed
Unsecured Claims entitled to distributions therefrom. See "Distributions Under
the Plan -- Undeliverable or Unclaimed Distributions."
Risks Associated with Funding of Trust Accounts
A holder of a Disputed Claim that ultimately becomes an Allowed Claim will
have recourse only to the undistributed Cash held in the Disputed Claim Reserve
of the applicable Trust Account (net of Taxes on such Disputed Claim Reserves)
for the satisfaction of such Allowed Claims and not to any other Trust Account
or any assets previously distributed on account of any Allowed Claim.
The funding of the Distribution Trust Expenses Account and the Priority
Claims Trust Account will be based on the Debtors' estimates of the amount of
liabilities to be funded from these Trust Accounts. There is no assurance that
these estimates will be accurate and, despite the Debtors' best efforts, it is
possible that the Cash in these Trust Accounts may be insufficient to satisfy
the Distribution Trust Expenses and/or the Allowed Administrative Claims,
Allowed Priority Tax Claims, Allowed Priority Claims and Allowed Secured Claims
against the Debtors' Estates. Although the Plan provides certain mechanisms to
further fund any deficiencies in these Trust Accounts, it is possible that
insufficient Cash may be available to fund any deficiency. Based on information
currently available, the Debtors do not believe that these risks are material.
49
POWERS OF THE DISTRIBUTION TRUSTEE
General Powers
The Distribution Trustee will have only the rights, powers and privileges
to act on behalf of the Distribution Trust expressly provided in the Plan and
the Distribution Trust Agreement. The Distribution Trustee will be empowered to,
among other things:
- execute all agreements, instruments and other documents and effect all
other actions necessary to implement the Plan;
- establish, maintain and administer the Trust Accounts;
- accept, preserve, receive, collect, manage, invest, supervise and
protect the Distribution Trust Assets (directly or through one or more
third-party Disbursing Agents), each in accordance with the Plan and
the Distribution Trust Agreement;
- liquidate, transfer or otherwise dispose of the Distribution Trust
Assets or any part thereof or any interest therein upon such terms as
the Distribution Trustee determines to be necessary, appropriate or
desirable, pursuant to the procedures for allowing Claims and making
distributions prescribed in the Plan, and otherwise consistent with
the terms of the Plan;
- calculate and make distributions of the Distribution Trust Assets to
holders of Allowed Claims pursuant to the procedures for allowing
Claims and making distributions prescribed in the Plan;
- comply with the Plan and exercise its rights and fulfill its
obligations thereunder;
- review, reconcile, settle or object to Claims and resolve any such
objections as set forth in the Plan and the Distribution Trust
Agreement;
- investigate and, if appropriate, pursue any Recovery Actions or other
available causes of action (including any actions previously initiated
by the Debtors and pending as of the Effective Date) and raise any
defenses in any adverse actions or counterclaims;
- retain and compensate, without further order of the Bankruptcy Court,
the services of professionals or other persons or entities to
represent, advise and assist the Distribution Trustee in the
fulfillment of its responsibilities in connection with the Plan and
the Distribution Trust Agreement;
- take such steps as are necessary, appropriate or desirable to
coordinate with representatives of the estates of the Other Kaiser
Debtors;
- take such actions as are necessary, appropriate or desirable to close
the Chapter 11 Cases;
- file appropriate Tax returns on behalf of the Distribution Trust and
Debtors and pay Taxes or other obligations owed by the Distribution
Trust;
- exercise the rights and fulfill the obligations of KAAC under the QAL
Purchase Agreement, including with respect to any claim for
indemnification;
- pay all Distribution Trust Expenses using the Distribution Trust
Expenses Account;
50
- execute, deliver and perform such other agreements and documents or
exercise such other powers and duties as the Distribution Trustee
determines, in its reasonable discretion, to be necessary, appropriate
or desirable to accomplish and implement the purposes and provisions
of the Distribution Trust as set forth in the Plan and the
Distribution Trust Agreement;
- take such actions as are necessary, appropriate or desirable to
terminate the existence of the Debtors under the laws of Australia or
any political subdivision thereof;
- take such actions as are necessary, appropriate or desirable with
respect to the Retained Portion of the KFC Claim ; and
- terminate the Distribution Trust in accordance with the terms of the
Plan and Distribution Trust Agreement.
Except as otherwise provided in the Plan or the Distribution Trust
Agreement, the Distribution Trustee will not be required to obtain the order or
approval of the Bankruptcy Court or any other court of competent jurisdiction
in, or account to the Bankruptcy Court or any other court of competent
jurisdiction for, the exercise of any right, power or privilege conferred under
the Distribution Trust Agreement.
Right to Object to Claims
Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust, with the prior consent of the Steering Committee, acting
through a majority thereof, will have the authority to File, settle, compromise,
withdraw or litigate to judgment objections to Claims, including pursuant to any
alternative dispute resolution or similar procedures approved by the Bankruptcy
Court. After the Effective Date, the Distribution Trustee, with the prior
consent of the Steering Committee, acting through a majority thereof, may settle
or compromise any Disputed Claim without approval of the Bankruptcy Court in
accordance with the Distribution Trust Agreement. The grant of authority to the
Distribution Trustee described above will not limit the right of the US Trustee
to object to Professional Fee Claims as contemplated by Section 2.1(c) of the
Plan.
Right to Pursue Causes of Action
Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the
Distribution Trustee will retain and may enforce any claims, demands, rights and
causes of action that either Debtor or Estate may hold against any entity,
including the Recovery Actions, to the extent not expressly released under the
Plan. In particular, the Distribution Trustee will retain the right to pursue
any adversary proceedings available to the Debtors in connection with the QAL
Purchase Agreement or the Intercompany Claims Settlement.
Right to Vote the Retained Portion of the KFC Claim
Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust as holder of the Retained Portion of the KFC Claim, with
the prior consent of the Steering Committee, acting through a majority thereof,
will have the authority to accept or reject a plan of reorganization for KACC.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DISTRIBUTION TRUSTEE
In exercising its rights under the Distribution Trust Agreement, the
Distribution Trustee will be obligated to use the same degree of care and skill
as an individual of ordinary prudence, discretion and judgment would exercise or
use in such individual's own affairs. The Distribution Trustee, however, will
incur no liability for any action taken or omitted to be taken in connection
with the Plan or the Distribution Trust Agreement except liability that would
otherwise result from (a) a failure to perform or pay any obligation or
liability thereunder or (b) an act or
51
omission that is determined in a Final Order to have constituted bad faith,
fraud, willful misconduct, gross negligence or a breach of its fiduciary duties.
The Distribution Trustee and the members of the Steering Committee will be
indemnified by the Distribution Trust from the Distribution Trust Expenses Trust
Account for any losses, claims, damages, liabilities or expenses, including
reasonable attorneys' fees, disbursements and related expenses, that the
Distribution Trustee may incur or to which the Distribution Trustee may become
subject in connection with any action, suit, proceeding or investigation brought
by or threatened against the Distribution Trustee on account of the acts or
omissions of the Distribution Trustee in its capacity as such, provided that the
Distribution Trust will not be liable to indemnify the Distribution Trustee for
any act or omission constituting bad faith, fraud, willful misconduct, gross
negligence or a breach of its fiduciary duties. The Distribution Trustee will be
entitled to obtain advances from the Distribution Trust Expenses Account to
cover expenses of defending itself in any action brought against it as a result
of actions or omissions, actual or alleged, of the Distribution Trustee in its
capacity as such, so long as the Distribution Trustee provides an undertaking to
repay the amounts so advanced to the Distribution Expenses Trust Account upon
the entry of a Final Order finding that the Distribution Trustee was not
entitled to indemnity.
REMOVAL AND RESIGNATION OF THE DISTRIBUTION TRUSTEE; FILLING OF VACANCY
The Distribution Trustee may be removed at any time by Final Order of the
Bankruptcy Court. Such removal will be effective as specified in such Final
Order.
The Distribution Trustee may resign at any time by giving the Bankruptcy
Court at least 30 days' written notice of its intention to do so. Such
resignation will be effective on the latest of: (a) the date specified in the
notice; (b) the date that is 30 days after the notice is delivered; (c) the date
the Distribution Trustee delivers a full and complete accounting of assets
received, disbursed and held to the Bankruptcy Court; and (d) the date the
successor Distribution Trustee accepts its appointment as such.
The Indenture Trustees and the PBGC together will identify a successor
Distribution Trustee to fill any vacancy and request the Bankruptcy Court's
approval of the identity and terms of engagement of such successor Distribution
Trustee. The Distribution Trust Agreement will provide for a dispute resolution
mechanism in the event that the Indenture Trustees and the PBGC cannot agree on
a successor Distribution Trustee.
COMPENSATION OF THE DISTRIBUTION TRUSTEE
The Distribution Trustee will receive fair and reasonable compensation for
its services, with such compensation to be paid from the Distribution Trust
Expenses Account. In addition, reasonable costs, expenses and obligations
incurred by the Distribution Trustee in administering the Distribution Trust, in
carrying out its other responsibilities under the Distribution Trust Agreement,
or in any manner connected, incidental or related thereto will be paid, at the
direction of the Distribution Trustee, from the Distribution Trust Expenses
Account.
BOOKS AND RECORDS; REPORTS AND TAX FILINGS
Books and Records
The Distribution Trustee will maintain books and records containing a
description of all property from time to time constituting the Distribution
Trust Assets (which assets will be valued consistently for all federal income
Tax purposes) and an accounting of all receipts and disbursements. Such books
and records will be open to inspection by any Beneficiary or the Bankruptcy
Court at any reasonable time during normal business hours. The fiscal year of
the Distribution Trust will be the calendar year.
Reports to be Filed with the Bankruptcy Court
Within 45 days after the end of each of the first three calendar quarters
of the calendar year, the Distribution Trustee will File an unaudited report
with the Bankruptcy Court reflecting: (a) all Distribution Trust Assets received
by the Distribution Trust during such calendar quarter; (b) all Distribution
Trust Assets held by the
52
Distribution Trust at the end of such quarter; and (c) all Distribution Trust
Assets disbursed during such calendar quarter, in each case itemized for the
individual Trust Accounts (a "Quarterly Receipts/Disbursements Report").
Within 90 days after the end of each calendar year, the Distribution
Trustee will File an unaudited report with the Bankruptcy Court reflecting: (a)
all Distribution Trust Assets received by the Distribution Trust during such
calendar year; (b) all Distribution Trust Assets held by the Distribution Trust
at the end of such calendar year; and (c) all Distribution Trust Assets
disbursed during such calendar year, in each case itemized for the individual
Trust Accounts (an "Annual Receipts/Disbursements Report").
In the event of developments affecting the Distribution Trust in any
material respect (as determined by the Distribution Trustee in its reasonable
discretion), the Distribution Trustee will File promptly with the Bankruptcy
Court a report describing such development in reasonable detail (a "Current
Report").
The Distribution Trustee will furnish or otherwise make available to any
then-current Beneficiary, upon written request, a copy of: (a) the most recent
Annual Receipts/Disbursements Report; (b) any Quarterly Receipts/Disbursements
Report for any period subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, for any period subsequent to the Effective Date); or (c) any
Current Report Filed subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, subsequent to the Effective Date).
Tax Returns and Payments
The Distribution Trustee will be responsible for filing all foreign, U.S.
federal, state and local Tax returns for the Distribution Trust and Debtors and
for the timely preparation and distribution to the Beneficiaries of any
necessary foreign, U.S. federal, state or local information returns.
Notwithstanding any other provision of the Distribution Trust Agreement, the
Distribution Trustee will not be obligated to deliver any such information
returns to holders of Disputed Claims in their capacity as such.
The Distribution Trustee will timely file Tax returns for the Trust
Accounts as a grantor trust and/or a liquidating trust under Treasury
Regulations section 1.671-1(a) and/or Treasury Regulations section 301.7701-4(d)
and related regulations with respect to Pending Payments. Pursuant to such
provisions, for federal income Tax purposes the Distribution Trustee will
allocate to Beneficiaries entitled to receive Pending Payments their pro rata
shares of any income or loss of the Trust Accounts, and such Beneficiaries will
be subject to Tax on the Trust Accounts' taxable income on a current basis.
With respect to the Trust Accounts (excluding amounts constituting Pending
Payments), the Distribution Trustee will timely (a) file such income Tax and
other returns and statements as are required to comply with (i) the applicable
provisions of the IRC and the Treasury Regulations promulgated thereunder,
including the requirements set forth in Proposed Treasury Regulations section
1.468B-9(c)(1) and (ii) any applicable state and local law and the regulations
promulgated thereunder and (b) pay from the applicable Trust Account any Taxes
reported as owing on such returns and statements.
TERM OF THE DISTRIBUTION TRUST
The Distribution Trust will terminate upon:
- the payment of all costs, expenses and obligations incurred in
connection with administering the Distribution Trust;
- the distribution of all remaining Distribution Trust Assets and/or
proceeds therefrom in accordance with the provisions of the Plan, the
Confirmation Order and the Distribution Trust Agreement;
- the closure of the Chapter 11 Cases; and
53
- the completion of any necessary or appropriate reports, Tax returns or
other documentation.
If the Distribution Trust has not been previously terminated as described
above, on the second anniversary of the Effective Date, unless otherwise
extended by the Bankruptcy Court due to the Distribution Trust's necessity to
complete its claims resolution and liquidating purpose, and provided such
extension does not adversely affect the status of the Distribution Trust for
federal income Tax or federal securities law purposes, the Distribution Trustee
will distribute all of the Distribution Trust Assets to the Beneficiaries in
accordance with the Plan and the Distribution Trust Agreement.
DISTRIBUTIONS UNDER THE PLAN
METHOD OF DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS
The Distribution Trustee will make all distributions of Cash and other
property required under the Plan. The Distribution Trustee will serve without
bond and may employ or contract with other entities to assist in, or make the
distributions required by, the Plan and the Distribution Trust Agreement. Unless
the context otherwise requires, all references to the Distribution Trustee
contained in this section will be deemed to be references to the Distribution
Trustee in its capacity as Disbursing Agent and, in the event the Distribution
Trustee employs or contracts with one or more other entities to assist in, or
make the distributions required by, the Plan and the Distribution Trust
Agreement as contemplated by the immediately preceding sentence, to any such
third-party Disbursing Agent in its capacity as such. Notwithstanding the
foregoing, the Distribution Trustee will act as the Disbursing Agent for the
Distribution Expenses Trust Account.
DELIVERY OF DISTRIBUTIONS
GENERALLY
Except as otherwise provided in the Plan, distributions in respect of
Allowed Claims will be made to holders of such Claims as of the Distribution
Record Date at the addresses set forth in the applicable Claims Report. Prior to
making any distribution to a Beneficiary, the Distribution Trustee may request
written notification of the Beneficiary's federal taxpayer identification number
or social security number if the Distribution Trustee determines, in its
reasonable discretion, that such information (a) is necessary to fulfill its Tax
reporting and withholding obligations and (b) has not been provided in the
applicable Claims Report or otherwise. The Distribution Trustee, in its
reasonable discretion, may suspend distributions to any Beneficiary that has not
provided its federal taxpayer identification number or social security number,
as the case may be, after a request is made as described in this paragraph.
SPECIAL PROVISIONS FOR DISTRIBUTIONS TO HOLDERS OF PUBLIC NOTE CLAIMS
All distributions to holders of Allowed Public Note Claims will be made by
the Distributing Trustee to the applicable Indenture Trustee for subsequent
distribution to holders of the Allowed Public Note Claims as of the Distribution
Record Date.
UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
If any distribution to a holder of an Allowed Unsecured Claim is returned
to the Distribution Trustee as undeliverable, then unless and until the
Distribution Trustee is notified in writing of such holder's then-current
address: (a) subject to the provisions described in the immediately following
paragraph, such undeliverable distributions will remain in the possession of the
Distribution Trustee as provided in the Plan and no further attempt will be made
to deliver such distribution; and (b) no attempt will be made to deliver
subsequent distributions to such holder and any such distributions that such
holder would otherwise be entitled to receive instead will be transferred from
the Unsecured Claims Trust Account to the Undeliverable Property Trust Account
where it will be held in a book-entry sub-account for the benefit of such
holder. See "General Information Concerning the Plan -- Distribution Trust --
Distribution Trust Accounts -- Undeliverable Cash Trust Accounts."
54
Any holder of an Allowed Unsecured Claim that does not assert a claim for
an undeliverable distribution by delivering to the Distribution Trustee a
written notice setting forth such holder's then-current address within 180 days
after the later of (a) the Effective Date and (b) the last date on which a
distribution was deliverable to the holder will have its claim for undeliverable
distributions discharged and will be forever barred from asserting such claim or
any claim for subsequent distributions against the Debtors, the Distribution
Trustee or the property of any of them, including the Trust Accounts, whereupon
all Cash and other property contained in the book-entry sub-account in the
Undeliverable Property Trust Account created for the benefit of such holder will
be transferred to the Unsecured Claims Trust Account for redistribution to
holders of Allowed Unsecured Claims entitled to distributions therefrom. For
purposes of any such redistribution, each Allowed Claim in respect of which a
claim for undeliverable distributions has been discharged will be deemed
disallowed in its entirety.
Nothing contained in the Plan will require the Debtors or the Distribution
Trustee to attempt to locate any holder of an Allowed Claim.
MEANS OF CASH PAYMENTS
Except as otherwise provided in the Plan or the Distribution Trust
Agreement, Cash payments made pursuant to the Plan will be in United States
currency by checks drawn on the applicable Trust Accounts or, at the option of
the Distribution Trustee, by wire transfer from a domestic bank; provided,
however, that Cash payments to foreign holders of Allowed Claims may be made, at
the option of the Distribution Trustee, in such funds and by such means as are
necessary or customary in a particular foreign jurisdiction. If a check included
in a distribution to a holder of an Allowed Unsecured Claim is not cashed within
180 days of the issuance thereof, the Distribution Trustee will void such check
and such distribution will be treated as undeliverable as described in
"Undeliverable or Unclaimed Distributions" above.
TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS
On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Secured Claims, Administrative
Claims, Priority Claims and Priority Tax Claims allowed as of the Effective
Date. On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will make distributions to holders of Disputed Secured
Claims, Disputed Administrative Claims, Disputed Priority Claims and Disputed
Priority Tax Claims that have become Allowed Claims during the immediately
preceding calendar quarter. The Quarterly Distribution Date will be on the last
Business Day of the month following the end of each calendar quarter after the
Effective Date, except that if the Effective Date is within 45 days of the end
of a calendar quarter, the first Quarterly Distribution Date will be the last
Business Day of the month following the end of the first calendar quarter after
the calendar quarter in which the Effective Date falls. Notwithstanding the
foregoing, if the Distribution Trustee determines, in its reasonable discretion,
that the amount of any quarterly distribution is too small to justify the
administrative costs associated with such distribution, the Distribution Trustee
may postpone such quarterly distribution until the next Quarterly Distribution
Date. The Distribution Trustee will have no obligation to notify Beneficiaries
if it determines, in its reasonable discretion, that any quarterly distribution
will be postponed.
ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A; CERTAIN PAYMENTS FROM THE PUBLIC
NOTE DISTRIBUTABLE CONSIDERATION
Plan Accepted by Subclass 3A and Subclass 3B
If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will: (a) make distributions
to holders of Allowed Claims in Subclass 3A in accordance with Section
2.4(c)(i)(A) of the Plan; provided that the amount of such distributions will be
calculated as if each Disputed Unsecured Claim in Subclass 3D were an Allowed
Unsecured Claim in its Face Amount as of the Effective Date; and (b) make the
55
payments to be deducted from the Public Note Distributable Consideration as
contemplated by clauses (I) and (II) of the first sentence of Section
2.4(c)(i)(A) of the Plan.
If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after each Quarterly Distribution Date, the Distribution Trustee will distribute
to each holder of an Allowed Claim in Subclass 3A a distribution from the
Unsecured Claims Trust Account (net of provision for Taxes) in an amount equal
to: (a) the amount of Cash and other property that such holder would have been
entitled to receive pursuant to the Plan if such Claim and each other Unsecured
Claim allowed prior to such Quarterly Distribution Date had been an Allowed
Unsecured Claim as of the Effective Date (with such amount to be calculated in
the manner described in the immediately preceding paragraph) minus (b) the
aggregate amount of Cash and other property previously distributed on account of
such Claim. Notwithstanding the foregoing, if the Distribution Trustee
determines, in its reasonable discretion, that the amount of any quarterly
distribution is too small to justify the administrative costs associated with
such distribution, the Distribution Trustee may postpone such quarterly
distribution until the next Quarterly Distribution Date. The Distribution
Trustee will have no obligation to notify Beneficiaries if it determines, in its
reasonable discretion, that any quarterly distribution will be postponed. In the
event of the disallowance of a Disputed Unsecured Claim in Subclass 3D, any
amounts held in respect thereof will be released from the Disputed Claims
Reserve for distribution as described in this paragraph and "-- Allowed
Unsecured Claims in Subclass 3C and Subclass 3D."
Plan Rejected by Subclass 3A or Subclass 3B
If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration to which the Bankruptcy Court determines the holders
of Allowed Claims in Subclass 3A are entitled in respect of such Claims will be
distributed as provided in an order of the Bankruptcy Court and the Distribution
Trustee will, contemporaneously or as promptly as practicable thereafter, make
the payments (or reservations for payment) by which such distributions are to be
reduced in accordance with Section 2.4(a)(i)(B) of the Plan.
ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B
Plan Accepted by Subclass 3A and Subclass 3B
If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will make the payment to the
Senior Subordinated Note Indenture Trustee as contemplated by clause (III) of
the first sentence of Section 2.4(c)(i)(A) of the Plan and Section 2.4(c)(ii)(A)
of the Plan for subsequent distribution by the Senior Subordinated Note
Indenture Trustee to the holders of Allowed Claims in Subclass 3B.
Plan Rejected by Subclass 3A or Subclass 3B
If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration, if any, to which the Bankruptcy Court determines
the holders of Allowed Claims in Subclass 3B are entitled in respect of such
Claims will be distributed as provided in an order of the Bankruptcy Court. As
contemplated by Section 2.4(c)(ii)(B) of the Plan, any such distributions
ultimately made to a holder of an Allowed Claim in Subclass 3B may be reduced by
such holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Indenture Trustee pursuant to the Senior Subordinated
Note Indenture, which will, subject to such Trustee's right to seek payment by
the Debtors of such fees and expenses pursuant to section 503(b)(5) of the
Bankruptcy Code, be payable solely from such distributions.
ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D
On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Unsecured Claims in Subclass 3C
and Subclass 3D allowed as of the Effective Date; provided that the amount of
such distributions will be calculated as if each Disputed Unsecured Claim in
Subclass 3D were an
56
Allowed Unsecured Claim in its Face Amount as of the Effective Date; provided
further, however, that no distribution will be made on account of any Disputed
Unsecured Claim in Subclass 3D unless and until it becomes an Allowed Unsecured
Claim and amounts withheld for Disputed Unsecured Claims in Subclass 3D will
remain in the Unsecured Claims Trust Account as part of the Disputed Claims
Reserve.
On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will distribute to each holder of an Unsecured Claim in
Subclass 3C or Subclass 3D allowed prior to such Quarterly Distribution Date a
distribution from the Unsecured Claims Trust Account (net of provision for
Taxes) in an amount equal to: (a) the amount of Cash and other property that
such holder would have been entitled to receive pursuant to the Plan if such
Claim and each other Unsecured Claim allowed prior to such Quarterly
Distribution Date had been an Allowed Unsecured Claim as of the Effective Date
(with such amount to be calculated in the manner described in the immediately
preceding paragraph) minus (b) the aggregate amount of Cash and other property
previously distributed on account of such Claim. Notwithstanding the foregoing,
if the Distribution Trustee determines, in its reasonable discretion, that the
amount of any quarterly distribution is too small to justify the administrative
costs associated with such distribution, the Distribution Trustee may postpone
such quarterly distribution until the next Quarterly Distribution Date. The
Distribution Trustee will have no obligation to notify Beneficiaries if it
determines, in its reasonable discretion, that any quarterly distribution will
be postponed. In the event of the disallowance of a Disputed Unsecured Claim in
Subclass 3D, any amounts held in respect thereof will be released from the
Disputed Claims Reserve for distribution as described in this paragraph and "--
Allowed Unsecured Claims in Subclass 3C and Subclass 3D -- Plan Accepted by
Subclass 3A and Subclass 3B."
7-3/4% SWD REVENUE BONDS
Plan Accepted by Subclass 3A
If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on or as promptly as practicable on the Effective Date the Distribution
Trustee will make the payment, if any, to the 7-3/4% SWD Revenue Bond Indenture
Trustee for the benefit of holders of 7-3/4% SWD Revenue Bonds pursuant to
Section 2.5(a) of the Plan and pay any amounts payable pursuant to Section
2.6(b) of the Plan.
Plan Rejected by Subclass 3A
If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the amount of the Public Note Distributable
Consideration, if any, to which the Bankruptcy Court determines the holders of
7-3/4% SWD Revenue Bonds are entitled will be distributed as provided in an
order of the Bankruptcy Court.
NO DE MINIMIS DISTRIBUTIONS
The Distribution Trustee will not be required to distribute Cash to the
holder of an Allowed Unsecured Claim if the total aggregate amount of Cash to be
distributed on account of such Claim is less than $25. Any holder of an Allowed
Unsecured Claim on account of which the total aggregate amount of Cash to be
distributed is less than $25 will have its Claim for such distribution deemed
satisfied, waived and released and will be forever barred from asserting any
such Claim against the Debtors, the Distribution Trustee or the property of any
of them, including the Trust Accounts. Any Cash not distributed with respect to
Allowed Unsecured Claims as a result of the provisions described in this
paragraph, including dividends or other distributions made on account of
securities in the unsecured Claims Account, will be retained in the Unsecured
Claims Trust Account for redistribution to other holders of Allowed Unsecured
Claims entitled to distributions from the Unsecured Claims Trust Account.
57
COMPLIANCE WITH TAX REQUIREMENTS
To the extent applicable, the Distribution Trustee will comply with all Tax
withholding and reporting requirements imposed on it by any governmental unit,
and all distributions pursuant to the Plan will be subject to such withholding
and reporting requirements. The Distribution Trustee will be authorized to take
any actions that it determines, in its reasonable discretion, to be necessary,
appropriate or desirable to comply with such withholding and reporting
requirements, including but not limited to requiring recipients to fund the
payment of such withholding as a condition to delivery or entering into
arrangements for the sale (subject to any applicable restrictions or transfer)
of non-Cash property otherwise to be distributed to a recipient subject to a
withholding requirement in order to generate net proceeds (together with any
Cash included in such distribution) sufficient to fund the payment of any such
withholding. Notwithstanding any other provision of the Plan or the Distribution
Trust Agreement, each entity receiving a distribution of Cash pursuant to the
Plan will have sole and exclusive responsibility for the satisfaction and
payment of any Tax obligations imposed on it by any governmental unit on account
of such distribution, including income, withholding and other Tax obligations.
SETOFFS
Except with respect to claims of a Debtor released pursuant to the Plan or
any contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, the Distribution Trustee may, pursuant to
section 553 of the Bankruptcy Code or applicable nonbankruptcy law, set off
against any Allowed Claim and the distributions to be made pursuant to the Plan
on account of such Claim (before any distribution is made on account of such
Claim) the claims, rights and causes of action of any nature that the applicable
Debtor may hold against the holder of such Allowed Claim; provided, however,
that neither the failure to effect a setoff nor the allowance of any Claim will
constitute a waiver or release by the applicable Debtor of any claims, rights
and causes of action that the Debtor or Debtors may possess against such a Claim
holder, which are preserved under the Plan.
COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO DISTRIBUTIONS
If the Distribution Trustee employs or contracts with a third-party
Disbursing Agent, such Disbursing Agent will receive, without the need for
further Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with the
Distribution Trustee and will be paid to such Disbursing Agent from funds in the
Distribution Trust Expenses Account. To assist in making distributions under the
Plan, notwithstanding any other provision of the Distribution Trust Agreement,
the applicable Trust Accounts (other than the Distribution Trust Expenses
Account) may be held in the name of one or more such Disbursing Agents. Any such
Disbursing Agent will invest the Cash in the Trust Accounts as directed by the
Distribution Trustee, who will direct such Disbursing Agent to invest such Cash
only in Permitted Investments; provided, however, that should the Distribution
Trustee determine, in its reasonable discretion, that the administrative costs
associated with such investment will exceed the return on such investment, it
may direct such Disbursing Agent to not invest such Cash.
PAYMENTS LIMITED TO TRUST ACCOUNTS
All payments or other distributions to be made by the Distribution Trustee
in accordance with the Plan or the Distribution Trust Agreement will be made
only from the Trust Accounts.
INSUFFICIENT ASSETS
Provided that the Distribution Trustee has not acted in bad faith, engaged
in fraud, willful misconduct or gross negligence, or breached its fiduciary
duties, if the Distribution Trust Assets at any point prove insufficient to pay
all Beneficiaries of the Priority Claims Trust Account in full or all
Beneficiaries of the Unsecured Claims Trust Account in accordance with the terms
of the Plan, the Distribution Trustee will have no obligation to seek
disgorgement from any Beneficiary, but may seek the guidance of the Bankruptcy
Court or another court of competent jurisdiction.
58
DISTRIBUTIONS OF SECURITIES
Pending the distribution of any voting securities, the Distribution Trustee
will cause all such securities held in the Trust Accounts to be (a) represented
in person or by proxy at each meeting at which the holder of such securities is
entitled to vote, (b) voted in any election of directors for the nominees
recommended by the board of directors of the issuer of such securities, and (c)
voted with respect to any other matter as recommended by the board of directors
of the issuer of such securities.
Any distribution of securities will include, to the extent applicable: (a)
any dividends or other distributions that were previously paid to the
Distribution Trust in respect of the securities included in such distribution;
and (b) any income or interest generated by the investment of such dividends or
other distributions (net of provision for Taxes owing in respect of such amounts
in accordance with Section 10.2(c)) of the Plan.
Notwithstanding any provision of the Plan, only whole numbers of securities
will be distributed. When any distribution on account of an Allowed Unsecured
Claim would otherwise result in the distribution of a number of securities that
is not a whole number, the number of securities to be so distributed will be
rounded to a whole number on an equitable basis to be determined by the
Distribution Trustee in order to ensure that all such securities are distributed
and are so distributed only in whole numbers.
DISPUTED CLAIMS
PROSECUTION OF OBJECTIONS TO CLAIMS
All objections to Claims must be Filed and served on the holders of such
Claims by the Claims Objection Bar Date, and, if Filed prior to the Effective
Date, such objections will be served on the parties on the then-applicable
service list in the Chapter 11 Cases. If an objection has not been Filed to a
proof of Claim, a scheduled Claim or a request for payment of Administrative
Claim by the applicable Claims Objection Bar Date, the Claim to which the proof
of Claim, scheduled Claim or request for payment of Administrative Claim relates
will be treated as an Allowed Claim if such Claim has not been allowed earlier.
TREATMENT OF DISPUTED CLAIMS
Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim until such Claim
becomes an Allowed Claim. In lieu of distributions under the Plan to holders of
Disputed Claims, a Disputed Claims Reserve will be established on the Effective
Date in each Trust Account, which, in the case of Unsecured Claims in Subclass
3D, will include an amount equal to the Pro Rata Share of the distribution to
which all of the Disputed Claims in Subclass 3D would be entitled to if each
such Disputed Claim was allowed in its Face Amount on the Effective Date.
Each holder of a Disputed Claim that ultimately becomes an Allowed Claim
will have recourse only to the undistributed Cash held in the applicable Trust
Account for the satisfaction of such Allowed Claim and not to any other Trust
Account or any assets previously distributed on account of any Allowed Claim.
The Distribution Trustee will include in the Tax returns of the Trust
Accounts all items of income, deduction and credit of the Trust Accounts, except
to the extent such items are included in the income of the Beneficiaries of the
Trust Accounts as grantors of grantor trusts. The Distribution Trustee will pay,
or cause to be paid, out of the funds held in applicable Trust Accounts, any Tax
imposed on the Trust Accounts by any governmental unit with respect to income
generated by the funds held in the Trust Accounts. The Distribution Trustee also
will file or cause to be filed any Tax or information return related to the
applicable Trust Account that is required by any governmental unit.
59
VOTING AND CONFIRMATION OF THE PLAN
GENERAL
To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy Court
make a series of findings concerning the Plan and the Debtors, including that:
- the Plan has classified Claims and Interests in a permissible manner;
- the Plan complies with the applicable provisions of the Bankruptcy
Code;
- the Debtors comply with the applicable provisions of the Bankruptcy
Code;
- the Debtors, as proponents of the Plan within the meaning of section
1129 of the Bankruptcy Code, have proposed the Plan in good faith and
not by any means forbidden by law;
- the disclosure required by section 1125 of the Bankruptcy Code has
been made;
- the Plan has been accepted by the requisite votes of creditors and
equity interest holders, except to the extent that "cramdown" is
available under section 1129(b) of the Bankruptcy Code;
- the Plan is in the "best interests" of all holders of Claims or
Interests in an impaired Class (that is, that such creditors will
receive at least as much pursuant to the Plan as they would receive or
retain in a chapter 7 liquidation);
- the Plan is feasible (that is, there is a reasonable prospect that the
Debtors will be able to perform their obligations under the Plan); and
- all fees and expenses payable under 28 U.S.C. Section 1930, as
determined by the Bankruptcy Court at the Confirmation Hearing, have
been paid, or the Plan provides for the payment of such fees on the
Effective Date.
VOTING PROCEDURES AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only classes of claims against, or equity
interests in, a debtor that are "impaired" under the terms of that debtor's plan
are entitled to vote to accept or reject the Plan. A class is "impaired" if the
legal, equitable or contractual rights attaching to the claims or equity
interests of that class are modified, other than by curing defaults and
reinstating maturity. Classes of claims that are not impaired are not entitled
to vote on a plan and are conclusively presumed to have accepted that plan.
Classes of claims or equity interests that receive no distributions under a plan
are not entitled to vote on that plan and are deemed to have rejected that plan
unless such class otherwise indicates acceptance. Only Class 3 is entitled to
vote on the Plan and each Subclass of Class 3 constitutes a separate class for
that purpose. For a summary of the classification of Claims and Interests
pursuant to the Plan, together with an indication of whether each Class of
Claims or Interests is impaired or unimpaired under the terms of the Plan, see
"Overview of the Plan -- Summary of Classes and Treatment of Claims and
Interests."
ALTHOUGH THE 7-3/4% SWD REVENUE BOND INDENTURE TRUSTEE MAY RECEIVE A
PAYMENT FOR THE BENEFIT OF THE HOLDERS OF THE 7-3/4% SWD REVENUE BONDS IN
ACCORDANCE WITH THE PLAN, HOLDERS OF 7-3/4% SWD REVENUE BONDS DO NOT HAVE CLAIMS
AGAINST THE DEBTORS AND, ACCORDINGLY, ARE NOT ENTITLED TO VOTE ON THE PLAN.
BECAUSE SUCH PROPOSED SETTLEMENT WILL AFFECT OTHER KAISER DEBTORS, A MOTION
SEEKING APPROVAL OF THE SETTLEMENT WILL BE FILED, AND SUCH HOLDERS AND OTHER
CREDITORS OR CLAIMANTS AFFECTED BY SUCH SETTLEMENT MAY FILE AN OBJECTION TO IT
WITH THE BANKRUPTCY COURT ON OR PRIOR TO APRIL 5, 2005. SEE "OPERATIONS DURING
THE CHAPTER 11 CASES -- 7-3/4% SWD REVENUE BOND DISPUTE" FOR MORE INFORMATION
REGARDING THE 7-3/4% SWD REVENUE BONDS AND THE PROPOSED SETTLEMENT.
60
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018,
the Bankruptcy Court may estimate and temporarily allow a Claim for voting or
other purposes. By order of the Bankruptcy Court, certain vote tabulation rules
have been approved that temporarily allow or disallow certain Claims for voting
purposes only. These tabulation rules are described in the solicitation
materials provided with your Ballot.
VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON
THE PLAN IS IMPORTANT. IF YOU HOLD MULTIPLE UNSECURED CLAIMS, YOU MAY RECEIVE
MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT YOU
RECEIVE.
PLEASE CAREFULLY FOLLOW ALL OF THE INSTRUCTIONS CONTAINED ON THE BALLOT OR
BALLOTS PROVIDED TO YOU. ALL BALLOTS MUST BE COMPLETED AND RETURNED IN
ACCORDANCE WITH THE INSTRUCTIONS PROVIDED.
TO BE COUNTED, YOUR BALLOT OR BALLOTS MUST BE ACTUALLY RECEIVED BY 5:00
P.M., EASTERN TIME, ON APRIL 5, 2005 (OR SUCH OTHER TIME AND DATE IDENTIFIED ON
YOUR BALLOT OR BALLOTS) AT THE ADDRESS SET FORTH ON THE PREADDRESSED ENVELOPE
PROVIDED TO YOU. IT IS OF THE UTMOST IMPORTANCE TO THE DEBTORS THAT YOU VOTE
PROMPTLY TO ACCEPT THE PLAN.
A HOLDER OF A 9-7/8% SENIOR NOTE, A 10-7/8% SENIOR NOTE OR A SENIOR
SUBORDINATED NOTE HELD IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE MUST COMPLETE AND DELIVER TO SUCH NOMINEE THE BALLOT OR
BALLOTS PROVIDED TO SUCH HOLDER IN ORDER TO VOTE ON THE PLAN. SUCH HOLDERS ARE
URGED TO DELIVER SUCH BALLOT OR BALLOTS TO THEIR RESPECTIVE NOMINEE HOLDERS NO
LATER THAN THE DATE IDENTIFIED ON SUCH BALLOT OR BALLOTS IN ORDER TO ENSURE THAT
THEIR VOTE WILL BE COUNTED.
VOTES CANNOT BE TRANSMITTED ORALLY. ACCORDINGLY, YOU ARE URGED TO RETURN
YOUR SIGNED AND COMPLETED BALLOT PROMPTLY.
IF YOU ARE ENTITLED TO VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED A
DAMAGED BALLOT OR LOST YOUR BALLOT, PLEASE CALL THE DEBTORS' VOTING AGENT, LOGAN
& COMPANY, AT (973) 509-3190.
CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on whether the Debtors have fulfilled the requirements of section 1129
of the Bankruptcy Code relating to the confirmation of the Plan. The
Confirmation Hearing has been scheduled for April 13, 2005 at 9:00 a.m. before
the Honorable Judith K. Fitzgerald, Chief United States Bankruptcy Judge for the
Western District of Pennsylvania and visiting United States Bankruptcy Judge for
the District of Delaware, in the Judge's usual courtroom at the U.S. Bankruptcy
Court for the District of Delaware, 824 Market Street, Wilmington, Delaware
19801. The Confirmation Hearing may be continued or adjourned from time to time
by the Bankruptcy Court without further notice, except for an announcement of
the continued or adjourned date made at the Confirmation Hearing. Any objection
to confirmation of the Plan must be made in writing and must specify in detail
the name and address of the objector, all grounds for the objection and the
amount of the Claim or Interest held by the objector. Any such objections must
be Filed and served upon the persons designated in the notice of the
Confirmation Hearing, in the manner and by the deadline described in such
notice.
CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if all of the applicable requirements of section 1129 of the Bankruptcy
Code are satisfied. Among the requirements for confirmation of a plan with
respect to a debtor are that the plan:
61
- is accepted by the requisite holders of claims and equity interests in
each impaired class of such debtor or, if not so accepted, has been
accepted by the requisite holders of at least one impaired class and
is "fair and equitable" and "does not discriminate unfairly" as to
each nonaccepting class;
- is either accepted by, or is in the "best interests" of, each holder
of a claim or equity interest in each impaired class of such debtor;
- is feasible; and
- complies with the other applicable provisions of the Bankruptcy Code.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan, as it applies to a particular Estate, is not
confirmable pursuant to section 1129 of the Bankruptcy Code will not limit or
affect: (a) the confirmability of the Plan as it applies to the other Estate; or
(b) the Debtors' ability to modify the Plan, as it applies to such Estate, to
satisfy the provisions of section 1129(b) of the Bankruptcy Code.
ACCEPTANCE OR CRAMDOWN
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and a majority in number of claims of that class
vote to accept the plan. Only those holders of claims who actually vote (and are
entitled to vote) to accept or to reject a plan count in this tabulation.
Section 1129(b) of the Bankruptcy Code contains so-called "cramdown" provisions
pursuant to which a plan may be confirmed even if it is not accepted by all
impaired classes, as long as at least one impaired class of claims has accepted
it and the Bankruptcy Court finds that it is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting class. The "fair and equitable"
standard, also known as the "absolute priority rule," requires, among other
things, that unless a dissenting class of unsecured claims receives full
compensation for the aggregate allowed amount of such claims, no holder of an
allowed claim in any class junior to such class may receive or retain any
property on account of such claim. The "fair and equitable" standard has also
been interpreted to prohibit any class of claims senior to a dissenting class
from receiving under a plan more than 100% of the aggregate allowed amount of
such claims. The requirement that a plan not "discriminate unfairly" means,
among other things, that a dissenting class of claims must be treated
substantially equally with respect to other classes of claims of equal rank. The
Debtors do not believe that the Plan unfairly discriminates against any Class
that may not accept or otherwise consent to the Plan. The Debtors believe that
the Plan is "fair and equitable" and "does not discriminate unfairly" as to each
impaired Class entitled to vote upon the Plan. The Debtors may seek confirmation
of the Plan under the "cramdown" provisions with respect to any impaired Class
that does not accept the Plan (and have reserved the right to modify the Plan to
the extent that confirmation of the Plan under such provisions requires
modification).
BEST INTERESTS TEST
Generally
Notwithstanding acceptance of a plan by each impaired class (or
satisfaction of the "cramdown" provisions of the Bankruptcy Code in lieu
thereof), for a plan to be confirmed, the Bankruptcy Court must determine that
the plan is in the best interest of each holder of a claim who is in an impaired
class and has not voted to accept the plan. Accordingly, if an impaired class
does not unanimously accept a plan, the best interests test requires the
Bankruptcy Court to find that the plan provides to each member of such impaired
class a recovery on account of the class member's claim that has a value, as of
the date such plan is consummated, at least equal to the value of the
distribution that such class member would receive if the debtors proposing such
plan were liquidated under chapter 7 of the Bankruptcy Code on such date. The
Debtors have considered the effect that the conversion of the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code would have and have concluded
that Plan provides for the liquidation of the Debtors in a manner significantly
more efficient than would occur in the event the Chapter 11 Cases were converted
to cases under chapter 7 of the Bankruptcy Code. KFC has no material assets
other than a claim against KACC which will be subject to treatment under KACC's
plan of reorganization and, upon consummation of the sale of the QAL Interests,
KAAC's Estate will have been substantially liquidated and converted to Cash
proceeds, subject only to receipt of any Recovery Action Proceeds. The Debtors
are not aware of
62
the existence of any claim against a third party that would constitute a
Recovery Action. Further, the Debtors have been informed that the Creditors'
Committee conducted an analysis of potential preference actions and determined
that there were no viable preference actions concerning payments made by the
Debtors. The Debtors believe that conversion to chapter 7 of the Bankruptcy Code
would result in: (a) additional costs relating to the appointment of a chapter 7
trustee; (b) likely delays in distributions to creditors entitled to receive a
distribution under the Plan; and (c) diminished recoveries for Class 3. The
Debtors therefore believe that the Plan satisfies the best interests test for
each class of impaired Claims.
Liquidation Analysis
Because the liquidation value of each Debtor is limited to the amount of
Cash or other property held or to be held in each Debtor's Trust Accounts, the
Debtors' liquidation analysis focused on the additional costs and the diminution
in value to the Debtors' Estates that would occur if the Chapter 11 Cases were
converted to cases under chapter 7 of the Bankruptcy Code. That is, in the event
of a conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code, the liquidation value available to holders of Unsecured Claims
and Interests would be reduced by: (a) the costs, fees and expenses of the
liquidation, as well as other administrative expenses of the Debtors' chapter 7
cases; (b) unpaid Administrative Claims of the Chapter 11 Cases; and (c)
Priority Claims and Priority Tax Claims.
The Debtors' costs of liquidation in chapter 7 cases would include, among
other things, the compensation of a trustee or trustees, as well as counsel and
other professionals retained by such trustees. The trustees and any newly
retained professionals would have to expend considerable time and effort to
review and understand the issues raised by the liquidation of the Debtors,
thereby duplicating the efforts of the Debtors and their professionals and
resulting in the incurrence of fees and expenses anticipated to exceed
materially the fees and expenses that would be incurred by the Distribution
Trustee and its professionals under the Plan. The trustee's fees in any chapter
7 case, which could be as much as 3% of the assets in the Debtors' Estates under
section 326 of the Bankruptcy Code (or approximately $12.0 million in the
aggregate), also are anticipated to exceed the fees to be paid to the
Distribution Trustee. Moreover, since any newly retained professionals would
lack the institutional knowledge of the facts and circumstances underlying
Claims and Recovery Actions, it is likely that Disputed Claims would be settled
at higher amounts and Recovery Actions at lower amounts, thereby resulting in
lower recoveries to holders of Unsecured Claims. Finally, due to the lack of
familiarity with the Debtors of any trustees appointed in the chapter 7 cases,
distributions in the chapter 7 cases likely would be made substantially later
than the Effective Date assumed in connection with the Plan and this delay would
reduce the present value of distributions to creditors, including holders of
Unsecured Claims. In light of the foregoing, the Debtors believe that creditors
will receive greater and more expeditious distributions under the Plan than they
would receive through a chapter 7 liquidation. The Plan is, therefore, in the
best interests of each Claim holder.
FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of a
plan not be likely to be followed by the liquidation, or the need for further
financial reorganization, of the debtors proposing such plan or any successor to
such debtors (unless such liquidation or reorganization is proposed in the
plan). The Plan provides for the liquidation of the Debtors and the distribution
of Cash to holders of Allowed Claims in accordance with the priority scheme of
the Bankruptcy Code and the terms of the Plan. The ability of the Debtors to
make the distributions described in the Plan is based solely on the amount of
Cash held, or to be held, in the Trust Accounts, and does not depend on future
earnings of the Debtors. Accordingly, the Debtors believe that the Plan
satisfies the feasibility requirements of the Bankruptcy Code.
COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that a plan comply with
the applicable provisions of the Bankruptcy Code. The Debtors have considered
each of these provisions in the development of the Plan and believe that the
Plan complies with all provisions of the Bankruptcy Code.
63
MODIFICATION OR REVOCATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, the Debtors reserve the right to alter, amend or modify the
Plan before its substantial consummation, with the consent of the Creditors'
Committee.
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Effective Date, with the consent of the Creditors' Committee. If the Debtors so
revoke or withdraw the Plan, or if confirmation of the Plan does not occur, the
Plan will be null and void in all respects, and nothing contained in the Plan
will: (a) constitute a waiver or release of any Claims by or against, or any
Interests in, the Debtors; or (b) prejudice in any manner the rights of either
Debtor or any other party.
Notwithstanding the provisions of the Plan described above, the Plan may
not be amended, modified, revoked or withdrawn with the intent of altering or
undermining in any way the Bankruptcy Court's determination of the respective
entitlement of holders of Allowed Claims under Sections 2.4(c)(i)(B) and
2.4(c)(ii)(B) of the Plan.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
Because the Debtors are not operating entities and possess no assets other
than Cash, the only alternatives to confirmation and consummation of the Plan
are a conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code.
The Debtors believe that, in a liquidation under chapter 7, before
creditors received any distribution, additional administrative expenses involved
in the appointment of a trustee, and the retention of professionals to assist
such trustee, would cause a diminution in the value of the Debtors' Estates. The
Debtors believe that conversion of the Chapter 11 Cases to chapter 7 would,
therefore, result in (a) significant delay in distributions to all creditors who
would have received a distribution under the Plan and (b) diminished recoveries
for Class 3. See "-- Confirmation -- Best Interests Test."
The Debtors believe that, because the Plan has been negotiated by the
Debtors and representatives of certain of the Debtors' most significant
creditors, including the Creditors' Committee, negotiating an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code is unlikely to alter
significantly the relative treatment of the Claims. The Debtors believe that
negotiating such an alternative plan would result in additional costs to the
Debtors relating to the retention of professionals to represent the Debtors and
their significant creditors in connection with such negotiations, resulting in a
diminution in the value of the Debtors' Estates. The Debtors believe that the
consummation of an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code would also result in (a) likely delays in distributions to all
creditors who would be entitled to receive a distribution under the Plan (thus
reducing the present value of such distributions) and (b) potentially diminished
recoveries for Class 3.
THE DEBTORS AND THE CREDITORS' COMMITTEE BELIEVE THAT THE PLAN AFFORDS
GREATER BENEFITS TO CREDITORS THAN EITHER LIQUIDATION UNDER CHAPTER 7 OF THE
BANKRUPTCY CODE OR THE CONSUMMATION OF AN ALTERNATIVE PLAN OF LIQUIDATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN
GENERAL
A DESCRIPTION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
IS PROVIDED BELOW. THE DESCRIPTION IS BASED ON THE IRC, TREASURY REGULATIONS
ISSUED THEREUNDER, JUDICIAL DECISIONS AND INTERNAL REVENUE SERVICE ("IRS") AND
ADMINISTRATIVE DETERMINATIONS, ALL AS IN EFFECT ON THE DATE HEREOF. CHANGES IN
ANY OF THESE AUTHORITIES OR IN THE INTERPRETATION THEREOF, ANY OF WHICH MAY HAVE
RETROACTIVE EFFECT, MAY CAUSE THE U.S. FEDERAL INCOME
64
TAX CONSEQUENCES OF THE PLAN TO DIFFER MATERIALLY FROM THE CONSEQUENCES
DESCRIBED BELOW.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND ARE
SUBJECT TO SIGNIFICANT UNCERTAINTIES. NO RULING HAS BEEN REQUESTED FROM THE IRS;
NO OPINION HAS BEEN REQUESTED FROM COUNSEL CONCERNING ANY U.S. TAX CONSEQUENCE
OF THE PLAN; AND NO TAX OPINION IS GIVEN BY THIS DISCLOSURE STATEMENT.
THE DESCRIPTION DOES NOT COVER ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO THE DEBTORS OR HOLDERS OF CLAIMS. FOR EXAMPLE, THE
DESCRIPTION DOES NOT ADDRESS ISSUES OF SPECIAL CONCERN TO CERTAIN TYPES OF
TAXPAYERS, SUCH AS DEALERS IN SECURITIES, LIFE INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, TAX EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS, NOR DOES IT
ADDRESS TAX CONSEQUENCES TO HOLDERS OF INTERESTS IN THE DEBTORS. IN ADDITION,
THE DESCRIPTION IS LIMITED TO U.S. FEDERAL INCOME TAX CONSEQUENCES AND DOES NOT
DISCUSS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES.
FOR THESE REASONS, THE DESCRIPTION THAT FOLLOWS IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND PROFESSIONAL TAX ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR INTEREST. HOLDERS OF CLAIMS OR
INTERESTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS
The federal income Tax consequences of the Plan to a holder of a Claim will
depend, in part, on: (a) whether the holder reports income on the accrual or
cash basis; (b) whether the holder has previously taken a bad debt deduction or
worthless security deduction with respect to the Claim; (c) whether the holder's
Claim is allowed or disputed at the Effective Date; (d) whether the holder
receives distributions under the Plan in more than one taxable year; and (e)
whether the holder receives distributions with respect to its Claim under one or
more plans of reorganization or liquidation of an Other Kaiser Debtor in
addition to the Plan.
RECOGNITION OF GAIN OR LOSS
In General
In general, a holder of a Claim should recognize gain or loss equal to the
amount realized under the Plan in respect of its Claim less the holder's basis
in the Claim. Any gain or loss recognized in the exchange may be long-term or
short-term capital gain or loss or ordinary income or loss, depending upon the
nature of the Claim and the holder, the length of time the holder held the Claim
and whether the Claim was acquired at a market discount. If the holder realizes
a capital loss, its deduction of the loss may be subject to limitation. The
holder's aggregate Tax basis for any property received under the Plan generally
will equal the amount realized. The holder's amount realized generally will
equal the sum of the Cash and the fair market value of any other property
received (or deemed received) by the holder under the Plan on the Effective Date
or subsequent distribution date, less the amount (if any) allocable to Claims
for interest, as discussed below.
Post-Effective Date Cash Distributions
Because certain holders of Allowed Claims (including Disputed Claims that
ultimately become Allowed Claims) may receive Cash distributions subsequent to
the Effective Date in respect of Claims held against the Debtors, including
claims against Other Kaiser Debtor(s) as well as the Debtors, the imputed
interest provisions of the IRC may apply to treat a portion of such
distributions as imputed interest. Additionally, because such distributions may
be made to such holders after the initial distribution, any loss and a portion
of any gain realized by such holder may be deferred. All such holders are urged
to consult their Tax advisors regarding the possible
65
application of (or ability to elect out of) the "installment method" of
reporting gain that may be recognized by such holder in respect of its Claims.
Bad Debt and/or Worthless Securities Deduction
A holder who, under the Plan, receives in respect of a Claim an amount less
than the holder's Tax basis in the Claim may be entitled in the year of receipt
(or in an earlier or later year) to a bad debt deduction in some amount under
section 166(a) of the IRC or a worthless securities deduction under section
165(g) of the IRC. The rules governing the timing, character and amount of bad
debt and/or worthless securities deductions place considerable emphasis on the
facts and circumstances of the holder, the obligor and the instrument with
respect to which a deduction is claimed. Holders of Claims, therefore, are urged
to consult their Tax advisors with respect to their ability to take such a
deduction.
PENDING PAYMENTS
Cash or property that a Trust Account holds as a Pending Payment after the
Effective Date should be deemed to have been paid to the holder of the Claim
entitled to receive such Pending Payment on the date that the Distribution Trust
received it and to have been contributed by such holder to the Trust Account as
a grantor and beneficiary of the Distribution Trust. Thus, the holder should
recognize gain or loss based upon the amount deemed received and contributed to
the Trust Account on the Effective Date, and any income subsequently realized by
the Trust Account with respect to such Pending Payment will be reported by the
Trustee as income of the grantor-beneficiary in the year realized, prior to the
actual distribution of the Pending Payment to the holder of the Allowed Claim.
The actual receipt of the Pending Payments from the Trust Account will not be a
taxable event.
PAYMENTS OTHER THAN PENDING PAYMENTS
If any payment other than a Pending Payment is to be made out of a Trust
Account, such payment will not be deemed to have been made to any recipient
until, and to the extent that, the amount to which the payee is entitled has
been determined and distributed. Any income realized by the Trust Account prior
to such time will be reported by the Distribution Trustee as income of and
taxable to the Trust Account.
CERTAIN OTHER TAX CONSEQUENCES FOR HOLDERS OF CLAIMS
RECEIPT OF PRE-EFFECTIVE DATE INTEREST
In general, a Claim holder that was not previously required to include in
its taxable income any accrued but unpaid pre-Effective Date interest on the
Claim may be required to take such amount into income as taxable interest. A
Claim holder that was previously required to include in its taxable income any
accrued but unpaid pre-Effective Date interest on the Claim may be entitled to
recognize a deductible loss to the extent that such interest is not satisfied
under the Plan. The Plan provides that all distributions to a holder of an
Allowed Public Note Claim or a holder of a 7-3/4% SWD Revenue Bond will be
deemed to apply first to the principal amount of such Claim or such 7-3/4% SWD
Revenue Bond until such principal amount is paid in full, and then the remaining
portion of such distributions, if any, will be deemed to apply to any
prepetition accrued interest included in such Claim or in respect of such 7-3/4%
SWD Revenue Bond. There is no assurance, however, that the IRS will respect this
treatment and will not determine that all or a portion of amounts distributed to
holders of Allowed Public Note Claims or 7-3/4% SWD Revenue Bonds is properly
allocable to prepetition interest. Each such holder is urged to consult its tax
advisor regarding the tax treatment of its distributions under the Plan and the
deductibility of any accrued but unpaid interest for federal income tax
purposes.
INSTALLMENT METHOD
A holder of a Claim constituting an installment obligation for Tax purposes
may be required to recognize currently any gain remaining with respect to the
obligation if, pursuant to the Plan, the obligation is considered to be
satisfied at other than its face value, distributed, transmitted, sold, or
otherwise disposed of within the meaning of section 453B of the IRC.
66
INFORMATION REPORTING AND BACKUP WITHHOLDING
All distributions under the Plan will be subject to applicable federal
income Tax reporting and withholding. The IRC imposes "backup withholding" on
certain "reportable" payments to certain taxpayers, including payments of
interest. Under the IRC's backup withholding rules, a holder of a Claim may be
subject to backup withholding with respect to distributions or payments made
pursuant to the Plan, unless the holder: (a) comes within certain exempt
categories (which generally include corporations) and, when required,
demonstrates this fact; or (b) provides a correct taxpayer identification number
and certifies under penalty of perjury that the taxpayer identification number
is correct and that the taxpayer is not subject to backup withholding because of
a failure to report all dividend and interest income. Backup withholding is not
an additional Tax, but merely an advance payment that may be refunded to the
extent it results in an overpayment of Tax. A holder of a Claim may be required
to establish an exemption from backup withholding or to make arrangements with
respect to the payment of backup withholding.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN, AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATION
PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES
UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S INDIVIDUAL CIRCUMSTANCES.
ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS ABOUT THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS
GENERAL
No registration statement will be filed under the Securities Act of 1933,
as amended, 15 U.S.C. Sections 77a-77aa (the "Securities Act"), or any state
securities laws with respect to the offer and distribution under the Plan of the
beneficial interests in the Distribution Trust (which may be deemed to
constitute "securities" and are treated as such for purposes of the following
discussion). The Debtors believe that the provisions of section 1145(a)(1) of
the Bankruptcy Code exempt the offer and distribution of such securities under
the Plan from federal and state securities registration requirements.
BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS
INITIAL OFFER AND SALE
Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of
securities under a plan of reorganization from registration under the Securities
Act and state securities laws if three principal requirements are satisfied: (a)
the securities must be offered and sold under a plan of reorganization and must
be securities of the debtor, an affiliate participating in a joint plan with the
debtor or a successor to the debtor under the plan; (b) the recipients of the
securities must hold a prepetition or administrative expense claim against the
debtor or an interest in the debtor or such affiliate; and (c) the securities
must be issued entirely in exchange for the recipient's claim against or
interest in the debtor or principally in such exchange and partly for cash or
property. The Debtors believe that the offer and sale of the beneficial
interests in the Distribution Trust under the Plan satisfy the requirements of
section 1145(a)(1) of the Bankruptcy Code and, therefore, are exempt from
registration under the Securities Act and state securities laws.
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SUBSEQUENT TRANSFERS
The beneficial interests in the Distribution Trust will be non-certificated
and non-transferable (except by will or under the laws of descent and
distribution). Therefore, holders of beneficial interests in the Distribution
Trust will not be able to voluntarily transfer such securities to other
entities.
ADDITIONAL INFORMATION
Any statements in this Disclosure Statement concerning the provisions of
any document are not necessarily complete, and in each instance reference is
made to such document for the full text thereof. The Plan, this Disclosure
Statement and the Distribution Trust Agreement will be available on the Document
Website promptly following approval of this Disclosure Statement by the
Bankruptcy Court.
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RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the Debtors
believe that the confirmation and consummation of the Plan is preferable to all
other alternatives. Consequently, the Debtors urge all holders of Claims in
voting Classes to vote to accept the Plan and to evidence their acceptance by
duly completing and returning their Ballots so that they will be received on or
before the Voting Deadline.
Dated: February 28, 2005 Respectfully submitted,
KAISER ALUMINA AUSTRALIA CORPORATION
By: /s/ John M. Donnan
------------------------------------
Name: John M. Donnan
Title: Vice President and
General Counsel
KAISER FINANCE CORPORATION
By: /s/ John M. Donnan
------------------------------------
Name: John M. Donnan
Title: Vice President and
General Counsel
COUNSEL:
/s/ Daniel J. DeFranceschi
- ------------------------------------
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
- - and -
Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
69
EXHIBIT I
THIRD AMENDED JOINT PLAN OF LIQUIDATION FOR
KAISER ALUMINA AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION