Exhibit 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
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:
In re: : Chapter 11
:
STONE & WEBSTER, INCORPORATED, et al., : Case No. 00-2142 (PJW)
Debtors. :
: Jointly Administered
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DISCLOSURE STATEMENT WITH RESPECT TO AMENDED JOINT
PLAN OF REORGANIZATION OF THE DEBTORS IN POSSESSION,
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
AND FEDERAL INSURANCE COMPANY FOR
(I) STONE & WEBSTER, INCORPORATED AND CERTAIN OF
ITS SUBSIDIARIES AND AFFILIATES AND (II) STONE
& WEBSTER ENGINEERS & CONSTRUCTORS, INC.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Gregg M. Galardi (I.D. No. 2991)
Eric M. Davis (I.D. No. 3621)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
- and -
Edward J. Meehan
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
Attorneys for Debtors and
Debtors-in-Possession
ORRICK HERRINGTON & SUTCLIFFE LLP
Anthony J. Princi
Lorraine S. McGowen
666 Fifth Avenue
New York, New York 10103-0002
(212) 506-5000
- and -
KLETT ROONEY LIEBER & SCHORLING
Adam G. Landis
The Brandywine Building
1000 West Street, Suite 1410
Wilmington, Delaware 19801
(302) 552-4200
Counsel for the Official Committee
of Unsecured Creditors
MANIER & HEROD
J. Michael Franks
Sam H. Poteet, Jr.
Thomas T. Pennington
One Nashville Place
Suite 2200, 150 Fourth Avenue North
Nashville, Tennessee 37219-2494
(615) 244-0030
- and -
DUANE MORRIS LLP
Michael R. Lastowski
1100 North Market Street, Suite 1200
Wilmington, Delaware 19801-1246
(302) 657-4900
Counsel for Federal
Insurance Company
Dated: Wilmington, Delaware
April 22, 2003
2
DISCLAIMER
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT RELATES TO THE
AMENDED JOINT PLAN OF REORGANIZATION OF THE DEBTORS-IN- POSSESSION, OFFICIAL
COMMITTEE OF UNSECURED CREDITORS AND FEDERAL INSURANCE COMPANY FOR (I) STONE &
WEBSTER, INCORPORATED AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES AND (II)
STONE & WEBSTER ENGINEERS & CONSTRUCTORS, INC. AND CERTAIN OF ITS SUBSIDIARIES
AND AFFILIATES (THE "PLAN") AND IS INCLUDED HEREIN FOR PURPOSES OF SOLICITING
ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN
TO MAKE A JUDGMENT WITH RESPECT TO, AND DETERMINE HOW TO VOTE ON, THE PLAN. NO
PERSON MAY GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THE
INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT,
REGARDING THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN.
ALL CLAIMHOLDERS AND INTERESTHOLDERS ARE ADVISED AND ENCOURAGED TO
READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO
ACCEPT OR REJECT THE PLAN. SUMMARIES OF THE PLAN AND STATEMENTS MADE IN THIS
DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN,
THE EXHIBITS ANNEXED TO THE PLAN, AND THIS DISCLOSURE STATEMENT. THE STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF, AND
THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT
AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
BANKRUPTCY CODE SECTION 1125 AND RULE 3106(c) OF THE FEDERAL RULES OF
BANKRUPTCY PROCEDURE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS OR OTHER RULES GOVERNING DISCLOSURE OUTSIDE THE CONTEXT OF CHAPTER 11.
THIS DISCLOSURE STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE SEC PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE
CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT
RATHER AS A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS. THE DISCLOSURE STATEMENT
SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING INVOLVING THE DEBTORS
OR ANY OTHER PARTY, NOR SHALL IT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE
TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE REORGANIZATION OR PLAN AS TO
HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN, THE DEBTORS.
iii
EXECUTIVE SUMMARY
Stone & Webster, Incorporated ("SWINC"), Stone & Webster Engineers and
Constructors, Inc. ("SWE&C") and certain of their respective subsidiaries and
affiliates, debtors and debtors-in- possession (together with SWINC and SWE&C,
the "Debtors"), each filed petitions for relief under chapter 11 of title 11 of
the United States Code, 11 U.S.C. ss.ss. 101-1330 (as amended, the "Bankruptcy
Code"), on June 2, 2000. On March 14, 2003, the Debtors filed the Plan,
supported and co-proposed by the Official Committee of Unsecured Creditors (the
"Creditors' Committee") and Federal Insurance Company, an Indiana corporation
("Federal"), which Plan sets forth how Claims against and Interests in the
Debtors will be treated. This Disclosure Statement describes the Debtors'
history, significant events occurring in the Debtors' Chapter 11 Cases, a
summary and analysis of the Plan, and certain related matters. This Executive
Summary is intended solely as a summary of the distribution provisions of the
Plan and is qualified in its entirety by the terms and provisions of the Plan.
FOR A COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THE DISCLOSURE
STATEMENT, THE PLAN AND THE EXHIBITS THERETO IN THEIR ENTIRETY. Capitalized
terms used in this Executive Summary and not otherwise defined herein have the
meanings ascribed to them in the Disclosure Statement and the Plan.
A. Background
Since the Debtors' sale of substantially all of their assets to Shaw
in July 2000 (the "Shaw Sale"), the Official Committee of Equity Interests of
SWINC (the "Equity Committee"), the Creditors' Committee, the Debtors and
certain creditors such as Federal have been embroiled in various disputes
regarding the ultimate distribution of assets and the structure of acceptable
plan(s) of reorganization. As a result of those differences, the Debtors, the
Equity Committee and the Creditors' Committee each initially filed plans of
reorganization. Although there were numerous differences among those plans, the
most significant difference was that the Equity Committee proposed a plan of
reorganization that contemplated separate plans for each and every individual
Debtor, the Creditors' Committee proposed a plan of reorganization that
contemplated the substantive consolidation of each Debtor's assets and
liabilities into a single consolidated plan for all Debtors, and the Debtors
proposed a plan calling for the separate substantive consolidation of SWINC and
certain of its subsidiaries and affiliates into a consolidated SWINC estate and
SWE&C and certain of its subsidiaries and affiliates into a consolidated SWE&C
estate.
After the filing of the three plans and preliminary hearings on their
corresponding disclosure statements, the Debtors entered into negotiations
with, among others, the Creditors' Committee, the Equity Committee and Federal.
As a result of those negotiations, the Debtors, the Creditors' Committee and
Federal have settled various disputes and agreed to become joint sponsors and
co- proponents of this Plan, which contemplates settlements and compromises
regarding substantive consolidation, the treatment of various intercompany
claims, and the treatment of Federal's claims in the Chapter 11 Cases.
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B. Summary of the Plan
1. Substantive Consolidation of SWINC and SWINC Subsidiaries
As set forth more fully in the Plan and this Disclosure Statement, the
Plan proposes as a compromise and settlement of various disputes and issues
raised by, among others, the Debtors, the Equity Committee, the Creditors'
Committee, and certain other creditors, including Federal, the substantive
consolidation of (i) SWINC and the SWINC Subsidiaries into the Consolidated
SWINC Estate and (ii) SWE&C and the SWE&C Subsidiaries into the Consolidated
SWE&C Estate. Distributions on account of Claims against and Interests in SWINC
and the SWINC Subsidiaries will therefore depend only on the consolidated
assets and liabilities of the Consolidated SWINC Estate. Moreover, except as
otherwise provided herein and in the Plan, distributions on account of Claims
against SWE&C and the SWE&C Subsidiaries will depend only on the consolidated
assets and liabilities of the Consolidated SWE&C Estate. A list of the Debtor
entities comprising each of the Consolidated SWINC Estate and the Consolidated
SWE&C Estate is attached hereto as Appendix A.
The Plan further contemplates that on the Effective Date or as soon
thereafter as practicable, (a) each of the SWINC Subsidiaries shall be merged
or deemed merged with and into SWINC and (b) the Chapter 11 Cases of the SWINC
Subsidiaries shall be closed, following which any and all proceedings that
could have been brought or otherwise commenced in the Chapter 11 Case of any of
the SWINC Subsidiaries shall be brought or otherwise commenced in SWINC's
Chapter 11 Case. SWINC shall continue to exist and emerge from bankruptcy as
Reorganized SWINC after the Effective Date in accordance with the laws of the
State of Delaware and pursuant to the certificate of incorporation and by-laws
of SWINC in effect prior to the Effective Date, as amended under the Plan.
Reorganized SWINC will be authorized to engage in any lawful act for which
corporations may be organized under the Delaware General Corporation Law
("DGCL"). After emerging from bankruptcy, Reorganized SWINC's business
operations will consist of the management of the Pension Plan, including any
efforts in which Reorganized SWINC may engage to terminate the Pension Plan or
transfer its sponsorship in accordance with applicable law. Although
Reorganized SWINC will be fully authorized to engage in other business
operations and management intends to evaluate opportunities as, when, and if
they arise, Reorganized SWINC has no present intention to engage in business
operations and is likely to dissolve under DGCL ss. 275-282 within the first
two (2) years following the Effective Date. Upon such dissolution, it is
anticipated that SWINC will receive a substantial Reversion as a result of the
Pension Plan being overfunded, which Reversion will benefit Creditors and
Interestholders in the manner and as described in the Plan.
2. Substantive Consolidation of SWE&C and SWE&C Subsidiaries
The Plan also contemplates that on the Effective Date or as soon
thereafter as practicable, (a) each of the SWE&C Subsidiaries shall be merged
or deemed merged with and into SWE&C and (b) the Chapter 11 Cases of the SWE&C
Subsidiaries shall be closed, following which any and all proceedings that
could have been brought or otherwise commenced in the Chapter 11 Case of any of
the SWE&C Subsidiaries shall be brought or otherwise commenced in SWE&C's
Chapter 11 Case.
The Plan further contemplates that SWE&C and the SWE&C Subsidiaries
will liquidate and not conduct any business operations following confirmation
and consummation of the Plan. In connection with the liquidation of SWE&C and
the SWE&C Subsidiaries, the SWE&C Liquidating Trust will be formed pursuant to
Delaware law and in the discretion of the Creditors' Committee for
v
the benefit of holders of Claims against the Consolidated SWE&C Estate. Upon
confirmation and consummation of the Plan, Claims against the Consolidated
SWE&C Estate will receive beneficial interests in the SWE&C Liquidating Trust,
entitling the holders thereof to receive distributions pursuant to the terms of
the Plan as, when and if available, from funds or other assets held by the
SWE&C Liquidating Trust. The SWE&C Liquidating Trust will distribute any
amounts available for distribution to the holders of Claims against the
Consolidated SWE&C Estate in accordance with the Plan. Beneficial interests in
the SWE&C Liquidating Trust will not be certificated and will be non-
transferable, except by operation of law. The SWE&C Liquidating Trust will
terminate on the earlier of (i) the tenth (10) anniversary of the Confirmation
Date or (ii) the distribution of all property in accordance with the terms of
the SWE&C Liquidating Trust Agreement. SWE&C and the SWE&C Subsidiaries shall
be dissolved. If the SWE&C Liquidating Trust Advisory Board deems it necessary
or appropriate, the SWE&C Liquidating Trustee shall file a certificate of
dissolution for SWE&C and/or the SWE&C Subsidiaries and shall take all other
actions necessary or appropriate to effect the dissolution of SWE&C and the
SWE&C Subsidiaries under applicable state law.
3. Pension Plan Reversion
As part of the settlement with respect to Substantive Consolidation,
the Proponents also propose to settle certain disputes regarding the potential
reversionary interest associated with the overfunded Pension Plan.
Specifically, the Plan Proponents believe that the Pension Plan is presently
overfunded and that upon termination of the Pension Plan in a state law
dissolution of Reorganized SWINC, funds in excess of $30 million will revert to
the Debtors' estates after all liabilities of the Pension Plan to Pension Plan
participants have been satisfied. These excess assets are defined as the
"Reversion" in the Plan. The income tax consequences of the Plan are, however,
subject to substantial uncertainty, and no assurances can be made that income
tax liability with respect to the Reversion would not materially reduce the
recovery to holders of Claims and Interests. The Reversion, net of any tax
liability, will therefore become available for distribution to certain holders
of Claims and Interests. As part of the litigation over Substantive
Consolidation, the Equity Committee contended only holders of Claims and
Interests of SWINC are entitled to the Reversion because SWINC is the present
sponsor of the Pension Plan. In opposition, the Creditors' Committee contended
that the Reversion should be available to holders of Claims and Interests of
all Debtors because, among other things, the contributions to the Pension Plan
were made by all Debtor entities on behalf of certain of their employees. To
avoid further litigation, the Proponents proposed a distribution of the
Reversion under the Plan as follows:
o In the event Class 9A SWINC Equity Interests votes
to accept the Plan, the Reversion from the Pension
Plan will be distributed as follows: (i) two- thirds
of the Reversion's first $30 million to the
Consolidated SWINC Estate; (ii) one-third of the
Reversion's first $30 million to the Consolidated
SWE&C Estate; and (iii) if the Reversion exceeds $30
million, an equal distribution between the
Consolidated SWE&C Estate and the Consolidated SWINC
Estate of any Reversion in excess of $30 million.
o In the event Class 9A votes to reject the Plan, the
Reversion from the Pension Plan will be distributed
as follows: (i) two-thirds of the Reversion's first
$30 million to the Consolidated SWINC Estate; (ii)
one- third of the Reversion's first $30 million to
the Consolidated SWE&C
vi
Estate; and (iii) if the Reversion exceeds $30
million, a distribution of seventy-five percent
(75%) of any Reversion in excess of $30 million to
the Consolidated SWE&C Estate and twenty-five
percent (25%) of any Reversion in excess of $30
million to the Consolidated SWINC Estate.
The Proponents believe that this settlement is fair and equitable
because, among other things, (i) prior to SWINC becoming the sole legal sponsor
of the Pension Plan, each individual Debtor was a contributing sponsor within
the meaning of section 4001(a)(13) of ERISA and (ii) even after SWINC became
the legal sponsor, the overfunded Pension Plan was carried on the books and
records of SWEC and (iii) Mercer Human Resource Consulting reported on a
nonconsolidated basis by operating unit of the Debtors with respect to Pension
Plan expenses and assets in addition to reporting on a consolidated basis at
the SWINC level in accordance with generally accepted accounting principles.
The Equity Committee contends, however, that there cannot be any
serious dispute that SWINC is the sole owner of any surplus in the Pension Plan
because (i) since January 1991, the Pension Plan documents have stated that
upon termination of the Plan any reversionary interest would be property of
SWINC; (ii) under applicable state and federal law the Pension Plan is required
to be managed and terminated in accordance with the terms fo the Pension Plan
documents; and (iii) the Plan Proponents of the Joint Plan have not cited any
legal authority - statutory or case law - to the contrary.
The Equity Committee further contends that the allegation that the
Pension Plan overfunding was "carried on the books and records of SWEC" is
inaccurate and misleading because (i) the Debtors have produced audited
financial statements for SWEC for the calendar years 1995, 1996 and 1997 that
show a "prepaid pension cost" asset that is unrelated to any pension plan trust
assets or any potential surplus upon termination of the Pension Plan; (ii)
those same financial statements and the publicly filed consolidated financial
statements of the Debtors contain information sufficient to disclose adequately
that all the Debtors were participants in a pension plan with SWINC; and (iii)
no specific creditors claim to have reasonably relied or to have been misled by
such public information.
The Plan Proponents disagree with the factual, legal and equitable
assertions made by the Equity Committee. Additionally, the Equity Committee has
affirmatively rejected the compromise regarding substantive consolidation
encompassed in the Joint Plan.
4. Federal Settlement
As part of the Plan, the Proponents also propose a settlement of
various claims filed by Federal. Specifically, Federal initially filed numerous
proofs of claim in the Bankruptcy Cases in the amount of $371,505,215.90, of
which $55,208,965.23 was ultimately liquidated. The balance of $316,296,205.69
represents unliquidated claims asserted by Federal against, among others, SWINC
and SWEC. In addition to asserting claims against each of the primary obligors,
Federal also asserted a Claim directly against SWINC pursuant to certain
General Indemnity Agreements executed between Federal and SWINC. A significant
portion of the Federal Liquidated Claim, in the amount of $44 million, arises
in connection with Federal's payment under certain Payment and Performance
Bonds between SWE&C and Federal related to Maine Yankee.
Originally, Federal supported the Equity Committee Plan and opposed
the Substantive Consolidation proposed by the Creditors' Committee. Subsequent
to the Initial Disclosure Statement
vii
Hearing, the Debtors reached an agreement with Federal regarding Substantive
Consolidation and the Federal Claims, a settlement that also provides an
opportunity for Class 9A SWINC Equity Interests to receive an immediate Cash
payment of $0.50 per share. The Federal Settlement includes a settlement of the
Lumbermens Claim, which claim exceeds $6 million. The Lumbermens Claim means
proof of claim no. 5179 filed by Lumbermens relating to losses suffered by
Lumbermens solely in connection with surety bonds, which claim amended and
superseded proofs of claim nos. 3300 and 4491. The Federal Settlement resolves
only the Lumbermens Claim and does not include any other proof of claim filed
by Lumbermens. The Federal Settlement is contingent upon confirmation of the
Plan, and will be binding on all interested parties upon approval of the Plan,
and absent the Federal Settlement, certain individual Debtors, including SWINC
and SWEC could be liable to Federal in an amount that exceeds $80 million.
The principal terms of the Federal Settlement are as follows:
o Federal will hold an Allowed Federal Claim in the
amount of $52,113,000 against both the Consolidated
SWINC Estate and the Consolidated SWE&C Estate and
will be permitted to vote such Allowed Federal
Claims as both an Allowed Class 5A Claim and an
Allowed Class 5B Claim.
o In addition, Chubb Canada will receive a
distribution of the Canadian Cash, which Cash shall
be held in trust by Chubb Canada for its use in
defending, settling or otherwise resolving the
Isobord Litigation. Any Canadian Cash remaining at
the conclusion of the Isobord Litigation shall be
paid over to the SWE&C Liquidating Trustee to be
distributed in accordance with the Plan.
o Upon the allowance of the Federal Claims, Federal
will also release any and all Claims for subrogation
or other Claims it has or might have against the
Consolidated SWINC Estate or the Consolidated SWE&C
Estate, including but not limited to, Claims for
indemnification, contribution, reimbursement or
subrogation arising out of the Isobord Litigation in
Canada. Federal shall have complete control of the
Isobord Litigation, with complete authority to
settle or otherwise resolve the Isobord Litigation
without the consent or participation of any of the
Debtors. While Federal will waive any Claim against
the Consolidated SWINC and SWE&C Estates in
connection with the Isobord Litigation, Federal is
not agreeing to indemnify SWINC or any other of the
Debtors from liability in connection with the
Isobord Facility. Furthermore, Federal is also not
waiving any of its rights or defenses as surety,
either in law, in equity or under the bonds that it
might have against Isobord with respect to the
Isobord Facility or any related contract, but in no
event will the Allowed Federal Claim exceed
$52,113,000 because of the Isobord Litigation.
o In addition, the SWE&C Liquidating Trustee will
issue to Federal the Federal Note in the amount of
$1.8 million in full satisfaction, settlement,
release and discharge of the Class 5B Allowed
Federal Claim against SWE&C, which Federal Note
shall be deemed satisfied and cancelled upon payment
in full of the Class 5A Allowed Federal Claim by the
viii
Consolidated SWINC Estate. In the event that the
Class 5A Allowed Federal Claim is not paid in full,
the SWE&C Liquidating Trustee shall pay Federal cash
in the face amount of the Federal Note or such
Lesser amount as is necessary for Federal to receive
full payment in the amount of $52,113,000 on the
Allowed Federal Claims.
o Finally, if Class 9A SWINC Equity Interests vote to
accept the Plan, SWINC shall make the Initial
Federal Distribution to Federal on account of the
Allowed Federal Claim in Class 5A out of which
Federal will distribute, in a manner acceptable to
Federal, an amount equal to $0.50 per share of Old
Securities voting to accept the Plan, which amount
cannot exceed $7,113,000, to the Equity Settlement
Fund. On the Effective Date or as soon thereafter as
practicable, the Cash in the Equity Settlement Fund
shall be distributed to holders of Allowed Class 9A
SWINC Equity Interests that voted to accept the
Plan. Federal will have no right to recoup from
either the Consolidated SWINC Estate or the
Consolidated SWE&C Estate any portion of the payment
made to the Equity Settlement Fund, and the Initial
Federal Distribution shall count towards the payment
of the Allowed Federal Claim in Class 5A for
purposes of determining the SWE&C Liquidating
Trustee's liability on the Federal Note.
o In the event Class 9A does not vote to accept the
Plan, Federal will retain all rights against the
Consolidated SWINC Estate on the Allowed Federal
Claim in Class 5A in the amount of $52,113,000 for
distribution purposes.
5. Distributions to Holders of Claims and Interests
Under the Plan, Reorganized SWINC will issue three classes of
securities, all as described in more detail below. First, Reorganized SWINC
will issue 100 shares of Reorganized SWINC New Common Stock to the SWE&C
Liquidating Trustee to be held for the benefit of holders of Claims against the
Consolidated SWE&C Estate. As described in more detail below, these shares of
Reorganized SWINC New Common Stock will provide the SWE&C Liquidating Trustee
with sufficient voting power to approve the dissolution of Reorganized SWINC,
which requires a majority vote of stockholders under applicable Delaware law.
The SWE&C Liquidating Trustee will not be entitled to transfer or otherwise
distribute the Reorganized SWINC New Common Stock, including to the
beneficiaries of the SWE&C Liquidating Trust. Second, Reorganized SWINC will
issue one share of Reorganized SWINC New Series A Preferred Stock to the SWINC
Plan Administrator to be held for the benefit of holders of Claims and
Interests against the Consolidated SWINC Estate. The Reorganized SWINC New
Series A Preferred Stock will have, upon termination of the Pension Plan and
the liquidation, dissolution and winding up of Reorganized SWINC, a liquidating
distribution calculated as follows: (i) from the Reversion either (x)
two-thirds of the first $30 million in proceeds generated from the Reversion of
the Pension Plan plus 50% of any funds generated from the Reversion in excess
of $30 million or (y) in the event Class 9A SWINC Equity Interests votes to
reject the Plan, two-thirds of the first $30 million in proceeds generated from
the Reversion of the Pension Plan plus twenty-five percent (25%) of any funds
generated from the Reversion in excess of $30 million; and (ii) 100% of the
funds generated from the liquidation of any additional assets, other than the
Reversion, of Reorganized SWINC (the "Series A Liquidation Preference"). The
SWINC Plan Administrator will distribute the Series A Liquidation Preference to
the Holders of Allowed SWINC
ix
Claims and Interests in accordance with the terms of the Plan and the SWINC
Plan Administrator Agreement. Finally, Reorganized SWINC will issue one share
of Reorganized SWINC New Series B Preferred Stock to the SWE&C Liquidating
Trustee to be held for the benefit of holders of Claims and Interests in the
Consolidated SWE&C Estate. Upon termination of the Pension Plan and the
liquidation, dissolution and winding up of Reorganized SWINC, and in accordance
with the terms of the Plan, holders of Series B Preferred Stock shall be
entitled to receive a liquidating distribution calculated from the Reversion as
follows: either (i) one-third of the first $30 million in proceeds generated
from the Reversion plus 50% of any funds generated from the Reversion in excess
of $30 million or (ii) in the event Class 9A votes to reject the Plan,
one-third of the first $30 million in proceeds generated from the Reversion
plus seventy-five percent (75%) of any funds generated from the Reversion in
excess of $30 million (the "Series B Liquidation Preference"). The SWE&C
Liquidating Trustee will distribute the Series B Liquidation Preference to the
Holders of Allowed SWE&C Claims and Interests in accordance with the terms of
the Plan and the SWE&C Liquidating Trust Agreement.
Under the Plan, certain Claims are classified as General
Administrative Claims. The Plan divides the remaining Claims and Interests into
(i) Claims against and Interests in the Consolidated SWINC Estate and (ii)
Claims against the Consolidated SWE&C Estate. These Claims and Interests are
then further divided into Unclassified Claims against and Classes of Claims
Against and Interests in the Consolidated SWINC Estate and the Consolidated
SWE&C Estate, respectively.
(a) Unclassified Claims
General Administrative Claims. Claims that are incurred in the
ordinary course of business during the Chapter 11 Cases, including, but not
limited to, General Professional Fee Claims that are not allocated to either
the Consolidated SWINC Estate or the Consolidated SWE&C Estate shall be paid in
the ordinary course of business in accordance with the terms and conditions of
any agreements relating thereto out of available funds prior to distributions
being made to the Consolidated SWINC Estate and the Consolidated SWE&C Estate.
SWINC Administrative Claims. Each holder of an Allowed SWINC
Administrative Claim shall receive in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed SWINC Administrative Claim
(a) Cash equal to the unpaid portion of such Allowed SWINC Administrative Claim
or (b) such other treatment as to which the SWINC Plan Administrator and such
holder shall have agreed upon in writing.
SWINC Priority Tax Claims. Each holder of an Allowed SWINC Priority
Tax Claim shall be entitled to receive on account of such Allowed SWINC
Priority Tax Claim, in full satisfaction, settlement, release and discharge of
and in exchange for such Allowed SWINC Priority Tax Claim (i) equal Cash
payments made on the last Business Day of every three-month period following
the Effective Date, over a period not exceeding six years after the assessment
of the tax on which such Claim is based, totaling the principal amount of such
Claim plus simple interest on any outstanding balance from the Effective Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Effective Date, (ii) a single Cash payment to be made on the
Effective Date or as soon as practicable thereafter in an amount equivalent to
the amount of such Allowed Priority Tax Claim, or (iii) such other treatment as
to which SWINC or the SWINC Plan Administrator and such holder shall have
agreed upon in writing.
x
SWE&C Administrative Claims. Each holder of an Allowed SWE&C
Administrative Claim shall receive a beneficial interest in the SWE&C
Liquidating Trust entitling such holder to receive in full satisfaction,
release and discharge of and in exchange for such Allowed SWE&C Administrative
Claim (a) Cash equal to the unpaid portion of such Allowed SWE&C Administrative
Claim or (b) such other treatment as to which SWE&C or the SWE&C Liquidating
Trustee and such holder shall have agreed upon in writing.
SWE&C Priority Tax Claims. Each holder of an Allowed SWE&C Priority
Tax Claim, at the sole option of the SWE&C Liquidating Trustee, shall be
entitled to receive a beneficial interest in the SWE&C Liquidating Trust
entitling such holder to receive in full satisfaction, release and discharge of
and in exchange for such Allowed Priority Tax Claim (i) equal Cash payments
made on the last Business Day of every three-month period following the
Effective Date, over a period not exceeding six years after the assessment of
the tax on which such Claim is based, totaling the principal amount of such
Claim plus simple interest on any outstanding balance from the Effective Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Effective Date, (ii) a single Cash payment to be made on the
Effective Date or as soon as practicable thereafter in an amount equivalent to
the amount of such Allowed SWE&C Priority Tax Claim, or (iii) such other
treatment as to which SWE&C or the SWE&C Liquidating Trustee and such holder
shall have agreed upon in writing.
(b) Classified Claims and Interests
The table below summarizes the classification and treatment under the
Plan of the principal pre-petition (i) Claims against and Interests in the
Consolidated SWINC Estate and (ii) Claims against the Consolidated SWE&C
Estate. The classification and treatment for all Classes are described in more
detail in Article IV.F of this Disclosure Statement entitled "Summary of the
Plan -- Classification and Treatment of Claims and Interests." This summary is
qualified in its entirety by reference to the provisions of the Plan, a copy of
which is attached hereto as Appendix B, and the balance of this Disclosure
Statement.
THE CONSOLIDATED SWINC CLASSES:
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
CLASS 1A SECURED CLAIMS
CLASS 1A.1 SWE&C SETOFF o Unimpaired
CLAIM
o On the Effective Date, the Allowed
Estimated Allowed Amount: Class 1A.1 SWE&C Setoff Claim held
Approx. $190 million by the Consolidated SWE&C Estate
shall be deemed offset against the
Class 7B Intercompany Claim held by
the Consolidated SWINC Estate
resulting in a net Allowed Class 7B
Intercompany Claim by the
Consolidated SWINC Estate against
the Consolidated SWE&C Estate in the
approximate amount of $20 million.
As a result, the
xi
Allowed Class 1A.1 SWE&C Setoff
Claim shall be deemed satisfied in
full.
CLASS 1A.2 SWINC o Unimpaired
MISCELLANEOUS SECURED
CLAIMS o Each holder of Allowed Class 1A.2
SWINC Miscellaneous Secured Claims
Estimated Allowed Amount: shall receive in full satisfaction,
Approx. $0 to $3 million settlement, release and discharge of and
in exchange for such Allowed Class
1A.2 SWINC Miscellaneous Secured
Claim either (a) Cash equal to the
unpaid portion of such Allowed Class
1A.2 SWINC Miscellaneous Secured
Claim or (b) such other treatment as
the SWINC Plan Administrator and
such holder shall have agreed upon
in writing.
o Estimated Recovery: 100%
CLASS 2A SWINC OTHER PRIORITY o Unimpaired
CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 2A
$0 to $500,000 SWINC Other Priority Claim shall
receive in full satisfaction,
settlement, release and discharge of
and in exchange for such Allowed
Class 2A SWINC Other Priority Claim
either (a) Cash equal to the unpaid
portion of such Allowed Class 2A
SWINC Other Priority Claim or (b)
such other treatment as to which the
SWINC Plan Administrator and such
holder shall have agreed upon in
writing.
o Estimated Recovery: 100%
CLASS 3A SWINC ASBESTOS CLAIMS o Impaired
Estimated Allowed Amount: o Each holder of an Allowed Class 3A
Approx. $0 to $125 million SWINC Asbestos Claim shall receive in
full satisfaction, settlement,
release and discharge of and in
exchange for such Allowed Class 3A
SWINC Asbestos Claim (a) its Pro
Rata share of the
xii
Asbestos Trust Assets (set forth in
Article VII.L. of the Plan), subject
to the terms and conditions of the
Asbestos Trust Agreement or (b) such
other treatment as to which the
Asbestos Trustee and the holder of
an Allowed Class 3A SWINC Asbestos
Claim shall have agreed upon in
writing.
o Estimated Recovery: 50% - 100%
CLASS 4A SWINC CONVENIENCE o Impaired
CLAIMS
Estimated Allowed Amount: o Each holder of an Allowed Class 5A
Approx. $0 to $100,000 SWINC General Unsecured Claim that
elects to be treated as a Class 4A
SWINC Convenience Claim shall
receive in full satisfaction,
release and discharge of and in
exchange for such Allowed Class 5A
SWINC General Unsecured Claim the
lesser of $1000 or 50% of its
Allowed Class 5A SWINC General
Unsecured Claim.
Only holders of Class 5A SWINC
General Unsecured Claims who vote in
favor of the Plan may elect to have
their claim treated as a Class 4A
SWINC Convenience Claim.
o Estimated Recovery: 50%
CLASS 5A SWINC GENERAL o Impaired
UNSECURED CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 5A
$55 to $300 million SWINC General Unsecured Claim shall
receive its Pro Rata share of the
Initial Class 5A Distribution
Amount. On each ensuing Semi-Annual
Distribution Date, each holder of an
Allowed Class 5A SWINC General
Unsecured Claim shall receive its
Pro Rata share of the Semi- Annual
Class 5A Distribution Amount.
xiii
SWINC Guaranty Claims will not be
Allowed SWINC General Unsecured
Claims until the underlying Claim
against the Consolidated SWE&C
Estate for which there is a Guaranty
(the "Primary Claim") is fixed and
determined and a final distribution
from the Consolidated SWE&C Estate
has been made on the Primary Claim.
o Estimated Recovery: 50% - 100%
CLASS 6A SWINC INTRAESTATE o Impaired
CLAIMS
Estimated Allowed Amount: Approx. o On the Effective Date or such other date
$100,000 set by an order of the Court, all Allowed
Class 6A SWINC Intraestate Claims
shall be deemed satisfied, waived,
released, discharged and cancelled
and the holders of Allowed Class 6A
SWINC Intraestate Claims shall not
be entitled to and shall not receive
or retain any property or interest
on account of such Claims.
o Estimated Recovery: 0%
CLASS 7A SWINC SUBORDINATED o Impaired
CLAIMS
Estimated Allowed Amount: Approx. o Upon the payment in full of the Allowed
$0 to $25 million Class 4A SWINC Convenience Class
Claims and the Allowed Class 5A
SWINC General Unsecured Claims or as
soon thereafter as is practicable,
each holder of an Allowed Class 7A
SWINC Subordinated Claim shall
receive its Pro Rata share of the
Initial Class 7A Distribution
Amount, if any. On each ensuing
Semi-Annual Distribution Date, each
holder of an Allowed Class 7A SWINC
Subordinated Claim shall receive its
Pro Rata share of the Semi- Annual
Class 7A Distribution Amount.
xiv
o Estimated Recovery: 0% - 100%
CLASS 8A SWINC SECURITIES CLAIMS o Impaired
Estimated Allowed Amount: o Upon the payment in full of Allowed
$0 to $100 million Class 4A SWINC Convenience Class
Claims, Allowed Class 5A SWINC
General Unsecured Claims, and
Allowed Class 7A SWINC Subordinated
Claims, each holder of an Allowed
Class 8A SWINC Securities Claim
(less any insurance proceeds
actually received and retained by
such holder in respect of such
Allowed Class 8A SWINC Securities
Claim) shall receive its Pro Rata
share (as diluted by Allowed Class
9A SWINC Equity Interests) of (i)
the remaining Available Cash in the
SWINC Disputed Claims Reserve and
(ii) any amounts remaining that were
paid to the SWINC Plan Administrator
as a liquidation preference with
respect to the SWINC New Series A
Preferred Stock after all Allowed
Class 4A SWINC Convenience Class
Claims, Allowed Class 5A SWINC
General Unsecured Claims and Allowed
Class 7A SWINC Subordinated Claims
have been satisfied. On each ensuing
Semi-Annual Distribution Date, each
holder of an Allowed Class 8A SWINC
Securities Claim shall receive its
Pro Rata share (as diluted by
Allowed Class 9A SWINC Equity
Interests) of the remaining
Available Cash in the SWINC Disputed
Claims Reserve and remaining
Available Cash paid to the SWINC
Plan Administrator as the
liquidation preference with respect
to the SWINC New Series A Preferred
Stock. Upon receipt by the holder of
an Allowed Class 8A SWINC Securities
Claim of any amounts distributed
under the Plan in respect of such
claim, such
xv
holder shall be
deemed to have
assigned to the
SWINC Plan
Administrator all
rights of the
holder to recover
such amounts from
the applicable
insurer.
o Estimated Recovery: 0% - 100%
CLASS 9A SWINC EQUITY INTERESTS o Impaired
Estimated Allowed Amount: Approx. o In the event that Class 9A SWINC
14.3 million shares with a paid in Equity Interests vote to accept the Plan,
capital equal to approx. $60 million then on the Effective Date, or as soon
thereafter as practicable, each
holder of an Allowed SWINC Equity
Interest that votes to accept the
Plan shall receive $0.50 per share
of Old Common Stock held by such
holder from the Equity Settlement
Fund. In addition, upon the payment
in full of the Allowed Class 5A
SWINC General Unsecured Claims, the
Allowed Class 4A SWINC Convenience
Class Claims, and the Allowed Class
7A SWINC Subordinated Claims, each
holder of an Allowed Class 9A SWINC
Equity Interest shall receive its
Pro Rata share (as may be diluted by
Allowed Class 8A SWINC Securities
Claims) of (i) the remaining
Available Cash in the SWINC Disputed
Claims Reserve and (ii) any amounts
remaining that were paid to the
SWINC Plan Administrator as a
liquidation preference with respect
to the SWINC New Series A Preferred
Stock after all Allowed Class 4A
SWINC Convenience Class Claims,
Allowed Class 5A SWINC General
Unsecured Claims and Allowed Class
7A SWINC Subordinated Claims have
been satisfied. On each ensuing
Semi- Annual Distribution Date, each
holder of an Allowed Class 9A SWINC
Equity Interest shall receive its
Pro Rata share (as may be diluted by
Allowed Class 8A SWINC Securities
Claims) of the remaining Available
Cash paid to the SWINC Plan
Administrator as the
xvi
remaining liquidation preference
with respect to the SWINC New Series
A Preferred Stock.
In the event that Class 9A SWINC
Equity Interests vote to reject the
Plan, then, upon the payment in full
of the Allowed Class 4A SWINC
Convenience Class Claims, the
Allowed Class 5A SWINC General
Unsecured Claims, and the Allowed
Class 7A SWINC Subordinated Claims,
each holder of an Allowed Class 9A
SWINC Equity Interest shall receive
its Pro Rata share (as may be
diluted by Allowed Class 8A SWINC
Securities Claims) of (i) the
remaining Available Cash in the
SWINC Disputed Claims Reserve and
(ii) any amounts remaining that were
paid to the SWINC Plan Administrator
as a liquidation preference with
respect to the SWINC New Series A
Preferred Stock after all Allowed
Class 4A SWINC Convenience Class
Claims, Allowed Class 5A General
Unsecured Claims and Allowed Class
7A Subordinated Claims have been
satisfied. On each ensuing
Semi-Annual Distribution Date, each
holder of an Allowed Class 9A SWINC
Equity Interest shall receive its
Pro Rata share (as may be diluted by
Allowed Class 8A SWINC Securities
Claims) of the remaining Available
Cash paid to the SWINC Plan
Administrator as the liquidation
preference with respect to the SWINC
New Series A Preferred Stock.
Under the Plan, on the Effective
Date, all Old Common Stock and Old
Common Stock Options in SWINC will
be canceled.
o Estimated Recovery: $0 to $.75 per
share.
xvii
CLASS 10A SWINC SUBSIDIARY o Impaired
INTERESTS
Estimated Allowed Amount: o On the Effective Date or such other date
SWINC's investments in SWINC set by an order of the Court, all Interests
Subsidiaries are approx. $210 million in the SWINC Subsidiaries shall be
deemed cancelled and the holders of
Allowed Class 10A SWINC Subsidiary
Interests shall not be entitled to
and shall not receive or retain any
property or interest on account of
such Interests.
o Estimated Recovery: 0%
CONSOLIDATED SWE&C ESTATE CLASSES:
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
CLASS 1B SWE&C MISCELLANEOUS o Unimpaired
SECURED CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 1B
$0 to $3 million SWE&C Miscellaneous Secured Claim
shall receive either (a) Cash equal
to the unpaid portion of such
Allowed SWE&C Miscellaneous Secured
Claim or (b) such other treatment as
to which the SWE&C Liquidating
Trustee and the holder of such
Allowed Class 1B SWE&C Miscellaneous
Secured Claim agrees to in writing.
o Estimated Recovery: 100%
CLASS 2B SWE&C OTHER PRIORITY o Unimpaired
CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 2B
$0 to $500,000 SWE&C Other Priority Claim shall
receive in full satisfaction, settlement,
release and discharge of and in
exchange for such Allowed Class 2B
xviii
SWE&C Other Priority Claim either
(a) Cash equal to the unpaid portion
of such Allowed Class 2B SWE&C Other
Priority Claim or (b) such other
treatment as to which the SWE&C
Liquidating Trustee and the holder
of such Allowed SWE&C Other Priority
Claim shall have agreed upon in
writing.
o Estimated Recovery: 100%
CLASS 3B - SWE&C ASBESTOS o Impaired
CLAIMS
Estimated Allowed Amount: o Each holder of an Allowed Class 3B
Approx. $0 to $125 million SWE&C Asbestos Claim shall receive
in full satisfaction, settlement,
release and discharge of, and in
exchange for such Allowed Class 3B
SWE&C Asbestos Claim (a) its Pro
Rata share of the Asbestos Trust
Assets (as set forth in Article
VII.L. of the Plan), subject to the
terms and conditions of the Asbestos
Trust Agreement, or (b) such other
treatment as to which the Asbestos
Trustee and such holder shall have
agreed upon in writing..
o Estimated Recovery: 20% - 100%
CLASS 4B SWE&C CONVENIENCE o Impaired
CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 5B
$0 to $50,000 SWE&C General Unsecured Claim that
elects to be treated as a Class 4B
SWE&C Convenience Claim shall
receive in full satisfaction,
release and discharge of and in
exchange for such Allowed Class 5B
SWE&C General Unsecured Claim the
lesser of $1000 or 50% of its
Allowed Class 5B SWE&C General
Unsecured Claim.
Only holders of Class 5B SWE&C
xix
General Unsecured Claim who vote in
favor of the Plan may elect to have
their claim treated as a Class 4B
SWE&C Convenience Claim.
o Estimated Recovery: 50%
CLASS 5B SWE&C GENERAL o Impaired
UNSECURED CLAIMS
Estimated Allowed Amount: Approx. o Each holder of an Allowed Class 5B
$55 to $300 million SWE&C General Unsecured Claim shall
receive a beneficial interest in the
SWE&C Liquidating Trust entitling
such holder to receive in full
satisfaction, release and discharge
of, and in exchange for such Allowed
Class 5B SWE&C General Unsecured
Claim, its Pro Rata share of the
Semi-Annual Class 5B Distribution
Amount.
o Estimated Recovery: 20% - 50%
CLASS 6B SWE&C INTRAESTATE o Impaired
CLAIMS
Estimated Allowed Amount: Approx. o On the Effective Date or such other date
$0 to $100,000 set by an order of the Court, all Allowed
Class 6B SWE&C Intraestate Claims
shall be deemed waived, released,
discharged and cancelled and the
holders of Allowed Class 6B SWE&C
Intraestate Claims shall not be
entitled to and shall not receive or
retain any property or interest on
account of such Allowed Claims.
o Estimated Recovery: 0%
CLASS 7B SWINC INTERCOMPANY o Impaired
CLAIMS
Estimated Allowed Amount: o Holders of Allowed Class 7B SWINC
Approx. $210 million Intercompany Claims shall not receive
xx
or retain any distribution on
account of such Allowed Class 7B
SWINC Intercompany Claim.
o Estimated Recovery: 0%
CLASS 8B SWE&C SUBORDINATED o Impaired
CLAIMS
Estimated Allowed Amount: Approx. o Each holder of Allowed Class 8B
$0 to $25 million SWE&C Subordinated Claims shall not
receive or retain any distribution
on account of such Allowed Class 8B
SWE&C Subordinated Claim.
o Estimated Recovery: 0%
CLASS 9B - SWE&C SUBSIDIARY o Impaired
INTERESTS
Estimated Allowed Amount: Approx. o On the Effective Date or such other date
$0 to $230 million set by an order of the Court, all Interests
in the SWE&C Subsidiaries shall be
cancelled and the holders of Allowed
Class 9B SWE&C Subsidiary Interests
shall not be entitled to and shall
not receive or retain any property
or interest on account of such
Interests.
o Estimated Recovery: 0%
CLASS 10B - SWE&C EQUITY o Impaired
INTERESTS
o On the Effective Date or such other
date set by an order of the Court,
all Interests in SWE&C shall be
cancelled and the holders of Class
10B SWE&C Interests shall not be
entitled to and shall not receive or
retain any property or interest on
account of such Interests.
o Estimated Recovery: 0%
xxi
C. Claims Estimates
1. SWINC
The estimated recovery to the holders of Claims and Interests relating
to SWINC and the SWINC Subsidiaries is based upon the Plan Proponents' current
estimates of Allowed SWINC Claims and Allowed SWINC Interests. As of March 1,
2003, the aggregate amount of SWINC Administrative Claims, SWINC Priority Tax
Claims, SWINC Other Priority Claims, and the Secured Intercompany Claims
against SWINC and the SWINC Subsidiaries, as reflected in the proofs of claim
filed by holders of such claims, or in the event no proof of claim was filed,
in the Schedules or, with respect to SWINC Administrative Claims, in the
Debtors' books and records, is approximately $3.8million, excluding Claims for
which no amounts were specified, unliquidated Claims, amended Claims and
duplicative Claims.
As of March 1, 2003, the aggregate amount of SWINC Asbestos Claims,
SWINC General Unsecured Claims, SWINC Intraestate Claims, SWINC Subordinated
Claims, and SWINC Securities Claims against SWINC and the SWINC Subsidiaries,
as reflected in the proofs of claim filed by holders of such claims, or, in the
event no proof of claim was filed, in the Schedules, is approximately $550
million, excluding Claims for which no amounts were specified, unliquidated
Claims, amended Claims and duplicative Claims.
The aggregate number of Class 9A SWINC Equity Securities issued and
outstanding as of the Petition Date is approximately 14.3 million shares.
The Plan Proponents estimate that after the completion of the Claims
and Interests reconciliation, and Claims and Interests objection processes
currently under way, the amount of Allowed SWINC Administrative Claims, Allowed
SWINC Priority Tax Claims, Allowed Other SWINC Priority Claims, and the SWINC
Secured Claims (including the SWE&C Setoff Claims) against SWINC and the SWINC
Subsidiaries will aggregate between $3.0 million and $4.0 million. The Plan
Proponents estimate that the amount of Allowed SWINC Asbestos Claims, Allowed
SWINC General Unsecured Claims, Allowed SWINC Intraestate Claims, Allowed SWINC
Subordinated Claims, and Allowed SWINC Securities Claims will aggregate between
$45 million and $80 million. To the extent that the actual amount of Allowed
SWINC Claims varies from the amount estimated by the Plan Proponents the
recoveries of holders of Allowed Class 3A SWINC Asbestos Claims, Allowed Class
5A SWINC General Unsecured Claims, Allowed Class 7A SWINC Subordinated Claims,
Allowed Class 8A Securities Claims and Allowed Class 9A SWINC Equity Interests
may be higher or lower than such estimated amounts.
2. SWE&C
As of March 1, 2003, the aggregate amount of SWE&C Administrative
Claims, SWE&C Priority Tax Claims, SWE&C Other Priority Claims and SWE&C
Miscellaneous Secured Claims against SWE&C and the SWE&C Subsidiaries, as
reflected in the proofs of claim filed by holders of such claims, or, in the
event no proof of claim was filed, in the Schedules, in the Debtors' books and
records or, with respect to SWE&C Administrative Claims, in the Debtors' books
and records, is approximately $5.1 million, excluding Claims for which no
amounts were specified, unliquidated Claims, amended Claims and duplicative
Claims.
xxii
As of March 1, 2003, the aggregate amount of SWE&C Asbestos Claims,
SWE&C General Unsecured Claims, SWE&C Intraestate Claims, SWE&C Intercompany
Claims, and SWE&C Subordinated Claims as reflected in the proofs of claim filed
by holders of such claims, or, in the event no proof of claim was filed, in the
Schedules, is approximately $550 million, excluding Claims for which no amounts
were specified, unliquidated Claims, amended Claims and duplicative Claims.
The Plan Proponents estimate that after the completion of the Claims
and Interests reconciliation and Claims and Interests objection processes
currently under way, the amount of Allowed SWE&C Administrative Claims, Allowed
SWE&C Priority Tax Claims, Allowed SWE&C Other Priority Claims, and Allowed
SWE&C Miscellaneous Secured Claims will aggregate between $4 million to $5
million. The Plan Proponents estimate that the amount of Allowed SWE&C Asbestos
Claims, Allowed SWE&C General Unsecured Claims, Allowed SWE&C Intercompany
Claims, and Allowed SWE&C Subordinated Claims will aggregate between $50
million and $400 million. To the extent that the actual amount of Allowed SWE&C
Claims varies from the amount estimated by the Plan Proponents, the recoveries
of holders of Allowed Class 3B SWE&C Asbestos Claims, Allowed Class 5B SWE&C
General Unsecured Claims, Allowed Class 7B SWE&C Intercompany Claims and
Allowed Class 8B SWE&C Subordinated Claims may be higher or lower than such
estimated amounts. Moreover, if Class 5B SWE&C General Unsecured Claims does
not vote to accept the Plan, then Class 7B SWE&C Intercompany Claims will not
be subordinated. In that event, the estimated recovery for holders of Allowed
Claims in Class 5B will be dramatically decreased.
ALTHOUGH THE PLAN PROPONENTS BELIEVE THAT THE ESTIMATED PERCENTAGE
RECOVERIES ARE REASONABLE AND WITHIN THE RANGE OF ASSUMED RECOVERY, THERE IS NO
ASSURANCE THAT THE ACTUAL AMOUNTS OF ALLOWED CLAIMS IN EACH CLASS WILL NOT
MATERIALLY EXCEED OR BE EXCEED BY THE ESTIMATED AGGREGATE AMOUNTS SHOWN IN THE
TABLE ABOVE. The actual recoveries under the Plan by the tax consequences to
the Debtors, the Debtors' creditors will be dependent upon a variety of factors
including, but not limited to, whether, and in what amount, contingent claims
against the Debtors become non-contingent and fixed and whether, and to what
extent, Disputed Claims and Disputed Interests are resolved in favor of the
Debtors rather than the claimants. Accordingly, no representation can be or is
being made with respect to whether each Estimated Percentage Recovery shown in
the table above will be realized by the holder of an Allowed Claim or Allowed
Interest in any particular Class.
D. Distributions
Unless otherwise provided in the Plan, distributions with respect to
Allowed Claims or Interests shall be made on the later of (i) the Effective
Date or (ii) the first Semi-Annual Distribution Date after the date on which a
Claim or Interest becomes Allowed and shall be in the amounts and of the type
specified in the Plan. In the event that a Claim or Interest becomes an Allowed
Claim or Interest after a distribution has been made to an Allowed Claim or
Interest in the same class, the holder of such an Allowed Claim will receive it
Pro Rata Share of the previous distributions to the holders of Allowed Claims
or Interests in the Class in addition to its Pro Rata Share of the Semi- Annual
Distribution to that Class of Claims or Interests.
xxiii
TABLE OF CONTENTS
PAGE
EXECUTIVE SUMMARY..................................................................................iv
A. Background..............................................................iv
B. Summary of the Plan......................................................v
1. Substantive Consolidation of SWINC and SWINC
Subsidiaries....................................................v
2. Substantive Consolidation of SWE&C and SWE&C
Subsidiaries....................................................v
3. Pension Plan Reversion.........................................vi
4. Federal Settlement............................................vii
5. Distributions to Holders of Claims and Interests...............ix
C. Claims Estimates......................................................xxii
1. SWINC........................................................xxii
2. SWE&C.......................................................xxiii
D. Distributions.........................................................xxiv
I. INTRODUCTION...............................................................................1
A. Definitions..............................................................2
B. Notice to Holders of Claims and Interests................................2
C. Solicitation Package.....................................................2
D. General Voting Procedures, Ballots, and Voting Deadline..................3
E. Parties in Interest Entitled to Vote.....................................3
F. Classes Impaired Under the Plan..........................................3
1. SWINC Impaired Classes..........................................3
2. SWE&C Impaired Classes..........................................4
G. Special Voting Procedures for Holders of Equity Securities...............5
1. Beneficial Owners...............................................5
2. Brokerage Firms, Banks and Other Nominees.......................6
H. Confirmation Hearing and Deadline for Objections to
Confirmation.............................................................6
II. HISTORY OF THE DEBTORS AND COMMENCEMENT OF THE CHAPTER 11 CASES............................8
A. Description of the Company's Business Operations.........................8
1. The Engineering, Construction and Consulting Business...........8
2. The Nordic Business.............................................8
B. Capital Structure of the Debtors.........................................9
C. Corporate Structure of the Company.......................................9
1. Current Corporate Structure.....................................9
2. Board of Directors..............................................9
3. Senior Officers.................................................9
4. Disclosure of Director and Officer Interests....................9
D. Summary of Securities Litigation........................................10
E. Events Leading to Chapter 11 Filings....................................11
III. THE CHAPTER 11 CASES......................................................................12
xxiv
PAGE
A. First Day Orders........................................................12
B. Appointment of Creditors' Committee and Equity Committee................13
C. Sale of Substantially All of the Debtors' Assets........................13
D. Chapter 11 Cases Subsequent to the Shaw Sale............................14
E. Assets from Non-Debtor U.K. Affiliate...................................15
F. Summary of Claims Process and Bar Date..................................15
1. Schedules of Statements and Financial Affairs..................15
2. Claims Bar Date and Proofs of Claim............................15
3. The Claims Agent...............................................15
4. Claims Objections and Claims Reconciliation....................16
5. Reclassification of Claims.....................................17
G. Summary of Material Claims Litigation Matters...........................17
1. Maine Yankee...................................................17
2. Isobord .......................................................18
3. CanFibre of Riverside..........................................19
4. CanFibre of Lackawanna.........................................19
5. Ras Tanura.....................................................21
H. The Equity Committee Plan and the Creditors' Committee Plan.............23
1. The Equity Committee Plan......................................23
2. The Creditors' Committee Plan..................................24
IV. SUMMARY OF THE PLAN.......................................................................24
A. Overall Structure of the Plan...........................................25
B. Substantive Consolidation...............................................25
1. General Description............................................26
2. Legal Standards for Substantive Consolidation..................26
3. The Substantive Consolidation Litigation.......................27
4. The Bases for Two Substantively Consolidated Estates...........33
5. The Substantive Consolidation Settlement.......................34
C. The Federal Settlement..................................................36
D. Reorganized SWINC and the SWE&C Liquidating Trust.......................38
E. Classification and Treatment of Claims and Interests....................39
1. General Administrative
Claims..................................40
2. Treatment of Claims Against and Interests in the
Consolidated SWINC Estate......................................41
3. Treatment of Claims Against and Interests in the
Consolidated SWE&C Estates.....................................46
F. Distributions Under the Plan............................................50
1. Sources of Cash for Plan Distributions...............................50
2. Distributions for Claims or Interests Allowed as of
the Effective Date.............................................51
3. Resolution and Treatment of Disputed, Contingent and
Unliquidated Claims and Disputed Interests.....................53
G. Means for Implementation of the Plan....................................56
1. Merger of Entities.............................................56
xxv
PAGE
2. Continued Corporate Existence; Dissolution of SWE&C
and the SWE&C Subsidiaries ....................................56
3. Certificate of Incorporation and By-laws of Reorganized
SWINC..........................................................56
4. Directors and Officers of Reorganized SWINC....................57
5. Corporate Action...............................................57
6. Cancellation of Securities, Instruments and Agreements
Evidencing Claims and Interests................................57
7. Issuance of Reorganized SWINC New Common Stock
and Preferred Stock............................................57
8. Effectuating Documents; Further Transactions...................61
9. No Revesting of Assets.........................................62
10. Preservation of Rights of Action...............................62
11. Creditors' Committee and Equity Committee......................62
12. Special Provisions Regarding Insured Claims....................63
H. The SWINC Plan Administrator............................................64
1. Appointment....................................................64
2. Rights, Powers and Duties of the SWINC Estate and
the SWINC Plan Administrator...................................64
3. Compensation...................................................65
4. Indemnification................................................65
5. Insurance......................................................66
I. The Asbestos Trust......................................................66
J. The Asbestos Trustee....................................................67
1. Appointment....................................................67
2. Rights, Powers and Duties of the Asbestos Trustee .............67
3. Compensation of the Asbestos Trustee...........................68
4. Indemnification................................................68
5. Insurance......................................................68
6. Asbestos Insurance Policies....................................69
K. The SWE&C Liquidating Trust.............................................69
1. Appointment of Trustee.........................................69
2. Transfer of SWE&C Liquidating Trust Assets to the
SWE&C Liquidating Trust........................................69
3. The SWE&C Liquidating Trust....................................69
4. The SWE&C Liquidating Trust Advisory Board.....................70
L. Other Matters...........................................................72
1. Treatment of Executory Contracts and Unexpired Leases..........72
2. Bar Dates for Certain Claims...................................73
3. Withholding and Reporting Requirements.........................74
4. Setoffs........................................................74
5. Payment of Statutory Fees......................................75
6. Amendment or Modification of the Plan..........................75
7. Severability of Plan Provisions................................75
8. Successors and Assigns.........................................75
9. Plan Supplement................................................75
xxvi
PAGE
10. Revocation, Withdrawal or Non-Consummation.....................76
M. Retention of Jurisdiction...............................................76
N. Conditions To Confirmation and Consummation.............................78
1. Conditions to Confirmation.....................................78
2. Conditions to Effective Date...................................78
3. Waiver of Conditions...........................................78
O. Effect of Plan Confirmation.............................................79
1. Binding Effect.................................................79
2. Releases.......................................................79
3. Discharge of Claims and Termination of Interests...............80
4. Exculpation and Limitation of Liability........................80
5. Injunction.....................................................81
6. Treatment of Indemnification Claims............................82
7. Term of Injunction or Stays....................................82
V. CERTAIN RISK FACTORS TO BE CONSIDERED.....................................................83
A. Certain Bankruptcy Considerations.......................................83
B. Claims Estimations......................................................83
C. Certain Litigation......................................................83
D. Income Taxes............................................................84
E. Pension Plan............................................................85
VI. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS........................................86
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.......................................86
A. Tax Consequences to the Debtors.........................................87
B. Tax Consequences to Holders of Claims and Interests.....................88
C. Consequences to Pension Plan............................................95
D. Importance of Obtaining Professional Tax Assistance.....................96
E. Importance of Obtaining Professional Tax Assistance.....................96
VIII. CONFIRMATION OF THE PLAN..................................................................96
A. Acceptance of the Plan..................................................97
B. Feasibility.............................................................97
C. Best Interests Test.....................................................97
D. Liquidation Analysis....................................................98
E. Application of the "Best Interests" Test to the Liquidation
Analysis and the Valuation..............................................98
F. Confirmation Without Acceptance Of All Impaired Classes: The
"Cramdown" Alternative..................................................98
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PLAN......................................................................................99
A. Continuation of the Bankruptcy Cases....................................99
B. Alternative Plan(s).....................................................99
C. Confirmation of the Equity Committee Plan..............................100
xxvii
PAGE
D. Liquidation under Chapter 7............................................100
X. RECOMMENDATION AND CONCLUSION.........................................................101
xxviii
APPENDICES
APPENDIX A LIST OF DEBTOR ENTITIES COMPRISING THE CONSOLIDATED SWINC
ESTATE AND THE CONSOLIDATED SWE&C ESTATE
APPENDIX B JOINT PLAN OF REORGANIZATION OF DEBTORS-IN -POSSESSION,
OFFICIAL COMMITTEE OF UNSECURED CREDITORS AND FEDERAL
INSURANCE COMPANY WITH RESPECT TO (I) STONE & WEBSTER,
INCORPORATED AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
AND (II) STONE & WEBSTER ENGINEERS & CONSTRUCTORS, INC. AND
CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
APPENDIX C LIQUIDATION ANALYSIS
Appendix C-1: Liquidation Analysis for Consolidated SWINC
Estate and Consolidated SWE&C Estate
Appendix C-2: Liquidation Analysis for Each Debtor
APPENDIX D SUBSTANTIVE CONSOLIDATION SETTLEMENT CASH FUNDING
ANALYSIS
APPENDIX E INCURRED PROFESSIONAL FEE SUMMARY BY ESTATE
xxix
I. INTRODUCTION
Stone & Webster, Incorporated ("SWINC"), Stone & Webster
Engineers and Constructors, Inc. ("SWE&C"), and their subsidiaries and
affiliates that are debtors and debtors-in- possession in the above-captioned
Chapter 11 Cases (together with SWINC and SWE&C, the "Debtors" or the
"Company") and co-proponents the Official Committee of Unsecured Creditors (the
"Creditors' Committee") and Federal Insurance Company, an Indiana corporation
("Federal", and together with the Debtors and the Creditors' Committee, the
"Plan Proponents"), submit this disclosure statement (the "Disclosure
Statement") pursuant to section 1125 of the United States Bankruptcy Code (the
"Bankruptcy Code"), for use in the solicitation of votes on the Amended Joint
Plan of Reorganization of Debtors in Possession, Official Committee of
Unsecured Creditors and Federal Insurance Company for (I) Stone & Webster,
Incorporated and Certain of its Subsidiaries and Affiliates and (II) Stone &
Webster Engineers & Constructors, Inc. and Certain of its Subsidiaries and
Affiliates dated April 22, 2003 (the "Plan"), which Plan was filed with the
United States Bankruptcy Court for the District of Delaware (the "Court"), a
copy of which is attached as Appendix B hereto.
This Disclosure Statement sets forth certain information
regarding the Debtors' pre- petition history and significant events that have
occurred during the Debtors' Chapter 11 Cases. This Disclosure Statement also
describes the Plan, alternatives to the Plan, effects of confirmation of the
Plan, and the manner in which distributions will be made under the Plan. In
addition, this Disclosure Statement discusses the confirmation process and the
voting procedures that holders of Claims and Interests must follow for their
votes to be counted.
FOR A DESCRIPTION OF THE PLAN AS IT RELATES TO HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, PLEASE SEE ARTICLE IV -
"SUMMARY OF THE PLAN."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN
PROVISIONS OF THE PLAN, STATUTORY PROVISIONS, DOCUMENTS RELATED TO THE PLAN,
EVENTS IN THE DEBTORS' CHAPTER 11 CASES, AND FINANCIAL INFORMATION. ALTHOUGH
THE PLAN PROPONENTS BELIEVE THAT THE PLAN AND RELATED DOCUMENT SUMMARIES ARE
FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT
SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS. FACTUAL
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE
DEBTORS' MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE PLAN
PROPONENTS ARE UNABLE TO WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED
HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS WITHOUT ANY INACCURACY OR
OMISSION.
NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY
FACT OR LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING
INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THE
TAX OR OTHER LEGAL EFFECTS OF THE DEBTORS' LIQUIDATION OR PLAN AS TO HOLDERS OF
CLAIMS OR INTERESTS. YOU SHOULD CONSULT YOUR PERSONAL COUNSEL OR TAX ADVISOR ON
ANY QUESTIONS OR CONCERNS REGARDING TAX OR OTHER LEGAL CONSEQUENCES OF THE
PLAN.
A. Definitions
1
Unless otherwise defined, capitalized terms used in this
Disclosure Statement have the meanings ascribed to them in the Plan.
B. Notice to Holders of Claims and Interests
This Disclosure Statement is being transmitted to certain
holders of Claims and Interests for the purpose of soliciting votes on the Plan
and to others for informational purposes. The primary purpose of this
Disclosure Statement is to provide adequate information to enable the holder of
a Claim against or Interest in the Debtors to make a reasonably informed
decision with respect to the Plan before exercising their right to vote to
accept or to reject the Plan.
On May __, 2003, the Court approved this Disclosure Statement
as containing information of a kind and in sufficient detail adequate to enable
the holders of Claims against and Interests in the Debtors to make an informed
judgment about the Plan. THE COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT
CONSTITUTES NEITHER A GUARANTY OF THE ACCURACY OR COMPLETENESS OF THE
INFORMATION CONTAINED HEREIN, NOR AN ENDORSEMENT OF THE PLAN BY THE COURT.
WHEN AND IF CONFIRMED BY THE COURT, THE PLAN WILL BIND ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, WHETHER OR NOT THEY ARE
ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR
RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, YOU ARE ENCOURAGED
TO READ THE PLAN AND THIS DISCLOSURE STATEMENT CAREFULLY. IN PARTICULAR,
HOLDERS OF IMPAIRED CLAIMS OR IMPAIRED INTERESTS WHO ARE ENTITLED TO VOTE ON
THE PLAN ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT, THE PLAN, AND THE
EXHIBITS TO THE PLAN CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
TO REJECT THE PLAN. This Disclosure Statement contains important information
about the Plan, considerations pertinent to acceptance or rejection of the
Plan, and developments concerning the Chapter 11 Cases.
THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY
THE COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ON THE PLAN.
No solicitation of votes may be made until distribution of this
Disclosure Statement, and no person has been authorized to distribute any
information concerning the Debtors other than the information contained herein.
C. Solicitation Package
Accompanying this Disclosure Statement are copies of (i) the
Plan (Appendix B hereto); (ii) the notice of, among other things, the time for
submitting Ballots to accept or reject the Plan, the date, time and place of
the hearing to consider confirmation of the Plan and related matters, and the
time for filing objections to confirmation of the Plan (the "Confirmation
Hearing Notice"); and (iii) if you are entitled to vote, one or more Ballots
(and return envelopes) to be used by you in voting to accept or to reject the
Plan. If you did not receive a Ballot in your package and believe that you
should have, please contact the Voting Agent named below at the address or
telephone number set forth in the next subsection.
D. General Voting Procedures, Ballots, and Voting Deadline
2
After carefully reviewing the Plan, this Disclosure
Statement, and (if you are entitled to vote) the detailed instructions
accompanying your Ballot, please indicate your acceptance or rejection of the
Plan by checking the appropriate box on the enclosed Ballot. To accept or
reject the Plan, you must complete and sign your original Ballot (copies will
not be accepted) and return it in the envelope provided so that it is RECEIVED
BY THE VOTING DEADLINE (AS DEFINED BELOW).
Each Ballot has been coded to reflect the Class of Claims or
Interests in which you are voting. Accordingly, in voting to accept or reject
the Plan, you must use only the coded Ballot or Ballots sent to you with this
Disclosure Statement. The Ballot(s) you were provided were based upon the
Debtors' review of the proofs of claims filed in this case and the
classification of Claims included in the Debtors' Amended Schedules and
Statements. See Article III.E.1. If you believe you received the wrong Ballot
or did not receive a Ballot for a Class in which you hold a Claim or Interest,
please contact the Voting Agent named below at the address or telephone number
set forth in the next subsection.
E. Parties in Interest Entitled to Vote
Under Bankruptcy Code section 1124, a class of claims or interests is
deemed to be "impaired" under a plan unless (i) the plan leaves unaltered the
legal, equitable, and contractual rights to which such claim or interest
entitles the holder thereof or (ii) notwithstanding any legal right to an
accelerated payment of such claim or interest, the plan cures all existing
defaults (other than defaults resulting from the occurrence of events of
bankruptcy) and reinstates the maturity of such claim or interest as it existed
before the default.
In general, a holder of a claim or interest may vote to accept or to
reject a plan if (i) the claim or interest is "allowed," which means generally
that no party in interest has objected to such claim or interest, and (ii) the
claim or interest is impaired by the plan. If, however, the holder of an
impaired claim or interest will not receive or retain any distribution under
the plan on account of such claim or interest, the Bankruptcy Code deems such
holder to have rejected the plan, and, accordingly, holders of such claims and
interests do not actually vote on the plan. If a claim or interest is not
impaired by the plan, the Bankruptcy Code deems the holder of such claim or
interest to have accepted the plan and, accordingly, holders of such claims and
interests are not entitled to vote on the plan.
F. Classes Impaired Under the Plan
1. SWINC Impaired Classes
Classes 3A, 4A, 5A, 7A, 8A, and 9A are entitled to vote to
accept or reject the Plan. By operation of law, each Unimpaired Class of Claims
or Interests is deemed to have accepted the Plan and, therefore, is not
entitled to vote to accept or reject the Plan. By operation of law, Classes 6A
and 10A are deemed to have rejected the Plan and therefore are not entitled to
vote to accept or reject the Plan.
2. SWE&C Impaired Classes
3
Classes 3B, 4B, 5B and 7B are entitled to vote to accept or
reject the Plan. By operation of law, each Unimpaired Class of Claims or
Interests is deemed to have accepted the Plan and, therefore, is not entitled
to vote to accept or reject the Plan. By operation of law, Classes 6B, 8B, 9B
and 10B are deemed to have rejected the Plan and therefore are not entitled to
vote to accept or reject the Plan.
FOR HOLDERS OF CLASS 3A, 5A, 7A, 8A, 3B, AND 5B CLAIMS, IN
ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AND
RETURNED TO THE ADDRESS IN THE PRE-ADDRESSED ENVELOPE PROVIDED, IN ACCORDANCE
WITH THE VOTING INSTRUCTIONS ACCOMPANYING THE BALLOT AND RECEIVED NO LATER THAN
AUGUST 1, 2003 AT 4:00 P.M. EASTERN TIME (THE "VOTING DEADLINE") BY TRUMBULL
SERVICES L.L.C. (THE "CREDITOR VOTING AGENT") AT THE ADDRESS LISTED ON THE
BALLOT. BALLOTS RECEIVED AFTER SUCH TIME WILL NOT BE COUNTED.
FOR HOLDERS OF CLASS 9A SWINC EQUITY INTERESTS, IN ORDER FOR
YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AND RETURNED TO
THE ADDRESS ON THE PRE-ADDRESSED ENVELOPE PROVIDED. YOUR BALLOT (IF
PREVALIDATED) OR THE MASTER BALLOT CAST ON YOUR BEHALF MUST BE RECEIVED NO
LATER THAN AUGUST 1, 2003 AT 4:00 P.M. EASTERN TIME BY INNISFREE M&A (THE
"SECURITIES VOTING AGENT") AT THE ADDRESS LISTED ON THE BALLOT. BALLOTS
RECEIVED AFTER SUCH TIME WILL NOT BE COUNTED.
In addition to voting to accept or reject the Plan, holders
of Claims in Class 5A SWINC General Unsecured Claims and Class 5B SWE&C General
Unsecured Claims have the right to elect to have their Allowed Claim in Class
5A or Class 5B treated as an Allowed Convenience Claim in Class 4A or Class 4B,
respectively. There are no separate Class 4A or Class 4B Ballots. To make such
an election, the holder of a Class 5A General Unsecured Claim or Class 5B
General Secured Claim must check the box on their respective Ballot to show
that the holder has elected treatment as a Convenience Claim. Absent checking
the box on the Ballot, the holder of a Class 5A or Class 5B Claim shall be
deemed to have elected not to be treated as a Convenience Claim.
If you have any questions about the procedure for voting your
Claim or Interest or with respect to the packet of materials that you have
received, please contact the Creditor Voting Agent at the following address and
phone number:
Stone & Webster Incorporated
c/o Trumbull Services LLC
P.O. Box 673 Windsor, Connecticut 06095-9718
(860) 687-3917
If you have any questions about the procedure for voting your
Class 9A SWINC Equity Interest, please contact the Equity Voting Agent at the
following address and phone number:
Stone & Webster Incorporated
c/o Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
4
New York, New York 10022
(877) 750-2689
If you wish to obtain, at your own expense unless otherwise
specifically required by Bankruptcy Rule 3017(d), an additional copy of the
Plan, this Disclosure Statement, or any exhibits to such documents, please
contact the Creditor Voting Agent or the Equity Voting Agent, as appropriate.
G. Special Voting Procedures for Holders of Equity Securities
The record date for determining which holders of Old
Securities in SWINC are entitled to vote on the Plan is May 20, 2003. The
indenture trustees, agents, or servicers, as the case may be, for the Old
Securities will not vote on behalf of the holders of such Old Securities.
Holders must submit their own Ballots.
1. Beneficial Owners
(a) Any beneficial owner holding Old Securities as record
holder in its own name should vote on the Plan by
completing and signing the enclosed Ballot and
returning it directly to the Securities Voting Agent
on or before the Voting Deadline using the enclosed
self-addressed, stamped envelope.
(b) Any beneficial owner holding Old Securities in "street
name" through a brokerage firm, bank, trust company,
or other nominee should vote on the Plan by one of the
following two methods (as selected by the Nominee):
(i) Complete and sign the enclosed beneficial owner
Ballot. Return the Ballot to your nominee as promptly as possible and in
sufficient time to allow such nominee to process the Ballot and return it to
the Securities Voting Agent by the Voting Deadline. If no self-addressed,
stamped envelope was enclosed for this purpose, contact the Voting Agent for
instructions; or
(ii) Complete and sign the Pre-Validated Ballot (as
defined below) provided to you by your bank, brokerage firm, trust company or
other nominee. Return the Pre-Validated Ballot to the Securities Voting Agent
by the Voting Deadline using the return envelope provided in the Solicitation
Package.
Any Ballot returned to a nominee by a beneficial owner will
not be counted for purposes of acceptance or rejection of the Plan until such
nominee properly completes and delivers to the Securities Voting Agent a master
ballot (the "Master Ballot") that reflects the vote of such beneficial owner.
If any beneficial owner owns Old Securities through more than
one broker, bank, or other nominee, such beneficial owner may receive multiple
mailings containing the Ballots. Each such beneficial owner should execute a
separate Ballot for each block of Old Securities that it holds through any
particular nominee and return each Ballot to the respective nominee in the
return envelope provided therewith. Beneficial owners who execute multiple
Ballots with respect to Old Securities held through more than one nominee must
indicate on each Ballot the names of ALL such other nominees and the additional
amounts of such Old Securities so held and voted. If a beneficial owner holds a
portion of the Old Securities through a nominee and another portion as a record
holder, such owner should follow the procedures described in subparagraph
(1)(a) above to vote the portion
5
held of record and the procedures described in subparagraph (1)(b) above to
vote the portion held through a nominee or nominees.
2. Brokerage Firms, Banks and Other Nominees
An entity (other than a beneficial owner) which is the
registered holder of Old Securities should vote on behalf of the beneficial
owners of such Old Securities by (i) immediately distributing a copy of the
Disclosure Statement and accompanying materials, all appropriate Ballots, and
self-addressed return envelopes to all beneficial owners for whom it holds such
securities, (ii) collecting completed Ballots from its beneficial owners, and
(iii) completing a Master Ballot compiling the votes and other information from
the Ballots so collected, and (iv) transmitting such Master Ballot to the
Securities Voting Agent on or before the Voting Deadline. Such entity may also
pre-validate a ballot by completing all information to be entered on the Ballot
(the "Pre-Validated Ballot") and forwarding the Pre-Validated Ballot to the
beneficial owner for voting. A proxy intermediary acting on behalf of a
brokerage firm or bank may follow the procedures outlined in the preceding
sentence to vote on behalf of such party.
H. Confirmation Hearing and Deadline for Objections to Confirmation
Pursuant to Bankruptcy Code section 1128 and Bankruptcy Rule
3017(c), the Court has scheduled a hearing on confirmation of the Plan (the
"Confirmation Hearing") to commence on August 27, 2003 at 9:30 a.m., prevailing
Eastern Time, before the Honorable Peter J. Walsh, Chief United States
Bankruptcy Judge, in the United States Bankruptcy Court, 824 N. Market Street,
Wilmington, Delaware 19801. The Court has directed that objections, if any, to
confirmation of the Plan must be filed with the clerk of the Bankruptcy Court
and served so that they are RECEIVED on or before August 15, 2003, at 4:00 p.m.
Eastern Time by:
Counsel to the Debtors:
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Attn: Gregg M. Galardi, Esq.
Eric M. Davis, Esq.
Counsel to the Creditors' Committee:
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103-0002
Attn: Anthony J. Princi, Esq.
Lorraine S. McGowen, Esq.
- and -
KLETT, ROONEY, LIEBER & SCHORLING
The Brandywine Building
6
1000 West Street, Suite 1410
Wilmington, Delaware 19801
Attn: Adam G. Landis, Esq.
Counsel to Federal:
MANIER & HEROD
One Nashville Place
Suite 2200
150 Fourth Avenue North
Nashville, Tennessee 37219-2494
Attn: J. Michael Franks
Sam H. Poteet, Jr.
Thomas T. Pennington
- and -
DUANE MORRIS LLP
1100 North Market Street
Suite 1200
Wilmington, Delaware 19801-1246
Attn: Michael R. Lastowski
Counsel to the Equity Committee:
BELL BOYD & LLOYD LLC
70 West Madison Street
Chicago, Illinois 60602
Attn: Carmen H. Lonstein, Esq.
- and -
BIFFERATO, BIFFERATO & GENTILOTTI
1308 Delaware Avenue
Wilmington, Delaware 19899
Attn: Ian Connor Bifferato, Esq.
United States Trustee:
OFFICE OF THE UNITED STATES TRUSTEE
844 North King Street
Wilmington, Delaware 19801
Attn: Julie Compton, Esq.
The Confirmation Hearing may be adjourned from time to time
by the Court without further notice except for the announcement of the
adjournment at the Confirmation Hearing or at any subsequent adjourned
Confirmation Hearing.
II. HISTORY OF THE DEBTORS AND
COMMENCEMENT OF THE CHAPTER 11 CASES
7
A. Description of the Company's Business Operations
As of the Petition Date, the Company was principally engaged
in providing professional engineering, construction and consulting services
(the "Engineering, Construction and Consulting Business"). Additionally,
certain of the Company's subsidiaries owned and operated fourteen cold storage
warehousing facilities located primarily in the southeastern United States (the
"Nordic Business") and others owned and operated Stone & Webster office
buildings in Houston, Texas and Schenectady, New York.
1. The Engineering, Construction and Consulting Business
The Company provided engineering, design, construction,
consulting and full environmental services for power, process, governmental,
industrial, transportation and civil works projects. The Company also remained
active in the nuclear power business for utility and governmental clients, and
continued to undertake a significant amount of modification and maintenance
work on existing nuclear power plants as well as decommissioning and
decontamination projects.
The Construction and Consulting Business included three
divisions and a consulting organization which were responsible for marketing
and executing projects on a worldwide basis. Where appropriate, lump-sum
contracts were entered into with customers as a means of providing
comprehensive services for a fixed price, thereby assuming more risk and making
the Company more attractive to the customer.
In fiscal 1999, the Engineering, Construction and Consulting
Business had $1.14 billion in revenues, and an operating loss of $142.5
million. Included within the operating loss were contract-related provisions of
approximately $150.1 million required to complete a number of lump- sum
projects. The contract revenue value included in the Company's backlog, as of
December 31, 1999, amounted to $2.6 billion.
2. The Nordic Business
The Company's Nordic Business provided low-cost,
energy-efficient refrigerator and freezer storage facilities, customized
material handling services, and blast freezing capacity. It served primarily
two groups of customers: prepared food manufacturers that require cold storage
and logistics services in their distribution channels, and poultry producers
that require blast freezing and storage capacity. In October of 1999, the
Company announced their intention to sell the Nordic Business, a large part of
which was acquired in the fourth quarter of 1998.
B. Capital Structure of the Debtors
As of the Petition Date, there were approximately 17,731,488
shares of common stock of SWINC issued, of which 14,226,005 shares were
outstanding with 3,505,483 shares held in treasury. In connection with the Shaw
Sale, the Debtors paid off both their post-petition financing facility and the
balance of their prepetition credit facility.
C. Corporate Structure of the Company
8
1. Current Corporate Structure
The Debtors, as of the Petition Date, operated two distinct
lines of business, engineering and construction and cold storage with numerous
subsidiary companies within each group. Many of the domestic U.S. companies are
also debtors being administered within the Chapter 11 Cases. The Debtors also
operated various real estate and development companies, which were wholly owned
subsidiaries. Presently, the Debtors are winding up all of their business
operations.
2. Board of Directors
The current Board of Directors of SWINC consists of:
Peter M. Wood, Chairman
Donna Bethell
Frank J. A. Cilluffo
The current Board of Directors for SWE&C, the SWE&C
Subsidiaries and the SWINC Subsidiaries consists of:
Peter M. Wood, Chairman
James P. Carroll
3. Senior Officers
James P. Carroll, President and Chief Restructuring Officer
Patrick Connolly, Secretary
4. Disclosure of Director and Officer Interests
Each of the SWINC Directors is a shareholder of SWINC. Mr.
Wood is the beneficial owner of 6,491 shares of SWINC common stock, of which
1,015 shares are held in a deferred account pursuant to the SWINC's Director
Deferral Plan; Ms. Bethell is the beneficial owner of 2,171 shares of SWINC
common stock; and Mr. Cilluffo, reporting for himself and Cilluffo Associates,
L.P., Zenith Associates, L.P., Frank and Irja Cilluffo Foundation and Edward C.
Myers collectively owns 667,871 shares of SWINC common stock. Mr. Cilluffo has
disclaimed beneficial ownership of the 560,400 shares held by Cilluffo
Associates, L.P. and the 105,800 shares held by Zenith Associates, L.P., except
to the extent of his pecuniary interests in the securities. He has also
disclaimed beneficial ownership of 10,000 shares held by the Frank and Irja
Cilluffo Foundation, and those shares are not included in the above total. Each
of the Directors has also filed proofs of claim against the Debtors in the
Chapter 11 Cases. Mr. Wood seeks payment of certain director's fees, recovery
of the value of the shares held pursuant to the SWINC Director Deferral Plan as
described above, reimbursement for certain expenses and indemnification and
contribution for certain liabilities in excess of available insurance. Ms.
Bethell and Mr. Cilluffo both seek payment of certain director's fees,
reimbursement for certain expenses and indemnification and contribution for
certain liabilities in excess of available insurance.
Mr. Carroll is the beneficial owner of 10,000 shares of SWINC
common stock. Mr. Carroll has filed a proof of claim in the Chapter 11 Cases in
which he seeks indemnification and contribution for certain liabilities in
excess of available insurance. Mr. Carroll also filed a statement
9
of cure claim against the Debtors in respect of certain contractual
obligations, which claim has since been withdrawn.
D. Summary of Securities Litigation
SWINC is a defendant in In re Stone & Webster, Inc.
Securities Litigation (00-CV- 10974-RCL), a purported securities class action
lawsuit in the United States District Court for the District of Massachusetts
(the "Massachusetts Court"). The lawsuit began as four purported securities
class action lawsuits filed in or about May 2000: Everson v. Stone & Webster,
Inc. et al. (00-CV- 11008-RCL); Blank v. Stone & Webster, Inc. et al.
(00-CV-10926-RCL); Dubois v. Stone & Webster, Inc. et al. (00-CV-10883-RCL);
and Brody v. Stone & Webster, Inc. et al. (00-CV-10874-RCL) (collectively, the
"Class Action Lawsuits"). In addition, two securities class action lawsuits
which make similar allegations were filed against H. Kerner Smith and Thomas
Langford, but not SWINC: Mandelbaum v. Smith et al. (00-CV-11126-RCL) and
Hanson v. Smith et al. (00-CV-11183-RCL). On or about July 25, 2000, SWINC
notified the Massachusetts Court that, pursuant to Bankruptcy Code section 362,
the Class Action Lawsuits are subject to the automatic stay applicable to
proceedings against a debtor in bankruptcy and the assets of the debtor in
bankruptcy.
On September 25, 2000, the Massachusetts Court granted a
motion to consolidate the six lawsuits. On January 4, 2001, a Consolidated and
Amended Class Action Complaint (the "Amended Complaint") was filed. The Amended
Complaint added PricewaterhouseCoopers, LLP as a defendant, and alleged that
SWINC violated federal securities laws pursuant to Sections 10(b) and 18 of the
Securities and Exchange Act of 1934 by, among other things, making materially
false and misleading statements or omissions regarding SWINC's financial
condition prior to SWINC's announcements relating to its decision to revise its
1999 financial statements. The class period for the Amended Complaint is
January 22, 1998 through May 8, 2000. Plaintiffs seek an unspecified amount of
compensatory damages plus costs and attorney fees. The defendants other than
SWINC filed motions to dismiss the Amended Complaint. On March 28, 2003, the
Massachusetts Court entered its memorandum and order granting in part and
denying in part the defendants' motions to dismiss (the "Memo and Order"). By
the Memo and Order, the court granted the motion of PricewaterhouseCoopers, LLP
to dismiss all counts. With respect to the motions of H. Kerner Smith and
Thomas Langford, the court granted the motions to dismiss with respect to
certain counts, but denied the motions to the extent the allegations in the
Amended Complaint allegedly relate to false or misleading statements in
connection with the Form 10-Q for the fiscal quarter ending June 30, 1999 and
the related earnings release issued on July 26, 1999.
Based on current information, the Debtors believe that
Plaintiffs' claims are without merit and intend to defend against the Class
Action Lawsuits vigorously. Although Plaintiffs have not yet quantified their
alleged damages, the Debtors also believe that a recovery, if any, by
Plaintiffs would likely fall within the limits of applicable insurance
coverage. To the extent the Class Action Lawsuits results in an Allowed Claim
in excess of such insurance, such Allowed Claims would be Class 8A SWINC
Securities Claims.
E. Events Leading to Chapter 11 Filings
Prior to the Petition Date, the Company experienced
significant operating losses, and in the second quarter of 1999, the Company
began experiencing liquidity problems. By the end of the third quarter of 1999,
the Company had fully drawn the cash available under its existing credit
facility (as amended or modified, the "Prepetition Credit Facility"). As a
consequence, the amount of
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the Company's past due trade payables increased, in turn causing certain of the
Company's vendors and subcontractors to delay work on the Company's projects.
In October 1999, the Company was notified that it was in
violation of the debt covenants of its Prepetition Credit Facility. In November
1999, the Company therefore sought and obtained a waiver of these covenants and
an agreement with their principal bank-lending group (the "Prepetition Bank
Group") to expand and extend the Prepetition Credit Facility. Under that
agreement, the borrowing facility was increased by $30 million to a maximum of
$160 million and the maturity of the Prepetition Credit Facility was extended
through May 31, 2000. As part of this agreement, SWINC agreed to market the
Nordic Business and to sell its principal headquarters in Boston, the proceeds
of which were to be used to pay down the fixed debt. As a result, the Company
sold its Boston, Massachusetts headquarters building for $187 million, and used
$140 million of the proceeds of such sale to permanently reduce the borrowing
facility to $20 million. The Company also raised additional capital through
bulk sale of one million shares of SWINC's common stock held in treasury to the
Pension Plan for $15.4 million. As of the end of fiscal 1999, the entire $20
million available for direct borrowings under the Prepetition Credit Agreement
had been drawn down and nearly $90 million of the $100 million letter of credit
facility was used and the borrowing was limited to the amount not yet utilized.
In addition, the Prepetition Bank Group clearly stated its desire not to extend
the facility beyond the May expiration date.
Thus, although the Company had relieved its immediate
liquidity concerns, the Company immediately began the search for a longer term
credit arrangement. During this period, the sale of Nordic did not progress as
planned. As a result, the Company sought and entered into another agreement
with the Prepetition Bank Group, under which agreement the maturity date of the
Prepetition Credit Facility was further extended to January 31, 2001. In
addition to extending the maturity date, that amendment provided, among other
things, that the proceeds from a sale of the Nordic Business would be used to
repay the outstanding direct borrowings and provide support to the Prepetition
Bank Group for the nearly $90 million in outstanding letters of credit.
In mid- to late April 2000, however, the Company discovered a
substantial unanticipated cost overrun on a key construction project, and as a
result was required to restate its 1999 financial statements to record a
provision of $27.5 million to complete work on that project. In conjunction
with that restatement, the Company's independent public accountants issued a
modified opinion raising questions regarding the Company's ability to continue
as a going concern, which in turn slowed customer receipts, further
exacerbating the Company's cash flow problems.
In late April and early May 2000, the Company embarked on an
aggressive strategy under which it sought alternative financing, strategic
mergers and possible additional asset sales. The Company stepped up its efforts
to solicit traditional and nontraditional lenders regarding possible interim
and long-term financing. Additionally, the Company entered into substantive
discussions with possible strategic partners regarding potential transactions
involving the sale of not only the Nordic Business but also all or part of its
Engineering, Construction and Consulting Business.
In early May 2000, these efforts resulted in the Company
signing a letter of intent with Jacobs Engineering Group Inc. ("Jacobs")
regarding a transaction pursuant to which Jacobs would acquire substantially
all of the Company's assets in exchange for $150 million in cash and stock;
Jacobs would immediately provide a $50 million secured revolving credit
facility (the "Jacobs Credit Facility"); and the assumption of substantially
all of the Debtors' balance sheet liabilities (including the new Jacobs Credit
Facility). Subsequent to entering into the letter of intent, the
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Company negotiated the final terms of the asset purchase agreement with Jacobs
in the early morning of June 2, 2000.
III. THE CHAPTER 11 CASES
On June 2, 2000 (the "Petition Date"), each of the Debtors
filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code.
At that point, all actions and proceedings against the Debtors and all acts to
obtain property from the Debtors were stayed under Bankruptcy Code section 362.
The Debtors have continued to operate their businesses and manage their
properties as debtors-in-possession pursuant to Bankruptcy Code sections
1107(a) and 1108. The Court has jointly administered the Debtors' bankruptcy
cases for procedural purposes only.
A. First Day Orders
On the first day of the Chapter 11 Cases, the Debtors filed
several motions seeking certain relief by virtue of so-called "first day
orders." The first day orders facilitated the transition between the Debtors'
prepetition and postpetition business operations by approving certain regular
business practices that may not be specifically authorized under the Bankruptcy
Code or as to which the Bankruptcy Code requires prior court approval.
The first day orders in the Chapter 11 Cases authorized,
among other things:
o joint administration of each of the Debtors'
bankruptcy cases;
o the employment and compensation of professionals
utilized by the Debtors in the ordinary course of
business;
o the retention of bankruptcy-related professionals
and establishment of payment procedures for such
professionals;
o the continued maintenance of the Debtors' bank
accounts, continued use of existing business forms
and continued use of the Debtors' existing cash
management system;
o payments to employees of accrued prepetition wages,
salaries and benefits;
o continued utility service during the pendency of the
Chapter 11 Cases;
o payment of prepetition sales, use and other taxes;
o payment of certain prepetition shipping charges;
o postpetition financing and use of cash collateral;
o the implementation of a program to pay valid
prepetition mechanics', materialmens' or other
similar liens filed by various contractors against
the Debtors' properties;
o payment of prepetition claims of critical trade
vendors;
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o confirmation that the Debtors' undisputed
obligations arising from postpetition delivery of
goods will have administrative expense priority
status, administrative expense treatment for certain
holders of valid reclamation claims, and authority
to pay certain expenses in the ordinary course of
business; and
o payment of prepetition insurance premium financial
obligations.
B. Appointment of Creditors' Committee and Equity Committee
On June 14, 2000, the United States Trustee appointed the
Creditors' Committee in these cases. The current members of the Creditors'
Committee are Canfibre of Riverside, Inc. c/o Canfibre Goup, Ltd. ("Canfibre"),
MDC Systems, Inc. ("MDC Systems"), and Harbourview Electric, Ltd.
("Harbourview"). Pursuant to a settlement between the Debtors and Canfibre,
Canfibre holds an allowed general unsecured claim in the amount of $3,500,000
against SWEC. MDC Systems, Inc. filed Proof of Claim numbers 4524 and 5010,
each in the amount of $447,407.85 against SWINC; no objections have been filed
to those claims. Pursuant to a settlement between the Debtors and Harbourview,
Harbourview holds an allowed general unsecured claim in the amount of
$1,200,000 against SWEC.
On June 26, 2000, the United States Trustee appointed an
equity committee (the "Equity Committee"). The current members of the Equity
Committee are Dimensional Fund Advisor's, Harold Rickles, and Grace Brothers,
LTD. The members of the Equity Committee hold _____, _____, and ______,
respectively of Interests in the Debtors.
No trustee has been appointed in any of these Cases. The
Debtors anticipate that an order will be entered in the near future appointing
Stuart Maue Mitchell & James, Ltd. as the fee examiner in these Cases.
C. Sale of Substantially All of the Debtors' Assets
On June 2, 2000, the Debtors entered into an asset purchase
agreement (the "Jacobs Agreement") with Jacobs. Pursuant to the Jacobs
Agreement, Jacobs agreed to purchase substantially all of the Debtors' assets
for (i) $25.0 million in cash, plus (ii) shares of common stock of Jacobs
having a market value of $125.0 million. Jacobs also agreed to assume certain
liabilities of the Debtors and assume certain executory contracts and unexpired
leases.
In order to implement the Jacobs Agreement, on June 7, 2000,
the Debtors filed a Motion for Order (I) Approving (A) Asset Purchase Agreement
for Sale Of Substantially all of the Assets of the Debtors, (B) Bidding
Procedures in Connection with the Sale and (C) Termination Fee in Connection
Therewith, (II) Authorizing Sale of Assets Free and Clear of Liens,
Encumbrances, and Interests, (III) Determining that Such Sale is Exempt from
Any Stamp, Transfer, Recording, or Similar Tax, (IV) Authorizing the Rejection
or Assumption and Assignment of Certain Executory Contracts and Unexpired
Leases, and (V) Granting Related Relief (the "Sale Motion"). Through the Sale
Motion, the Debtors sought to sell substantially all of their assets to Jacobs
or another bidder submitting a higher or better bid acceptable to the Debtors
at the auction (the "Auction") scheduled for July 7, 2000. On June 23, 2000,
the Court approved the bidding procedures.
Shaw timely submitted a qualified bid, including an agreement
(the "Shaw Agreement") substantially in the form of the Jacobs Agreement, and
an Auction took place on July 6
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and 7, 2000. At the conclusion of the Auction, the Debtors, the Creditors'
Committee and the Equity Committee determined that Shaw submitted the highest
and best bid at the Auction. Under the final terms of the Shaw Agreement
reached at the Auction, Shaw agreed to purchase substantially all of the
Debtors' assets for (i) $37.0 million in cash, plus (ii) shares of common stock
of Shaw having a July 7, 2000 market value of $105.0 million. Shaw also agreed
to assume certain liabilities of the Debtors and certain executory contracts
and unexpired leases. Hearings on the Sale Motion took place on July 7, 2000
and July 12, 2000. Thereafter, on July 13, 2000, the Court entered an order
approving the Shaw Agreement, as modified on the record at the Auction and the
hearings on the Sale Motion. On July 14, 2000, the Company closed the sale of
substantially all of its assets to Shaw's designee, SWINC Acquisition Three,
Inc.
D. Chapter 11 Cases Subsequent to the Shaw Sale
Under the Shaw Agreement, Shaw and the Debtors entered into a
registration rights agreement with respect to the Shaw common stock received by
the Debtors as part of the consideration for the sale of substantially all of
the Debtors' assets. After the July 14, 2000 closing, the price of the Shaw
common stock increased dramatically. Shaw therefore determined to access the
markets and sell shares of its common stock in a registered offering. Under the
registration rights agreement, the Debtors were entitled to exercise
"piggy-back" rights in the event Shaw registered its stock. Accordingly, on
September 27, 2000, the Debtors filed the Motion for Order Pursuant to 11
U.S.C. ss. 363(b)(1) Authorizing Debtors to Sell Shaw Group Stock Pursuant to
Asset Purchase Agreement and Registration Rights Agreement (the "Stock Sale
Motion"). Under the Stock Sale Motion, the Debtors sought authority to sell the
Shaw common stock held by the Debtors at a price no less than $50 a share. Once
authorization was obtained and the Shaw common stock registered, the Debtors
sold the Shaw common stock for $131.6 million.
Pursuant to the terms of the Shaw Agreement, the purchase
price for the Debtors' assets was subject to adjustment based on a final
determination of the Debtors' working capital as of the date of the sale (the
"Final Working Capital"). Under the Shaw Agreement, if the Final Working
Capital was in excess of the base working capital set forth in the Shaw
Agreement (the "Base Working Capital"), then Shaw was required to pay the
Debtors an additional sum equal to a percentage of the amount by which the
Final Working Capital exceeds the Base Working Capital. If the Final Working
Capital was less than the Base Working Capital, the Debtors were required to
pay Shaw a sum equal to a percentage of the amount by which the Base Working
Capital exceeded the Final Working Capital. Rather than incur the expense and
expend limited resources preparing the audited closing balance sheet, the
Debtors sought approval of a letter agreement (the "Letter Agreement") among
the Debtors and Shaw approving a settlement of disputes with respect to the
Shaw Agreement. By order dated December 18, 2000, the Court approved the Letter
Agreement. Generally, the Letter Agreement provided that the Debtors were
relieved of their obligation to prepare and provide Shaw with a Closing Balance
Sheet, a Purchase Price Adjustment Schedule or other information required under
Section 2.05(c) of the Shaw Agreement. Both parties were relieved of any
obligation to make an Adjustment Amount payment. The Letter Agreement also
established deadlines for the Debtors and Shaw to review and determine each
party's respective liability with respect to disputed filed cure claims and
filed proofs of claim. Saudi American Bank disputes whether either Shaw or the
Debtors met the deadlines set forth in the Letter Agreement. The Plan
Proponents contend that those deadlines were met.
E. Assets from Non-Debtor U.K. Affiliate
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In connection with the recovery of estate assets, the Debtors
received dividends and a return of invested capital from its non-debtor U.K.
affiliate. As a result, on March 25, 2003, the Debtors received$25.5 million
into the estates.
F. Summary of Claims Process and Bar Date
1. Schedules of Statements and Financial Affairs
The Debtors filed Schedules of Assets and Liabilities and
Statements of Financial Affairs (collectively, the "Schedules and Statements")
with the Court on July 14, 2000. Among other things, the Schedules and
Statements set forth the Claims of known creditors against the Debtors as of
the Petition Date, based upon the Debtors' books and records. The Consolidated
Schedules and Statements were filed on a consolidated basis and, thus,
scheduled all Claims against all of the Debtor entities. The Debtors filed
amended Schedules on April 2, 2003 (as amended, the "Amended Schedules").
2. Claims Bar Date and Proofs of Claim
On July 18, 2000, the Court established the general deadline
for filing proofs of claim against the Debtors (the "Bar Date") as August 25,
2000. Additionally, on September 12, 2000, the Court established the deadline
for governmental units to file proofs of claim against the Debtors (the
"Government Bar Date") as November 29, 2000. As of March 14, 2003, 5,177 proofs
of claim had been filed asserting approximately $9.8 billion in claims and 383
statements of cure claims asserting approximately $292 million in claims. The
bar date for creditors scheduled on the Amended Schedules is April 23, 2003.
3. The Claims Agent
In connection with the commencement of the Chapter 11 Cases,
the Debtors retained Trumbull Services, L.L.C. (the "Claims Agent") for the
purpose of, among other things, maintaining the Claims Registry in the Chapter
11 Cases and providing certain notices to Creditors, Interestholders and other
parties-in-interest. The Claims Agent may be reached at the following address
and phone number:
Stone & Webster Incorporated
c/o Trumbull Services, L.L.C.
P.O. Box 673 Windsor, CT 06095-9718
(860) 687-3917
4. Claims Objections and Claims Reconciliation
The Debtors have been reviewing, analyzing and resolving
Claims on an ongoing basis as part of the Claims reconciliation process. The
Debtors filed ten (10) omnibus objections to proofs of claim and scheduled
amounts, including omnibus objections to certain Claims that are liabilities of
Shaw as well as objections to numerous Claims, and have also settled various
Claims in
15
reduced allowed amounts. In addition, the Creditors' Committee, the Equity
Committee and Shaw have each filed omnibus objections to proofs of claim and
scheduled amounts, as well as objections to certain individual claims. In the
Debtors' omnibus claims objections, the Debtors objected to certain duplicative
claims, certain procedurally defective or otherwise incorrect or invalid proofs
of claim, certain claims that are no longer liabilities of the Debtors on the
basis that such claims have been assumed by Shaw or do not appear on the
Debtors' books and records, certain claims that have previously been satisfied
or settled, and certain late filed claims. Additionally, the Creditors'
Committee's omnibus claims objections have sought to disallow certain
duplicate, procedurally defective, or otherwise incorrect or invalid proofs of
claim. The Equity Committee's omnibus objections have sought to disallow
certain duplicate, procedurally defective or otherwise incorrect or invalid
proofs of claim, as well as reclassify certain proofs of claim to proofs of
interest as well as certain proofs of claim to other Debtor entities. In the
Shaw objections, Shaw objected to a series of Claims that had been paid or
satisfied by the Debtors during the Chapter 11 Cases, including mechanics' lien
claims, employee wage and benefit claims, claims relating to real property
leases and bank claims. As of March 14, 2003, the Court had entered orders
disallowing approximately 2,900 proofs of claim and statements of cure claims,
thereby eliminating asserted liabilities aggregating approximately $710
million.
There are additional omnibus and individual objections to
Claims pending, representing an additional approximately 600 claims and
representing several hundred million dollars. The Debtors anticipate that
additional omnibus and individual Claims objections will be filed in the near
future, including in advance of the deadline for holders of Claims to return
Ballots accepting or rejecting the Plan, and that the effect of certain
objections could be to prohibit certain Claim holders from voting absent the
Court's temporary allowance of such Claims for voting purposes.
As a result of these efforts, substantial progress has been
made in (a) reconciling the amount and classification of outstanding Claims and
(b) asserting and prosecuting objections to Claims. In addition, the Debtors
have, among other things, (i) identified Claims or categories of Claims for
future resolution and (ii) identified existing or potential claims disputes.
Through these various activities, the Debtors, in
consultation with the Plan Proponents, have developed estimates of Allowed
Claims and Interests in each Class established under the Plan. The Debtors have
prepared these estimates based primarily on the following: (a) the outcome of
Claim reconciliations and Claim objections to date, (b) projections based on
anticipated future Claim reconciliations and Claim objections, (c) the
comparison of asserted Claims against the Debtors' books and records, (d) the
Debtors' experience in reconciling Claims prior to and following the
commencement of the Chapter 11 Cases, (e) the historical experience of the
Debtors' professionals in other chapter 11 cases, (f) an analysis of the
litigation risks associated with Disputed Claims, and (g) other legal and
factual analyses unique to particular types of Claims.
Notwithstanding the ongoing Claims reconciliation process,
the actual ultimate aggregate amount of Allowed Claims may differ significantly
from the estimates set forth in Article II, "Overview of the Plan."
Accordingly, the amount of the Pro Rata distribution that will ultimately be
received by any particular holder of an Allowed Claim or Interest may be
adversely affected by the outcome of the Claims resolution process.
5. Reclassification of Claims
Throughout the Claims reconciliation process and especially
in connection with formulating procedures for the soliciting of acceptances and
rejections on the Plan, the Debtors also
16
undertook an extensive and thorough review of the Filed and Scheduled Claims to
determine whether they were registered against the Debtor or Debtors who had
the underlying liability. As a result, the Debtors filed the Amended Schedules
that, in part, reclassify Claims previously Scheduled against SWINC as Claims
against a SWINC Subsidiary, SWE&C or a SWE&C Subsidiary (the "Reclassified
Scheduled Claims"). Additionally, the Debtors anticipate Filing non-substantive
objections (the "Reclassification Objections") seeking to reclassify for voting
purposes only certain Filed Claims as Claims against a Debtor other than the
Debtor listed in the Claims Registry (the "Reclassified Filed Claims").
Importantly, absent a response from the holder of a Claim or Interest, the
holder of Reclassified Scheduled Claims or Reclassified Filed Claims will
receive a Ballot and only be entitled to vote in the Class of Claims or
Interests listed in the Amended Schedules and the Reclassification Objections.
Additionally, absent a response or objection, holders of Reclassified Scheduled
Claims shall only be entitled to receive a distribution in the Class of Claims
or Interests listed in the Amended Schedule.
G. Summary of Material Claims Litigation Matters
During the Chapter 11 Cases to date, the Debtors commenced or
were involved in a number of lawsuits. An explanation of the material
litigation matters is summarized below.
1. Maine Yankee
The Debtors have been or are engaged in three litigation
matters involving Maine Yankee. Effective August 1998, Stone & Webster
Engineering Corporation ("SWEC") and Maine Yankee entered into a contract for
the decommissioning of Maine Yankee's nuclear power plant in Wiscasset, Maine
(the "Decommissioning Agreement"). The Decommissioning Agreement was priced in
excess of $250 million. SWE&C and, later, SWINC executed guarantees of SWEC's
performance. On May 4, 2000, Maine Yankee purported to terminate the
Decommissioning Agreement because of SWEC's alleged insolvency and certain
alleged performance-related defaults. Maine Yankee filed proofs of claim
against SWE&C, SWINC, and SWEC in the amount of $78.2 million. After a series
of preliminary matters, which among other results, yielded a decision that
capped Maine Yankee's claims at $65 million, an eight-day proceeding was held
to address the Maine Yankee claims (the "Claims Litigation"). The Debtors
challenged all grounds for termination, Maine Yankee's interpretation of the
scope of work in the Decommissioning Agreement, and Maine Yankee's calculation
of damages. After post-trial briefing, the Court took the matters under
advisement. By order and opinion issued May 30, 2002, the Court held that Maine
Yankee damages recoverable from SWE&C, SWINC and SWEC, jointly and severally,
in the amount of $20.8 million ($64.8 million less $44 million previously paid
by Federal under Federal's settlement with Maine Yankee). The Court also
estimated Maine Yankee's allowable claim in the SWE&C, SWINC and SWEC
bankruptcy cases at a total of $20.8 million.
Subsequent to the Claims Litigation, SWEC filed suit (the
"SWEC Suit") against Maine Yankee for affirmative recovery of damages for
out-of-scope work that SWEC performed but for which Maine Yankee did not
compensate SWEC, for in-scope work that SWEC performed but for which Maine
Yankee did not compensate SWEC, and for the failure to pay the termination-for-
convenience fees. In total, through the SWEC Suit, SWEC seeks recovery of more
than $7 million. SWE&C, SWINC, and SWEC also sued to subordinate any allowed
Maine Yankee claim to all other unsecured claims because of Maine Yankee's
inequitable conduct during and after the performance of the Decommissioning
Agreement.
2. Isobord
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Isobord Enterprises Inc. ("Isobord") sued Stone & Webster
Canada, Ltd. ("SWCL"), a non-Debtor entity, and SWEC, among other parties, in
the Superior Court of Justice in Ontario, Canada, for CN$150,000,000 in June
2000, and filed a proof of claim in SWEC's bankruptcy for the same amount in
August 2000, alleging breach of contract against SWCL and SWEC as SWCL's
guarantor. Isobord's claims arise out of a December 24, 1996 contract with SWCL
in which SWCL agreed to build by January 10, 1999, a facility to manufacture
straw-based particle board using a process technology developed and patented by
Isobord and another company named Kvaerner Panel Systems GmbH ("Kvaerner").
Although construction of the facility proceeded, the facility was unable to
meet the guarantees SWCL made in its contract with Isobord due to certain
problems with the manufacturing process. Isobord, Kvaerner, and SWCL attempted
to solve these process problems until Isobord terminated SWCL's right to work
at the facility on May 4, 2000. SWCL and SWEC are defending both the Canadian
and bankruptcy proceedings by arguing that the facility failed to meet the
contractual guarantees because of problems with the manufacturing process,
which the contract renders the sole responsibility of Isobord and Kvaerner. In
addition, SWCL and SWEC argue that Isobord did not give proper notice of
alleged defaults before the purported termination and did not properly invoke
SWEC's performance guarantee and that, in any event, the contract caps any
damages at 33% of the guaranteed maximum price, as defined in the contract. On
February 3, 2003, the Bankruptcy Court granted the Debtors partial summary
judgment on the damages cap theory. Under the Debtors' computation of the 33%
damages cap, Isobord's maximum possible claim is CN$36,590,755.41 less unpaid
contract funds due and owing to SWCL of approximately CN $5.9 million.
Recently, the Debtors reached an agreement in principle with
Isobord to settle Isobord's claims against the Debtors. Under the agreement,
Isobord will withdraw all of its claims against SWEC in these bankruptcy cases
and in the Canadian proceedings, without prejudice to Isobord's rights to
pursue its claims against the other parties in the Canadian proceedings,
including Chubb Insurance Company of Canada, an affiliate of Federal, and SWCL.
If the agreement between Isobord and the Debtors is consummated, Isobord will
have no claims against any of the Debtors in these bankruptcy cases. The
agreement is contingent upon the confirmation of the Joint Plan, and if the
Joint Plan is not confirmed, the agreement may be null and void.
3. CanFibre of Riverside
On or about April 1, 1997, CanFibre of Riverside Inc.
("CanFibre Riverside") and SWEC entered into a contract (the "EPC Contract")
for the engineering, procurement, and construction of a medium density
fibreboard facility in Riverside, California (the "Facility"). Under the terms
of the EPC Contract, SWEC was to design, engineer, supply, install, construct,
start-up, and commission the Facility. In return, CanFibre was to pay SWEC the
fixed price of $70,000,000. On or about April 1, 1997, CanFibre Riverside and
Stone & Webster Operating Corporation ("SWOC") entered into a contract for the
operation and maintenance of the Facility (the "OM Contract"). Under the terms
of the OM Contract, Stone & Webster Operating Corporation ("SWOC") was to
perform certain operational and maintenance services with respect to the
Facility. In return, CanFibre Riverside was to pay SWOC for certain
reimbursable costs. On January 28, 2000, CanFibre Riverside purported to
terminate the EPC Contract. CanFibre Riverside subsequently purported to
terminate the OM Contract.
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On or about August 25, 2000, CanFibre Riverside filed a proof
of claim (the "CanFibre Claim") against SWEC asserting a general unsecured
claim in an amount in excess of $31,500,000 for an alleged breach of the EPC
Contract and various other contract and tort causes of action. On October 24,
2000, CanFibre Riverside filed a petition for bankruptcy protection. On July 3,
2001, SWEC commenced an adversary proceeding in the Chapter 11 Cases against
CanFibre, seeking turnover of estate property and damages arising out of the
EPC Contract. On or about May 8, 2001, SWEC filed a proof of claim against
CanFibre Riverside in the CanFibre Riverside bankruptcy case asserting a
secured claim in the amount of $26,198,138.50 for breach of the EPC Contract,
turnover of estate property, and execution upon a mechanic's lien SWEC had
secured and filed on the Facility, as well as other causes of action arising
out of the EPC Contract. Moreover, on or about October 23, 2001, SWOC filed a
proof of claim against CanFibre Riverside in the CanFibre Riverside bankruptcy
case asserting a general unsecured claim in excess of $2,000,000.00 for
CanFibre Riverside's breach of the OM Contract, as well as other causes of
action arising out of the OM Contract.
After extensive negotiations among the Debtors and CanFibre
Riverside, the Debtors and CanFibre Riverside achieved a global settlement of
all of their claims against each other arising out of the EPC Contract, the OM
Contract, and litigation over a proposed sale of CanFibre's assets. The
settlement provided in pertinent part as follows: (i) SWEC made a one-time cash
payment to CanFibre Riverside's bondholders in the amount of $500,000 and (ii)
the CanFibre Claim was allowed in the amount of $3,500,000 against SWEC. The
Bankruptcy Court entered an order approving the settlement on November 20,
2001.
4. CanFibre of Lackawanna
CanFibre of Lackawanna LLC ("CanFibre Lackawanna") filed a
proof of claim against SWEC on August 24, 2000, seeking in excess of
$22,500,000, subsequently informally asserted to be over $27 million (the
"CanFibre Lackawanna Claim"). The CanFibre Lackawanna Claim sought to recover
the costs allegedly incurred by CanFibre Lackawanna to complete the facility
(the "Lackawanna Facility") and for other alleged damages. On June 26, 2001,
SWEC objected to the CanFibre Lackawanna Claim (the "Objection") and filed a
complaint against CanFibre Lackawanna (the "Complaint"). By its Complaint, SWEC
sought declaratory relief and damages in excess of $16,390,197.20 for unpaid
invoices and out-of-scope work performed by SWEC on the Lackawanna Facility.
Additionally, SWEC sought damages due to CanFibre Lackawanna's draw of a $3.5
million letter of credit posted by SWEC for the benefit of the Facility as well
as damages related to certain unpaid invoices submitted by SWOC pursuant to the
OM Contract entered into between SWOC and CanFibre Lackawanna..
The CanFibre Lackawanna Claim and the Complaint arose from
the EPC Contract between SWEC and CanFibre Lackawanna. The EPC Contract was
originally executed on December 15, 1997, and was subsequently amended and
re-executed on September 15, 1998. Pursuant to the EPC Contract, SWEC agreed to
engineer, procure, and construct the Lackawanna Facility in Lackawanna, New
York. In consideration, CanFibre Lackawanna agreed to pay SWEC a lump sum price
of $71,500,000. On May 2, 2000, CanFibre Lackawanna purported to terminate the
EPC Contract. According to CanFibre Lackawanna, its decision was based on
SWEC's alleged inability to pay its debts, and SWEC's alleged failure to pay
certain subcontractors and vendors in a timely manner.
SWEC and CanFibre Lackawanna settled the CanFibre Lackawanna
Claims, the Objection, and the Complaint. The Bankruptcy Court approved the
settlement on May 21, 2002.
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Pursuant to the settlement, (i) CanFibre Lackawanna will have an allowed
bankruptcy Claim in the amount of $2,600,000, (ii) SWEC will make a one-time
cash payment to CanFibre Lackawanna in the amount of $300,000, (iii) if any
mechanics' liens that relate to goods and/or services provided prior to May 2,
2000, are not expunged by SWEC by the end of September 2002, CanFibre will have
an additional allowed Claim up to $1,000,000 to resolve the remaining
mechanics' liens, and (iii) the Debtors will own a five percent equity interest
in CanFibre Lackawanna. Left unresolved by the Settlement are certain proofs of
claim and adversary proceedings filed against SWEC by various subcontractors
for work related to the Lackawanna Facility. SWEC had also initiated adversary
proceedings against certain of these subcontractors, the most significant of
which are described below. As discussed below, the claims of CanFibre
Lackawanna have been reduced by $1,200,000 in connection with the Debtors'
settlement of claims with Harbourview Electric, Ltd. ("Harbourview").
In addition to litigating with CanFibre Lackawanna, SWEC
litigated with subcontractors and suppliers on the CanFibre Lackawanna project.
More specifically, SWEC brought numerous lawsuits, counterclaims or otherwise
objected to the claims of several dozen subcontractors and suppliers. The
Debtors have resolved all of these claims. Among the largest of these claims
are the claims asserted among SWEC, Harbourview and Maschinenfabrik J.
Dieffenbacher GmbH & Co. ("Dieffenbacher").
Harbourview was an electrical subcontractor for the CanFibre
Lackawanna project. Harbourview filed a proof of claim against SWEC on August
24, 2000, in the amount of $2,528,751.95 asserting that it was a beneficiary of
a trust under New York Lien Law. Following informal discovery, Harbourview
subsequently reduced its proof of claim to $1,897,179.75. On April 27, 2001,
again relying on New York Lien Law, Harbourview initiated a class action
against SWEC and unnamed "John Does" for itself and purportedly all other
unpaid subcontractors. On February 12 and 24, 2002, respectively, Debtors filed
their Answer and then First Amended Answer and Counterclaims denying liability
under New York Lien Law, and seeking recovery of $648,876.61 in preference
payments to Harbourview and reduction or elimination of Harbourview's claim.
After extensive negotiations and formal discovery, SWEC and Harbourview settled
all of their claims. The settlement provides, in pertinent part, as follows:
(i) SWEC will make a one-time cash payment of five hundred seventy-five
thousand dollars ($575,000) to Harbourview; and (ii) Harbourview will have one
allowed claim, deemed filed solely against SWEC, in the amount of one million
two hundred thousand dollars ($1,200,000) to be contributed by CanFibre
Lackawanna from claims previously authorized by the Bankruptcy Court. CanFibre
Lackawanna's claims are accordingly being reduced by the full amount of this
allowed claim at no net difference to the Debtors' estates.
Dieffenbacher supplied certain equipment for the CanFibre
Lackawanna Facility. On August 18, 2000, Dieffenbacher filed proofs of claim
against SWINC and SWEC in the amounts of $616,114.21, in connection with the
Riverside, Lackawanna and Isobord Facilities. On October 13, 2000,
Dieffenbacher amended its proofs of claim increasing the amount sought to
$900,811.81. Following informal discovery, this amount was later reduced by
Dieffenbacher to $494,057.08. On November 13, 2001, Dieffenbacher filed a
complaint against SWEC seeking $488,572.53, in connection with the CanFibre
Lackawanna project, which Dieffenbacher asserted was subject to a statutory
trust arising under New York Lien Law. On February 21, 2002, SWEC filed
counterclaims against Dieffenbacher, seeking, among other things, $90,337.86
for expenses allegedly incurred to modify the equipment supplied by
Dieffenbacher for the CanFibre Lackawanna project, $341,629.84 for expenses
allegedly incurred to modify equipment supplied by Dieffenbacher for the
CanFibre Riverside project, and an order declaring that Dieffenbacher must
indemnify SWEC for all costs due to defects in the equipment supplied by
Dieffenbacher for the CanFibre Lackawanna project. After extensive
negotiations, SWEC and Dieffenbacher settled all of their claims. The
settlement provides,
20
in pertinent part, as follows: (i) Dieffenbacher will be allowed one general
unsecured claim against SWEC in the amount of one hundred thirty thousand
dollars ($130,000), and (ii) SWEC will make a one-time cash payment of two
hundred forty-five thousand dollars ($245,000) to Dieffenbacher. SWEC has
already made the payment pursuant to the settlement.
5. Ras Tanura
(a) Abdullah Bugshan. On May 31, 1980, SWEC and Abdullah Said
Bugshan & Brothers ("AB&B") formed Bugshan Stone & Webster Company Limited
("BS&W"), a Saudi limited liability company, which later entered into an
agreement with the Saudi Arabian Oil Company ("Saudi Aramco") for the
engineering, procurement, and construction of the Ras Tanura Oil Refinery
Utilities Upgrade Package #2 Project (the "Ras Tanura Project") in Saudi
Arabia. On August 24, 1994, BS&W subcontracted to Mohammad Al-Mo'jil Group
("MMG") various construction work relating to the Ras Tanura Project (the "MMG
Contract"). During the course of MMG's performance, MMG failed to act in
accordance with approved schedules and other terms of the MMG Contract, and,
consequently, in June and July 1997, BS&W terminated portions of MMG's scope of
work under the MMG Contract. Through arbitration (the "Arbitration"), MMG
sought $62 million in damages from BS&W for added expenses and duties incurred
on the Ras Tanura Project as a result of alleged delays and other wrongdoing
attributable to BS&W. On or about May 21, 2001, the arbitrator entered judgment
against BS&W for approximately $51 million. The Debtors understand that the
arbitral award in favor of MMG was later reversed by a Saudi court. Neither
BS&W nor AB&B has made any payment to MMG.
On August 23, 2000, AB&B filed a contingent Claim for
reimbursement or contribution against SWEC (the "Original AB&B Claim") alleging
that SWEC is liable for at least 50% of any judgment that might result from the
then-pending Arbitration and for costs incurred in defending against the
Arbitration. On or about July 13, 2001, AB&B amended its proof of claim (the
"Amended AB&B Claim"), which supersedes the Original AB&B Claim and contains
specific dollar amounts reflecting the final arbitral award and the costs AB&B
allegedly incurred in the defense of the Arbitration. Neither BS&W nor MMG has
filed a proof of claim against SWEC or any affiliated Debtor. AB&B has not
filed a proof of claim on behalf of MMG pursuant to Bankruptcy Rule 3005.
The Debtors filed an objection to the Original AB&B Claim and
to the Amended AB&B Claim on August 1, 2001. The bases of the Debtors'
objection were that SWEC is not liable to AB&B for contribution to any award in
Saudi Arabia against BS&W in favor of MMG because AB&B had not paid any such
award, thus establishing a right of contribution, and because such an award
would not be enforceable against AB&B or SWEC in any event.
The Debtors and AB&B have been in negotiations regarding the
settlement of AB&B's claims against SWEC. These settlement negotiations involve
Saudi Aramco, as described in part 5(c) below. At an omnibus hearing in the
Debtors' bankruptcy cases conducted on October 3, 2002, the Debtors, AB&B, and
Saudi Aramco read the terms of a tentative settlement agreement into the
record. Since that time, the parties' negotiations have not resulted in a final
settlement agreement, and there is no assurance a final settlement agreement
will materialize. If the Debtors are unable to finalize a settlement agreement
with AB&B and Saudi Aramco, litigation among the parties should be expected.
(b) Saudi American Bank. In order to meet mobilization and
general operating costs for the Ras Tanura Project, BS&W applied to the Saudi
American Bank ("SAMBA") for a credit facility and several letters of credit. In
order to induce SAMBA to extend credit to BS&W, SWEC
21
guaranteed 50% of BS&W's obligations to SAMBA under a letter of guarantee dated
October 11, 1994 (the "Guarantee"). On or about August 24, 2000, SAMBA filed
one proof of claim and one cure claim (the "SAMBA Claims") against SWEC
alleging that under the Guarantee, SWEC had outstanding financial obligations
under certain letter of credit agreements (the "Letters of Credit") issued to
BS&W, and under a certain promissory note (the "Promissory Note") executed by
BS&W in favor of SAMBA in connection with a $35 million revolving credit
facility granted by SAMBA to BS&W (the "Ras Tanura Loan"). SAMBA further
alleged that SWEC had independently undertaken to pay down a one-half portion
of the balance on the Ras Tanura Loan in a December 22, 1998 letter to SAMBA.
Specifically, the SAMBA Claims purported to state a claim
against SWEC for $6,728,549, allegedly representing the remainder of SWEC's
guaranteed-one-half portion of the balance on the Ras Tanura Loan.
Additionally, the SAMBA Claims purported to state a contingent $140,430 claim
against SWEC based upon an unpaid 1997 presentment of a Letter of Credit
granted by SAMBA to BS&W. Finally, the SAMBA claims purported to state a
contingent $730,843 claim against SWEC based upon the outstanding balances on
expired Letters of Credit granted by SAMBA to BS&W.
The Debtors filed and later amended a complaint against SAMBA
to avoid and recover preferential transfers in the amount of $1.3 million, to
avoid and recover fraudulent transfers in the amount of $6.5 million, to avoid
and recover an unauthorized postpetition transaction in the amount of $325,000,
to avoid and recover improper setoffs in the amount of $975,000, to recover
damages for violations of the automatic stay, to disallow the SAMBA Claims, to
reduce the SAMBA Claims to the present value of $6.4 million as of the Petition
Date, and/or to estimate part of the SAMBA Claims at $0. The Debtors obtained
partial summary judgment disallowing SAMBA's $730,843 claim against SWEC based
upon the outstanding balances on the expired Letters of Credit. Under a
scheduling order entered by the Court in the SAMBA litigation the case is
scheduled to go to trial on the remaining claims beginning on May 14, 2003.
(c) Saudi Aramco. On May 31, 2002, the Debtors commenced an
adversary proceeding (the "Aramco Proceeding") against Saudi Aramco related to
the Ras Tanura Project. Specifically, the Debtors sought a declaratory judgment
that SWINC is not liable to Saudi Aramco by virtue of a SWINC guarantee of
BS&W's performance of its contract with Saudi Aramco for the Ras Tanura Project
(the "Ras Tanura Contract"). Additionally, SWEC sought indemnification from
Saudi Aramco for amounts for which SWEC, as a shareholder of BS&W, might become
liable as a result of claims brought against BS&W by MMG, as described in part
5(a) above. SWEC also sought damages for Saudi Aramco's breach of the Ras
Tanura Contract and a turnover of accounts receivable related to the Ras Tanura
Contract by Saudi Aramco. On September 25, 2002, Saudi Aramco filed a motion to
dismiss the Aramco Proceeding, and on September 27, 2002, Saudi Aramco filed a
motion to determine that the Saudi-Aramco Proceeding is a non-core proceeding
and a motion to withdraw the reference.
Settlement negotiations among Saudi Aramco, the Debtors, and
AB&B for the final resolution of all claims among these entities have been
pending. During the pendency of settlement negotiations, the Aramco Proceeding
is stayed by stipulation of the parties. As described in part 5(a) above, the
Debtors, AB&B, and Saudi Aramco read the terms of a tentative settlement
agreement into the record on October 3, 2002. Since that time, the parties'
negotiations have not resulted in a final settlement agreement, and there is no
assurance that a final settlement agreement will materialize. If the Debtors
are unable to finalize a settlement agreement with AB&B and Saudi Aramco,
litigation among the parties should be expected.
22
H. The Equity Committee Plan and the Creditors' Committee Plan
Due to the circumstances surrounding these cases, the Debtors
allowed the exclusive periods to file a plan and solicit acceptances to expire.
1. The Equity Committee Plan
On June 15, 2001, the Equity Committee filed the Plan of
Reorganization of the Official Committee of Equity Holders of Stone & Webster
Incorporated. Subsequently, on September 17, 2001, the Equity Committee filed a
disclosure statement in connection with the Equity Committee Plan (the "Equity
Committee Plan"), which disclosure statement was subsequently modified on April
5, 2002, April 15, 2002, and March 14, 2003 (the "Equity Committee Disclosure
Statement").
As originally filed in 2001 (and as subsequently amended in
April of 2002), the Equity Committee Plan provided for a nonconsolidating plan,
in which all 73 Debtor entities were treated as separate entities and holders
of claims against and interests in each of the 73 Debtor entities would be
required to look solely from the assets of the appropriate Debtor entity for
payment of their claims or interests. Importantly, at the time it filed its
original plan, the Equity Committee asserted that there was neither a factual
nor a legal basis for substantive consolidation of any of the Debtors entities,
a premise that the Equity Committee, a position that the Equity Committee has
vigorously litigated for nearly two years in these Chapter 11 Cases.
In the amended Equity Committee Plan filed on March 14, 2003,
the Equity Committee abandoned its insistence upon a nonconsolidating plan in
favor of a consolidating plan that creates two estates for voting and
distribution purposes, and, thus, is similar in some respects to the Plan
proposed by the Plan Proponents. Specifically, the Equity Committee Plan, as
amended on March 14, 2003, is premised upon the partial consolidation of the
Debtors into a consolidated SWINC estate and a consolidated SWE&C estate. The
Equity Committee Plan, however, does not contemplate the sharing of the Pension
Plan Reversion between the consolidated estates, which the Equity Committee
asserts is neither legally nor factually appropriate. Rather, the Equity
Committee Plan proposes to have the entire Pension Plan Reversion remain at the
consolidated SWINC estate, allowing for a larger distribution to SWINC equity
holders, while providing for a minimal recovery to those creditors of the
consolidated SWE&C estate.
Finally, although proposing a two-pot consolidating plan, the
Equity Committee purports to reserve its right to appeal any order denying the
Equity Committee's motion for summary judgment (the "Summary Judgment Motion")
on the Substantive Consolidation Motion, and to appeal any "order confirming a
plan which provides for substantive consolidation." The Debtors will vigorously
assert that in light of the Equity Committee's pursuit of a "two-pot" plan, the
Equity Committee has waived or is estopped from pursuing any such appeals.
2. The Creditors' Committee Plan
On August 11, 2001, the Creditors' Committee filed its
Disclosure Statement with Respect to the Consolidated Liquidation Plan Proposed
by Official Committee of Unsecured Creditors of Stone & Webster, Incorporated
and its Debtor Subsidiaries (the "Creditors' Committee Disclosure Statement").
The Creditors' Committee filed its Second Amended Creditors' Committee
Disclosure Statement on April 12, 2002. As Exhibit A to the Creditors'
Committee Disclosure Statement, the Creditors' Committee attached its Plan of
Liquidation (the "Creditors' Committee Plan"). The Court held hearings on the
Disclosure Statements filed with respect to the Creditors' Committee Plan, the
23
Equity Committee Plan and the Debtors' Disclosure Statement with Respect to
Joint Plan of Reorganization of (I) Stone & Webster, Incorporated and Certain
of Its Subsidiaries and Affiliates and (II) Stone & Webster Engineering &
Constructors, Inc. and Certain of Its Subsidiaries and Affiliates (the "Initial
Disclosure Statement Hearings"); however, no order was ever entered approving
the adequacy of any disclosure statement. Subsequent to the Initial Disclosure
Statement Hearings, the Creditors' Committee entered into an agreement with the
Debtors and Federal and is now a co- proponent of the Plan.
IV. SUMMARY OF THE PLAN
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE AND MEANS
FOR IMPLEMENTATION OF THE PLAN, AND OF THE CLASSIFICATION AND TREATMENT OF
CLAIMS AND INTERESTS UNDER THE PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN, WHICH IS ATTACHED TO THIS DISCLOSURE STATEMENT AS
APPENDIX B.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE
SUMMARIES OF THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO
THEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT
TO BE PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE
PLAN OR DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO
SUCH DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND
PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN CONTROL
THE ACTUAL TREATMENT OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS UNDER THE
PLAN AND WILL, ON THE EFFECTIVE DATE, BE BINDING UPON ALL HOLDERS OF CLAIMS
AGAINST AND INTERESTS IN THE DEBTORS AND THEIR ESTATES, REORGANIZED SWINC, THE
SWINC PLAN ADMINISTRATOR, THE SWE&C LIQUIDATING TRUSTEE AND OTHER PARTIES IN
INTEREST. IN THE EVENT OF ANY CONFLICT BETWEEN THIS DISCLOSURE STATEMENT, ON
THE ONE HAND, AND THE PLAN, THE SWINC PLAN ADMINISTRATOR AGREEMENT, THE SWE&C
LIQUIDATING TRUST AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, ON THE OTHER HAND,
THE TERMS OF THE PLAN, THE SWINC PLAN ADMINISTRATOR AGREEMENT, THE SWE&C
LIQUIDATING TRUST AGREEMENT, AND SUCH OTHER OPERATIVE DOCUMENTS ARE
CONTROLLING.
A. Overall Structure of the Plan
By the Plan, the Plan Proponents seek to compromise and
settle various disputes and issues raised by, among others, the Debtors, the
Equity Committee and the Creditors' Committee and certain creditors, including
Federal, regarding substantive consolidation and the allocation of the Sale
Proceeds, overfunding in the Pension Plan and various intercompany claims among
the Debtors. If approved, such compromises and settlements will have a
significant impact on recoveries to holders of Claims and Interests, and all
parties are urged to read the Plan, Disclosure Statement and all exhibits
attached thereto carefully. The primary dispute the Plan Proponents seek to
settle in the Plan is the dispute as to whether the Debtors' individual Estates
should be substantively consolidated and, if so, to what extent. Under the
Equity Committee Plan originally filed by the Equity Committee on , no
consolidation occurs and each Debtor Estate and its respective assets is
separately liable for Claims
24
against that Debtor's Estate. Under the Creditors' Committee Plan originally
filed on June 15, 2001, all of the Debtors' Estates were substantively
consolidated and, thus, all of the Debtors' assets were available to satisfy
all of the Debtors' liabilities. Under this Plan as well as the Debtors'
previously proposed plan of reorganization, (i) the Estates of SWINC and the
SWINC Subsidiaries will be substantively consolidated into the Consolidated
SWINC Estate and (ii) the Estates of SWE&C and the SWE&C Subsidiaries will be
substantively consolidated into the Consolidated SWE&C Estate. A list of the
Debtor entities comprising each of the Consolidated SWINC Estate and the
Consolidated SWE&C Estate is attached hereto as Appendix A. Moreover, the Plan
contemplates what the Plan Proponents believe to be an equitable distribution
of the Cash received by the Debtors and non-Debtor subsidiaries and affiliates
from the Shaw Sale and the subsequent liquidation of their remaining assets and
the Reversion of the overfunded Pension Plan. As a result, distributions on
account of Claims against and Interests in SWINC and the SWINC Subsidiaries
will depend only on the assets and liabilities of the Consolidated SWINC Estate
and distributions on account of Claims against SWE&C and the SWE&C Subsidiaries
will depend only on the assets and liabilities of the Consolidated SWE&C Estate
as such assets and liabilities are determined in accordance with the Plan and
the settlements embodied therein.
B. Substantive Consolidation
For administrative, substantive and certain equitable
reasons, the Plan Proponents seek confirmation of the Plan which is predicated
upon the substantive consolidation of the Estates of SWINC and the SWINC
Subsidiaries into the Consolidated SWINC Estate and the Estates of SWE&C and
the SWE&C Subsidiaries into the Consolidated SWE&C Estate. Pursuant to
Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the Plan Proponents seek Court approval of
the provisions of the Plan as a good faith compromise and settlement of all
claims or controversies relating to the issue of substantive consolidation and
the Substantive Consolidation Litigation. The Plan will serve as, and will be
deemed to be, a motion for entry of an order pursuant to Bankruptcy Code
section 1123 and Bankruptcy Rule 9019 section (i) substantively consolidating
the Estates of SWINC and the SWINC Subsidiaries and (ii) substantively
consolidating the Estates of SWE&C and the SWE&C Subsidiaries.
1. General Description
Generally, substantive consolidation of the estates of
multiple debtors in a bankruptcy case effectively combines the assets and
liabilities of the multiple debtors for certain purposes under a plan. The
effect of consolidation is the pooling of the assets of, and claims against,
the consolidated debtors; satisfying liabilities from a common fund; and
combining the creditors of the debtors for purposes of voting on reorganization
plans. There is no statutory authority specifically authorizing substantive
consolidation. The authority of a bankruptcy court to order substantive
consolidation is derived from its general equitable powers under Bankruptcy
Code section 105(a), which provides that the court may issue orders necessary
to carry out the provisions of the Bankruptcy Code. Nor are there statutorily
prescribed standards for substantive consolidation. Instead, judicially
developed standards control whether substantive consolidation should be granted
in any given case.
2. Legal Standards for Substantive Consolidation
The propriety of substantive consolidation must be evaluated
on a case-by-case basis. In deciding whether to consolidate, in the past courts
relied on the presence or absence of certain "elements" that are similar to
factors relevant to piercing the corporate veil under applicable
25
state law. More recent cases, however, while not ignoring these elements, have
applied a less mechanical approach. Thus, the extensive list of elements and
factors frequently cited and relied upon by some courts in determining the
propriety of substantive consolidation are variations of two critical factors,
namely (1) whether creditors dealt with the entities as a single economic unit
and did not rely on their separate identity in extending credit, or (2) whether
the affairs of the debtors are so entangled that consolidation will benefit all
creditors. Under the so-called Eastgroup test, which is an equitable test, a
proponent of substantive consolidation must show that (1) there is substantial
identity between the entities sought to be consolidated and (2) that
consolidation is necessary to avoid some harm or realize some benefit. Once the
proponent of substantive consolidation makes this showing, a presumption arises
that creditors have not relied solely on the credit of one of the entities
involved, and the burden shifts to an objecting creditor to show that (1) it
has relied on the separate credit of one of the entities to be consolidated and
(2) it will be prejudiced by substantive consolidation.
Regardless of which of the two similar but not identical
tests are utilized for determining the propriety of substantive consolidation,
the "elements" enumerated in earlier cases remain relevant, but not necessarily
dispositive, as to whether substantive consolidation should be granted. These
elements include:
o the degree of difficulty in segregating and
ascertaining the individual assets and liabilities
of the entities to be consolidated;
o the presence or absence of consolidated financial
statements among the entities to be consolidated;
o the commingling of assets and business functions
among the entities to be consolidated;
o the unity of interests and ownership among the
various entities;
o the existence of parent and intercorporate
guarantees on loans to the various entities; and
o the transfer of assets to and from the various
entities without formal observance of corporate
formalities.
3. The Substantive Consolidation Litigation
(a) The Creditors' Committee Substantive Consolidation
Motion
In August 2000, the Creditors' Committee filed a
motion seeking substantive consolidation of the Debtors' estates (the
"Substantive Consolidation Motion"). In support of the Substantive
Consolidation Motion and throughout these Chapter 11 Cases, the Creditors'
Committee has maintained that the facts and circumstances surrounding the
historical business operations of SWINC and the Subsidiary Debtors support
combining the Debtors' assets and liabilities in connection with any plan of
liquidation and distribution to creditors and interest holders.
In the Substantive Consolidation Motion, the
Creditors' Committee has argued that SWINC and most of its 72 Subsidiary
Debtors used the same name, and did not routinely distinguish among themselves
when dealing with creditors, referring to all Debtors as "Stone & Webster" or
using SWINC as a proxy for Subsidiary Debtors. Additionally, in public
documents the
26
Debtors frequently described their various business interests as "divisions" or
"segments" or SWINC, rather than describing them as "subsidiaries." In further
support of substantive consolidation, the Creditors' Committee argued that
SWINC and the Subsidiary Debtors historically had issued consolidated financial
statements and filed consolidated tax returns, and that the Debtors provided
only consolidated financial statements to their largest creditors.
Additionally, the Creditors' Committee contended
that SWINC, the ultimate parent of all other 72 Debtors, and its Subsidiary
Debtors maintained common officers and other employees paid by SWEC during the
final years before the Debtors commenced the Chapter 11 Cases. These shared
employees, paid by SWEC, performed human resources, accounting, legal and risk
management services for the benefit of all of the Debtors. Similarly, the
Creditors' Committee contends, accounting firms, law firms, engineers,
consultants and insurers rendered services to all of the Debtors paid for by
SWEC, without being reimbursed by the other Debtors for their proportionate
share for these services. In that regard, the Creditors' Committee challenged
the accuracy of the Debtors' intercompany accounts. The Creditors' Committee
also argued that the Subsidiary Debtors had common directors consisting
largely, if not entirely, of their common officers, who acted at the behest of
SWINC in carrying out SWINC's policies and directives. In fact, the Creditors'
Committee contended that on at least one occasion, SWINC and its Subsidiary
Debtors implemented a fundamental change in corporate structure and form,
without first fulfilling proper corporate authorization.
The Creditors' Committee has also argued that the Debtors'
centralized cash management system provides further support for substantive
consolidation. Under this system, virtually all of each Debtors' funds were
moved into and through centralized accounts on an as-needed basis to meet the
short and long term cash requirements of all of the Debtors. Although the
Debtors contend that as an outgrowth of this centralized cash management
system, intercompany liabilities routinely were recorded by and between SWINC
and the Subsidiary Debtors (and by and between the Subsidiary Debtors
themselves) in the ordinary course of the Debtors' business, the Creditors'
Committee challenged the accuracy of the intercorporate accounts and the
Debtors' ability to keep and reconcile these accounts. Moreover, the Creditors'
Committee contended that the Debtors never disclosed to potential and existing
creditors the amount or identity of any intercorporate liabilities, and that
parties considering extending credit to any particular Stone & Webster entity
could not have been aware of the magnitude of alleged liabilities that the
Debtors' books now reflect.
The Creditors' Committee has also asserted that each of the
Debtors transferred product, services or liabilities to other Debtors on a
regular basis, that these transfers were not reflected on the Debtors' books at
arm's-length pricing, and that the Debtors could not then and cannot now verify
that the amounts showing on the Debtors' books and records reflect balances
that would exist if transactions between the Debtors had been appropriately
recorded for purposes of separate company reporting. Due to the volume of
transactions between SWINC and the Subsidiary Debtors, as well as the
significant passage of time, the Creditors' Committee argued that it would be
extraordinarily time consuming and prohibitively expensive to determine on an
Estate by Estate basis the adjustments needed to approximate intercorporate
balances reasonably. Even then there could be no assurance that the end product
would be a fair approximation of such balances due to: (a) numerous
uncertainties with respect to available historical knowledge and support
documentation; and (b) complexities such as extensive acquisition and
disposition activity by the Debtors.
The Creditors' Committee also based its Substantive
Consolidation Motion on the fact that Shaw paid one purchase price for all of
the Debtors' assets, and, at the time of the purchase and sale, there was no
allocation of the purchase price among the various Debtors. In that regard,
27
Shaw acquired both tangible and intangible assets, and the Creditors' Committee
contends that valuing numerous contracts assumed by Shaw from SWEC and other
Subsidiary Debtors is virtually impossible and, in any event, likely to be a
prohibitively expensive process. Accordingly, the Creditors' Committee has
argued that substantive consolidation is required to ensure that the sale
proceeds are distributed equitably among the Debtors' creditors and interest
holders.
(b) The Equity Committee Response
In order to resolve the Equity Committee objection to this
Disclosure Statement, the Plan Proponents include the following language, which
was drafted for inclusion by the Equity Committee.
The Equity Committee opposed the relief sought by the
Creditors' Committee in the Substantive Consolidation Motion, namely to
consolidate all of the Debtors' estates into one single estate. In opposing the
Substantive Consolidation Motion, the Equity Committee made two basic
arguments. First, that as a matter of law, substantive consolidation as an
equitable remedy is no longer available in chapter 11 bankruptcy proceedings.
The Bankruptcy Court disagreed with that argument in its November 14, 2002
Order at Docket 3564 (the "November 14 Order") holding that substantive
consolidation would be permissible as part of a plan under chapter 11 of the
Bankruptcy Code. The Equity Committee has preserved its right to appeal the
November 14, Order at such time as it becomes a final order.
The Equity Committee also contended that, even if substantive
consolidation were a permissible equitable remedy in chapter 11 proceedings,
there would be no legal or factual basis to order substantive consolidation of
any of the Debtor Subsidiaries. Since the fall of 2001, the Equity Committee
has proposed a plan of liquidation, which treated each of the seventy-three
(73) Debtors as separate corporate entities.
On March 14, 2003, the Equity Committee filed its amended
Equity Plan and related Equity Disclosure Statement. Both the Equity Plan and
the Joint Plan proposed by the Plan Proponents propose the creation of two
consolidated estates: the Consolidated SWINC Estate and the Consolidated SWE&C
Estate. The companies allocated to each consolidated estate under the Joint
Plan and the Equity Plan are identical. Thus, the Equity Committee contends
that there is no longer any dispute regarding whether two separate consolidated
estates should be formed.
The primary difference between the Equity Plan and the Joint
Plan is that the Joint Plan would transfer between $21.9 and $27.9 million in
value from the Consolidated SWINC Estate to the Consolidated SWE&C Estate "in
settlement" of disputes concerning whether the Consolidated SWINC Estate should
be further consolidated with the Consolidated SWE&C Estate.
The Equity Committee vigorously disputes that any further
substantive consolidation would be necessary or appropriate under applicable
law between the Consolidated SWINC Estate and the Consolidated SWE&C Estate. In
particular, the Equity Committee believes that the payment of funds by the
Consolidated SWINC Estate to the Consolidated SWE&C Estate is unreasonable and
not justifiable under the facts of the Debtors' cases or applicable law. In the
view of the Equity Committee, any further substantive consolidation between the
two proposed consolidated estates would depend largely upon an analysis of the
relationship between the Debtors included in the Consolidated SWINC Estate, on
the one hand, and the Debtors included in the Consolidated SWE&C Estate, on the
other hand. The Equity Committee contends that such an analysis would
demonstrate that no further consolidation would be necessary or appropriate as
between the Consolidated SWINC
28
Estate and the Consolidated SWE&C Estate. Indeed, the Equity Committee believe
that, contrary to the assertions made by the Creditors' Committee, the
overwhelming evidence will demonstrate that each of the Debtors: (i) has assets
and liabilities that are readily ascertainable; (ii) observed corporate
formalities under applicable state law; (iii) engaged in business as a separate
corporate entity; and (iv) maintained detailed financial accounting systems
that were audited and tested each year by outside auditors, including
PricewaterhouseCoopers and its predecessors in interest, including adequate
accounting for all third party and intercorporate financial transactions in
accordance with generally accepted accounting principles.
It is the view of the Equity Committee that the following
facts make it clear that there is no legal or factual basis to further
substantively consolidate the Consolidated SWINC Estate or any of its assets
with the Consolidated SWE&C Estate: (i) there has been no commingling of funds
between the Debtors, as all cash transfers between the Debtors were tracked in
detail at all times through a cash management system, a common and accepted
business practice among multi-tiered affiliated corporations; (ii) the Debtors
have maintained contemporaneous records of intercompany transactions and
continue to maintain such detailed records as a part of the Debtors' cash
management system; and (iii) even though the Debtors had certain common
officers and directors, each of the Debtors maintained corporate formalities,
including maintaining minutes and records of separate board meetings.
The Plan Proponents of the Joint Plan believe that the
transfer of $21.9 to $27.9 million of the Pension Plan Reversion from SWINC to
the SWE&C Subsidiaries is justified because certain of the SWE&C Subsidiaries
may have claims against the Reversion. The Equity Committee contends, however,
that there cannot be any serious dispute that SWINC is the sole owner of any
surplus in the Pension Plan because (i) since January 1991, the Pension Plan
documents have stated that upon termination of the Plan any reversionary
interest would be property of SWINC; (ii) under applicable state and federal
law the Pension Plan is required to be managed and terminated in accordance
with the terms fo the Pension Plan documents; and (iii) the Plan Proponents of
the Joint Plan have not cited any legal authority - statutory or case law - to
the contrary.
The Equity Committee further contends that the allegation
that the Pension Plan overfunding was "carried on the books and records of
SWEC" is inaccurate and misleading because (i) the Debtors have produced
audited financial statements for SWEC for the calendar years 1995, 1996 and
1997 that show a "prepaid pension cost" asset that is unrelated to any pension
plan trust assets or any potential surplus upon termination of the Pension
Plan; (ii) those same financial statements and the publicly filed consolidated
financial statements of the Debtors contain information sufficient to disclose
adequately that all the Debtors were participants in a pension plan with SWINC;
and (iii) no specific creditors claim to have reasonably relied or to have been
misled by such public information.
The Equity Committee also believes that the consolidation
arguments contained in the Joint Plan are inconsistent with the Debtors' own
prior admissions. Specifically, SWINC and two of the largest operating
subsidiaries in the Consolidated SWE&C Estate, namely SWEC and SWMC,
successfully litigated their corporate separateness before the Chapter 11 Cases
were filed in certain litigation pending in the United States District Court
for the Southern District of New York (the "New York Court"). Stone and Webster
Management Consultants, Inc. and Stone & Webster Incorporated v. Travelers
Indemnity Company, No. 94 Civ. 6619, 1996 U.S. Dist. Lexis 4852 (S.D.N.Y. April
16, 1996) (the "Travelers Litigation"). In the Travelers Litigation, Travelers
Indemnity Company ("Travelers") contended that a certain notice to SWEC
constituted notice to SWINC and SWMC under a theory of agency under New York
law. The New York Court, after reviewing numerous
29
affidavits submitted by the senior management and executives of SWEC, SWMC and
SWINC, containing factual assertions as to their corporate separateness, noted
that the theory for corporate agency under New York law is the same as the test
for piercing the corporate veil. The New York Court accepted the factual
assertions made in the affidavits submitted by SWEC, SWMC and SWINC as to their
corporate separateness, finding that they had separate management, personnel
and legal staff. The New York Court granted partial summary judgment in favor
of SWMC and SWINC determining that an earlier notice to SWEC could not be
imputed to SWINC and SWMC and holding that Travelers was obligated to defend
certain litigation against SWMC and SWINC under existing insurance policies.
The Equity Committee contends that the affidavits submitted on behalf of SWEC,
SWMC and SWINC in the Travelers Litigation constitute evidentiary admissions of
their corporate separateness, binding on the Debtors.
While the Plan Proponents agreed to include the above
language at the Equity Committee's request, the Plan Proponents disagree with
the factual, legal and equitable assertions made therein. Additionally, the
Equity Committee has affirmatively rejected the compromise regarding
substantive consolidation encompassed in the Plan.
For additional information regarding the Equity Committee's
position, please refer to the Equity Disclosure Statement.
(c) Debtors' Response
The Debtors also responded to the Substantive Consolidation
Motion. In connection with substantive consolidation, the Debtors argued that
the facts, circumstances and equities do not justify substantive consolidation
into one single estate. Instead, the Debtors contend as a reasonable compromise
and settlement of the dispute over substantive consolidation that, pursuant to
Bankruptcy Code section 1123(a)(5)(C) and upon confirmation of a plan of
reorganization, SWINC and the 72 Subsidiary Debtors should be substantively
consolidated into two estates - the Consolidated SWINC Estate and the
Consolidated SWE&C Estate. The Debtors base their position on at least three
significant facts: (i) the legal sponsor of the Pension Plan is SWINC; (ii) the
Nordic operating division ("Nordic") was marketed separately for sale; and
(iii) at least some significant creditors appeared to rely on the separate
financial wherewithal of SWINC and SWE&C.
With respect to the Pension Plan, the Debtors agree that
SWINC is presently the sole sponsor, however, prior to SWINC becoming the sole
legal sponsor of the Pension Plan, each individual Debtor was a sponsor and,
even after SWINC became the sole legal sponsor, the overfunded Pension Plan was
carried on the books and records of SWEC. Moreover, Mercer Human Resources
Consulting reported on a nonconsolidated basis by operating unit of the Debtors
with respect to the Pension Plan the expenses and assets, in addition to
reporting on a consolidated basis at the SWINC level in accordance with
generally accepted accounting principles.
Additionally, the Debtors believe it is significant that
before the Petition Date, the Debtors separately solicited the sale of the
Nordic. During this solicitation process, the Debtors eventually received bids
for the purchase of Nordic. None of these bids were finalized before the
Petition Date. However, when the Debtors entered into the asset purchase
agreement with Jacobs, Nordic was initially carved out of the transaction, and
during the postpetition sale process, the Debtors received a firm bid in excess
of $75 million from a third party. At the auction, Shaw purchased Nordic as
part of the overall transaction with the Debtors. As a consequence of the
transaction with Shaw, substantially, if not all creditors of Nordic were paid
in full. It is for these reasons that the Debtors believe that excess proceeds
from the sale to Shaw could be allocated to the sale of the
30
Nordic operating division and be made available to SWINC, as the direct parent
of Nordic, either as a payment of outstanding intercompany obligations owed to
SWINC or as a dividend.
Finally, the Debtors also believe that the other significant
fact supporting substantive consolidation into two estates is that major
creditors of the Debtors appeared to rely on the separate financial wherewithal
of SWINC and SWE&C. For example, Maine Yankee contracted with SWEC concerning
the decommission of Maine Yankee's nuclear power plant in Wiscasset, Maine.
Main Yankee sought and obtained from SWE&C, and later SWINC, guaranties with
respect to SWEC's performance. In addition, Federal filed proofs of claim
against SWE&C, S&W Construction and Rocky Flats Engineers and Constructors,
LLC, as primary obligors on various agreements with Federal. In addition,
Federal also asserted a claim directly against SWINC arising out of the direct
claims against the primary obligors pursuant to certain General Indemnity
Agreements executed between Federal and SWINC.
(d) Creditors' Committee Response
The Creditors' Committee has argued that notwithstanding that
the Equity Committee's position that the Pension Plan documents make the
overfunded Pension Plan solely a SWINC asset, the Pension Plan was carried on
SWEC's balance sheets as a SWEC asset, and, thus, to the extent that any
creditor could or did obtain separate financial statements for SWEC, the
overfunded Pension Plan appeared to be a SWEC asset. SWINC's consolidated
financial statements recognized the overfunded Pension Plan as an asset of the
consolidated entities, without disclosing to creditors that SWINC claimed to
have the sole entitlement to the overfunding. Moreover, the Creditors'
Committee has alleged that for the last several years before the Debtors filed
their bankruptcy petitions, SWINC had no employees and did not contribute to
the Pension Plan and Subsidiary Debtors paid all Pension Plan expenses.
Accordingly, the Creditors' Committee has argued that substantive consolidation
is nonetheless required to ensure that the overfunded portion of the Pension
Plan would be distributed to the Debtors' creditors and interest holders on an
equitable basis.
Furthermore, the Creditors' Committee maintains,
notwithstanding the Debtors' marketing efforts with respect to Nordic, that
sale proceeds attributable to the Debtors' cold-storage business, Nordic,
should be consolidated with all other Debtors' assets. In support of its view,
the Creditors' Committee argues that SWINC purported to purchase Nordic in 1998
for approximately $80 million, merging a pre-existing SWINC subsidiary,
Commercial Cold Storage, Inc., into Nordic, and that this purchase and merger
was funded through bank loans obtained with the guarantee of each Subsidiary
Debtor, including SWEC. Thus, the Creditors' Committee contends that all
Subsidiary Debtors bore the responsibility and liability for paying off the
loans, as well as the risk of loss if SWINC, a non-operating entity, were
unable to make payments on the loans. Additionally, the Creditors' Committee
challenges the alleged intercompany loans between Nordic and SWINC. For these
and other reasons, the Creditors' Committee asserts that as a matter of equity,
SWINC cannot then deny the proceeds to the Subsidiary Debtors' creditors when
they bore the risk of the Nordic purchase.
(e) The PBGC's Response
The Pension Benefit Guaranty Corporation ("PBGC") also filed
a response to the Substantive Consolidation Motion. In its response, the PBGC
argued that substantive consolidation, in a plan of reorganization or
otherwise, is not appropriate against parties such as the PBGC who hold joint
and several claims against multiple debtors. As such, the PBGC believes that a
portion of the assets from the Consolidated SWE&C Estates sufficient to cover
any potential claims of the PBGC
31
with respect to the Pension Plan should be excluded from any substantive
consolidation proposed by the Plan.
(f) Court Opinion
On November 14, 2002, the Bankruptcy Court issued its
memorandum opinion denying the Equity Committee's motion for summary judgment
on the Substantive Consolidation Motion. The Bankruptcy Court rested its
opinion on two principal grounds. First, the Bankruptcy Court found that
long-standing judicial precedent, including Supreme Court precedent, supports a
bankruptcy court's power to substantively consolidate two or more debtors. The
Bankruptcy Court cited as an example the Supreme Court decision in Sampsell v.
Imperial Paper & Color Corp., 313 U.S. 215 (1941), and further noted that the
roots of substantive consolidation extend back to the Bankruptcy Act of 1898,
11 U.S.C. ss.ss. 1 et seq. (1976) (repealed 1978) and were acknowledged by the
drafters of the Bankruptcy Code in 1978. Second, the Bankruptcy Court found
clear statutory authority within the Bankruptcy Code itself for substantive
consolidation. Specifically, the Bankruptcy Court held that Bankruptcy Code
section 1123(a)(5)(C) authorizes a plan to substantively consolidate a debtor
with one or more debtors, even where such consolidation is not done in
accordance with state law. Thus, the Court held that it has the statutory
authority to confirm a plan that contains a provision substantively
consolidating the estates of two or more debtors. The Bankruptcy Court made no
determination, however, whether substantive consolidation of the Debtors'
estates is warranted in these cases.
4. The Bases for Two Substantively Consolidated Estates
Based on the above and many other facts and circumstances,
the Plan Proponents have determined that the risks, uncertainty, expense and
delay associated with continued litigation support the settlement embodied in
the Plan. The Plan recognizes that substantive consolidation in some form is
warranted in light of the criteria established by the courts in ruling on the
propriety of substantive consolidation in other cases. The Creditors'
Committee, the Debtors and Federal believe that the Plan's proposed substantive
consolidation into two entities is a fair and equitable means of consolidating
the Debtors, while protecting the interests of creditors who bargained for
guarantees from SWINC. The compromises and settlements that comprise the Plan
allow for a potential return to equity security holders while accounting for
the risk that the Court may not agree with the position of any party on the
grounds for or lack of grounds to support substantive consolidation.
Specifically, the Creditors' Committee, the Debtors and Federal believe that
substantive consolidation as provide for in the Plan is appropriate under the
circumstances because, among other things:
1. The operations, business functions and financial
records of the Debtors were substantially
commingled, such that the assets and liabilities of
the Debtors' Estates are intertwined.
2. A separate winding down of the Debtors' Estates
would entail the segregation of the commingled
assets and liabilities. The exercise of
disentangling the prior transactions of the
individual Debtor entities, even if it could be
accomplished, would be an unproductive and
inequitable task that would be harmful to creditors
due to the prohibitive costs and resultant delays
associated with such a task.
3. Substantive consolidation will provide for the most
equitable distribution to Creditors and
Interestholders. There is no identifiable Estate in
the
32
Chapter 11 Cases that has a discrete group of
creditors holding Claims only against that Estate.
4. Substantive consolidation will maximize the overall
return to holders of Allowed Claims and Interests
because it will avoid and eliminate the significant
administrative costs and expenses that otherwise
would be associated with the difficult and
potentially infeasible task of liquidating each of
the Debtors' Estates separately.
In addition, the Plan, through its various settlements and
compromises, will provide the holders of the Class 9A SWINC Equity Interests,
if they vote to accept the Plan, with an immediate and guaranteed payment of
$.50 per share out of the Equity Settlement Fund. Moreover, holders of the
Class 9A SWINC Equity Interests could receive additional distributions once all
assets of the Consolidated SWINC Estate are liquidated and holders of Allowed
SWINC Claims and paid in full. Absent the Plan, however, there is no guarantee
that owners of common stock in SWINC would receive any distribution on account
of their equity interests or, if there were to be a distribution, when such
distribution would occur.
5. The Substantive Consolidation Settlement
To avoid continued litigation with respect to Substantive
Consolidation and related issues regarding the Pension Plan Reversion, the
Proponents propose the Plan, which provides, among other things, that upon the
Effective Date, two separate consolidated estates will be created.
(a) The Substantive Consolidation of SWINC and the SWINC
Subsidiaries
On the Effective Date, the Estates of SWINC and the SWINC
Subsidiaries shall be substantively consolidated as follows: (i) the SWINC
Subsidiaries shall be merged with and into SWINC, with the surviving
corporation being Reorganized SWINC, (ii) all Intercompany Claims by, between
and among SWINC and the SWINC Subsidiaries shall be forgiven and eliminated,
(iii) all assets and liabilities of the SWINC Subsidiaries shall be merged or
treated as if they were merged with the assets and liabilities of SWINC, (iv)
any obligation of SWINC or one of the SWINC Subsidiaries and all guarantees
thereof by SWINC or one of the SWINC Subsidiaries shall be deemed to be one
obligation of SWINC, and (v) each Claim filed, or to be filed or allocated
against SWINC or a SWINC Subsidiary shall be deemed filed only against SWINC
and shall be deemed a single Claim against and a single obligation of SWINC. On
the Effective Date, and in accordance with the terms of the Plan and the
consolidation of the assets and liabilities of SWINC and the SWINC
Subsidiaries, all Claims based upon guarantees of collection, payment or
performance made by SWINC or the SWINC Subsidiaries as to the obligations of
SWINC or one of the SWINC Subsidiaries shall be released and of no further
force and effect.
(b) The Substantive Consolidation of SWE&C and the SWE&C
Subsidiaries
The Plan contemplates and is also predicated upon the
substantive consolidation of the Estates of SWE&C and the SWE&C Subsidiaries
for the purposes of all actions associated with confirmation and consummation
of the Plan. On the Effective Date, the Estates of SWE&C and the SWE&C
Subsidiaries shall be substantively consolidated as follows: (i) all assets and
liabilities of the SWE&C Subsidiaries shall be merged or treated as if they
were merged with the assets and liabilities of SWE&C, (ii) all Intercompany
Claims by, between and among SWE&C and the SWE&C Subsidiaries shall be forgiven
and eliminated, (iii) any obligation of SWE&C or one of the SWE&C
33
Subsidiaries and all guarantees thereof by SWE&C or one of the SWE&C
Subsidiaries shall be deemed to be one obligation of SWE&C, (iv) each Claim
filed, or to be filed or allocated against SWE&C and/or a SWE&C Subsidiary
shall be deemed filed only against SWE&C and shall be deemed a single Claim
against and a single obligation of SWE&C, and (v) all Interests in SWE&C or any
SWE&C Subsidiary shall be cancelled and the holders thereof shall not be
entitled to any distribution. On the Effective Date, and in accordance with the
terms of the Plan and the consolidation of the assets and liabilities of SWE&C
and the SWE&C Subsidiaries, all Claims based upon guarantees of collection,
payment or performance made by SWE&C or one of the SWE&C Subsidiaries as to the
obligations of SWE&C or one of the SWE&C Subsidiaries shall be released and of
no further force and effect.
(c) The Pension Plan Reversion
Pursuant to Bankruptcy Rule 9019, under the Plan and as part
of the Substantive Consolidation Settlement, the Proponents also propose to
settle certain disputes regarding the potential reversionary interest
associated with the overfunded Pension Plan. Specifically, the Plan Proponents
believe that the Pension Plan is presently overfunded and that upon termination
of the Pension Plan in a state law dissolution of Reorganized SWINC, funds in
excess of $30 million net of taxes, after all liabilities of the Pension Plan
to Pension Plan participants have been satisfied, will revert to the Debtors'
estates and become available for distribution to holders of Claims and
Interests. As part of the Substantive Consolidation Litigation, the Equity
Committee has asserted that holders of Claims against and Interests in SWINC
(and any successor of SWINC) are entitled to the entire amount of the Reversion
because SWINC is legal sponsor of the Pension Plan and thus has sole ownership
of any Reversion. In response, the Creditors' Committee has asserted that the
Reversion should be available to pay the holders of Claims against SWE&C and
the SWE&C Subsidiaries and only after that would a distribution be made to
holders of Equity Interests in SWINC because, among other things, the
contributions to such Pension Plan were made primarily by SWE&C on behalf of
certain of its employees. To avoid further litigation as to the Reversion, and
as part of the Substantive Consolidation and Federal Settlement, the Proponents
propose to settle all disputes regarding the Pension Plan and the Reversion as
follows:
1. In the event Class 9A SWINC Equity Interests votes
to accept the Plan, the Reversion from the Pension
Plan will be distributed as follows: (i) two- thirds
(2/3) of the Reversion's first $30 million to the
Consolidated SWINC Estate; (ii) one-third (1/3) of
the Reversion's first $30 million to the
Consolidated SWE&C Estate; and (iii) if the
Reversion exceeds $30 million, an equal distribution
between the Consolidated SWE&C Estate and the
Consolidated SWINC Estate of any Reversion in excess
of $30 million.
2. In the event Class 9A votes to reject the Plan, the
Reversion from the Pension Plan will be distributed
as follows: (i) two-thirds (2/3) of the Reversion's
first $30 million to the Consolidated SWINC Estate;
(ii) one- third (1/3) of the Reversion's first $30
million to the Consolidated SWE&C Estate; and (iii)
if the Reversion exceeds $30 million, a distribution
of seventy-five percent (75%) of any Reversion in
excess of $30 million to
34
the Consolidated SWE&C Estate and twenty-five
percent (25%) of any Reversion in excess of $30
million to the Consolidated SWINC Estate.
The Proponents believe that such a settlement is fair and equitable
because, among other things, (i) prior to SWINC becoming the sole legal sponsor
of the Pension Plan, each then individual Debtor was a contributing sponsor
within the meaning of section 4001(a)(13) of ERISA and (ii) even after SWINC
became the legal sponsor, the overfunded Pension Plan was carried on the books
and records of SWEC and (iii) Mercer Human Resources Consulting reported on a
nonconsolidated basis by operating unit of the Debtors with respect to Pension
Plan expenses and assets in addition to reporting on a consolidated basis at
the SWINC level in accordance with general accepted accounting principles.
The PBGC contends that the Plan should provide the following
provision with respect to the Pension Plan:
In the event that the Pension Plan does not qualify for
termination in a standard termination under 29 U.S.C. ss.
1341, Reorganized SWINC will execute a commitment under 29
C.F.R. ss. 4021.21(b)(1) to make the Pension Plan sufficient
for all its benefit liabilities. The Disputed Claims Reserve
will be funded sufficiently to meet that commitment.
The Proponents do not agree with the PBGC's contention and do not believe such
a provision would be appropriate as part of the Plan.
C. The Federal Settlement
On February 18, 2002, Federal filed numerous proofs of claim
in the Bankruptcy Cases, including proofs of claim 5177 and 5178 amending its
prior claims against SWINC and SWEC in the amount of $371,505,215.90, of which
$55,208,965.23 was liquidated (the "Federal Liquidated Claims"). The balance of
$316,296,205.69 represents unliquidated claims asserted by Federal against,
among others, SWINC and SWEC (the "Federal Unliquidated Claims" and, together
with the Federal Liquidated Claims, the "Federal Claims"). Attached to the
Federal Claim is a schedule with supporting documentation setting forth the
payments made by Federal which comprise the amount of the Federal Claim (the
"Federal Claim Schedule"). As set forth in the Federal Claim Schedule, the
Federal Liquidated Claim arises from six separate agreements, four of which are
between Federal and SWE&C as the primary obligor, one between Federal and S&W
Construction, and the other between Federal and Rocky Flats Engineers and
Constructors, LLC, as the respective primary obligors. In addition to asserting
claims against each of the primary obligors, Federal also asserted a Claim
directly against SWINC pursuant to certain General Indemnity Agreements
executed between Federal and SWINC. A significant portion of the Federal
Liquidated Claim, in the amount of $44 million, arises in connection with
Federal's payment under certain Payment and Performance Bonds between SWEC and
Federal related to Maine Yankee.
Originally, Federal supported the Equity Committee
Plan and opposed the Substantive Consolidation proposed by the Creditors'
Committee. Subsequent to the Initial Disclosure Statement Hearing, the Debtors
reached an agreement with Federal regarding Substantive Consolidation and the
Federal Claims, a settlement that also provides an opportunity for holders of
Allowed Class 9A SWINC Equity Interests to receive an immediate Cash payment of
$0.50 per share. The Federal Settlement includes a settlement of the Lumbermens
Claim, which claim exceeds $6 million. The Lumbermens Claim means proof of
claim no. 5179 filed by Lumbermens relating to
35
losses suffered by Lumbermens solely in connection with surety bonds, which
claim amended and superseded proofs of claim nos. 3300 and 4491. The Federal
Settlement resolves only the Lumbermens Claim and does not include any other
proof of claim filed by Lumbermens. The Federal Settlement is contingent upon
confirmation of the Plan, and will be binding on all interested parties upon
approval of the Plan, and absent the Federal Settlement, certain individual
Debtors, including SWINC and SWEC could be liable to Federal in an amount that
exceeds $80 million.
The terms of the Federal Settlement are as follows:
1. Federal will hold an Allowed Federal Claim in the
amount of $52,113,000 against both the Consolidated
SWINC Estate and the Consolidated SWE&C Estate in
Class 5A and Class 5B, respectively, and will be
permitted to vote such Allowed Federal Claims in
such Classes. In addition, Chubb Canada will receive
a distribution of the Canadian Cash, which Cash
shall be held in trust by Chubb Canada for its use
in defending, settling or otherwise resolving the
Isobord Litigation. Any Canadian Cash remaining at
the conclusion of the Isobord Litigation shall be
paid over to the SWE&C Liquidating Trustee to be
distributed in accordance with the Plan.
2. The Allowed Federal Claim in the amount of
$52,113,000 will include a settlement of the
Lumbermens Claim, which claim exceeds $6 million.
3. Effective upon the allowance of the Federal Claims,
Federal will be deemed to waive and release any and
all Claims for subrogation or other Claims it has or
might have against the Consolidated SWINC Estate or
the Consolidated SWE&C Estate, including but not
limited to, Claims for indemnification,
contribution, reimbursement or subrogation arising
out of the Isobord Litigation in Canada. Chubb
Canada will report to the SWINC Plan Administrator
periodically on the use of the Canadian Cash.
Federal shall have complete control of the Isobord
Litigation, with complete authority to settle or
otherwise resolve the Isobord Litigation without the
consent or participation of any of the Debtors.
While Federal will waive any Claim against the
Consolidated SWINC and SWE&C Estates in connection
with the Isobord Litigation, Federal is not agreeing
to indemnify SWINC or any other of the Debtors from
liability in connection with the Isobord Facility.
Furthermore, Federal is also not waiving any of its
rights or defenses as surety, either in law, in
equity or under the bonds that it might have against
Isobord with respect to the Isobord Facility or any
related contract, but in no event will the Allowed
Federal Claim exceed $52,113,000 because of the
Isobord Litigation.
4. On the Effective Date or as soon thereafter as
practicable, the SWE&C Liquidating Trustee will
issue to Federal the Federal Note in the amount of
$1.8 million in full satisfaction, settlement,
release and discharge of the Allowed Federal Claim
in Class 5B SWE&C General Unsecured Claim, which
Federal Note shall be deemed satisfied and cancelled
upon payment in full of the Allowed Federal Claim in
Class 5A by the Consolidated SWINC Estate. In the
event that the Allowed Federal Claim in Class 5A is
not paid in full, the SWE&C Liquidating Trustee
shall pay Federal cash in
36
the face amount of the Federal Note or such Lesser
amount as is necessary for Federal to receive full
payment in the amount of $52,113,000 on the Allowed
Federal Claims.
5. In the event Class 9A SWINC Equity Interests votes
to accept the Plan, SWINC shall make the Initial
Federal Distribution to Federal on account of the
Allowed Federal Claim in Class 5A out of which
Federal will distribute, in a manner acceptable to
Federal, an amount equal to $0.50 per share of Old
Securities voting to accept the Plan, which amount
cannot exceed $7,113,000, to the Equity Settlement
Fund. On the Effective Date or as soon thereafter as
practicable, the Cash in the Equity Settlement Fund
shall be distributed to holders of Allowed Class 9A
Equity Interests that voted to accept the Plan.
Federal will have no right to recoup any portion of
the payment made to the Equity Settlement Fund from
either the Consolidated SWINC Estate or the
Consolidated SWE&C Estate, and the Initial Federal
Distribution shall count towards the payment of the
Allowed Federal Claim in Class 5A and collection of
the Federal Note.
6. In the event Class 9A SWINC Equity Interests does
not vote to accept the Plan, Federal will retain all
rights against the Consolidated SWINC Estate on the
Allowed Federal Claim in Class 5A in the amount of
$52,113,000 for distribution purposes.
D. Reorganized SWINC and the SWE&C Liquidating Trust
The Plan provides that on the Effective Date or as soon
thereafter as practicable, (a) each of the SWINC Subsidiaries shall be merged
or deemed merged with and into SWINC and (b) the Chapter 11 Cases of the SWINC
Subsidiaries shall be closed, following which any and all proceedings that were
brought or could have been brought or otherwise commenced in the Chapter 11
Case of any of the SWINC Subsidiaries shall be prosecuted, brought or otherwise
commenced in SWINC's Chapter 11 Case.
Furthermore, under the Plan, SWINC will emerge from
bankruptcy and shall continue to exist as Reorganized SWINC after the Effective
Date in accordance with the laws of the State of Delaware and pursuant to the
certificate of incorporation and by-laws of SWINC in effect prior to the
Effective Date, as amended under the Plan. Reorganized SWINC will be authorized
to engage in any lawful act for which corporations may be organized under the
DGCL. Reorganized SWINC's business operations will consist of the management of
the Pension Plan, including any efforts in which Reorganized SWINC may
terminate the Pension Plan or transfer its sponsorship in accordance with
applicable law. Although Reorganized SWINC will be fully authorized to engage
in other business operations and management intends to evaluate opportunities
as, when, and if they arise, Reorganized SWINC has no present intention to
engage in business operations and likely will dissolve under DCGL ss.ss.
275-282 of the Delaware General Corporations Law.
The Plan also provides that on the Effective Date or as soon
thereafter as practicable, (a) each of the SWE&C Subsidiaries shall be merged
or deemed merged with and into SWE&C and (b) the Chapter 11 Cases of the SWE&C
Subsidiaries shall be closed, following which any and all proceedings that were
brought, could have been brought or otherwise commenced in the Chapter 11 Case
of any of the SWE&C Subsidiaries shall be prosecuted, brought or otherwise
commenced in SWE&C's Chapter 11 Case.
37
Furthermore, under the Plan, on the Effective Date or as soon
thereafter as the SWE&C Liquidating Trustee determines is appropriate, SWE&C
and the SWE&C Subsidiaries shall be dissolved. If necessary or appropriate, the
SWE&C Liquidating Trustee shall file a certificate of dissolution for SWE&C
and/or the SWE&C Subsidiaries and shall take all other actions necessary or
appropriate to effect the dissolution of SWE&C and the SWE&C Subsidiaries under
applicable state law.
SWE&C and the SWE&C Subsidiaries are liquidating, and they
will not be conducting any business operations following confirmation and
consummation of the Plan. In connection with the liquidation of SWE&C and the
SWE&C Subsidiaries, the SWE&C Liquidating Trust will be formed for the benefit
of holders of Claims against the Consolidated SWE&C Estate. Upon confirmation
and consummation of the Plan, Claims against the Consolidated SWE&C Estate will
receive beneficial interests in the SWE&C Liquidating Trust, entitling the
holder thereof to receive distributions, as, when and if available, of funds or
other assets held by the SWE&C Liquidating Trust. The SWE&C Liquidating Trust
will distribute any amounts available for distribution to the holders of Claims
against the Consolidated SWE&C Estate in accordance with the Plan. Beneficial
interests in the SWE&C Liquidating Trust will not be certificated and will be
non- transferrable, except by operation of law. The SWE&C Liquidating Trust
will terminate on the earlier of (i) the tenth (10) anniversary of the
Confirmation Date or (ii) the distribution of all property in accordance with
the terms of the SWE&C Liquidating Trust Agreement.
Under the Plan, Reorganized SWINC will issue three classes of
securities. First, Reorganized SWINC will issue 100 shares of Reorganized SWINC
New Common Stock to the SWE&C Liquidating Trustee to be held for the benefit of
holders of Claims against the Consolidated SWE&C Estate. As described in more
detail below, these shares of Reorganized SWINC New Common Stock will provide
the SWE&C Liquidating Trustee with sufficient voting power to approve the
dissolution of Reorganized SWINC, which requires a majority vote of
stockholders under applicable Delaware law. The SWE&C Liquidating Trustee will
not be entitled to transfer or otherwise distribute the Reorganized SWINC New
Common Stock, including to the beneficiaries of the SWE&C Liquidating Trust.
Second, Reorganized SWINC will issue one share of Reorganized SWINC New Series
A Preferred Stock to the SWINC Plan Administrator to be held for the benefit of
holders of certain Claims against and Interests in the Consolidated SWINC
Estate. The Reorganized SWINC New Series A Preferred Stock will have a
liquidation preference equal to (i) from the Reversion either (x) two-thirds
(2/3) of the first $30 million of funds generated from the Reversion of the
Pension Plan plus 50% of any funds generated from the Reversion in excess of
$30 million or (y) in the event that Class 9A SWINC Equity Interests votes to
reject the Plan, twenty-five percent (25%) of any funds generated from the
Reversion in excess of $30 million; and (ii) 100% of the funds generated from
the liquidation of any additional assets, other than the Reversion, of
Reorganized SWINC. Finally, Reorganized SWINC will issue one share of
Reorganized SWINC New Series B Preferred Stock to the SWE&C Liquidating Trustee
to be held for the benefit of holders of Claims against SWE&C. The Reorganized
SWINC New Series B Preferred Stock will have an aggregate liquidation
preference equal to either (i) one-third (1/3) of the first $30 million in
proceeds generated from the Reversion plus 50% of any funds generated from the
Reversion in excess of $30 million or (ii) in the event Class 9A SWINC Equity
Interests votes to reject the Plan, seventy-five percent (75%) of any funds
generated from the Reversion in excess of $30 million.
Upon the anticipated dissolution of Reorganized SWINC
pursuant to the DGCL, any amounts available for distribution will be
distributed in accordance with the liquidation preferences set forth in New
Series A and B Preferred Stock. There can be no assurance, however,
38
that the amounts available for distribution upon any dissolution of Reorganized
SWINC will be sufficient to fully satisfy these obligations.
E. Classification and Treatment of Claims and Interests
Bankruptcy Code section 1122 requires that a plan of
reorganization classify the claims of a debtor's creditors and the interests of
its equity holders. The Bankruptcy Code also provides that, except for certain
claims classified for administrative convenience, a plan of reorganization may
place a claim of a creditor or an interest of an equity holder in a particular
class only if such claim or interest is substantially similar to the other
claims or interests in such class.
The Bankruptcy Code also requires that a plan of
reorganization provide the same treatment for each claim or interest of a
particular class unless the holder of a particular claim or interest agrees to
a less favorable treatment of its claim or interest. The Plan Proponents
believe that they have complied with such standard. If the Court finds
otherwise, however, it could deny confirmation of the Plan if the Claimholders
and Interestholders affected do not consent to the treatment afforded them
under the Plan.
The Proponents believe that they have classified all Claims
and Interests in compliance with the requirements of Bankruptcy Code section
1122, and that the Plan provides the best and most prompt possible recovery to
the holders of Claims and Interests. If a Claimholder or Interestholder
challenges such classification of Claims or Interests and the Court finds that
a different classification is required for the Plan to be confirmed, the
Proponents, to the extent permitted by the Court, intend to make such
modifications to the classifications of Claims or Interests under the Plan to
provide for whatever classification might be required by the Court for
confirmation. UNLESS SUCH MODIFICATION OF CLASSIFICATION ADVERSELY AFFECTS THE
TREATMENT OF A HOLDER OF A CLAIM OR INTEREST AND REQUIRES RESOLICITATION,
ACCEPTANCE OF THE PLAN BY ANY HOLDER OF A CLAIM OR INTEREST PURSUANT TO THIS
SOLICITATION WILL BE DEEMED TO BE A CONSENT TO THE PLAN'S TREATMENT OF SUCH
HOLDER OF A CLAIM OR INTEREST REGARDLESS OF THE CLASS AS TO WHICH SUCH HOLDER
IS ULTIMATELY DEEMED TO BE A MEMBER.
Procedures for the distribution of Cash pursuant to the Plan,
including matters that are expected to affect the timing of the receipt of
distributions by holders of Claims in certain Classes and that could affect the
amount of distributions ultimately received by such holders, are described in
Article IV.G - "SUMMARY OF THE PLAN - Distributions Under the Plan."
In accordance with Bankruptcy Code section 1123(a)(1),
Administrative Claims (including Professional Fee Claims) and Priority Tax
Claims have not been classified.
1. General Administrative Claims
General Administrative Claims are Claims that are incurred in
the ordinary course of business during the Chapter 11 Cases that are not
allocated to either the Consolidated SWINC Estate or the Consolidated SWE&C
Estate shall be paid in the ordinary course of business in accordance to the
terms and conditions of any agreements relating thereto out of available funds
prior to distributions being made to the Consolidated SWINC Estate and the
Consolidated SWE&C Estate.
(a) General Professional Fee Claims
39
General Professional Fee Claim are Administrative
Claims for compensation of Professionals or other entities for professional
services rendered or expenses incurred in the Chapter 11 Cases on or before the
Effective Date. All payments to Professionals for Professional Fee Claims will
be made in accordance with the procedures established in the Bankruptcy Code,
the Bankruptcy Rules, the United States Trustee Guidelines and the Bankruptcy
Court relating to the payment of interim and final compensation for services
rendered and reimbursement of expenses. The Bankruptcy Court will review and
determine all applications for compensation for services rendered and
reimbursement of costs.
2. Treatment of Claims Against and Interests in the
Consolidated SWINC Estate
(a) Unclassified Claims
(i) SWINC Administrative Claims
The Plan provides that SWINC Administrative
Claims, if any, are unimpaired.
SWINC Administrative Claim means a Claim
against SWINC or a SWINC Subsidiary for payment of an administrative expense of
a kind specified in Bankruptcy Code sections 503(b) or 1114(e)(2) and entitled
to priority pursuant to Bankruptcy Code section 507(a)(1), including, but not
limited to, (a) the actual, necessary costs and expenses incurred after the
Petition Date of preserving the SWINC Estates and operating the businesses of
the Debtors, including wages, salaries or commissions for services rendered
after the commencement of the Chapter 11 Cases, (b) Professional Fee Claims,
(c) all fees and charges assessed against the Estates under 28 U.S.C. ss. 1930
and (d) all Allowed Claims pursuant to a Final Order of the Court under
Bankruptcy Code section 546(c)(2)(A).
As of March 1, 2003, the books and records
of SWINC and the SWINC Subsidiaries reflected unpaid SWINC Administrative
Claims in the approximate amount of $3.8 million, consisting of primarily
accrued but unpaid professional fees (the total amount of the professional fees
already paid total $16.0 million and includes fees paid to professionals
retained under Bankruptcy Code sections 327(a) and (e) and professionals
retained in the ordinary course pursuant to court order). Assuming confirmation
in August of 2003, SWINC and the SWINC Subsidiaries estimate that the aggregate
amount of Allowed SWINC Administrative Claims in their Chapter 11 Cases,
including, among other things, professional fees previously paid pursuant to
the Professional Fee Order, will be approximately $27.6 million.
Each holder of an Allowed SWINC
Administrative Claim shall receive in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed SWINC Administrative Claim
(a) Cash equal to the unpaid portion of such Allowed SWINC Administrative Claim
or (b) such other treatment as to which the SWINC Plan Administrator and such
holder shall have agreed upon in writing.
(ii) SWINC Priority Tax Claims
SWINC Priority Tax Claim means a Claim
against SWINC or a SWINC Subsidiary that is entitled to priority pursuant to
Bankruptcy Code section 507(a)(8).
40
The Plan provides that Priority Tax Claims,
if any, are unimpaired. Each holder of an Allowed SWINC Priority Tax Claim
shall be entitled to receive on account of such Allowed SWINC Priority Tax
Claim, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed SWINC Priority Tax Claim, (i) equal Cash payments
made on the last Business Day of every three-month period following the
Effective Date, over a period not exceeding six years after the assessment of
the tax on which such Claim is based, totaling the principal amount of such
Claim plus simple interest on any outstanding balance from the Effective Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Effective Date, (ii) a single Cash payment to be made on the
Effective Date or as soon as practicable thereafter in an amount equivalent to
the amount of such Allowed Priority Tax Claim, or (iii) such other treatment as
to which SWINC or the SWINC Plan Administrator and such holder shall have
agreed upon in writing.
(b) Unimpaired Classes
(i) Class 1A: Secured Claims
(1) Class 1A.1 SWE&C Setoff Claim
SWE&C Setoff Claim means the Intercompany Claim of
the Consolidated SWE&C Estate against the Consolidated SWINC Estate. Under the
Plan, on the Effective Date the Class 1A.1 SWE&C Setoff Claim held by the
Consolidated SWE&C Estate shall be deemed offset against the Class 7B SWINC
Intercompany Claim by the Consolidated SWINC Estate, resulting in a net Allowed
Class 7B SWINC Intercompany Claim in the approximate amount of $20 million As a
result, the Allowed Class 1A.1 SWE&C Setoff Claim shall be deemed satisfied in
full.
(2) Class 1A.2 Miscellaneous Secured Claims
Miscellaneous Secured Claims means all Secured
Claims against SWINC or any SWINC Subsidiary other than the SWE&C Setoff Claim.
Under the Plan, on the Effective Date, each holder of an Allowed Class 1A.2
SWINC Miscellaneous Secured Claims shall receive in full satisfaction,
settlement, release and discharge of and in exchange for such Allowed Class
1A.2 SWINC Miscellaneous Secured Claim either (a) Cash equal to the unpaid
portion of such Allowed Class 1A.2 SWINC Miscellaneous Secured Claim or (b)
such other treatment as the SWINC Plan Administrator and such holder shall have
agreed upon in writing.
(ii) Class 2A SWINC Other Priority Claims
SWINC Other Priority Claim means a Claim
against SWINC or any SWINC Subsidiary entitled to priority pursuant to
Bankruptcy Code section 507(a) other than a SWINC Administrative Claim or SWINC
Priority Tax Claim. Under the Plan, each holder of such an Allowed Class 2A
SWINC Other Priority Claim shall receive in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Class 2A SWINC Other
Priority Claim (a) Cash equal to the unpaid portion of such Allowed Class 2A
SWINC Other Priority Claim or (b) such other treatment as to which the SWINC
Plan Administrator and such holder shall have agreed upon in writing.
(c) Impaired Classes of Claims and Interests
(i) Class 3A SWINC Asbestos Claims
41
SWINC Asbestos Claims means all Asbestos
Claims asserted against SWINC or the SWINC Subsidiaries. Under the Plan, as of
the Effective Date, liability, if any, for all Asbestos Claims against SWINC or
the SWINC Subsidiaries shall be automatically and without further act or deed
be deemed assumed by and shall be the sole responsibility of the Asbestos
Trust. Each holder of an Allowed Class 3A SWINC Asbestos Claim shall receive in
full satisfaction, settlement, release and discharge of and in exchange for
such Allowed Class 3A SWINC Asbestos Claim (a) its Pro Rata share of the
Asbestos Trust Assets (set forth in Article VII.L of the Plan), subject to the
terms and conditions of the Asbestos Trust Agreement or (b) such other
treatment as to which the Asbestos Trustee and the holder of such Allowed Class
3A Asbestos Claim shall have agreed upon in writing.
Under the Plan, Allowed Class 3A SWINC
Asbestos Claims are characterized as impaired because the Proponents are unable
to determine whether the Available Asbestos Trust Cash plus any Insurance
Proceeds with respect to a specific Allowed Class 3A SWINC Asbestos Claim will
be adequate to pay all Allowed Class 3A SWINC Asbestos Claims in full. In over
15 years of liquidating Asbestos Claims, the Asbestos Insurance Coverage
available to the Debtors has been more than adequate to satisfy such claims.
Under a pre-petition arrangement with the Asbestos Insurance Carriers, the
Debtors also agreed to contribute a certain percentage towards the liquidation
and indemnification of Asbestos Claims. In addition, SWEC entered into two pre-
petition settlement agreements (as more specifically defined in the Plan, the
"Weitz & Luxenberg Agreements") with the law firm of Weitz & Luxenberg, P.C.,
that relate to pending and future asbestos-related personal injury cases. The
Debtors will assume the Weitz & Luxenberg Agreements in connection with the
Plan. To date, the amount of cash funds paid out by the Debtors in connection
with Asbestos Claims is less than the amount to be contributed by the Debtors
to the Asbestos Trust. The Proponents believe, therefore, based on the Debtors'
historical liability for Asbestos Claims and an understanding of the Asbestos
Insurance Coverage, that the holder of Class 3A Allowed Asbestos claims will
receive from the Available Asbestos Trust Cash and the Insurance Proceeds at
least the same percentage recovery as they would receive if they held Allowed
Claims in Class 5A General Unsecured Claims and as much as the holder would be
entitled to under the Weitz & Luxenberg Agreements. Accordingly, the Proponents
of the Plan have characterized the Class 3A Asbestos Claims as impaired and
seek a vote of the Class 3A to bind all members of Class 3A SWINC Asbestos
Claims to the treatment of such Claims proposed in the Plan. In the event that
the Proponents are unable to confirm the Plan with the Class 3A SWINC Asbestos
Claims, the Proponents reserve their right to modify the Plan to seek
confirmation of a Plan wherein the Class 3A SWINC Asbestos Claims are combined
with and treated the same as Class 5A SWINC General Unsecured Claims.
(ii) Class 4A SWINC Convenience Claims
SWINC Convenience Claims are Allowed SWINC
General Unsecured Claims that elect to receive in full satisfaction, release
and discharge of and in exchange for such Allowed Class 5A SWINC General
Unsecured Claim, the lesser of $1,000 or 50% of their Allowed Class 5A SWINC
General Unsecured Claims. Under the Plan, on the Effective Date, each holder of
an Allowed Class 5A SWINC General Unsecured Claim that elects to be treated as
a holder of a Class 4A SWINC Convenience Class Claim shall receive in full
satisfaction, release and discharge of and in exchange for such Allowed Class
5A SWINC General Unsecured Claim, the lesser of $1,000 or 50% of its Allowed
Class 5A SWINC General Unsecured Claim. Only holders of Class 5A SWINC General
Unsecured Claims who vote in favor of the Plan may elect to have their claim
treated as a Class 4A SWINC Convenience Claim.
42
(iii) Class 5A SWINC General Unsecured Claims
SWINC General Unsecured Claim means a Claim
against SWINC that is not a SWINC Administrative Claim, SWINC Priority Tax
Claim, SWINC Other Priority Claim, SWINC Secured Claim, SWINC Securities Claim,
SWINC Asbestos Claim, SWINC Convenience Claim, SWINC Intraestate Claim, or
SWINC Subordinated Claim. Under the Plan, on the Effective Date, each holder of
an Allowed Class 5A SWINC General Unsecured Claim shall receive its Pro Rata
share of the Initial Class 5A Distribution Amount. On each ensuing Semi-Annual
Distribution Date, each holder of an Allowed Class 5A SWINC General Unsecured
Claim shall receive its Pro Rata share of the Semi-Annual Class 5A Distribution
Amount. SWINC Guaranty Claims will not be Allowed SWINC General Unsecured
Claims until the underlying Claim for which there is a Guaranty (the "Primary
Claim") is fixed and determined and a final distribution from SWE&C, a SWE&C
Subsidiary or other obligator has been made on the Primary Claim.
(iv) Class 6A SWINC Intraestate Claims
SWINC Intraestate Claim means an
Intercompany Claim between SWINC and any SWINC Subsidiary. Under the Plan, in
connection with, and as a result of, the substantive consolidation of SWINC and
the SWINC Subsidiaries into the Consolidated SWINC Estate, all Class 6A SWINC
Intraestate Claims shall be forgiven and cancelled as of the Effective Date and
the holders of Class 6A Consolidated SWINC Intraestate Claims shall not be
entitled to and shall not receive or retain any property or interest on account
of such Claims.
(v) Class 7A SWINC Subordinated Claims
Subordinated SWINC Claim means a
Subordinated Claim against SWINC or any SWINC Subsidiary subordinated pursuant
to a Final Order under Bankruptcy Code section 510(c). Under the Plan, upon the
payment in full of the Allowed Class 4A SWINC Convenience Class Claims and the
Allowed Class 5A SWINC General Unsecured Claims or as soon thereafter as is
practicable, each holder of an Allowed Class 7A SWINC Subordinated Claim shall
receive its Pro Rata share of the Initial Class 7A Distribution Amount, if any.
On each ensuing Semi- Annual Distribution Date, each holder of an Allowed Class
7A SWINC Subordinated Claim shall receive its Pro Rata share of the Semi-Annual
Class 7A Distribution Amount.
(vi) Class 8A SWINC Securities Claims
SWINC Securities Claim means (a) any claim
or demand whenever and wherever arising or asserted against SWINC or any SWINC
Subsidiary, their predecessors, successors, or their present or former
officers, directors or employees and (b) any debt, obligation or liability
(whether or not reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, bonded,
secured, or unsecured), whenever and wherever arising or asserted, of SWINC or
any SWINC Subsidiary, their predecessors, successors, or their present or
former officers, directors or employees (including, but not limited to, all
thereof in the nature of or sounding in tort, contract, warranty, or any other
theory of law, equity or admiralty); in either case (a) and (b) for, relating
to, or arising by reason of, directly or indirectly, the ownership of Old
Securities, including, but not limited to, any Claim subject to subordination
under Bankruptcy Code section 510(b).
43
Under the Plan, upon the payment in full of
Allowed Class 4A SWINC Convenience Class Claims, Allowed Class 5A SWINC General
Unsecured Claims, and Allowed Class 7A SWINC Subordinated Claims, each holder
of an Allowed Class 8A SWINC Securities Claim (less any insurance proceeds
actually received and retained by such holder in respect of such Allowed Class
8A SWINC Securities Claim) shall receive its Pro Rata share (as diluted by
Allowed Class 9A SWINC Equity Interests) of (i) the remaining Available Cash in
the SWINC Disputed Claims Reserve and (ii) any amounts remaining that were paid
to the SWINC Plan Administrator as a liquidation preference with respect to the
SWINC New Series A Preferred Stock after all Allowed Class 4A SWINC Convenience
Class Claims, Allowed Class 5A SWINC General Unsecured Claims and Allowed Class
7A SWINC Subordinated Claims have been satisfied. On each ensuing Semi-Annual
Distribution Date, each holder of an Allowed Class 8A SWINC Securities Claim
shall receive its Pro Rata share (as diluted by Allowed Class 9A SWINC Equity
Interests) of the remaining Available Cash in the SWINC Disputed Claims Reserve
and remaining Available Cash paid to the SWINC Plan Administrator as the
liquidation preference with respect to the SWINC New Series A Preferred Stock.
Upon receipt by the holder of an Allowed Class 8A SWINC Securities Claim of any
amounts distributed under the Plan in respect of such claim, such holder shall
be deemed to have assigned to the SWINC Plan Administrator all rights of the
holder to recover such amounts from the applicable insurer.
(vii) Class 9A SWINC Equity Interests
SWINC Equity Securities means,
collectively, the Old Common Stock and the Old Common Stock Options. In the
event that Class 9A SWINC Equity Interests vote to accept the Plan, then on the
Effective Date, or as soon thereafter as practicable, each holder of an Allowed
SWINC Equity Interest that votes to accept the Plan shall receive $0.50 per
share of Old Common Stock held by such holder from the Equity Settlement Fund.
In addition, upon the payment in full of the Allowed Class 5A SWINC General
Unsecured Claims, the Allowed Class 4A SWINC Convenience Class Claims, and the
Allowed Class 7A SWINC Subordinated Claims, each holder of an Allowed Class 9A
SWINC Equity Interest shall receive its Pro Rata share (as may be diluted by
Allowed Class 8A SWINC Securities Claims) of (i) the remaining Available Cash
in the SWINC Disputed Claims Reserve and (ii) any amounts remaining that were
paid to the SWINC Plan Administrator as a liquidation preference with respect
to the SWINC New Series A Preferred Stock after all Allowed Class 4A SWINC
Convenience Class Claims, Allowed Class 5A SWINC General Unsecured Claims and
Allowed Class 7A SWINC Subordinated Claims have been satisfied. On each ensuing
Semi-Annual Distribution Date, each holder of an Allowed Class 9A SWINC Equity
Interest shall receive its Pro Rata share (as may be diluted by Allowed Class
8A SWINC Securities Claims) of the remaining Available Cash paid to the SWINC
Plan Administrator as the remaining liquidation preference with respect to the
SWINC New Series A Preferred Stock.
In the event that Class 9A SWINC Equity
Interests vote to reject the Plan, then, upon the payment in full of the
Allowed Class 4A SWINC Convenience Class Claims, the Allowed Class 5A SWINC
General Unsecured Claims, and the Allowed Class 7A SWINC Subordinated Claims,
each holder of an Allowed Class 9A SWINC Equity Interest shall receive its Pro
Rata share (as may be diluted by Allowed Class 8A SWINC Securities Claims) of
(i) the remaining Available Cash in the SWINC Disputed Claims Reserve and (ii)
any amounts remaining that were paid to the SWINC Plan Administrator as a
liquidation preference with respect to the SWINC New Series A Preferred Stock
afer all Allowed Class 4A SWINC Convenience Class Claims, Allowed Class 5A
General Unsecured Claims and Allowed Class 7A Subordinated Claims have been
satisfied.. On each ensuing Semi-Annual Distribution Date, each holder of an
Allowed Class 9A SWINC Equity Interest shall receive its Pro Rata share (as may
be diluted by Allowed Class 8A
44
SWINC Securities Claims) of the and remaining Available Cash paid to the SWINC
Plan Administrator as the liquidation preference with respect to the SWINC New
Series A Preferred Stock.
Under the Plan, on the Effective Date, all Old Common Stock
and Old Common Stock Options will be canceled on the Effective Date.
(viii) Class 10A SWINC Subsidiary Interests
SWINC Subsidiary Interest means any and all
Interests in a SWINC Subsidiary. Under the Plan, in connection with, and as a
result of, the substantive consolidation of SWINC and the SWINC Subsidiaries
into the Consolidated SWINC Estate, all Interests in the SWINC Subsidiaries
shall be deemed cancelled as of the Effective Date and the holders of Class 10A
SWINC Subsidiary Interests shall not be entitled to and shall not receive or
retain any property or interest on account of such Interests.
3. Treatment of Claims Against and Interests in the Consolidated SWE&C
Estates
(a) Unclassified Claims
(i) SWE&C Administrative Claims
SWE&C Administrative Claim means a Claim
against SWE&C or any SWE&C Subsidiary for payment of an administrative expense
of a kind specified in Bankruptcy Code sections 503(b) or 1114(e)(2) and
entitled to priority pursuant to Bankruptcy Code section 507(a)(1), including,
but not limited to, (a) the actual, necessary, costs and expenses, incurred
after the Petition Date, of preserving the SWE&C Estates and operating the
businesses of the Debtors, including wages, salaries or commissions for
services rendered after the commencement of the Chapter 11 Cases, (b)
Professional Fee Claims, (c) all fees and charges assessed against the Estates
under 28 U.S.C. ss. 1930 and (d) all Allowed Claims pursuant to a Final Order
of the Court under Bankruptcy Code section 546(c)(2)(A).
As of March 1, 2003, the books and records
of SWE&C and the SWE&C Subsidiaries reflected unpaid SWE&C Administrative
Claims in the approximate amount of $4.5 million, consisting of primarily
accrued but unpaid professional fees (the total amount of professional fees
already paid total $20.5 million and includes fees paid to professionals
retained under Bankruptcy Code sections 327(a) and (e) and professionals
retained in the ordinary course pursuant to court order). Assuming confirmation
in August of 2003, SWE&C and the SWE&C Subsidiaries estimate that the aggregate
amount of Allowed SWE&C Administrative Claims in their Chapter 11 Cases,
including, among other things, professional fees previously paid pursuant to
the Professional Fee Order, will be approximately $36.7 million.
Under the Plan, on, or as soon as
reasonably practicable after, the later of (i) the Effective Date or (ii) the
first Semi-Annual Distribution Date after the date an Administrative Claim
becomes an Allowed SWE&C Administrative Claim, each holder of an Allowed SWE&C
Administrative Claim shall receive a beneficial interest in the SWE&C
Liquidating Trust entitling such holder to receive in full satisfaction,
release and discharge of and in exchange for such Allowed SWE&C Administrative
Claim (a) Cash equal to the unpaid portion of such Allowed SWE&C Administrative
Claim or (b) such other treatment as to which SWE&C and/or the SWE&C
Liquidating Trustee and such holder shall have agreed upon in writing.
45
(ii) SWE&C Priority Tax Claims
SWE&C Priority Tax Claim means a Claim
against SWE&C or a SWE&C Subsidiary that is entitled to priority pursuant to
Bankruptcy Code section 507(a)(8).
Under the Plan, each holder of an Allowed
SWE&C Priority Tax Claim, at the sole option of the SWE&C Liquidating Trustee,
shall be entitled to receive a beneficial interest in the SWE&C Liquidating
Trust entitling such holder to receive in full satisfaction, release and
discharge of and in exchange for such Allowed Priority Tax Claim, (i) equal
Cash payments made on the last Business Day of every three-month period
following the Effective Date, over a period not exceeding six years after the
assessment of the tax on which such Claim is based, totaling the principal
amount of such Claim plus simple interest on any outstanding balance from the
Effective Date calculated at the interest rate available on ninety (90) day
United States Treasuries on the Effective Date, (ii) a single Cash payment to
be made on the Effective Date or as soon as practicable thereafter in an amount
equivalent to the amount of such Allowed SWE&C Priority Tax Claim, or (iii)
such other treatment as to which the SWE&C Liquidating Trustee and such holder
shall have agreed upon in writing.
(b) Unimpaired Classes of Claims and Interests
(i) Class 1B SWE&C Miscellaneous Secured Claims
SWE&C Miscellaneous Secured Claims means
all Secured Claims against SWE&C or any SWE&C Subsidiary. The Plan provides
that on the Effective Date, each holder of Allowed Class 1B SWE&C Miscellaneous
Secured Claims shall receive either (a) Cash equal to the unpaid portion of
such Allowed SWE&C Miscellaneous Secured Claim or (b) such other treatment as
to which the SWE&C Liquidating Trustee and the holder of such Allowed Class 1B
SWE&C Miscellaneous Secured Claim agree to in writing.
(ii) Class 2B SWE&C Other Priority Claims
SWE&C Other Priority Claim means a Claim
against SWE&C or any SWE&C Subsidiary entitled to priority pursuant to
Bankruptcy Code section 507(a) other than a SWE&C Administrative Claim or SWE&C
Priority Tax Claim. Under the Plan, on, or as soon as reasonably practicable
after, the later of (i) the Effective Date or (ii) the first Semi-Annual
Distribution Date after the date such Class 2B SWE&C Other Priority Claim
becomes an Allowed Class 2B SWE&C Other Priority Claim, each holder of an
Allowed Class 2B SWE&C Other Priority Claim shall receive in full satisfaction,
settlement, release and discharge of and in exchange for such Allowed Class 2B
SWE&C Other Priority Claim (a) Cash equal to the unpaid portion of such Allowed
Class 2B SWE&C Other Priority Claim or (b) such other treatment as to which the
SWE&C Liquidating Trustee and such holder shall have agreed upon in writing.
(c) Impaired Classes of Claims and Interests
(i) Class 3B SWE&C Asbestos Claims
46
SWE&C Asbestos Claim means all Asbestos
Claims asserted against SWE&C or any SWE&C Subsidiary. Under the Plan, as of
the Effective Date, liability, if any, for all Asbestos Claims against SWE&C or
the SWE&C Subsidiaries shall be automatically and without further act or deed
assumed by and shall be the sole responsibility of the Asbestos Trust. Each
holder of an Allowed Class 3B SWE&C Asbestos Claim shall receive in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class 3B SWE&C Asbestos Claim (a) its Pro Rata share of the Asbestos
Trust Assets (set forth in Article VII.L. of the Plan), subject to the terms
and conditions of the Asbestos Trust Agreement or (b) or such other treatment
as to which the Asbestos Trustee and such holder shall have agreed upon in
writing.
Under the Plan, Allowed Class 3B SWE&C
Asbestos Claims are characterized as impaired because the Proponents are unable
to determine whether the Available Asbestos Trust Cash plus any Insurance
Proceeds with respect to a specific Allowed Class 3B SWE&C Asbestos Claim will
be adequate to pay all Allowed Class 3B SWE&C Asbestos Claims in full. In over
15 years of liquidating Asbestos Claims, the Asbestos Insurance Coverage
available to the Debtors has been more than adequate to satisfy such claims.
Under a pre-petition arrangement with the Asbestos Insurance Carriers, the
Debtors also agreed to contribute a certain percentage towards the liquidation
and indemnification of Asbestos Claims. In addition, SWEC entered into two
pre-petition settlement agreements (as more specifically defined in the Plan,
the "Weitz & Luxenberg Agreements") with the law firm of Weitz & Luxenberg,
P.C., that relate to pending and future asbestos-related personal injury cases.
The Debtors will assume the Weitz & Luxenberg Agreements in connection with the
Plan. To date, the amount of cash funds paid out by the Debtors in connection
with Asbestos Claims is less than the amount to be contributed by the Debtors
to the Asbestos Trust. The Proponents believe, therefore, based on the Debtors'
historical liability and an understanding of the Asbestos Insurance Coverage,
that the holder of Class 3A Allowed Asbestos claims will receive from the
Available Asbestos Trust Cash and the Insurance Proceeds at least the same
percentage recovery as they would receive if they held Allowed Claims in Class
5A General Unsecured Claims and as much as the holder would be entitled to
under the Weitz & Luxenberg Agreements. Accordingly, the Proponents of the Plan
have characterized the Class 3A Asbestos Claims as impaired and seek a vote of
the Class 3A to bind all members of Class 3B SWE&C Asbestos claims to the
treatment of such Claims proposed in the Plan. In the event that the Proponents
are unable to confirm the Plan with the Class 3B SWE&C Asbestos Claims, the
Proponents reserve their right to modify the Plan to seek confirmation of a
Plan wherein the Class 3B SWE&C Asbestos Claims are combined with and treated
the same as Class 5B SWE&C General Unsecured Claims.
(ii) Class 4B SWE&C Convenience Claims
SWE&C Convenience Claims are Allowed SWE&C
General Unsecured Claims that elect to receive in full satisfaction, release
and discharge of and in exchange for such Allowed Class 5B SWE&C General
Unsecured Claim, the lesser of $1,000 or 50% of their Allowed Class 5B SWE&C
General Unsecured Claims. Under the Plan, on the Effective Date, each holder of
an Allowed Class 5B SWE&C General Unsecured Claim that elects to be treated in
Class 4B shall receive a beneficial interest in the SWE&C Liquidating Trust
entitling such holder to receive in full satisfaction, release and discharge of
and in exchange for such Allowed Class 5B SWE&C General Unsecured Claim, the
lesser of $1,000 or 50% of its Allowed Class 5B SWE&C General Unsecured Claim.
Only holders of Class 5B SWE&C General Unsecured Claims who vote in favor of
the Plan may elect to have their claim treated as a Class 4B SWE&C Convenience
Claim.
(iii) Class 5B SWE&C General Unsecured Claims
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SWE&C General Unsecured Claim means a Claim
against SWE&C that is not a SWE&C Administrative Claim, SWE&C Priority Tax
Claim, SWE&C Other Priority Claim, SWE&C Miscellaneous Secured Claim, SWE&C
Asbestos Claim, SWE&C Intraestate Claim, SWE&C Intercompany Claim, SWE&C
Convenience Claim, SWE&C Securities Claim, or SWE&C Subordinated Claim.
The Plan provides that on, or as soon as
reasonably practicable after, the later of (i) the Effective Date or (ii) the
first Semi-Annual Distribution Date after such Class 5B SWE&C General Unsecured
Claim becomes an Allowed Class 5B SWE&C General Unsecured Claim, each holder of
an Allowed Class 5B SWE&C General Unsecured Claim shall receive a beneficial
interest in the SWE&C Liquidating Trust entitling such holder to receive in
full satisfaction, release and discharge of and in exchange for such Allowed
Class 5B SWE&C General Unsecured Claim its Pro Rata share of the Semi-Annual
Class 5B Distribution Amount.
(iv) Class 6B SWE&C Intraestate Claims
SWE&C Intraestate Claim means an
Intraestate Claim between SWE&C and any SWE&C Subsidiary. Under the Plan, in
connection with and as a result of the substantive consolidation of SWE&C and
the SWE&C Subsidiaries into the Consolidated SWE&C Estates, all Class 6B SWE&C
Intraestate Claims shall be eliminated and the holders of Class 6B SWE&C
Intraestate Claims shall not be entitled to and shall not receive or retain any
property or interest on account of such Claims.
(v) Class 7B SWINC Intercompany Claims
Class 7B consists of the Intercompany
Claims of SWINC or any SWINC Subsidiaries against the Consolidated SWE&C Estate
after giving effect to the SWE&C Setoff Claim.
Under the Plan, holders of Class 7B SWINC
Intercompany Claims shall not receive or retain any distribution on account of
such Allowed Class 7B SWINC Intercompany Claim.
(vi) Class 8B SWE&C Subordinated Claims
Subordinated SWE&C Claim means a claim
against SWE&C or any SWE&C Subsidiary subordinated pursuant to a Final Order
under Bankruptcy Code section 510(c). The Plan provides that holders of Allowed
Class 8B SWE&C Subordinated Claims shall not receive or retain any distribution
on account of such Class 8B SWE&C Subordinated Claim.
(vii) Class 9B SWE&C Subsidiary Interests
SW&C Subsidiary Interest means any and all
Interests in a SWE&C Subsidiary. Under the Plan, in connection with, and as a
result of, the substantive consolidation of SWE&C and the SWE&C Subsidiaries,
on the Effective Date or such other date set by an order of the Court, all
Interests in the SWE&C Subsidiaries shall be eliminated and the holders of
Class 9B SWE&C Subsidiary Interests shall not be entitled to and shall not
receive or retain any property or interest on account of such Interests.
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(viii) Class 10B SWE&C Interests
SWE&C Interest means(a) the legal,
equitable, contractual and other rights of any Person with respect to the Old
Common Stock, Old Common Stock Options or any other equity or membership
interest in SWE&C or any SWE&C Subsidiary and (b) the legal, equitable,
contractual or other rights of any Person to acquire or receive any of the
foregoing. Under the Plan, in connection with, and as a result of, the
substantive consolidation of SWE&C and the SWE&C Subsidiaries, on the Effective
Date or such other date set by an order of the Court, all Interests in SWE&C
shall be eliminated and the holders of Class 10B SWE&C Interests shall not be
entitled to and shall not receive or retain any property or interest on account
of such Interests.
F. Distributions Under the Plan
The SWINC Disbursing Agent shall make all distributions
required under the Plan on account of Claims against and Interests in the
Consolidated SWINC Estate. If the SWINC Disbursing Agent is an independent
third party designated by the SWINC Plan Administrator to serve in such
capacity, then the SWINC Disbursing Agent shall receive, without further Court
approval, reasonable compensation for distribution services rendered pursuant
to the Plan and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services from SWINC on terms acceptable to the SWINC Plan
Administrator. The SWINC Disbursing Agent shall not be required to give any
bond or surety or other security for the performance of its duties unless
otherwise ordered by the Court.
The SWE&C Disbursing Agent shall make all distributions
required under the Plan on account of Claims against the Consolidated SWE&C
Estate. If the SWE&C Liquidating Trust Disbursing Agent is an independent third
party designated by the SWE&C Liquidating Trust to serve in such capacity, then
the SWE&C Liquidating Trust Disbursing Agent shall receive, without further
Court approval, reasonable compensation for distribution services rendered
pursuant to the Plan and reimbursement of reasonable out-of-pocket expenses
incurred in connection with such services from the SWE&C Liquidating Trust on
terms acceptable to the SWE&C Liquidating Trust. The SWE&C Liquidating Trust
Disbursing Agent shall not be required to give any bond or surety or other
security for the performance of its duties unless otherwise ordered by the
Court.
Cash payments made pursuant to the Plan shall be in U.S.
funds, by the means agreed to by the payor and the payee, including by check or
wire transfer or, in the absence of an agreement, such commercially reasonable
manner as the payor shall determine in its sole discretion.
1. Sources of Cash for Plan Distributions
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the SWINC Plan Administrator and the SWINC
Disbursing Agent, as the case may be, to make payments pursuant to the Plan to
holders of the Claims against and Interests in SWINC, the SWINC Subsidiaries or
the Consolidated SWINC Estates shall be obtained from (i) the Cash balances of
SWINC and the SWINC Subsidiaries, including Cash from the market value
allocation of the Sale Proceeds, and (ii) the liquidation of the remaining
non-Cash assets, if any, of SWINC, the SWINC Subsidiaries and the Consolidated
SWINC Estates and (iii) the liquidation of the remaining non-Cash assets, if
any, of SWINC and the SWINC Subsidiaries.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the SWE&C Liquidating Trustee and the SWE&C
Liquidating Trust Disbursing Agent,
49
as the case may be, to make payments pursuant to the Plan to holders of Claims
against SWE&C, the SWE&C Subsidiaries or the SWE&C Liquidating Trust shall be
obtained from (i) the Cash balances of SWE&C and the SWE&C Subsidiaries,
including Cash from the market value allocation of the Sale Proceeds, (ii)
proceeds derived from the repayment of the Reorganized SWINC Note, and (iii)
the liquidation of the remaining non-Cash assets, if any, of SWE&C and the
SWE&C Subsidiaries.
2. Distributions for Claims or Interests Allowed as of the Effective
Date
Except as otherwise provided in the Plan or as ordered by the
Court, distributions to be made on account of Claims or Interests that are
Allowed Claims or Allowed Interests as of the Effective Date shall be made on
the Effective Date. Any distribution to be made on the Effective Date pursuant
to the Plan shall be deemed as having been made on the Effective Date if such
distribution is made on the Effective Date or as soon thereafter as is
practicable. Any payment or distribution required to be made under the Plan on
a day other than a Business Day shall be made on the next succeeding Business
Day. Distributions on account of Claims or Interests that first become Allowed
Claims or Allowed Interests after the Effective Date shall be made on the first
Semi-Annual Distribution Date following the date on which the Claim or Interest
was Allowed unless otherwise provided in the terms and conditions of the SWINC
Plan Administrator Agreement, the SWE&C Liquidating Trust Agreement, the
Asbestos Trust Agreement, Articles IV, VII and IX of the Plan, or any contract,
instrument or other agreement created in connection with the Plan.
(a) Interest on Claims or Interests
Unless otherwise specifically provided for in the
Plan or Confirmation Order, or required by applicable bankruptcy law,
postpetition interest shall not accrue or be paid on any Claims or Interests,
and no holder of a Claim or Interest shall be entitled to interest accruing on
or after the Petition Date on any Claim or Interest. Interest shall not accrue
or be paid upon any Disputed Claim or Disputed Interest in respect of the
period from the Petition Date to the date a final distribution is made thereon
if and after such Disputed Claim or Disputed Interest becomes an Allowed Claim
or Allowed Interest.
(b) Notification Date for Distributions to Holders of
Equity Interests
At the close of business on the Distribution
Notification Date, the transfer ledgers for the Old Securities shall be closed,
and there shall be no further changes in the record holders of the Old
Securities. Neither the SWINC Plan Administrator nor the SWINC Disbursing Agent
shall have any obligation to recognize any transfer of such Old Securities
occurring after the Distribution Notification Date and shall be entitled
instead to recognize and deal for all purposes with only those record holders
as of the close of business on the Distribution Notification Date.
(c) Fractional Dollars; De Minimus Distributions
Notwithstanding any other provision of the Plan, the
SWINC Disbursing Agent and the SWE&C Liquidating Trust Disbursing Agent shall
(i) not be required to make distributions or payments of fractions of dollars,
and whenever any payment of a fraction of a dollar under the Plan would
otherwise be called for, the actual payment made shall reflect a rounding of
such fraction to the nearest whole dollar (up or down), with half dollars being
rounded down; and (ii) have
50
no obligation to make a distribution on account of an Allowed Claim from any
Reserve or account (a) to any holder of an Allowed Claim if the aggregate
amount of all distributions authorized to be made from all such Reserves or
accounts on the particular Distribution Date in question is less than
$1,000,000 or (b) to a specific holder of an Allowed Claim if the amount to be
distributed to that holder on the particular Distribution Date (1) does not
constitute a final distribution to such holder and (2) is less than $100.00.
(d) Delivery of Distributions
Distributions to holders of Allowed Claims or
Allowed Interests shall be made at the addresses set forth in the Amended
Schedules unless such addresses are superseded by proofs of claim or interest
or transfers of claim filed pursuant to Bankruptcy Rule 3001 (or at the last
known addresses of such holders if the SWINC Disbursing Agent or the SWE&C
Liquidating Trust Disbursing Agent as the case may be, has been notified in
writing of a change of address).
If the distribution to any holder of an Allowed
Claim or Allowed Interest is returned to the SWINC Disbursing Agent or the
SWE&C Liquidating Trust Disbursing Agent as undeliverable or is otherwise
unclaimed, no further distributions shall be made to such holder unless and
until the SWINC Disbursing Agent or the SWE&C Liquidating Trust Disbursing
Agent is notified in writing of such holder's then-current address.
Undeliverable and unclaimed distributions shall be set aside or, in the case of
a Cash distribution, deposited in a segregated, interest-bearing account,
designated as an "unclaimed distribution reserve" (the "Unclaimed Distribution
Reserve"), for the benefit of all such similarly situated Persons until such
time as a distribution becomes deliverable or is claimed.
(e) Surrender of Securities or Instruments
On or before the Effective Date, or as soon as
practicable thereafter, each holder of an instrument evidencing an Interest on
account of Old Securities (as to each, a "Certificate") shall surrender such
Certificate to the SWINC Disbursing Agent and such Certificate shall be
cancelled; provided, however, that the surrender and cancellation of such
Certificates pursuant to or under the Plan shall in no way impair or affect the
right of any holder to pursue any claims against non-Debtors in any of the
Securities Actions. No distribution of property shall be made to or on behalf
of any such holder unless and until such Certificate is received by the SWINC
Disbursing Agent or the unavailability of such Certificate is reasonably
established to the satisfaction of the SWINC Disbursing Agent. Any such holder
who fails to surrender or cause to be surrendered such Certificate or fails to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to the SWINC Disbursing Agent prior to the second (2nd) anniversary of the
Effective Date, shall be deemed to have forfeited all rights and interests in
respect of such Certificate and shall not participate in any distribution and
all property in respect of such forfeited distribution, including interest
accrued thereon, shall revert to the SWINC Plan Administrator for the benefit
of the Claimholders and Interestholders of SWINC notwithstanding any federal or
state escheat laws to the contrary.
3. Resolution and Treatment of Disputed, Contingent and
Unliquidated Claims and Disputed Interests
(a) Prosecution of Objections
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Except as otherwise provided in the Plan or any
contract, instrument or other agreement created in connection with the Plan, no
later than the SWINC Claims Objection Deadline (unless extended by an order of
the Court), the SWINC Plan Administrator shall have the exclusive authority to
file objections to Claims against or Interests in the Consolidated SWINC Estate
with the Court and serve such objections upon the holders of each of the Claims
or Interests to which objections are made. Nothing contained in the Plan,
however, shall limit the right of the SWINC Plan Administrator to object to
Claims against or Interests in the Consolidated SWINC Estate, if any, filed,
amended or reclassified after the SWINC Claims Objection Deadline. Subject to
the limitations set forth in the SWINC Plan Administrator Agreement and Article
VII.K.6 of the Plan, the SWINC Plan Administrator shall be authorized to, and
shall, resolve all Disputed Claims against or Disputed Interests in the
Consolidated SWINC Estate by withdrawing or settling such objections thereto,
or by litigating to judgment in the Court or such other court having
jurisdiction the validity, nature and/or amount thereof.
Except as otherwise provided in the Plan or any
contract, instrument or other agreement created in connection with the Plan, no
later than the SWE&C Claims Objection Deadline (unless extended by an order of
the Court), the SWE&C Liquidating Trustee shall have the exclusive authority to
file objections to Claims against or Interests in the Consolidated SWE&C Estate
with the Court and serve such objections upon the holders of each of the Claims
against or Interests in the Consolidated SWE&C Estate to which objections are
made. Nothing contained in the Plan, however, shall limit the right of the
SWE&C Liquidating Trustee to object to Claims against or Interests in the
Consolidated SWE&C Estate, if any, filed or amended after the SWE&C Claims
Objection Deadline. Subject to the limitations set forth in the SWE&C
Liquidating Trust Agreement and Article VII.N of the Plan, the SWE&C
Liquidating Trustee shall be authorized to, and shall, resolve all Disputed
Claims against or Disputed Interests in the Consolidated SWE&C Estate by
withdrawing or settling such objections thereto, or by litigating to judgment
in the Court or such other court having jurisdiction the validity, nature
and/or amount thereof.
(b) No Distributions Pending Allowance
Notwithstanding any other provision of the Plan, no
payments or distributions shall be made with respect to all or any portion of a
Disputed Claim or Disputed Interest unless and until all objections to such
Disputed Claim or Disputed Interest have been settled or withdrawn or have been
determined by Final Order, and the Disputed Claim or the Disputed Interest, or
some portion thereof, has become an Allowed Claim or Allowed Interest. All
Guaranty Claims are deemed Disputed Claims until the amount of any deficiency
in payment by the primary obligor is fixed and determined and no distribution
will be made on a Guaranty Claim until the holder of such claim has received
the entire payment or distribution that it will receive from the primary
obligor.
(c) Reserves
On the Effective Date or as soon thereafter as
practicable, the following Reserves will be established and funded:
(i) General Administrative Claims Reserve
On the Effective Date, there shall be created and
funded with Cash, a General Administrative Claims Reserve in the amount of
$11.1 million, to be used to pay under the
52
Plan Allowed General Administrative Claims including General Professional Fee
Claims. In the event that any Cash remains in the General Administrative Claims
Reserve after the payment in full of General Administrative Claims, such amount
shall be distributed 50% to the SWINC Disputed Claims Reserve and 50% to the
SWE&C Disputed Claims Reserve.
(ii) The SWINC Professional Fee Reserve
On the Effective Date, there shall be created and
funded with Cash, the SWINC Professional Fee Reserve in the amount of $2
million to be used to pay Allowed Professional Fee Claims held by (i) counsel
and any advisers to the Equity Committee and (ii) any professionals working
exclusively on behalf of SWINC or any SWINC Subsidiary. In the event that any
Cash remains in the SWINC Professional Fee Reserve after payment of the Allowed
SWINC Professional Fee Claims, such Cash shall be distributed to the SWINC
Disputed Claims Reserve.
(iii) SWINC Operating Reserve
On the Effective Date, there shall be created and
funded with Cash, a SWINC Operating Reserve in the amount of $3 million, which
amount shall be used to pay the administrative and other costs and expenses
associated with the Consolidated SWINC Estate, including all fees and expenses
of the SWINC Plan Administrator, and its professionals. In the event that Cash
in the SWINC Operating Reserve is exhausted, the SWINC Plan Administrator, in
his or her sole discretion, has the right to obtain such additional Cash from
the SWINC Disputed Claims Reserve so as to replenish the SWINC Operating
Reserve. In the event that any Cash remains in the SWINC Operating Reserve
after the final resolution of all Claims Against or Interests in the
Consolidated SWINC Estate, such Cash shall be distributed to the SWINC Disputed
Claims Reserve for distributions under the Plan.
(iv) The SWINC Disputed Claims Reserve
On the Effective Date, there shall be created and
funded with Cash, a SWINC Disputed Claims Reserve from Cash in the amount of
$44.5 million, which amount will be used to pay (i) the holders of Allowed
Class 4A SWINC Convenience Claims in full, (ii) the holders of Allowed Class 5A
SWINC General Unsecured Claims their Pro Rata share of the Disputed Claims
Reserve until all such Claims are paid in full, (iii) the holders of Allowed
Class 7A SWINC Subordinated Claims their Pro Rate Share of the Disputed Claims
Reserve remaining after holders in Class 4A and Class 5A have been paid in
full, and (iv) the holders of Allowed Class 8A SWINC Securities Claims and
Allowed Class 9A SWINC Equity Interests their Pro Rata share of the Disputed
Claims Reserve remaining after holders in Allowed Class 7A SWINC Subordinated
Claims have been paid in full. The SWINC Disputed Claims Reserve shall be
supplemented from time to time with Cash or other property received by the
SWINC Plan Administrator from recoveries on claims or causes of action,
dispositions of property or receipt of unused funds in Reserves distributable
to the SWINC Disputed Claim Reserve.
(v) The SWE&C Professional Fee Reserve
On the Effective Date, there shall be created and
funded with Cash, the SWE&C Professional Fee Reserve in the amount of $1.5
million to be used to pay Allowed SWE&C Professional Fee Claims held by (i)
counsel and any advisers to the Creditors' Committee and (ii) any professionals
working exclusively on behalf of SWE&C or any SWE&C Subsidiary. In the event
that
53
any Cash remains in the SWE&C Professional Fee Reserve after payment of all
Allowed SWE&C Professional Fee Claims, such Cash shall be distributed to the
SWE&C Disputed Claims Reserve.
(vi) SWE&C Operating Reserve
On the Effective Date, there shall be created and
funded with Cash, a SWE&C Operating Reserve in the amount of $3 million, which
amount shall be used to pay the administrative and other costs and expenses
associated with the Consolidated SWE&C Estate, including all fees and expenses
of the SWE&C Liquidating Trustee and its professionals. In the event that Cash
in the SWE&C Operating Reserve is exhausted, the SWE&C Liquidating Trustee, in
his or her sole discretion, has the right to obtain such additional Cash from
the SWE&C Disputed Claims Reserve so as to replenish the SWE&C Operating
Reserve. In the event that any Cash remains in the SWE&C Operating Reserve
after the final resolution of all Claims Against of Interests in the
Consolidated SWE&C Estate, such Cash shall be distributed to the SWE&C Disputed
Claims Reserve for distributions under the Plan.
(vii) The SWE&C Disputed Claims Reserve
On the Effective Date, there shall be created and
funded with Cash, a SWE&C Disputed Claims Reserve in the amount of $5.2
million, which amount will be used as follows: (i) first, to pay the holders of
Allowed Class 4B SWE&C Convenience Claims in full, and (ii) second, to pay the
holders of Allowed Class 5B SWE&C General Unsecured Claims their Pro Rata share
of the SWE&C Disputed Claims Reserve until all such Claims are paid in full.
The SWE&C Disputed Claims Reserve shall be supplemented from time to time with
Cash and other property received by the SWE&C Liquidating Trustee from
recoveries on claims or causes of action, dispositions of property, the receipt
of unused funds from Reserves established under the Plan and distributable to
the SWE&C Disputed Claims Reserve.
(d) Distributions After Allowance
The SWINC Disbursing Agent and the SWE&C Liquidating
Trust Disbursing Agent shall make payments and distributions from the
appropriate Reserves to the holder of any Disputed Claim that has become an
Allowed Claim or Allowed Interest, on the first Semi- Annual Distribution Date
following the date that such Disputed Claim becomes an Allowed Claim. Such
distributions shall be made in accordance with the Plan, the SWINC Plan
Administrator Agreement, or the SWE&C Liquidating Trust Agreement, as the case
may be.
G. Means for Implementation of the Plan
1. Merger of Entities
On the Effective Date or as soon thereafter as practicable,
(a) each of the SWINC Subsidiaries shall be merged or deemed merged with and
into SWINC and (b) the Chapter 11 Cases of the SWINC Subsidiaries shall be
closed, following which any and all proceedings that could have been brought or
otherwise commenced in the Chapter 11 Case of any of the SWINC Subsidiaries
shall be brought or otherwise commenced in SWINC's Chapter 11 Case.
54
On the Effective Date or as soon thereafter as practicable,
(a) each of the SWE&C Subsidiaries shall be deemed merged with and into SWE&C
and (b) the Chapter 11 Cases of the SWE&C Subsidiaries shall be closed,
following which any and all proceedings that could have been brought or
otherwise commenced in the Chapter 11 Case of any of the SWE&C Subsidiaries
shall be brought or otherwise commenced in SWE&C's Chapter 11 Case.
2. Continued Corporate Existence; Dissolution of SWE&C and the
SWE&C Subsidiaries
SWINC shall continue to exist as Reorganized SWINC after the
Effective Date in accordance with the laws of the State of Delaware and
pursuant to the certificate of incorporation and by-laws of SWINC in effect
prior to the Effective Date, as amended under the Plan. Pursuant to the Amended
Certificate of Incorporation and By-Laws of Reorganized SWINC, Reorganized
SWINC will be authorized to engage in any lawful activity for which
corporations may be organized under the DGCL. After emerging from bankruptcy,
Reorganized SWINC's business operations will consist of the management of the
Pension Plan, including any efforts in which Reorganized SWINC may terminate
the Pension Plan or transfer its sponsorship in accordance with applicable law.
Although Reorganized SWINC will be fully authorized to engage in other business
operations and management intends to evaluate opportunities as, when and if
they arise, Reorganized SWINC has no present intention of engaging in business
operations and will likely dissolve pursuant to the DGCL within two years
following confirmation set forth herein.
On the Effective Date or as soon thereafter as the SWE&C
Liquidating Trustee determines is appropriate, SWE&C and the SWE&C Subsidiaries
shall be dissolved. If necessary or appropriate, the SWE&C Liquidating Trustee
shall file a certificate of dissolution for SWE&C and/or the SWE&C Subsidiaries
and shall take all other actions necessary or appropriate to effect the
dissolution of SWE&C and the SWE&C Subsidiaries under applicable state law.
3. Certificate of Incorporation and By-laws of Reorganized SWINC
The certificate of incorporation and by-laws of SWINC shall
be amended as necessary to satisfy the provisions of the Plan and the
Bankruptcy Code. The certificate of incorporation of Reorganized SWINC shall be
amended to, among other things: (a) authorize 1,000 shares of Reorganized SWINC
New Common Stock, $0.01 par value per share, (b) authorize 100 shares of
Reorganized SWINC New Series A Preferred Stock, $0.01 par value per share, (c)
authorize 100 shares of Reorganized SWINC New Series B Preferred Stock, $0.01
par value per share, and (d) pursuant to Bankruptcy Code section 1123(a)(6),
add (i) a provision prohibiting the issuance of non- voting equity securities,
and, if applicable, (ii) a provision setting forth an appropriate distribution
of voting power among classes of equity securities possessing voting power,
including, in the case of any class of equity securities having a preference
over another class of equity securities with respect to dividends, adequate
provisions for the election of directors representing such preferred class in
the event of default in the payment of such dividends. The forms of the
documents relating to the Amended Certificate of Incorporation and By-laws of
Reorganized SWINC shall be in substantially the form annexed to the Plan as
Plan Exhibits E and F, respectively.
4. Directors and Officers of Reorganized SWINC
On the Effective Date, the members of the board of directors
and executive officers of SWINC and each of the SWINC Subsidiaries shall be
deemed to have resigned. From and after the Effective Date, the board of
directors of Reorganized SWINC shall consist of three (3) directors: (1)
55
Mr. James Carroll, who will serve as the Chairman; (2) a director designated by
Federal; and (3) a director designated by the Equity Committee. From and after
the Effective Date, Mr. Carroll shall serve as the president and chief
executive officer of Reorganized SWINC and Mr. Patrick Connolly shall serve as
the secretary of Reorganized SWINC. The Directors and Officers of Reorganized
SWINC initially will be compensated under the same terms as they were
compensated during the Debtors' Chapter 11 cases and in accordance with those
agreements approved by the Bankruptcy Court during the pendency of the Chapter
11 Cases.
5. Corporate Action
Each of the matters provided for under the Plan involving the
corporate structure of the Debtors or corporate action to be taken by or
required of the Debtors shall, as of the Effective Date, be deemed to have
occurred and be effective as provided herein, and shall be authorized and
approved in all respects without any requirement or further action by
stockholders, creditors, or directors of the Debtors.
6. Cancellation of Securities, Instruments and Agreements
Evidencing Claims and Interests
Except as otherwise provided in the Plan and in any contract,
instrument or other agreement or document created in connection with the Plan,
on the Effective Date (a) the Old Securities and any other note, bond,
indenture, or other instrument or document evidencing or creating any
indebtedness or obligation of a Debtor shall be deemed cancelled, and, in the
case of the Old Securities, shall be retired and shall cease to exist and (b)
the obligations of the Debtors under any agreement, indenture or certificate of
designations governing the Old Securities and any other note, bond, indenture
or other instrument or document evidencing or creating any indebtedness or
obligation of a Debtor shall be deemed released.
7. Issuance of Reorganized SWINC New Common Stock and
Preferred Stock
On the Effective Date or as soon thereafter as practicable,
Reorganized SWINC shall issue for distribution in accordance with the terms of
the Plan, (i)(A) the Reorganized SWINC New Series A Preferred Stock to the
SWINC Plan Administrator to be held for the benefit of Holders of Allowed
Claims and Interests in accordance with the terms of the Plan and the SWINC
Plan Administrator Agreement and (B) the Reorganized SWINC New Series B
Preferred Stock to the SWE&C Liquidating Trustee to be held for the benefit of
Holders of Allowed Claims and Interests in accordance with the terms of the
Plan and the SWE&C Liquidating Trust Agreement and (ii) the Reorganized SWINC
New Common Stock to the SWE&C Liquidating Trustee. The issuance of Reorganized
SWINC New Common Stock, Reorganized SWINC New Series A Preferred Stock and
Reorganized SWINC New Series B Preferred Stock shall be exempt from
registration under applicable securities laws pursuant to Section 4(2) of the
Securities Act. All such shares of Reorganized SWINC New Common Stock,
Reorganized SWINC New Series A Preferred Stock and Reorganized SWINC New Series
B Preferred Stock shall be, when issued pursuant to and in accordance with the
terms of the Plan, duly authorized, validly issued, fully paid and
nonassessable.
Pursuant to the terms of the SWE&C Liquidating Trust
Agreement, the SWINC Plan Administrator Agreement and the securities
themselves, the SWE&C Liquidating Trustee and the SWINC Plan Administrator have
agreed not to transfer or otherwise dispose of the Reorganized SWINC New Common
Stock, the Reorganized SWINC New Series A Preferred Stock and the Reorganized
SWINC New Series B Preferred Stock, respectively. In no event will the
Reorganized
56
SWINC New Common Stock be distributed to the beneficial owners of the SWE&C
Liquidating Trust and the shares of Reorganized SWINC New Common Stock will not
be deemed to be assets of the SWE&C Liquidating Trust. Accordingly, none of the
securities to be issued by Reorganized SWINC under the Plan will be
transferrable.
Set forth below are the material terms of the securities to
be issued by Reorganized SWINC under the Plan, including the Reorganized SWINC
New Common Stock, the Reorganized SWINC New Series A Preferred Stock, and the
Reorganized SWINC New Series B Preferred Stock.
(a) Reorganized SWINC New Common Stock
The principal terms of the Reorganized SWINC New Common Stock
to be issued by Reorganized SWINC under the Plan are as follows:
Authorization........................ 1,000 shares.
Initial
Issuance............................. 100 shares.
Par Value............................ $.01 per share.
Listing.............................. None.
Voting Rights........................ One vote per share on all matters submitted to a vote of the
stockholders of Reorganized SWINC; votes together as a
single class with the Reorganized SWINC New Series A
Preferred Stock and Reorganized SWINC New Series B
Preferred Stock. The SWE&C Liquidating Trustee has
granted an irrevocable proxy to the Board of Directors of
Reorganized SWINC for the limited purpose of permitting
the Board to vote the shares of Reorganized SWINC New
Common Stock, at its discretion, in favor of the dissolution
of Reorganized SWINC.
Transfer
Restrictions......................... Not transferable.
Preemptive
Rights............................... None.
(b) Reorganized SWINC New Series A Preferred Stock
The principal terms of the Reorganized SWINC New Series A
Preferred Stock to be issued by Reorganized SWINC under the Plan are as
follows:
Authorization........................ 100 shares.
Initial Issuance..................... 1 share.
Par Value............................ $.01 per share.
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Listing.............................. None.
Ranking.............................. Senior to the Reorganized SWINC New
Common Stock and all other series of
Preferred Stock that subsequently may be
issued by Reorganized SWINC. Except as
to the liquidation preference, the
Reorganized SWINC New Series A Preferred
Stock and Reorganized SWINC New Series B
Preferred Stock rank equally.
Liquidation
Preference........................... Upon termination of the Pension Plan and
the liquidation, dissolution and winding
up of Reorganized SWINC, and in
accordance with the terms of the Plan,
holders of Series A Preferred Stock
shall be entitled to receive a
liquidating distribution calculated as
follows: (i) from the Reversion either
(x) two-thirds of the first $30 million
of funds generated from the Reversion of
the Pension Plan plus, if the Reversion
exceeds $30 million, 50% of any funds
generated from the Reversion in excess
of $30 million or (y) in the event Class
9A votes to reject the Plan, two-thirds
of the first $30 million of funds
generated from the Reversion of the
Pension Plan plus, if the Reversion
exceeds $30 million, twenty-five percent
(25%) of any funds generated from the
Reversion in excess of $30 million; and
(ii) 100% of the funds generated from
the liquidation of any additional
assets, other than the Reversion, of
Reorganized SWINC (the "Series A
Liquidation Preference"). The SWINC Plan
Administrator will distribute the Series
A Liquidation Preference to the Holders
of Allowed SWINC Claims and Interests in
accordance with the terms of the Plan
and the SWINC Plan Administrator
Agreement.
Dividends............................ Holders of Series A Preferred Stock are
entitled to participate ratably in any
dividends declared on the Reorganized
SWINC New Common Stock, when, as and if
declared by the Board of Directors of
Reorganized SWINC.
Redemption........................... Non-Redeemable.
Board
Designations......................... None.
Voting Rights........................ One vote per share on all matters submitted to a vote of the
stockholders of Reorganized SWINC; votes
together as a single class with the
Reorganized SWINC New Common Stock and
Reorganized SWINC New Series B Preferred
Stock.
Transfer
Restrictions......................... Not transferable.
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Preemptive
Rights............................... None.
(c) Reorganized SWINC New Series B Preferred Stock
The principal terms of the Reorganized SWINC New Series B
Preferred Stock to be issued by Reorganized SWINC under the Plan are as
follows:
Authorization........................ 1,000 shares.
Initial
Issuance............................. 1 share.
Par Value............................ $.01 per share.
Listing.............................. None.
Ranking.............................. Senior to the Reorganized SWINC New
Common Stock and all other series of
Preferred Stock that subsequently may be
issued by Reorganized SWINC. Except as
to the liquidation preference, the
Reorganized SWINC New Series A Preferred
Stock and Reorganized SWINC New Series B
Preferred Stock rank equally.
Liquidation
Preference........................... Upon termination of the Pension Plan and
the liquidation, dissolution and winding
up of Reorganized SWINC, and in
accordance with the terms of the Plan,
holders of Series B Preferred Stock
shall be entitled to receive a
liquidating distribution calculated from
the Reversion as follows: either (i)
one-third of the first $30 million of
funds generated from the Reversion plus,
if the Reversion exceeds $30 million,
50% of any funds generated from the
Reversion in excess of $30 million or
(ii) in the event Class 9A votes to
reject the Plan, one-third of the first
$30 million of funds generated from the
Reversion of the Pension Plan plus, if
the Reversion exceeds $30 million,
seventy-five percent (75%) of any funds
generated from the Reversion in excess
of $30 million (the "Series B
Liquidation Preference"). The SWE&C
Liquidating Trustee will distribute the
Series B Liquidation Preference to the
Holders of Allowed SWE&C Claims and
Interests in accordance with the terms
of the Plan and the SWE&C Liquidating
Trust Agreement.
Dividends............................ Holders of Reorganized SWINC New Series
B Preferred Stock are entitled to
participate ratably in any dividends
declared on the Reorganized SWINC New
Common Stock, when, as and if declared
by the Board of Directors of Reorganized
SWINC.
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Redemption........................... Non-Redeemable.
Board
Designations......................... None.
Voting Rights........................ One vote per share on all matters submitted to a vote of the
stockholders of Reorganized SWINC; votes
together as a single class with the
Reorganized SWINC New Common Stock and
Reorganized SWINC New Series A Preferred
Stock.
Transfer
Restrictions......................... Not transferable.
Preemptive
Rights............................... None.
8. Effectuating Documents; Further Transactions
The chairman of the Reorganized SWINC board of directors,
president, chief financial officer, or any other appropriate officer of
Reorganized SWINC shall be authorized to execute, deliver, file, or record such
contracts, instruments, release, and other agreements or documents, and to take
such actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan. The secretary or assistant
secretary of Reorganized SWINC shall be authorized to certify or attest to any
of the foregoing actions.
The SWE&C Liquidating Trustee shall be authorized to execute,
deliver, file, or record such contracts, instruments, release, and other
agreements or documents, and to take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan. The secretary or assistant secretary appointed by the SWE&C Liquidating
Trustee shall be authorized to certify or attest to any of the foregoing
actions.
9. No Revesting of Assets
On or following the Effective Date, the property of the
Estates of SWINC and the SWINC Subsidiaries (except for any obligations and/or
reversionary interest in the Pension Plan and the rights to Cash in the amount
of $2 million) shall remain or become the property of the Consolidated SWINC
Estate and shall continue to be subject to the jurisdiction of the Court
following confirmation of the Plan until distributed to holders of Allowed
Claims and Allowed Interests in accordance with the provisions of the Plan, the
SWINC Plan Administrator Agreement and the Confirmation Order. The Consolidated
SWINC Estate shall invest Cash in the amount of $2 million in Reorganized SWINC
on the Effective Date, which Cash shall be held by Reorganized SWINC, free and
clear of all Claims and Interests, except as specifically provided for in the
Plan. Reorganized SWINC shall succeed SWINC as the "contributing sponsor" of
the Pension Plan for all purposes, including under ERISA section 4001(a)(13),
and shall succeed SWINC as the "employer" maintaining the Pension Plan for all
purposes, including under ERISA section 4044(d).
On or following the Effective Date, the property of the
Estates of SWE&C and the SWE&C Subsidiaries shall remain or become the property
of the SWE&C Liquidating Trust and shall continue to be subject to the
jurisdiction of the Court following confirmation of the Plan until
60
distributed to holders of Allowed Claims in accordance with the provisions of
the Plan, the SWE&C Liquidating Trust Agreement and the Confirmation Order.
10. Preservation of Rights of Action
Except as otherwise provided in the Plan or the Confirmation
Order, or in any contract, instrument, release, indenture or other agreement
entered into in connection with the Plan, in accordance with Bankruptcy Code
section 1123(b), the Consolidated SWINC Estate and the SWE&C Liquidating Trust
shall retain the Litigation Claims, including but not limited to the Litigation
Claims listed on Exhibit B annexed to the Plan and those Litigation Claims
against any Person or Entity hereinafter arising or discovered and regardless
of when the facts giving rise to such Litigation Claims arose or existed. The
SWINC Plan Administrator, on behalf of SWINC, the SWINC Subsidiaries and the
Consolidated SWINC Estate, shall retain and may enforce, sue on, settle or
compromise (or decline to do any of the foregoing) any and all of the
Litigation Claims that SWINC, the SWINC Subsidiaries, their Estates or the
Consolidated SWINC Estate may hold against any Person or Entity. The SWE&C
Liquidating Trustee, on behalf of SWE&C, the SWE&C Subsidiaries, and the SWE&C
Liquidating Trust shall retain and may enforce, sue on, settle or compromise
(or decline to do any of the foregoing) any and all of the Litigation Claims
that SWE&C, the SWE&C Subsidiaries, their Estates or the SWE&C Liquidating
Trust may hold against any Person or Entity. The failure of the Debtors to list
a claim, right of action, suit or proceeding on Plan Exhibit B shall not
constitute a waiver or release by the Debtors or their Estates of such claim,
right of action, suit or proceeding all such claims, rights of action, suits or
proceedings are being expressly reserved.
11. Creditors' Committee and Equity Committee
(a) Dissolution of Creditors' Committee
The Creditors' Committee shall continue in existence
until the Effective Date to exercise those powers and perform those duties
specified in Bankruptcy Code section 1103, and shall perform such other duties
as it may have been assigned by the Court prior to the Effective Date. On the
Effective Date, the Creditors' Committee shall be dissolved and its members
shall be deemed released of all their duties, responsibilities and obligations
in connection with the Chapter 11 Cases or the Plan and its implementation, and
the retention or employment of the Creditors' Committee's attorneys,
accountants and other agents shall terminate, except with respect to (i) all
Professional Fee Claims and (ii) any appeals of the Confirmation Order. All
expenses of Creditors' Committee members and the fees and expenses of their
professionals through the Effective Date shall be paid in accordance with the
terms and conditions of the Fee Order and the Confirmation Order and the Plan.
(b) Dissolution of Equity Committee
The Equity Committee shall continue in existence
until the Effective Date to exercise those powers and perform those duties
specified in Bankruptcy Code section 1103 and shall perform such other duties
as it may have been assigned by the Court prior to the Effective Date. On the
Effective Date, the Equity Committee shall be dissolved and its members shall
be deemed released of all their duties, responsibilities and obligations in
connection with the Chapter 11 Cases or the Plan and its implementation, and
the retention or employment of the Equity Committee's attorneys, accountants
and other agents shall terminate, except with respect to (i) all Professional
Fee Claims and (ii) any appeals of the Confirmation Order. All expenses of
Equity Committee members and the fees
61
and expenses of their professionals through the Effective Date shall be paid in
accordance with the terms and conditions of the Fee Order the Confirmation
Order and the Plan.
12. Special Provisions Regarding Insured Claims
Distributions under the Plan to each holder of an Allowed
Insured Claim against SWINC, a SWINC Subsidiary, SWE&C or a SWE&C Subsidiary,
shall be in accordance with the treatment provided under the Plan for the Class
in which such Allowed Insured Claim is classified; provided, however, that the
maximum amount of any distribution under the Plan on account of an Allowed
Insured Claim (except for Allowed Asbestos Claims) shall be limited to an
amount equal to the amount of Allowed Insured Claim minus any insurance
proceeds actually received and retained by such holder in respect of such
Allowed Insured Claim. Nothing in Article VII of the Plan shall (x) constitute
a waiver of any claim, right, or cause of action the Debtors may hold against
any Person, including the Debtors' insurance carriers or (y) is intended to,
shall, or shall be deemed to preclude any holder of an Allowed Insured Claim
from seeking and/or obtaining a distribution or other recovery from any insurer
of the Debtors in addition to any distribution such holder may receive pursuant
to the Plan; provided, however, that the Debtors do not waive, and expressly
reserve their rights to assert that any insurance coverage is property of the
estate to which they are entitled, with the exception of the provisions
contained in the stipulated agreement between SWINC and the Secretary of Labor,
United States Department of Labor, filed by the Debtors on or about February
26, 2002. Upon receipt by the holder of an Allowed Insured Claim of any amounts
distributed under the Plan in respect of such claim, such holder shall be
deemed to have assigned to the SWINC Plan Administrator all rights of the
holder to recover such amounts from the applicable insurer.
The Plan will not expand the scope of or alter in any other
way the insurers' obligations under their policies, and the insurers shall
retain any and all defenses to coverage that they may have. The Plan shall not
operate as a waiver of any other claims the insurers have asserted or may
assert in proofs of claim filed in the Debtors' bankruptcy cases or the
Debtors' rights as to those claims.
Each of the insurers retains any and all of its rights, at
its own expense, to commence and participate in any contested matters and other
related proceedings concerning asbestos claims, including objections to and
requests for relief from the automatic stay with respect to any such claims,
until the Debtors' bankruptcy cases are closed.
H. The SWINC Plan Administrator
1. Appointment
From and after the Confirmation Date, Mr. James P. Carroll
shall serve as the SWINC Plan Administrator pursuant to the SWINC Plan
Administrator Agreement and the Plan, until death, resignation, discharge or
the appointment of a successor SWINC Plan Administrator in accordance with the
SWINC Plan Administrator Agreement.
2. Rights, Powers and Duties of the SWINC Estate and the SWINC
Plan Administrator
The Consolidated SWINC Estate shall retain and have all the
rights, powers and duties necessary to carry out its responsibilities under the
Plan. Except as otherwise provided in the Plan, the Confirmation Order, or in
any document, instrument, release or other agreement entered into in connection
with the Plan, such rights, powers and duties, which shall be exercisable by
the SWINC
62
Plan Administrator on behalf of the Consolidated SWINC Estate pursuant to the
Plan and the SWINC Plan Administrator Agreement, shall include, among others:
(a) investing the Cash of the Consolidated SWINC Estate,
including, but not limited to, the Cash held in the
Reserves in (i) direct obligations of the United
States of America or obligations of any agency or
instrumentality thereof which are guaranteed by the
full faith and credit of the United States of
America; (ii) money market deposit accounts,
checking accounts, savings accounts or certificates
of deposit, or other time deposit accounts that are
issued by a commercial bank or savings institution
organized under the laws of the United States of
America or any state thereof; or (iii) any other
investments that may be permissible under (a)
Bankruptcy Code section 345 or (b) any order of the
Court entered in the Debtors' Chapter 11 cases;
(b) calculating and paying all distributions to be made
under the Plan, the SWINC Plan Administrator
Agreement and other orders of the Court to holders
of Allowed Claims against and Interests in the
Consolidated SWINC Estate;
(c) employing, supervising and compensating
professionals retained to represent the interests of
and serve on behalf of the Consolidated SWINC
Estate;
(d) objecting to Claims or Interests filed against the
Consolidated SWINC Estate;
(e) seeking estimation under Bankruptcy Code section
502(c) of contingent or unliquidated claims filed
against the Consolidated SWINC Estate;
(f) seeking determination of tax liability of the
Consolidated SWINC Estate under Bankruptcy Code
section 505;
(g) exercising all powers and rights, and taking all
actions, contemplated by or provided for in the
SWINC Plan Administrator Agreement;
(h) voting the shares of Reorganized SWINC New Series B
Preferred Stock in connection with any matter
submitted to a vote of the stockholders of
Reorganized SWINC; and
(i) taking any and all other actions necessary or
appropriate to implement or consummate the Plan and
the provisions of the SWINC Plan Administrator
Agreement.
3. Compensation
The SWINC Plan Administrator shall be compensated from the
SWINC Operating Reserve pursuant to the terms of the SWINC Plan Administrator
Agreement. The initial compensation of the SWINC Plan Administrator will be the
same as the compensation paid to Mr. James P. Carroll as previously approved by
the Bankruptcy Court during the Chapter 11 Cases. Any
63
professionals retained by the SWINC Plan Administrator shall be entitled to
reasonable compensation for services rendered and reimbursement of expenses
incurred from the SWINC Operating Reserve. The payment of the fees and expenses
of the SWINC Plan Administrator and its retained professionals shall be made in
the ordinary course of business and shall not be subject to the approval of the
Court, except that, upon the request of any party in interest or the SWINC Plan
Administrator, the Court, after notice and hearing, may alter the amount, terms
or conditions of the SWINC Plan Administrator's compensation.
4. Indemnification
SWINC, the SWINC Subsidiaries, the Consolidated SWINC Estates
and Reorganized SWINC shall, to the fullest extent permitted by the applicable
laws of the jurisdiction in which each such entity is incorporated or otherwise
organized, indemnify and hold harmless the SWINC Plan Administrator (in his
capacity as such) and the agents, representatives, professionals and employees
of the SWINC Plan Administrator (collectively the "Indemnified Parties"), from
and against and with respect to any and all liabilities, losses, damages,
claims, costs and expenses, including but not limited to attorneys' fees
arising out of or due to their actions or omissions, or consequences of such
actions or omissions, with respect to SWINC, the SWINC Subsidiaries and their
Estate(s) or the implementation or administration of the Plan and the
Reorganized SWINC Plan Administrator Agreement if the Indemnified Party acted
in good faith and in a manner reasonably believed to be in or not opposed to
the best interests of SWINC, the SWINC Subsidiaries and their Estate(s), as the
case may be, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe its conduct was unlawful. To the extent SWINC, the
SWINC Subsidiaries, their Estate(s) or Reorganized SWINC indemnifies and holds
harmless the Indemnified Parties as provided above, the legal fees and related
costs incurred by counsel to the SWINC Plan Administrator in monitoring and
participating in the defense of such claims giving rise to the right of
indemnification shall be paid out of the SWINC Operating Reserve. The
indemnification provisions of the SWINC Plan Administrator Agreement shall
remain available to and be binding upon any future SWINC Plan Administrator or
the estate of any decedent SWINC Plan Administrator and shall survive the
termination of the SWINC Plan Administrator Agreement.
5. Insurance
The SWINC Plan Administrator shall be authorized to obtain
all reasonably necessary insurance coverage for itself, its agents,
representatives, employees or independent contractors, SWINC, the SWINC
Subsidiaries, and the Consolidated SWINC Estate including, but not limited to,
coverage with respect to (i) any property that is or may in the future become
the property of the Consolidated SWINC Estate and (ii) the liabilities, duties
and obligations of the SWINC Plan Administrator and its agents,
representatives, employees or independent contractors under the SWINC Plan
Administrator Agreement (in the form of an errors and omissions policy or
otherwise), the latter of which insurance coverage may, at the sole option of
the SWINC Plan Administrator, remain in effect for a reasonable period (not to
exceed seven years) after the termination of the SWINC Plan Administrator
Agreement.
6. Authority to Object to Claims and Interests and to Settle
Disputed Claims
Pursuant to Bankruptcy Rule 9019(a), the Debtors may
compromise and settle various Claims against them and/or claims that they may
have against other Persons. The Debtors expressly reserve the right (with Court
approval, following appropriate notice and opportunity for a hearing) to
compromise and settle Claims against them and claims that they may have against
other
64
Persons up to and including the Effective Date. After the Effective Date, such
right shall pass to (i) the SWINC Plan Administrator pursuant to Articles VII.K
of the Plan, or (ii) the SWE&C Liquidating Trustee pursuant to Articles VII.N
of the Plan.
I. The Asbestos Trust
On the Effective Date, and pursuant to the terms of the
Asbestos Trust Agreement, the Debtors shall transfer to the Asbestos Trust Cash
in the amount of $4.5 million and an Allowed Class 5B Claim in the amount of
$1.0 million for distribution to holders of Allowed Asbestos Claims and to pay
the reasonable and necessary costs and expenses associated with administering
the Asbestos Trust, any litigation related to the liquidation, resolution,
settlement or compromise of the Asbestos Claims or any litigation related to
the resolution, settlement or compromise regarding Asbestos Insurance Issues.
On the Effective Date, and pursuant to the terms of the Asbestos Trust
Agreement, the Debtors shall transfer to the Asbestos Trustee all of their
rights with respect to, among other things, indemnification, contribution or
reimbursement under the insurance policies issued by the Asbestos Insurance
Carriers (but not the policies themselves) and all of their rights under any
other policies that provide coverage for Asbestos Claims (but not those
policies themselves), but only to the extent of such coverage under those
policies. Notwithstanding anything to the contrary herein, the Debtors or their
respective successors and assigns under this Plan shall retain any and all
rights under policies issued by the Asbestos Insurance Carriers or the policies
providing coverage for Asbestos Claims with respect to coverage for any Claims
other than Asbestos Claims. The Asbestos Trust shall remain in existence until
dissolved by the Asbestos Trustee, and upon termination, any remaining assets
of the Asbestos Trust shall revert and be paid over to the SWE&C Liquidating
Trust.
J. The Asbestos Trustee
1. Appointment
From and after the Effective Date, Mr. James Carroll shall
serve as the Asbestos Trustee pursuant to the Plan, until death, resignation,
discharge or the appointment of a successor Asbestos Trustee. The Asbestos
Trustee shall have and perform all duties, responsibilities, rights and
obligations set forth in the Asbestos Trust Agreement.
2. Rights, Powers and Duties of the Asbestos Trustee
The Asbestos Trustee shall retain and have all the rights,
powers and duties necessary to carry out his responsibilities under the Plan
and the Asbestos Trust Agreement. Such rights, powers and duties, which shall
be exercisable by the Asbestos Trustee on behalf of the Debtors pursuant to the
Plan and the Asbestos Trust Agreement, shall include, among others:
(a) maintaining any Unclaimed Distribution Reserve for the
benefit of the holders of Allowed Asbestos Claims;
(b) investing Cash in the Asbestos Trust in (i) direct
obligations of the United States of America or obligations of any agency or
instrumentality thereof which are guaranteed by the full faith and credit of
the United States of America; (ii) money market deposit accounts, checking
accounts, savings accounts, certificates of deposit, or other time deposit
accounts that are issued by a commercial bank or savings institution organized
under the laws of the United States of America or any state thereof; or (iii)
any other investments that may be permissible under (x) Bankruptcy Code section
345 or (y) any order of the Court entered in the Debtors' Chapter 11 Cases;
65
(c) calculating and paying of all distributions to be made
under the Plan, the Asbestos Trust Agreement, and other orders of the Court, to
holders of Allowed Asbestos Claims that have become undisputed, non-contingent,
and liquidated claims;
(d) employing, supervising and compensating professionals, if
any, necessary to represent the interests of and serve on behalf of the
Asbestos Trust;
(e) objecting to, defending against and settling Asbestos
Claims, and seeking estimation of contingent or unliquidated Asbestos Claims
under Bankruptcy Code section 502(c);
(f) dissolving the Asbestos Trust;
(g) exercising all powers and rights, and taking all actions,
contemplated by or provided for in the Asbestos Trust Agreement;
(h) taking any and all other actions necessary or appropriate
to implement the provisions of the Asbestos Trust Agreement;
(i) making and filing any tax returns for the Asbestos Trust;
(j) taking any actions necessary to ensure that the Asbestos
Insurance Carriers will receive timely notice of any Asbestos Claim or demand
including, without limitation, taking action to maintain the corporate
existence of one or more of the Debtors;
(k) entering into one or more coverage in place agreements
with the Asbestos Insurance Carriers on terms satisfactory to the Asbestos
Trustee or take other appropriate action with respect to insurance provided by
the Asbestos Insurance Carriers; and
(l) taking any actions necessary to ensure the preservation
of the Debtors' documents to the extent such documents may be necessary to the
defense of Asbestos Claims, including, without limitation, the entry into
long-term storage agreements with respect to such documents.
3. Compensation of the Asbestos Trustee
The Asbestos Trustee shall be compensated pursuant to the
terms of the Asbestos Trust Agreement. Any professionals retained by the
Asbestos Trust shall be entitled to reasonable compensation for services
rendered and reimbursement of expenses incurred from the Asbestos Trust. The
payment of the fees and expenses of the Asbestos Trustee and his retained
professionals, if any, shall be made in the ordinary course of business and
shall not be subject to the approval of the Court.
4. Indemnification
The Asbestos Trust shall, to the fullest extent permitted by
the laws of the State of Delaware, indemnify and hold harmless the Asbestos
Trustee (in his capacity as such) and the Asbestos Trustee's and the Asbestos
Trust's agents, representatives, professionals, and employees (collectively,
the "Indemnified Parties"), from and against and in respect to any and all
liabilities, losses, damages, claims, costs, and expenses, including but not
limited to attorneys' fees, arising out of or due to their actions or
omissions, or consequences of such actions or omissions, with respect to the
Asbestos Trust or the implementation or administration of the Plan and the
Asbestos Trust
66
Agreement, if the Indemnified Party acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Asbestos Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe its conduct was unlawful. To the extent that the
Asbestos Trust must indemnify and hold harmless the Indemnified Parties as
provided above, the legal fees and related costs incurred by counsel to the
Asbestos Trustee in monitoring and participating in the defense of such claims
giving rise to the right of indemnification shall be paid out of the Asbestos
Trust. The indemnification provisions of the Asbestos Trust Agreement shall
remain available to and be binding upon any future Asbestos Trustee or the
estate of any decedent Asbestos Trustee and shall survive the termination of
the Asbestos Trust Agreement.
5. Insurance
The Asbestos Trustee shall be authorized to obtain all
reasonably necessary insurance coverage for himself, his agents,
representatives, employees and independent contractors, including, but not
limited to, coverage with respect to (i) any property that is or may in the
future become the property of the Asbestos Trust and (ii) the liabilities,
duties, and obligations of the Asbestos Trustee and his agents,
representatives, employees, independent contractors under the Asbestos Trust
Agreement (in the form of an errors and omissions policy or otherwise), the
latter of which insurance coverage may, at the sole option of the Asbestos
Trustee, remain in effect for a reasonable period (not to exceed five years)
after the termination of the Asbestos Trust Agreement.
6. Asbestos Insurance Policies
The Plan shall not expand the scope of, the amount of, or
alter in any other way the Asbestos Insurance Carriers' obligations under their
policies. The Plan shall not operate as a waiver of certain proofs of claim
filed by the Asbestos Insurance Carriers in the Chapter 11 Cases, provided,
however, that to the extent such Claims relate to Asbestos Claims, the Asbestos
Insurers' Claims are deemed satisfied in full, except for claims by Travelers
Insurance Company and its affiliates for premiums under retrospectively rated
insurance policies issued to the Debtors.
K. The SWE&C Liquidating Trust
1. Appointment of Trustee
A person designated by Creditors' Committee prior to the
Confirmation Date shall serve as the SWE&C Liquidating Trustee pursuant to the
SWE&C Liquidating Trust Agreement and the Plan, until death, resignation,
discharge or the appointment of a successor SWE&C Liquidating Trustee in
accordance with the SWE&C Liquidating Trust Agreement. The SWE&C Liquidating
Trustee shall have and perform all duties, responsibilities, rights and
obligations set forth in the SWE&C Liquidating Trust Agreement.
2. Transfer of SWE&C Liquidating Trust Assets to the SWE&C
Liquidating Trust
On the Effective Date, SWE&C, the SWE&C Subsidiaries and
their Estates shall transfer and shall be deemed to have irrevocably
transferred to the SWE&C Liquidating Trust, for and on behalf of the
beneficiaries of the SWE&C Liquidating Trust, the SWE&C Liquidating Trust
Assets.
3. The SWE&C Liquidating Trust
67
(a) Without any further action of the directors of SWE&C
or the SWE&C Subsidiaries, on the Effective Date,
the SWE&C Liquidating Trust Agreement, substantially
in the form annexed to the Plan as Exhibit C, shall
become effective. The SWE&C Liquidating Trustee
shall accept the SWE&C Liquidating Trust and sign
the SWE&C Liquidating Trust Agreement on the
Effective Date and the SWE&C Liquidating Trust will
then be deemed created and effective.
(b) The SWE&C Liquidating Trustee shall have full
authority to take any steps necessary to administer
the SWE&C Liquidating Trust Agreement, including,
without limitation, the duty and obligation (i) to
liquidate SWE&C Liquidating Trust Assets, (ii) to
make distributions therefrom to holders of Allowed
Claims against SWE&C and the SWE&C Subsidiaries,
(iii) to maintain any Reserves on behalf of and for
the benefit of the beneficiaries of the SWE&C
Liquidating Trust, (iv) to vote the shares of
Reorganized SWINC New Common Stock in connection
with any matter submitted to a vote of the
stockholders of Reorganized SWINC, and (v) if
authorized by majority vote of those members of the
SWE&C Liquidating Trust Advisory Board authorized to
vote, to pursue and settle any Disputed Claims
against or Disputed Interests in SWE&C and the SWE&C
Subsidiaries. The SWE&C Liquidating Trustee shall
not at any time, whether on behalf of the SWE&C
Liquidating Trust, SWE&C, the SWE&C Subsidiaries, or
their Estates, continue or engage in the conduct of
trade or business, and no part of the SWE&C
Liquidating Trust or the proceeds, revenue or income
therefrom shall be used or disposed of by the SWE&C
Liquidating Trustee in the furtherance of any
business.
(c) All costs and expenses associated with the
administration of the SWE&C Liquidating Trust,
including those rights, obligations and duties
described in Article VI.N of the Plan, shall be the
responsibility of and paid by the SWE&C Liquidating
Trust.
(d) The SWE&C Liquidating Trustee may retain such law
firms, accounting firms, experts, advisors,
consultants, investigators, appraisers, auctioneers
or other professionals as it may deem necessary
(collectively, the "SWE&C Liquidating Trustee
Professionals"), in its sole discretion, to aid in
the performance of its responsibilities pursuant to
the terms of the Plan including, without limitation,
the liquidation and distribution of SWE&C
Liquidating Trust Assets.
(e) The Debtors intend that the SWE&C Liquidating Trust
will be treated as a "liquidating trust" within the
meaning of Section 301.7701-4(d) of the Tax
Regulations. Accordingly, it is intended that the
transfer of the SWE&C Liquidating Trust Assets to
the SWE&C Liquidating Trust shall be treated, for
federal income tax purposes, as a deemed transfer of
the SWE&C Liquidating Trust Assets to the
beneficiaries of the SWE&C Liquidating Trust for all
purposes of the IRC, followed by a deemed transfer
of such assets by such beneficiaries to the SWE&C
Liquidating Trust. The SWE&C Liquidating Trust shall
be considered a "grantor" trust, and the
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beneficiaries of the SWE&C Liquidating Trust shall
be treated as the grantors and the deemed owners of
the SWE&C Liquidating Trust.
(f) The SWE&C Liquidating Trustee shall be responsible
for filing all federal, state and local tax returns
for the SWE&C Liquidating Trust.
(g) The SWE&C Liquidating Trust shall terminate on the
earlier of (i) the tenth (10) anniversary of the
Confirmation Date or (ii) the distribution of all
property in accordance with the terms of the SWE&C
Liquidating Trust Agreement.
4. The SWE&C Liquidating Trust Advisory Board
The SWE&C Liquidating Trust Advisory Board shall be comprised
of three (3) members selected by the Creditors' Committee prior to the
Confirmation Hearing. The members of the SWE&C Liquidating Trust Advisory Board
initially will be compensated under the same terms as they have been
compensated during the pendency of these Chapter 11 Cases or in accordance with
the SWE&C Liquidating Trust Agreement.
The SWE&C Liquidating Trustee shall consult regularly with
the SWE&C Liquidating Trust Advisory Board when carrying out the purpose and
intent of the SWE&C Liquidating Trust. Members of the SWE&C Liquidating Trust
Advisory Board shall be entitled to compensation in accordance with the SWE&C
Liquidating Trust Agreement and to reimbursement of the reasonable and
necessary expenses incurred by them in carrying out the purpose of the SWE&C
Liquidating Trust Advisory Board. Reimbursement of the reasonable and necessary
expenses of the members of the SWE&C Trust Advisory Board and their
compensation to the extent provided for in the SWE&C Liquidating Trust
Agreement shall be payable by the SWE&C Liquidating Trust.
(a) In the case of an inability or unwillingness of any
member of the SWE&C Trust Advisory Board to serve,
such member shall be replaced by designation of the
remaining members of the SWE&C Trust Advisory Board.
If any position on the SWE&C Trust Advisory Board
remains vacant for more than thirty (30) days, such
vacancy shall be filled within fifteen (15) days
thereafter by the designation of the SWE&C
Liquidating Trustee without the requirement of a
vote by the other members of the SWE&C Trust
Advisory Board.
(b) Upon the certification by the SWE&C Liquidating
Trustee that all SWE&C Liquidating Trust Assets have
been distributed, abandoned or otherwise disposed
of, the members of the SWE&C Liquidating Trust
Advisory Board shall resign their positions,
whereupon they shall be discharged from further
duties and responsibilities.
(c) The SWE&C Liquidating Trust Advisory Board may, by
majority vote, authorize the SWE&C Liquidating
Trustee to invest the corpus of the SWE&C
Liquidating Trust in prudent investments other than
those described in Bankruptcy Code section 345.
(d) The SWE&C Liquidating Trust Advisory Board may
remove the SWE&C Liquidating Trustee in its
discretion. In the event the requisite approval is
69
not obtained, the SWE&C Liquidating Trustee may be
removed by the Court for cause shown. In the event
of the resignation or removal of the SWE&C
Liquidating Trustee, the SWE&C Liquidating Trust
Advisory Board shall, by majority vote, designate a
person to serve as successor SWE&C Liquidating
Trustee.
(e) Notwithstanding anything to the contrary in the
Plan, neither the SWE&C Liquidating Trust Advisory
Board nor any of its members, designees, counsel,
financial advisors or any duly designated agent or
representative of any such party shall be liable for
the act, default or misconduct of any other member
of the SWE&C Liquidating Trust Advisory Board, nor
shall any member be liable for anything other than
such members' own gross negligence or willful
misconduct. The SWE&C Liquidating Trust Advisory
Board may, in connection with the performance of its
duties, and in its sole and absolute discretion,
consult with its counsel, accountants or other
professionals, and shall not be liable for anything
done or omitted or suffered to be done in accordance
with such advice or opinions. If the SWE&C
Liquidating Trust Advisory Board determines not to
consult with its counsel, accountants or other
professional, it shall not be deemed to impose any
liability on the SWE&C Liquidating Trust Advisory
Board, or its members and/or designees.
(f) The SWE&C Liquidating Trust Advisory Board shall
govern its proceedings through the adoption of
by-laws, which the SWE&C Liquidating Trust Advisory
Board may adopt by majority vote. No provision of
such by-laws shall supersede any express provision
of the Plan.
L. Other Matters
1. Treatment of Executory Contracts and Unexpired Leases
Under Bankruptcy Code section 365, the Debtors have the
right, subject to court approval, to assume or reject any executory contract or
unexpired lease. If the Debtors reject an executory contract or unexpired lease
that was entered into before the Petition Date, the contract or lease will be
treated as if it had been breached on the date immediately preceding the
Petition Date, and the other party to the agreement will have a General
Unsecured Claim for damages incurred as a result of the rejection. In the case
of rejection of employment severance agreements and real property leases,
damages are subject to certain limitation imposed by Bankruptcy Code sections
365 and 502.
(a) Rejected Contracts and Leases
Except as otherwise provided in the Plan, the
Confirmation Order, or in any contract, instrument, release or other agreement
or document entered into in connection with the Plan, each of the prepetition
executory contracts and unexpired leases to which any Debtor is a party, to the
extent such contracts or leases are executory contracts or unexpired leases,
shall be deemed rejected by the applicable Debtor effective on the Confirmation
Date and subject to the occurrence of the Effective Date, unless such contract
or lease (i) previously (a) shall have been assumed or rejected by the Debtors
(including, but not limited to, those executory contracts and unexpired leases
assumed and assigned to Shaw) or (b) shall have expired or terminated pursuant
to its own terms, or (ii) is
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listed on the schedule of assumed contracts and leases attached as Exhibit G to
the Plan; provided, however, that neither the inclusion by the Debtors of a
contract or lease in Plan Exhibit G nor anything contained in Article X of the
Plan shall constitute an admission by any Debtor that such contract or lease is
an executory contract or unexpired lease or that any Debtor or its successors
and assigns has any liability thereunder. The Confirmation Order shall
constitute an order of the Court approving the rejections described in Article
X of the Plan, pursuant to Bankruptcy Code section 365, as of the Confirmation
Date.
(b) Rejection Damages Bar Date
If the rejection of an executory contract or
unexpired lease pursuant to Article X.A of the Plan gives rise to a Claim by the
other party or parties to such contract or lease, such Claim shall be forever
barred and shall not be enforceable against the applicable Debtor or its Estate,
the SWINC Plan Administrator, the SWE&C Liquidating Trust or their respective
successors or properties unless a proof of Claim is filed and served on the
Debtors and counsel for the Debtors within thirty (30) days after service of a
notice of entry of the Confirmation Order or such other date as prescribed by
the Court.
(c) Assumed Contracts and Leases
Except as otherwise provided in the Plan, or in any
contract, instrument, release, or other agreement or document entered into in
connection with the Plan, the Debtors shall assume (and assign, as the case may
be) each of the executory contracts and unexpired leases listed on Plan Exhibit
G. Any monetary amounts by which each executory contract and unexpired lease to
be assumed under the Plan may be in default shall be satisfied, under Bankruptcy
Code section 365(b)(1), by Cure on the Effective Date or as soon thereafter as
practicable. In the event of a dispute regarding (i) the nature or amount of any
Cure, (ii) the ability of the Debtors or any assignee of the Debtors to provide
"adequate assurance of future performance" (within the meaning of Bankruptcy
Code section 365) under the contract or lease to be assumed, or (iii) any other
matter pertaining to assumption or assignment, Cure shall occur following the
entry of a Final Order resolving the dispute and approving the assumption and,
as the case may be, assignment. The Confirmation Order shall constitute an order
of the Court approving the assumptions (as assignments, as the case may be)
described in Article X.C of the Plan, pursuant to Bankruptcy Code section 365,
as of the Effective Date.
(d) Pension Plan
The Pension Plan shall be assumed pursuant to
Bankruptcy Code sections 365(a) and 1123(b)(2), to the extent it is executory.
The Plan does not purport to release or affect any causes of action pursuant to
ERISA concerning the Pension Plan, the Employee Stock Ownership Plan of Stone &
Webster, Incorporated and Participating Subsidiaries, the Group Life Insurance
and Spouses Insurance Plan of Stone & Webster and the Employee Investment Plan
of Stone & Webster, Incorporated and Participating Subsidiaries, or limit any
potential claim of the Secretary of Labor, United States Department of Labor,
pursuant to the stipulated agreement between SWINC and the Secretary of Labor,
United States Department of Labor, filed by the Debtors on or about February 26,
2002.
(e) Indemnification Obligations
Except as otherwise provided in the Plan, or in any contract,
instrument, release, or other agreement or document entered into in connection
with the Plan, any and all indemnification
71
obligations that the Debtors have pursuant to a contract, instrument,
agreement, certificate of incorporation, by-law, comparable organizational
document or any other document or applicable law shall be rejected as of the
Effective Date of the Plan, to the extent executory.
2. Bar Dates for Certain Claims
(a) Administrative Claims
The Confirmation Order will establish an
Administrative Claims Bar Date for filing Administrative Claims, which date will
be sixty (60) days after the Confirmation Date (the "Administrative Claims Bar
Date"). Holders of asserted Administrative Claims, except for Professional Fee
Claims, not paid prior to the Effective Date shall submit requests for payment
of Administrative Claim on or before such Administrative Claims Bar Date or
forever be barred from doing so. The notice of the Confirmation Date to be
delivered pursuant to Bankruptcy Rules 3020(c) and 2002(f) will set forth such
date and constitute notice of this Administrative Claims Bar Date. The Debtors,
the SWINC Plan Administrator and the SWE&C Liquidating Trustee, as the case may
be, shall have ninety (90) days (or such longer period as may be allowed by
order of the Court) following the Administrative Claims Bar Date to review and
object to such Administrative Claims.
(b) Professional Fee Claims; Substantial Contribution
Claims
All Persons requesting compensation or reimbursement
of Professional Fee Claims pursuant to Bankruptcy Code section 327, 328, 330,
331, 503(b) or 1103 for services rendered to the Debtors prior to the Effective
Date (including requests under Bankruptcy Code section 503(b)(4) by any
Professional or other entity for making a substantial contribution in the
Chapter 11 Cases) shall file and serve on the SWINC Plan Administrator and the
SWE&C Liquidating Trustee an application for final allowance of compensation and
reimbursement of expenses no later than ninety (90) days after the Confirmation
Date, unless otherwise ordered by the Court (the "Professional Fee Bar Date").
Objections to applications of such Professionals or other entities for
compensation or reimbursement of expenses must be filed and served on the SWINC
Plan Administrator, the SWE&C Liquidating Trustee and the requesting
Professional or other entity no later than sixty (60) days after the
Professional Fee Bar Date (or such longer period as may be allowed by order of
the Court).
3. Withholding and Reporting Requirements
In connection with the Plan and all distributions thereunder,
the SWINC Disbursing Agent and the SWE&C Liquidating Trust Disbursing Agent
shall comply with all withholding and reporting requirements imposed by any
federal, state, local or foreign taxing authority, and all distributions shall
be subject to any such withholding and reporting requirements. The SWINC
Disbursing Agent and the SWE&C Liquidating Trust Disbursing Agent shall be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
4. Setoffs
The SWINC Plan Administrator and the SWE&C Liquidating
Trustee may, pursuant to Bankruptcy Code section 553 or applicable
nonbankruptcy laws, but shall not be required to, set off against any Claim,
and the payments or other distributions to be made pursuant to the Plan in
respect of such Claim, claims of any nature whatsoever that the Debtors may
have against the holder of such Claim; provided, however, that neither the
failure to do so nor the allowance of any
72
Claim shall constitute a waiver or release by the SWINC Plan Administrator or
the SWE&C Liquidating Trustee, as the case may be, of any such claim that the
Debtors may have against such holder.
Unless otherwise authorized by a Final Order, any holder of a
Claim must assert any setoff rights against a Claim by a Debtor against such
entity by filing an appropriate motion seeking authority to setoff on or before
the Confirmation Date or will be deemed to have waived and be forever barred
from asserting any right to setoff against a Claim by a Debtor notwithstanding
any statement to the contrary in a proof of claim or any other pleading or
document filed with the Bankruptcy Court or delivered to the Debtors.
5. Payment of Statutory Fees
All fees payable pursuant to section 1930 of title 28 of the
United States Code, as determined by the Court at the Confirmation Hearing,
shall be paid on the Effective Date, and neither the Debtors, their Estates,
the SWINC Plan Administrator nor the SWE&C Liquidating Trustee shall thereafter
be liable for the payment of any additional fees under 28 U.S.C. ss. 1930,
other than with respect to the Chapter 11 Cases of SWINC and SWE&C.
6. Amendment or Modification of the Plan
The Plan Proponents may alter, amend, or modify the Plan or
any Plan Exhibits under section 1127(a) of the Bankruptcy Code at any time
prior to the Confirmation Hearing. After the Confirmation Date and prior to
substantial consummation of the Plan as defined in section 1101(2) of the
Bankruptcy Code, the Plan Proponents may, under section 1127(b) of the
Bankruptcy Code, institute proceedings in the Court to remedy any defect or
omission or reconcile any inconsistencies in the Plan, the Disclosure
Statement, or the Confirmation Order, and such matters as may be necessary to
carry out the purposes and effects of the Plan.
7. Severability of Plan Provisions
If, prior to the Confirmation Date, any term or provision of
the Plan is determined by the Court to be invalid, void or unenforceable, the
Court, at the request of any Debtor, will have the power to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision will then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
8. Successors and Assigns
The rights, benefits and obligations of any entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit of any heir,
executor, administrator, successor or assign of such entity.
9. Plan Supplement
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Any and all exhibits, lists or schedules not filed with the Plan shall
be contained in the Plan Supplement and filed with the Clerk of the Bankruptcy
Court no later than the deadline for objection to the Plan, May 9, 2003. Upon
its filing, the Plan Supplement may be inspected in the office of the Clerk of
the Bankruptcy Court or its designee during normal business hours. Claimholders
and Interestholders may obtain a copy of the Plan Supplement upon written
request to Debtor in accordance with Article XIII.H of the Plan. The Plan
Proponents explicitly reserve the right to modify or make additions to or
subtractions from any schedule to the Plan and to modify any exhibit to the
Plan prior to the Confirmation Hearing.
10. Revocation, Withdrawal or Non-Consummation
The Plan Proponents reserve the right, to revoke or withdraw the Plan
at any time prior to the Confirmation Date and to file subsequent plans of
reorganization. If the Plan Proponents revoke or withdraw the Plan or if
Confirmation or Consummation does not occur, then, (i) the Plan shall be null
and void in all respects, (ii) any settlement or compromise embodied in the
Plan (including the fixing or limiting to an amount certain any Claim or Class
of Claims), assumption or rejection of executory contracts or leases affected
by the Plan, and any document or agreement executed pursuant to the Plan, shall
be deemed null and void, and (iii) nothing contained in the Plan shall (a)
constitute a waiver or release of any Claims by or against, or any Interests
in, such Debtors or any other Person, (b) prejudice in any manner the rights of
such Debtors or any other Person, or (c) constitute an admission of any sort by
the Debtors or any other Person.
M. Retention of Jurisdiction
Pursuant to Bankruptcy Code sections 105(a) and 1142 and
notwithstanding entry of the Confirmation Order and the occurrence of the
Effective Date, the Court will retain exclusive jurisdiction over all matters
arising out of, and related to, the Chapter 11 Cases and the Plan to the
fullest extent permitted by law, including, among other things, jurisdiction
to:
(a) Allow, disallow, determine, liquidate, classify,
estimate or establish the priority or secured or
unsecured status of any Claim or Interest, including
the resolution of any request for payment of any
Administrative Claim and the resolution of any
objections to the allowance or priority of Claims or
Interests;
(b) Hear and determine all suits or adversary
proceedings to recover assets of the Debtors and
property of their Estates, wherever located;
(c) Hear and determine all matters related to the
assumption, assumption and assignment, or rejection
of any executory contract or unexpired lease to
which any Debtor may be liable, including, if
necessary, the nature or amount of any required Cure
of the liquidation or allowance of any Claims
arising therefrom;
(d) Ensure that distributions to holders of Allowed
Claims and Allowed Interests are accomplished
pursuant to the provisions of the Plan;
74
(e) Hear and determine any and all adversary
proceedings, motions, applications, and contested or
litigated matters arising out of, under, or related
to, the Chapter 11 Cases;
(f) Enter such orders as may be necessary or appropriate
to execute, implement or consummate the provisions
of the Plan and all contracts, instruments, releases
and other agreements or documents created in
connection with the Plan, the Disclosure Statement
or the Confirmation Order;
(g) Resolve any cases, controversies, suits or disputes
that may arise in connection with the consummation,
interpretation or enforcement of the Plan or any
contract, instrument, release or other agreement or
document that is executed or created pursuant to the
Plan, or any entity's rights arising from or
obligations incurred in connection with the Plan or
such documents;
(h) Consider any modifications of the Plan, cure any
defect or omission, or reconcile any inconsistency
in any order of the Court including, without
limitation, the Confirmation Order;
(i) Hear and determine all applications for compensation
and reimbursement of expenses of Professionals under
the Plan or under Bankruptcy Code sections 330, 331
503(b), 1103 and 1129(a)(4), provided, however, that
from and after the Effective Date the payment of
fees and expenses of the Professionals of
Reorganized SWINC shall be made in the ordinary
course of business and shall not be subject to the
approval of the Court;
(j) Issue injunctions, enter and implement other orders
or take such other actions as may be necessary or
appropriate to restrain interference by any Entity
with consummation, implementation or enforcement of
the Plan or the Confirmation Order;
(k) Hear and determine matters concerning state, local
and federal taxes in accordance with Bankruptcy Code
sections 346, 505 and 1146;
(l) Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any
reason or in any respect modified, stayed, reversed,
revoked or vacated or distributions pursuant to the
Plan are enjoined or stayed;
(m) Enforce all orders, judgments, injunctions,
releases, exculpations, indemnifications and rulings
entered in connection with the Chapter 11 Cases;
(n) Hear and determine all disputes or other matters
arising in connection with the interpretation,
implementation or enforcement of the Asset Purchase
Agreement and the Sale Order;
75
(o) Hear and determine disputes with respect to
compensation of the SWE&C Liquidating Trustee and
his professional advisors;
(p) Hear and determine disputes with respect to
compensation of the SWINC Plan Administrator and his
professional advisors;
(q) Hear and determine such other matters as may be
provided in the Confirmation Order or as may be
authorized under, or not inconsistent with,
provisions of the Bankruptcy Code; and
(r) Enter a final decree closing the Chapter 11 Cases.
N. Conditions To Confirmation and Consummation
1. Conditions to Confirmation
The following are conditions precedent to the occurrence of
the Confirmation Date: (a) the entry of an order finding that the Disclosure
Statement contains adequate information within the meaning of Bankruptcy Code
section 1125 and (b) the proposed Confirmation Order shall be in a form and
substance reasonably acceptable to the Plan Proponents.
2. Conditions to Effective Date
The following are conditions precedent to the occurrence of
the Effective Date, each of which must be satisfied or waived in accordance
with Article XII.C of the Plan:
(a) The Confirmation Order shall have been entered and
become a Final Order in form and substance
reasonably satisfactory to the Plan Proponents and
shall:
(i) authorize and direct the Plan Proponents to take
all actions necessary or appropriate to enter into, implement, and consummate
the instruments, releases, and other agreements or documents created in
connection with the Plan;
(ii) authorize the issuance of Reorganized SWINC New
Common Stock, Reorganized SWINC New Series A Preferred Stock and Reorganized
SWINC New Series B Preferred Stock; and
(iii) provide that the Reorganized SWINC New Common
Stock, the Reorganized SWINC New Series A Preferred Stock and the Reorganized
SWINC New Series B Preferred Stock issued under the Plan are exempt from
registration under the Securities Act 1933, as amended, pursuant to Section 4(2)
of the Securities Act.
(b) All Plan Exhibits shall be in form and substance
reasonably acceptable to the Plan Proponents and
shall have been executed and delivered.
(c) All actions, documents and agreements necessary to
implement the Plan shall have been effectuated or
executed.
3. Waiver of Conditions
76
Each of the conditions set forth in Articles XII.A and XII.B
of the Plan, may be waived in whole or in part by the Plan Proponents, without
any other notice to parties in interest or the Court and without a hearing. The
failure to satisfy or waive any condition to the Confirmation or the Effective
Date may be asserted by the Debtors or Reorganized SWINC regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by the Debtors or Reorganized SWINC). The
failure of the Debtors or Reorganized SWINC to exercise any of the foregoing
rights shall not be deemed a waiver of any other rights, and each such right
shall be deemed an ongoing right that may be asserted at any time.
O. Effect of Plan Confirmation
1. Binding Effect
The Plan shall be binding upon and inure to the benefit of
the Debtors, all present and former holders of Claims and Interests, and their
respective successors and assigns.
2. Releases
(a) Releases by the Debtors
On the Effective Date, each of the Debtors shall
release unconditionally (i) the SWE&C Liquidating Trustee, (ii) the SWE&C
Liquidating Trust Disbursing Agent, (iii) the SWINC Disbursing Agent, (iv) the
SWINC Plan Administrator, (v) their respective directors and officers, advisors,
accountants, investment bankers, consultants, and attorneys and (vi) the
respective advisors, accountants, investment bankers, and attorneys of any of
the foregoing, solely in their respective capacities as such, from any and all
claims, obligations, suits, judgments, damages, rights, causes of action and
liabilities whatsoever (other than the right to enforce the performance of their
respective obligations, if any, to the Debtors or Reorganized SWINC under the
Plan and the contracts, instruments, releases and other agreements delivered
under the Plan), 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 or omission, transaction, event or other occurrence taking place
on or after the Petition Date and prior to or on the Effective Date and in any
way relating to the Debtors, the Chapter 11 Cases, the Plan or the Disclosure
Statement.
On the Effective Date, each of the Debtors and their
Estates shall release unconditionally those present and former directors, which
directors served only as directors and not as officers of any of the Debtors, in
their respective capacities as such, from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever
(other than the right to enforce the performance of their respective
obligations, if any, to the Debtors or Reorganized SWINC under the Plan and the
contracts, instruments, releases and other agreements delivered under the Plan),
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 or
omission, transaction, event or other occurrence taking place prior to or on the
Effective Date that could have been asserted by or on behalf of any of the
Debtors or their Estates against such current and former directors.
(b) Releases by Holders of Claims and Interests
77
On the Effective Date, to the fullest extent
permissible under applicable law, as such law may be extended or interpreted
subsequent to the Effective Date, in consideration for the obligations of the
Debtors and Reorganized SWINC under the Plan and the Cash and other contracts,
instruments, releases, agreements or documents to be delivered in connection
with the Plan, each entity (other than a Debtor) that has held, holds or may
hold a Claim or Interest (except for holders of Asbestos Claims), as applicable,
will be deemed to forever release, waive and discharge all claims, demands,
debts, rights, causes of action or liabilities (other than the right to enforce
the Debtors' or Reorganized SWINC's obligations under the Plan and the
contracts, instruments, releases, agreements and documents delivered under the
Plan), 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 or omission, transaction, event or other occurrence taking place at any time
on or prior to the Effective Date in any way relating to the Debtors, the
Chapter 11 Cases, the Plan or the Disclosure Statement that such entity has, had
or may have against (i) the Debtors, and, solely in their respective capacities
as such.(ii) the SWE&C Liquidating Trustee, (iii) the SWE&C Liquidating Trust
Disbursing Agent, (iv) the SWINC Disbursing Agent, (v) and the SWINC Plan
Administrator; provided, however, that the Plan does not release or otherwise
affect any pre or post Effective Date Claim, except as to the Debtors, that any
person may have against the fiduciaries of the Pension Plan, the Employee Stock
Ownership Plan of Stone & Webster, Incorporated and Participating Subsidiaries,
the Group Life Insurance and Spouses Insurance Plan of Stone & Webster or the
Employee Investment Plan of Stone & Webster Incorporated and Participating
Subsidiaries.
(c) Injunction Related to Releases
The Confirmation Order will permanently enjoin the
commencement or prosecution by any entity, whether directly, derivatively or
otherwise, of any claims, obligations, suits, judgments, damages, demands,
debts, rights, causes of action or liabilities released pursuant to the Plan,
including, but not limited to the claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action or liabilities released in
Article XIII.B of the Plan, provided, however, that the Plan does not release or
otherwise affect any pre or post Effective Date Claim, except as to the Debtors,
that any person may have against the fiduciaries of the Pension Plan, the
Employee Stock Ownership Plan of Stone & Webster, Incorporated and Participating
Subsidiaries, the Group Life Insurance and Spouses Insurance Plan of Stone &
Webster or the Employee Investment Plan of Stone & Webster Incorporated and
Participating Subsidiaries.
3. Discharge of Claims and Termination of Interests
Pursuant to Bankruptcy Code section 1141(d)(1), Confirmation
will discharge Claims against and Interests in SWINC and the SWINC Subsidiaries
and no holder of a Claim against or Interest in SWINC or any SWINC Subsidiary
may, on account of such Claim or Interest, seek or receive any payment or other
distribution from, or seek recourse against Reorganized SWINC, SWINC, a SWINC
Subsidiary, their respective successors or their respective property, except as
expressly provided in the Plan.
Pursuant to Bankruptcy Code section 1141(d)(3), Confirmation
will not discharge Claims against SWE&C and the SWE&C Subsidiaries; provided,
however, that no holder of a Claim against SWE&C or the SWE&C Subsidiaries may,
on account of such Claim or Interest, seek or receive any payment or other
distribution from, or seek recourse against, SWE&C, the SWE&C Subsidiaries, the
Consolidated SWE&C Estate, their respective successors or their respective
property, except as expressly provided in the Plan.
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4. Exculpation and Limitation of Liability
Neither the Debtors nor any of their respective present or
former officers and directors (who were officers and directors on the Petition
Date), advisors or attorneys shall have or incur any liability to, or be
subject to any right of action by, any holder of a Claim or an Interest, or any
other party in interest, or any of their respective agents, shareholders,
employees, representatives, financial advisors, attorneys or affiliates, or any
of their successors or assigns, for any act or omission occurring on or after
the Petition Date in connection with, relating to, or arising out of, the
Debtors' Chapter 11 Cases, the pursuit of confirmation of the Plan, the
consummation of the Plan or the administration of the Plan or the property to
be distributed under the Plan, except for their willful misconduct or gross
negligence and except with respect to any claim against a fiduciary of the
Pension Plan, the Employee Stock Ownership Plan of Stone & Webster,
Incorporated and Participating Subsidiaries, the Group Life Insurance and
Spouses Insurance Plan of Stone & Webster or the Employee Investment Plan of
Stone & Webster Incorporated and Participating Subsidiaries with respect to the
Pension Plan or such other plan, and in all respects shall be entitled to rely
reasonably upon the advice of counsel with respect to their duties and
responsibilities under the Plan, provided, however, that the Plan does not
release or otherwise affect any pre or post Effective Date Claim, except as to
the Debtors, that any person may have against the fiduciaries of the Pension
Plan, the Employee Stock Ownership Plan of Stone & Webster, Incorporated and
Participating Subsidiaries, the Group Life Insurance and Spouses Insurance Plan
of Stone & Webster or the Employee Investment Plan of Stone & Webster
Incorporated and Participating Subsidiaries.
5. Injunction
Except as otherwise provided in the Plan or the Confirmation
Order, as of the Confirmation Date, all entities that have held, hold or may
hold a Claim or other debt or liability against SWINC, a SWINC Subsidiary or
the Consolidated SWINC Estate or an Interest in SWINC or a SWINC Subsidiary or
the Consolidated SWINC Estate are (a) permanently enjoined from taking any of
the following actions against the Estate of SWINC, the Estates of the SWINC
Subsidiaries, the SWINC Plan Administrator, the Consolidated SWINC Estates,
Reorganized SWINC, or any of their property on account of any such Claims or
Interests and (b) preliminarily enjoined from taking any of the following
actions against SWINC, a SWINC Subsidiary, the Consolidated SWINC Estate,
Reorganized SWINC, or their property on account of such Claims or Interests:
(i) commencing or continuing, in any manner or in any place, any action or
other proceeding; (ii) enforcing attaching, collecting or recovering in any
manner any judgment, award, decree or order; (iii) creating, perfecting or
enforcing any lien or encumbrance; (iv) asserting a setoff, right of
subrogation or recoupment of any kind against any debt, liability or obligation
due to the SWINC or the SWINC Subsidiaries; and (v) commencing or continuing,
in any manner or in any place, any action that does not comply with or is
inconsistent with the provisions of the Plan; provided, however, that nothing
contained herein shall preclude such persons from exercising their rights
pursuant to and consistent with the terms of the Plan, and provided, further,
however, that the Plan does not release or otherwise affect any pre or post
Effective Date Claim, except as to the Debtors, that any person may have
against the fiduciaries of the Pension Plan, the Employee Stock Ownership Plan
of Stone & Webster, Incorporated and Participating Subsidiaries, the Group Life
Insurance and Spouses Insurance Plan of Stone & Webster or the Employee
Investment Plan of Stone & Webster Incorporated and Participating Subsidiaries.
Except as otherwise provided in the Plan or the Confirmation
Order, as of the Confirmation Date, all entities that have held, hold or may
hold a Claim or other debt or liability against SWE&C or the SWE&C Subsidiaries
or an Interest in SWE&C or the SWE&C Subsidiaries are (a) permanently enjoined
from taking any of the following actions against the Estate of SWE&C,
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the Estates of the SWE&C Subsidiaries, the SWE&C Liquidating Trustee, or any of
their property on account of any such Claims or Interests and (b) preliminarily
enjoined from taking any of the following actions against SWE&C, the SWE&C
Subsidiaries or their property on account of such Claims or Interests: (i)
commencing or continuing, in any manner or in any place, any action or other
proceeding; (ii) enforcing attaching, collecting or recovering in any manner
any judgment, award, decree or order; (iii) creating, perfecting or enforcing
any lien or encumbrance; (iv) asserting a setoff, right of subrogation or
recoupment of any kind against any debt, liability or obligation due to the
SWE&C or the SWE&C Subsidiaries; and (v) commencing or continuing, in any
manner or in any place, any action that does not comply with or is inconsistent
with the provisions of the Plan; provided, however, that nothing contained
herein shall preclude such persons from exercising their rights pursuant to and
consistent with the terms of the Plan, and provided, further, however, that the
Plan does not release or otherwise affect any pre or post Effective Date Claim,
except as to the Debtors, that any person may have against the fiduciaries of
the Pension Plan, the Employee Stock Ownership Plan of Stone & Webster,
Incorporated and Participating Subsidiaries, the Group Life Insurance and
Spouses Insurance Plan of Stone & Webster or the Employee Investment Plan of
Stone & Webster Incorporated and Participating Subsidiaries.
By accepting distributions pursuant to the Plan, each holder
of an Allowed Claim or Allowed Interest receiving distributions pursuant to the
Plan will be deemed to have specifically consented to the injunctions set forth
in Article XIII.E of the Plan.
6. Treatment of Indemnification Claims
Notwithstanding DGCL ss. 145 or any other state or local
statute or rule, all existing indemnification and other similar obligations of
any of the Debtors to its officers and directors relating to actions or
inactions as of the Petition Date are rejected, to the extent executory, as of
the Effective Date as provided for in the Plan.
On August 24, 2000, H. Kerner Smith, the former President,
Chief Executive Officer and Director of SWINC filed a proof of claim against
the Debtors' estates seeking indemnification, contribution and reimbursement
from SWINC (the "Smith Indemnification Claim") for certain expenses and
contingent liabilities arising as a result of claims made against Mr. Smith as
an officer and director of SWINC (the "D&O Claims").
On December 18, 2001, the Debtors filed their Second Omnibus
Objection to Claims, which seeks, in part, to disallow and expunge the Smith
Indemnification Claim on the grounds that it is contingent and unliquidated.
On February 1, 2002, Mr. Smith filed a Response to the
Debtors' Second Omnibus Objection to Claims (the "Smith Response"), requesting
that the Bankruptcy court allow the Smith Indemnification Claim unless and
until the D&O Claims are resolved and Mr. Smith has in fact been indemnified
fully through insurance. Alternatively, Mr. Smith requested that the Bankruptcy
Court defer ruling on the Debtors' objection to the Smith Indemnification Claim
pending final resolution of the D&O Claims. The Bankruptcy Court has not yet
heard argument on the Debtors' Second Omnibus Objection to Claims or the Smith
Response thereto.
Mr. Smith objects to the characterization and proposed
treatment of the Smith Indemnification Claim under the Plan, and the parties
reserve all rights and remedies they may have in regard to the Smith
Indemnification Claim and any objections thereto.
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7. Term of Injunction or Stays
With respect to SWINC, the SWINC Subsidiaries, SWE&C and the
SWE&C Subsidiaries all injunctions or stays provided for in the Chapter 11
Cases under section 105, 362 or 524 of the Bankruptcy Code or otherwise, and in
existence on the Confirmation Date, shall remain in full force and effect until
all property of the Estate(s) of SWINC and the SWINC Subsidiaries, SWE&C and
the SWE&C Subsidiaries has been distributed.
V. CERTAIN RISK FACTORS TO BE CONSIDERED
Holders of Impaired Claims and Interests who are entitled to
vote on the Plan should read and carefully consider the following factors, as
well as the other information set forth in this Disclosure Statement (and the
documents delivered together herewith and/or incorporated by reference herein),
before deciding whether to vote to accept or to reject the Plan.
A. Certain Bankruptcy Considerations
Even if all Impaired voting classes vote to accept the Plan,
and with respect to any Impaired Class deemed to have rejected the Plan, the
requirements for "cramdown" are met, the Court may exercise substantial
discretion and may choose not to confirm the Plan. Bankruptcy Code section 1129
requires, among other things, that the value of distributions to dissenting
holders of Claims and Interests may not be less than the value such holders
would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy
Code. See Article IX. Although the Debtors believe that the Plan will meet such
a test, there can be no assurance that the Court will reach the same
conclusion. See Appendix C-1 annexed hereto for a liquidation analysis of the
Consolidated SWINC Estate and the Consolidated SWE&C Estate and Appendix C-2
for a liquidation analysis of each of the Debtors.
B. Claims Estimations
There can be no assurance that the estimated amount of Claims
and Interests set forth herein are correct, and the actual allowed amounts of
Claims and Interests may differ from the estimates. The estimated amounts are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, the actual allowed amounts of Claims and Interests may vary
from those estimated herein.
C. Certain Litigation
Although the Debtors believe that the Litigation Claims are
valid, if the Debtors are unsuccessful in prosecuting such claims the SWINC
Plan Administrator or the SWE&C Liquidating Trustee may not recover any assets
for distribution under the Plan. Litigation is inherently uncertain and there
can be no guarantee of any outcome. The SWINC Plan Administrator or the SWE&C
Liquidating Trustee may decide that the best hope for recovery lies in settling
the Litigation Claims. Such settlements may be significantly less than the
damages which were caused and/or the transfers to be recovered. For these
reasons, the recoveries in connection with the Litigation Claims could change
materially over time.
In addition, there are other claims, lawsuits, disputes with
third parties, investigations and administrative proceedings against the
Debtors relating to matters in the ordinary course of their business activities
which could materially adversely affect the Debtors' reorganization.
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D. Income Taxes
Income tax liability with respect to the transactions
contemplated by the Plan may materially reduce the recovery to holders of
Claims and Interests. The Debtors anticipate that they will recognize a
significant amount of income as a result of the Plan, including as a result of
the Reversion. In general, income may be offset by net operating loss
carryforwards ("NOLs"). Whether the Debtors and Reorganized SWINC will have
sufficient NOLs to offset the income recognized, and whether any such NOLs
would be available to offset such income, is subject to substantial
uncertainty. Claims in bankruptcy by the IRS are given priority over all
unsecured Claims, and any income not offset by NOLs will be subject to income
taxation, materially reducing the recovery to holders of unsecured Claims and
Interests.
The Debtors believe that they and Reorganized SWINC will under go an
"ownership change" (within the meaning of IRC ss. 382), which, but for the
exception described below, would substantially eliminate their ability to
offset income and gains recognized after the Effective Date with NOLs generated
before the Effective Date. Under an exception to this "section 382 limitation,"
items of built- in income (i.e., economically accrued but unrealized income)
may be generally be offset by pre-change losses without limitation, if (i) such
items are attributable to pre-change periods but recognized after an ownership
change and (ii) the corporation undergoing an ownership change has a net
unrealized built-in gain (generally, if the fair market value of its qualifying
assets exceeds its basis in those assets) (a "NUBIG"). It is uncertain,
however, whether the Debtors and Reorganized SWINC will have a NUBIG on the
Effective Date. If they do not have a NUBIG, and if, as anticipated, the
Debtors and Reorganized SWINC are treated as incurring an ownership change,
they would be unable to use any pre-change NOLs to offset income recognized as
a result of the Plan, including as a result of the Reversion. No assurances can
be made in this regard, and even if the Debtors and Reorganized SWINC take the
position that they are entitled to use pre-change NOLs to offset income
recognized as a result of the Plan (including the Reversion), the IRS may
assert, and a court may sustain, a different position. If Reorganized SWINC is
unable to utilize pre-change NOLs to offset income from Plan (including the
Reversion), the recovery by holders of unsecured Claims and Interests would be
materially reduced or eliminated.
The Debtors or Reorganized SWINC may also be treated as having
constructively liquidated, for federal income tax purposes, prior to the dates
of their actual liquidations, eliminating their NOLs and causing holders of
Claims and Interests to recognize taxable gain or loss at the time of such
constructive liquidation. Holders of Claims and Interests may also be treated
as directly receiving and recognizing income recognized after the date of
constructive liquidation (including as a result of the Reversion) that
otherwise would have been treated as accruing to the Debtors or Reorganized
SWINC. Such income would not be offset by the Debtors' or Reorganized SWINC's
NOLs. In addition, some aspects of the Plan could cause holders of Claims and
Interests to recognize income without a corresponding receipt of cash with
which to pay the associated tax liability and may prevent holders from using
deductions to which the Debtors or Reorganized SWINC would have been entitled.
Certain income may be recognized by holders of Claims and Interests regardless
of their tax basis in their Claims and Interests, and regardless of whether a
holder otherwise recognizes an overall loss as a result of the Plan. For a
fuller discussion of the income tax risks associated with the Plan, see the
section entitled "Certain Federal Income Tax Consequences of the Plan."
No opinion of counsel has been or will be sought or obtained, and no
rulings or determinations of the IRS or any other taxing authorities have been
sought or obtained, with respect to any income tax
82
matters relating to the Plan. Accordingly, no assurances may be made that the
income tax consequences of the Plan could not have material adverse effects on
holders of Claims and Interests.
E. Pension Plan
After the Effective Date, Reorganized SWINC intends to
commence a dissolution proceeding in the Chancery Court of Delaware under DGCL
ss.ss. 275-282. Reorganized SWINC then intends to undertake to terminate the
Pension Plan with a date of plan termination ("DOPT") that falls during the
pendency of the Delaware dissolution proceeding. After satisfying all
liabilities of the Pension Plan to Pension Plan participants and beneficiaries,
Reorganized SWINC may take a distribution of any residual assets, defined as
the Reversion in the Plan, of the Pension Plan.
As of December 31, 2002, the Pension Plan's enrolled actuary
estimated that the Pension Plan had a substantial Reversion. Whether the
Reversion will exist at a future date, and, if so, in what amount, will be
determined by the appreciation or depreciation of Pension Plan assets,
prevailing market annuity purchase rates, interest rates used to determine
various benefits under the Pension Plan, mortality and other demographic
experience, Pension Plan provisions and the interpretation of those provisions,
and other factors. Accordingly, no assurances can be given regarding the
existence or amount of the Reversion. Moreover, termination of the Pension Plan
is subject to governmental review and approval. No assurance is given that
approval will be obtained.
If Reorganized SWINC receives the Reversion, in addition to
any income tax consequences that may result, the amount of the reversion will
be subject to taxation under IRC ss. 4980. Unless one of the exceptions set
forth in IRC ss. 4980 applies, IRC ss. 4980 imposes a tax of 50 percent of the
amount of any employer reversion from a tax-qualified plan. If one of the
exceptions applies, then the IRC ss. 4980 tax rate is 20 percent.
One of the exceptions that results in a 20 percent IRC ss.
4980 tax rate applies in the case of "an employer who, as of the termination
date of the qualified plan, is in bankruptcy liquidation under chapter 7 of
title 11 of the United States Code or in similar proceedings under State law."
A dissolution proceeding in the Chancery Court of Delaware under DGCL ss.ss.
275-282 should constitute such a "similar" proceeding under state law and,
therefore, termination of the Pension Plan with a DOPT that falls during the
Delaware dissolution proceeding should result in a 20 percent tax rate under
IRC ss. 4980. There can be no assurance that the IRS will agree with this
position, however. The IRS could conclude that a dissolution proceeding in the
Chancery Court of Delaware under DGCL ss.ss. 275-282 is not sufficiently
"similar" to a bankruptcy liquidation under chapter 7 of title 11 of the United
States Code to warrant a 20 percent tax rate under IRC ss. 4980. Or, the IRS
could disregard the form of the Delaware dissolution proceeding because it
follows a Chapter 11 reorganization, which, unlike a Chapter 7 liquidation or
similar state law dissolution proceeding, does not qualify for the exception
noted above to the 50 percent IRC ss. 4980 tax.
The Debtors may seek a private letter ruling from the IRS
regarding the IRC ss. 4980 tax rate that would apply to Reorganized SWINC's
receipt of the Reversion. No assurances are given, however, that the IRS will
rule favorably or in advance of the date that holders of a Claim or Interest
must vote on the proposed Plan. In particular, the IRS could rule unfavorably,
could decline to rule, could insist that any such ruling request be submitted
only by Reorganized SWINC as the affected taxpayer (and therefore after the
Effective Date), or could otherwise not rule until after the Effective Date.
VI. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
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No registration statement will be filed under the Securities
Act or any state securities laws with respect to the issuance or subsequent
transfer of the Reorganized SWINC New Series A Preferred Stock, the Reorganized
SWINC New Series B Preferred Stock or the Reorganized SWINC New Common Stock
under the Plan. The Debtors believe that Section 4(2) of the Securities Act and
various provisions of state securities law exempt from federal and state
securities registration requirements the offer and sale of such securities
pursuant to the Plan. Section 4(2) of the Securities Act provides an exemption
from the registration requirements of the Securities Act for transactions by an
issuer not involving any public offering. Given that Reorganized SWINC will be
issuing securities to only three holders, each of whom is sophisticated and
familiar with the operations of Reorganized SWINC and the terms of the Plan,
the Debtors believe that the issuance of securities contemplated by the Plan
will not constitute a public offering and will therefore be exempt from
registration pursuant to Section 4(2) of the Securities Act. Subsequent
transfers of the securities to be issued under the Plan are not permitted.
It is not currently expected that Reorganized SWINC will
become subject to the periodic reporting and other requirements of the Exchange
Act as a result of the consummation of the Plan. Reorganized SWINC intends to
assess facts and circumstances, including the amount of assets held by
Reorganized SWINC and the number of holders of its securities, as they exist
following consummation of the Plan and, with the advice of counsel, will make a
determination regarding whether compliance with the periodic reporting and
other requirements of the Exchange Act is necessary or appropriate. In the
event that Reorganized SWINC determines that compliance is required,
Reorganized SWINC will file with the SEC a Registration Statement on Form 10 or
another appropriate registration statement form and otherwise comply with the
requirements of the Exchange Act.
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A summary description of certain material United States
federal income tax consequences of the Plan is provided below. This description
is for informational purposes only and, due to a lack of definitive judicial or
administrative authority or interpretation, substantial uncertainties exist
with respect to various tax consequences of the Plan as discussed herein. Only
the principal consequences of the Plan for holders of Claims or Interests who
are entitled to vote to accept or reject the Plan are described below. No
opinion of counsel has been or will be sought or obtained with respect to any
tax consequences of the Plan. Except possibly with respect to the IRC ss. 4980
consequences discussed below, no rulings or determinations of the IRS or any
other tax authorities have been or will be sought or obtained with respect to
any tax consequences of the Plan, and the discussion below is not binding upon
the IRS or such other authorities. No representations are being made regarding
the particular tax consequences of the confirmation or implementation of the
Plan as to any holder of a Claim or Interest. No assurance can be given that
the IRS would not assert, or that a court would not sustain, a different
position from any discussed herein.
The discussion of United States federal income tax
consequences below is based on the IRC, Treasury Regulations, judicial
authorities, published positions of the IRS, and other applicable authorities,
all as in effect on the date hereof and all of which are subject to differing
interpretations or change (possibly with retroactive effect).
Except to a limited extent, the following discussion does not
address foreign, state or local tax consequences of the Plan, nor does it
purport to address the United States federal income tax consequences of the
Plan to special classes of taxpayers (e.g., banks and certain other financial
84
institutions, insurance companies, tax-exempt organizations, holders of Claims
or Interests that are, or hold their Claims or Interests through, pass-through
entities, persons whose functional currency is not the United States dollar,
foreign persons, dealers in securities or foreign currency, persons who
received their Stock pursuant to the exercise of an employee stock option or
otherwise as compensation and persons holding certificates that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle, constructive sale or conversion transaction). Furthermore, the
following discussion does not address United States federal taxes other than
income taxes. EACH HOLDER OF A CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND ANY
FOREIGN TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN OR IN THE PLAN.
A. Tax Consequences to the Debtors
It is anticipated that, for federal income tax purposes,
Reorganized SWINC will recognize substantial income as a result of the
reversion of the residual assets of the Pension Plan. This income may, however,
generally be offset by net operating losses and net operating loss carryovers
("NOLs"). The Debtors hope that they and Reorganized SWINC will each have
sufficient NOLs available, for federal income tax purposes, to offset all or
substantially all of their anticipated income from the transactions
contemplated by the Plan (although some liability for federal alternative
minimum tax may remain, as discussed below). This belief is, however, subject
to substantial uncertainty, as described below. If any of the Debtors or
Reorganized SWINC do not have sufficient NOLs available to offset the income
recognized, any remaining income will be subject to income taxation, which may
materially reduce the recovery to holders of Claims and Interests.
It is possible that any of the Debtors or Reorganized SWINC
could be treated as having constructively liquidated, for federal income tax
purposes, prior to its actual liquidation. Under this treatment, the
constructively liquidated corporation's NOLs would be eliminated and any gain
recognized in the constructive liquidation of a subsidiary would reduce its
parent's NOLs. A premature constructive liquidation could therefore reduce or
eliminate the ability of the Debtors or Reorganized SWINC to offset taxable
income with such NOLs, thereby materially reducing or eliminating the amounts
available for distribution to holders of Claims and Interests.
It is also possible that the ability of the Debtors or
Reorganized SWINC to utilize NOLs could be substantially reduced or eliminated
as a result of an ownership change. When a corporation undergoes an ownership
change, the IRC generally limits its (and its subsidiaries') ability to utilize
historic NOLs and net unrealized built-in losses ("NUBILs"). An "ownership
change" is generally defined as a more than 50 percentage point change in
equity ownership, measured by value, during the shorter of (1) the three-year
period ending on each date on which such change in ownership is tested or (2)
the period beginning on the day after the corporation's most recent ownership
change. As a general rule, the limit on a corporation's ability to use its
pre-change NOLs and NUBILs equals the product of the value of the stock of the
corporation (with certain adjustments) immediately before the ownership change
and the applicable "long-term tax-exempt rate" (4.61% for March, 2003). As a
result, an ownership change would, except as described below, substantially
eliminate the Debtors' and Reorganized SWINC's ability to use pre-change NOLs
to offset income realized after an ownership change. There is an exception,
however, under which items of built-in income (i.e., economically accrued but
unrealized income) may be offset by pre-change losses without limitation, if
(i) such items are attributable to pre- change periods but recognized after an
ownership change and (ii) the corporation undergoing an ownership change has a
net unrealized built-in gain ("NUBIG") on the date of the ownership change. A
corporation generally has a NUBIG if on the date of an ownership change the
fair market value of its qualifying assets exceeds its basis in those assets.
The Debtors believe that they will likely incur an ownership change as a result
of the Plan. Nevertheless, the Debtors also believe that the income from the
85
reversion of the Pension Plan assets attributable to pre-change periods should
qualify as built-in income for purposes of the exception described above. It is
uncertain, however, whether the Debtors and Reorganized SWINC will have a NUBIG
on the Effective Date. If they do not have a NUBIG, and if, as anticipated, the
Debtors and Reorganized SWINC are treated as incurring an ownership change,
they would be unable to use any pre-change NOLs to offset income recognized as
a result of the Plan, including as a result of the Reversion. The Debtors and
Reorganized SWINC will continue to analyze these issues and decide whether to
take the position that it can use pre-change NOLs to offset income recognized
as a result of the Plan, including as a result of the Reversion. No assurances
can be made in this regard, and even if the Debtors and Reorganized SWINC take
the position that they are entitled to use pre-change NOLs to offset income
recognized as a result of the Plan (including the Reversion), the IRS may
assert, and a court may sustain, a different position. If Reorganized SWINC is
unable to utilize pre-change NOLs to offset income from Plan (including the
Reversion), the recovery by holders of unsecured Claims and Interests would be
materially reduced or eliminated.
A corporation may incur alternative minimum tax liability
even where NOLs and other tax attributes are sufficient to eliminate its
taxable income as computed under the regular corporate income tax. It is
possible that the Debtors and Reorganized SWINC will be liable for the
alternative minimum tax.
B. Tax Consequences to Holders of Claims and Interests
The United States federal income tax consequences of the
transactions contemplated by the Plan to holders of Allowed Claims and
Interests (including the character, timing and amount of income, gain or loss
or deduction recognized) will depend upon, among other things, (1) the manner
in which a holder acquired a Claim or Interest; (2) the length of time the
Claim or Interest has been held; (3) whether the Claim or Interest was acquired
at a discount; (4) whether the holder has taken a bad debt or other deduction
with respect to the Claim (or any portion thereof) in the current or prior
years; (5) whether the holder has previously included accrued but unpaid
interest with respect to the Claim; (6) the holder's method of tax accounting;
and (7) whether the Claim is an installment obligation for United States
federal income tax purposes. Therefore, holders of Claims or Interests should
consult their own tax advisors for information that may be relevant to their
particular situations and circumstances and the particular tax consequences to
them of the transactions contemplated by the Plan.
Amounts treated as interest or dividend income (and certain
other types of ordinary income) for federal income tax purposes will generally
constitute taxable, ordinary income to a holder, regardless of whether the
holder otherwise recognizes an overall loss as a result of the Plan. In
addition, a holder may be required to recognize certain types of income,
including as a result of accrued but unpaid dividends or interest, imputed
interest or "original issue discount" without a corresponding receipt of cash.
For purposes of the following discussion, a "United States
holder" is a holder of an Allowed Claim or Interest that is (1) a citizen or
individual resident of the United States, (2) a partnership or corporation
created or organized in the United States or under the laws of the United
States or any political subdivision thereof, (3) an estate the income of which
is subject to United States federal income taxation regardless of its source,
or (4) a trust if (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust or (ii) the trust was in existence on August 20, 1996 and properly
elected to be treated as a United States person. A "Non-United States holder"
is a holder that is not a United States holder.
86
Also for purposes of the following discussion, the "Initial
Distribution Amount" and the "Semi-Annual Distribution Amount" are, as
applicable, the Pro-Rata share of amount of cash and the fair market value
(determined as of the date of receipt) of the Reorganized SWINC New Series A
Preferred Stock or Reorganized SWINC New Series B Preferred Stock received by a
holder of a Claim or Interest, in each case at the time of the Effective Date,
Initial Distribution, Semi-Annual Distribution or receipt of the Reorganized
SWINC New Series A Preferred Stock or Reorganized SWINC New Series B Preferred
Stock, as applicable. For federal income tax purposes and for purposes of the
discussion below, the SWINC Claims Administrator's receipt of Reorganized SWINC
New Series A Preferred Stock and the Liquidating Trustee's receipt of
Reorganized SWINC New Series B Preferred Stock will be treated as a receipt by
the holder of a Claim or Interest for whose benefit such stock is received.
i. Allocation of Plan Distributions Between Principal
and Interest
To the extent that any Allowed Claim entitled to a
distribution under the Plan comprises indebtedness and accrued but unpaid
interest thereon, the Debtors intend to take the position that, for income tax
purposes, such distribution shall be allocated (to the extent permitted) first
to the principal amount of the Claim and then, to the extent the consideration
exceeds the principal amount of the Claim, to the portion of such Claim
representing accrued but unpaid interest. No assurances can be made in this
regard. If, contrary to the Debtors' intended position, such a distribution
were treated as being allocated first to accrued but unpaid interest, a holder
of such an Allowed Claim would realize ordinary income with respect to the
distribution in an amount equal to the accrued but unpaid interest not already
taken into income under the holder's method of accounting.
ii. Consequences to Holders of Allowed SWINC Asbestos
Claims and SWE&C Asbestos Claims (Classes 3A and 3B)
("Asbestos Claims")
Depending on the nature and origin of an Asbestos Claim, its
character in the hands of the holder, and whether the holder has already
claimed a deduction or loss with respect to such Claim, any gain or loss with
respect to the receipt of Cash and Insurance Proceeds in respect of such Claim
pursuant to the Plan will generally be treated as capital gain or loss or
ordinary income or deduction or excluded from gross income under Code section
104. Capital losses may generally offset only capital gains, although
individuals may, to a limited extent, offset ordinary income with capital
losses. A holder of an Asbestos Claim may be subject to taxation, under the
"open transaction" or "closed transaction" methods described below, on its Pro
Rata share of the Asbestos Claims. In addition, holders may be subject to other
special tax rules that affect the character, timing and amount of any income,
gain, loss or deduction. Accordingly, holders of Asbestos Claims are urged to
consult their own tax advisors regarding the tax consequences of the Plan to
them.
iii. Consequences to Holders of Allowed SWINC and SWE&C
Convenience Claims, SWINC and SWE&C General
Unsecured Claims, SWINC Subordinated Claims and
SWINC Securities Claims (Classes 4A, 4B, 5A, 5B, 7A
and 8A)
A holder of an Allowed Class 4A SWINC Convenience Claim or an
Allowed Class 4B SWE&C Convenience Claim (i.e., a holder of an Allowed Class 5A
SWINC General Unsecured Claim or an Allowed Class 5B SWE&C General Unsecured
Claim that elects to be treated in Class 4A or 4B, respectively) will generally
recognize a taxable gain or loss, in the taxable year of the Effective Date,
equal to the difference, if any, between (1) the amount received in respect of
its Claim, and (2) the holder's adjusted tax basis in its Claim.
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The receipt by a holder of its Pro-Rata share of Distribution
Amounts, Reorganized SWINC New Series A Preferred Stock or Reorganized SWINC
New Series B Preferred Stock in respect of the holder's Class 5A or 5B General
Unsecured Claim, Class 7A SWINC Subordinated Claim or Class 8A SWINC Securities
Claim will generally be a taxable transaction for United States federal income
tax purposes, and may also be a taxable transaction for applicable state, local
and foreign income tax purposes. The timing and amount of taxable gain or loss
are, however, subject to some uncertainty.
Under the "closed transaction" method, a holder of a Class 5A
or 5B General Unsecured Claim, a Class 7A SWINC Subordinated Claim or Class 8A
SWINC Securities Claim should generally recognize gain or loss in the taxable
year of the Effective Date equal to the difference, if any, between (1) the sum
of (a) such holder's Pro-Rata share of any Initial Distribution Amount, (b)
such holder's Pro-Rata share of any Semi-Annual Distribution Amounts received
in the taxable year of the Effective Date and (c) the fair market value,
determined on the Effective Date, of such holder's Pro-Rata share of all
Semi-Annual Distribution Amounts to be received in subsequent taxable years,
over (2) such holder's adjusted tax basis in its Claim.
Under the "open transaction" method, such a holder should
generally recognize gain (but not loss) with respect to such Claim, in each
taxable year, beginning with the Effective Date, equal to the difference, if
any, between (1) the cumulative total of any Initial and Semi-Annual
Distribution Amounts received through the end of such taxable year, over (2)
the sum of (a) such holder's tax basis in its Claim and (b) the cumulative
total of the Initial and Semi-Annual Distribution Amounts already taken into
account with respect to such Claim under the holder's method of accounting.
Under this method, a holder should generally be required to defer its
recognition of any loss with respect to its Claim until the taxable year in
which it receives its final Semi-Annual Distribution Amount or shares of
Reorganized SWINC New Series A Preferred Stock or Reorganized SWINC New Series
B Preferred Stock. Under Regulations issued by the Treasury Department, the
"open transaction" method should be employed only if the fair market value of
the deferred Semi-Annual Distribution Amounts cannot be reasonably ascertained.
The Regulations caution that the fair market value of future payments would
generally not be ascertainable only in "rare and extraordinary cases."
Under both the "closed transaction" and "open transaction"
methods, a portion of each deferred payment received more than six months after
the Effective Date may be treated as imputed interest, and a holder of an
Allowed Class 5A or 5B General Unsecured Claim, Class 7A SWINC Subordinated
Claim or Class 8A SWINC Securities Claim may be required to include such
interest as taxable ordinary income, under such holder's method of accounting,
regardless of whether the holder otherwise realizes an overall loss as a result
of the Plan. A holder whose Claim represents a debt Claim and that recognizes a
loss as a result of the Plan may be entitled to a bad debt deduction, either in
the taxable year of the Effective Date, the taxable year in which it receives
its final Semi-Annual Distribution Amount or in a prior taxable year.
As discussed above, the character of income or loss with
respect to a Claim as ordinary or capital will depend on a number of factors,
including the origin and nature of such Claim. Generally, if the Claim is a
capital asset in the hands of a holder, the gain or loss will be capital gain
or loss, and will be long-term capital gain or loss if the holder's holding
period with respect to its Claim is more than one year on the Effective Date.
However, any gain recognized will generally be treated as ordinary income to
the extent that Initial or Semi-Annual Distribution Amounts or Reorganized
SWINC New Series A Preferred Stock or Reorganized SWINC New Series B Preferred
Stock are received in respect of accrued interest, market discount or dividends
that have not previously been taken into account under such holder's method of
accounting. The holding period for Reorganized SWINC New Series A Preferred
88
Stock and Reorganized SWINC New Series B Preferred Stock received by a holder
of a Claim pursuant to the Plan will generally begin on the day after the
Effective Date.
It is possible that any of the Debtors or Reorganized SWINC
may be treated as having constructively liquidated, for federal income tax
purposes, before the date of its actual liquidation. In such a case, any income
or gain recognized after the date of the constructive liquidation would be
treated as received and recognized directly by holders of Claims and Interests.
Such holders would not be entitled to offset such income or gain with the
Debtors' or Reorganized SWINC's NOLs. Such holders could also recognize income
without a corresponding receipt of cash with which to satisfy their income tax
liability. In addition, such holders may not be able to offset any such income
or gains with deductions or losses that otherwise would have accrued to the
Debtors or Reorganized SWINC after the date of a constructive liquidation, and
may recognize taxable income or gain regardless of whether they otherwise
recognize an overall loss as a result of the Plan.
iv. Consequences to Holders of SWINC Equity Securities
(Class 9A)
Although not free from doubt, SWINC believes that the receipt
of Reorganized SWINC New Series A Preferred Stock and Available Cash in respect
of SWINC Equity Securities pursuant to the Plan should generally be treated as
a "recapitalization" for United States federal income tax purposes. If the
receipt is so treated, then, except as discussed below, a holder of a SWINC
Equity Security should recognize gain (but not loss) with respect to the SWINC
Equity Security surrendered pursuant to the Plan, in an amount equal to the
lesser of (1) the amount of gain realized (i.e., the excess of the amount of
Available Cash and the fair market value of the Reorganized SWINC New Series A
Preferred Stock received by the holder, over the holder's adjusted tax basis in
its SWINC Equity Security) or (2) the amount of Cash received by the holder of
the SWINC Equity Security. Except as discussed below, any such gain recognized
should generally be treated as capital gain, and taken into account under
either the "closed transaction" or the "open transaction" method described
above. In addition, except as discussed below, such a holder's aggregate tax
basis in the Reorganized SWINC New Series A Preferred Stock received pursuant
to the Plan should be equal to the aggregate tax basis in its SWINC Equity
Securities surrendered in exchange therefor, decreased by the amount of
Available Cash received and increased by the amount of any gain recognized. A
holder's holding period for its Reorganized SWINC New Series A Preferred Stock
received pursuant to the Plan should generally include the holding period of
its SWINC Equity Securities surrendered in exchange therefor.
If the receipt of Reorganized SWINC New Series A Preferred
Stock and Available Cash in respect of SWINC Equity Securities pursuant to the
Plan is not treated as a recapitalization, then such receipt would be treated
as a taxable transaction for federal income tax purposes. Accordingly, a holder
of SWINC Equity Securities would generally recognize gain or loss, if any, on
the fair market value of the Reorganized SWINC New Series A Preferred Stock and
the amount of Available Cash received, under either the "closed transaction" or
the "open transaction" method described above. A holder's holding period with
respect to Reorganized SWINC New Series A Preferred Stock would begin on the
day after the Effective Date.
A holder who receives its Pro-Rata share of Reorganized SWINC
New Series A Preferred Stock or Available Cash in respect of accrued but unpaid
dividends, if any, will recognize ordinary income upon such receipt in an
amount equal to the fair market value of such Reorganized SWINC New Series A
Preferred Stock (determined on the Effective Date) and the amount of Available
Cash not previously taken into account under the holder's method of accounting
with respect to such accrued but unpaid dividend, regardless of whether such
holder otherwise recognizes a taxable loss as a result of the Plan. The holding
period for Reorganized SWINC New Series A Preferred
89
Stock received in respect of such accrued but unpaid dividends will begin on
the day after the Effective Date.
If holders of Allowed Class 9A Equity Securities vote to
accept the Plan, holders of Reorganized SWINC Series A Preferred Stock will
receive a greater amount than if they had voted to reject the Plan (the
"Overage") and holders of Class 9A Equity Securities will receive an interest
in, and distributions from, the Equity Settlement Fund. Any Overage received by
a holder of a SWINC Equity Security should be treated as either (i) additional
consideration received in respect of such SWINC Equity Security pursuant to the
Plan or (ii) a separate payment in the nature of a fee for accepting the Plan.
If the Overage is treated as additional consideration received in respect of
the SWINC Equity Security, the Overage will be added to the amount realized in
computing gain or loss in the manner described above. If the Overage or income
from the Settlement Fund is treated as a separate fee, a holder of a SWINC
Equity Security would likely recognize ordinary income in an amount equal to
the Overage and/or its Pro Rata share of income from the Settlement Fund,
regardless of whether such holder otherwise recognizes an overall loss as a
result of the Plan. The Debtors intend to take the position that the Overage
should be treated as additional consideration received in respect of SWINC
Equity Securities and that income recognized as a result of the Settlement Fund
will be treated as a fee and taxable as ordinary income. No assurances can be
made in this regard.
If any of the Debtors or Reorganized SWINC is treated as
having constructively liquidated, for federal income tax purposes, before the
date of its actual liquidation, a Pro Rata share of any income or gain
recognized after the date of the constructive liquidation would be treated as
received and recognized directly by holders Class 9A Equity Securities. Such
holders would not be entitled to offset such income or gain with the Debtors'
or Reorganized SWINC's NOLs. Such holders could also recognize income without a
corresponding receipt of cash with which to satisfy their income tax liability.
In addition, such holders may not be able to offset any such income or gains
with deductions or losses that otherwise would have accrued to the Debtors or
Reorganized SWINC after the date of a constructive liquidation, and may
recognize taxable income or gain regardless of whether they otherwise recognize
an overall loss as a result of the Plan.
A portion of the consideration received on each Semi-Annual
Distribution Date that is more than six months after the Effective Date may be
treated as imputed interest, taxable as ordinary income under the holder's
method of accounting.
v. Consequences of Liquidation of Reorganized SWINC
Upon the liquidation of Reorganized SWINC, each beneficial
holder of Reorganized SWINC New Series A Preferred Stock or Reorganized SWINC
New Series B Preferred Stock will generally recognize gain or loss equal to the
difference, if any, between (1) such holder's Pro Rata share of the liquidation
proceeds of Reorganized SWINC and (2) such holder's aggregate adjusted tax
basis in its beneficial interest in the stock surrendered in exchange therefor.
Any such gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if the holder's holding period for its shares
(including a tacked holding period relating to a share of SWINC Equity
Securities, as discussed above) is more than one year on the date of
liquidation.
As discussed above in Section IV.a, it is possible that SWINC
or Reorganized SWINC could be treated as having constructively liquidated, for
federal income tax purposes, prior the actual liquidation of Reorganized SWINC.
In that case, a beneficial holder of SWINC Equity Securities, Reorganized SWINC
New Series A Preferred Stock or Reorganized SWINC New Series B Preferred Stock
would be subject to the treatment described in the preceding paragraph with
respect to
90
shares of Reorganized SWINC New Series A Preferred Stock and Reorganized SWINC
New Series B Preferred Stock at the time of such constructive liquidation. In
addition, if SWINC or Reorganized SWINC is treated as having constructively
liquidated before receiving the reversion of the Pension Plan assets, holders
of Claims and Interests may be treated as having received the reversion
directly and would be taxable on such receipt. In such a case, holders
receiving such amounts would not be entitled to utilize Reorganized SWINC's
NOLs to offset income from such receipt. In addition, such income would likely
be treated as ordinary and thus would generally not be offset by capital losses
(except to a limited extent in the case of individuals) or basis.
vi. Consequences of the SWE&C Liquidating Trust, the
Asbestos Trust, and the Equity Settlement Fund
Under the IRC, amounts earned by an escrow account,
settlement fund or similar fund must be subject to current tax. Although
certain Treasury regulations have been issued, no Treasury regulations have
been promulgated to address the tax treatment of such funds in a bankruptcy
context. Accordingly, the proper tax treatment of such funds is uncertain.
Depending on the facts and the relevant law, such funds could be treated as
grantor trusts, separately taxable trusts, or otherwise.
The Debtors presently intend to treat (1) the assets held in
the Asbestos Trust and SWE&C Liquidating Trust, respectively, (the "Liquidating
Trust Assets") as held by a grantor trust with respect to which the holders of
SWE&C Claims are treated as the grantors, and (2) the assets held in the Equity
Settlement Fund (the "Equity Settlement Fund Assets") as held by a grantor
trust with respect to which holders of Class 9A Interests are treated as the
grantors. Accordingly, it is anticipated that holders of SWE&C Claims will be
subject to current taxation on any earnings generated by the Liquidating Trust
Assets and that holders of Class 9A SWINC Equity Interests will be subject to
current taxation on any earnings generated by the Equity Settlement Fund
Assets. There can be no assurance that the IRS will respect the foregoing
treatment. For example, the IRS may characterize any or all of the trusts as
grantor trusts for the benefit of holders of Claims, the Debtors or Reorganized
SWINC, or as otherwise owned by and taxable to holders of Claims or the Debtors
or Reorganized SWINC. Alternatively, the IRS could characterize any or all of
the trusts as so-called "complex trusts" subject to a separate entity level tax
on its earnings, except to the extent that such earnings are distributed during
the taxable year. Due to the possibility that the amounts of the consideration
received by a holder of a SWE&C Claim may increase or decrease, a holder of a
SWE&C Claim could be prevented from recognizing a loss until the time at which
there are no assets remaining in the Liquidating Trust or the Liquidating Trust
is terminated.
If the amounts held in Asbestos Trust are treated as held by
a grantor trust with respect to which holders of SWE&C Claims are treated as
the grantors, then they will recognize additional gain as a result of the
transfer of funds to the Asbestos Trust, either under the "open transaction" or
"closed transaction" methods described above. Under the closed transaction
method, holders of SWE&C Claims would recognize ordinary income or capital gain
as a result of the transfer, in the taxable year of the Effective Date, without
a corresponding receipt of cash. Holders of SWE&C Claims may be entitled to a
deduction or capital loss in the year in which amount are paid to holders of
Asbestos Claims, but the ability to claim such a deduction or capital loss is
uncertain.
As discussed above under the heading "Consequences of
Liquidation of Reorganized SWINC," if any of the Debtors is treated as
constructively liquidated before the date of its actual liquidation, or if the
Reversion is treated as received directly by the SWE&C Liquidating Trust, the
amounts distributable to holders of Claims and Interests could be materially
reduced or
91
eliminated or such holders themselves could be taxable on the deemed receipt by
the SWE&C Liquidating Trust. In such a case, holders receiving such amounts
would not be entitled to utilize the Debtors' NOLs to offset income from such
receipt. In addition, such income would likely be treated as ordinary and thus
would generally not be offset by capital losses (except to a limited extent in
the case of individuals) or basis.
Holders of Asbestos Claims and SWE&C Claims are urged to
consult their own tax advisors regarding the potential United States federal
income tax treatment of the Trusts and the consequences to them of such
treatment (including the effect on the computation of a holder's income, gain
or loss in respect of its Claim, the subsequent taxation of any distributions
from the Trusts, and the possibility of taxable income without a corresponding
receipt of cash or property with which to satisfy the tax liability).
vii. Consequences to Non-United States Holders
The United States federal income tax consequences of the Plan
for a Non-United States holder generally depend on the nature and origin of the
holder's Claim or Interest. Except as discussed below, a Non-United States
holder that holds its Claim or Interest as a capital asset should generally not
be subject to United States federal income tax with respect to Reorganized
SWINC New Series A Preferred Stock, Reorganized SWINC New Series B Preferred
Stock, cash or an interest in the SWE&C Liquidating Trust received in respect
of its Claim or Interest pursuant to the Plan unless, among other things, (a)
such holder is engaged in a trade or business in the United States to which
income, gain or loss from the exchange is "effectively connected" for United
States federal income tax purposes, or (b) in the case of an individual, such
holder is present in the United States for 183 days or more during the taxable
year of the Effective Date and certain other requirements are met. A Non-
United States holder may, however, be subject to United States federal
withholding tax and information reporting with respect to cash and the fair
market value of Reorganized SWINC New Series A Preferred Stock or Reorganized
SWINC New Series B Preferred Stock received in respect of accrued interest,
market discount, accrued but unpaid dividends or the portion of Semi-Annual
Distributions treated as interest.
viii. Information Reporting and Backup Withholding
Certain payments, including payments of interest, payments of
cash in respect of Claims, SWINC Equity Securities and other payments and
distributions pursuant to the Plan, are generally subject to information
reporting by the payor to the IRS. Moreover, such reportable payments are
subject to backup withholding under certain circumstances. Under the IRC's
backup withholding rules, a United States holder may be subject to backup
withholding at the applicable rate with respect to certain distributions or
payments 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 United States taxpayer
identification number and certifies under penalty of perjury that the taxpayer
identification number is correct and that the holder is not subject to backup
withholding because of a failure to report all dividend and interest income.
A Non-United States holder that receives payments or
distributions pursuant to the Plan will generally not be subject to backup
withholding, provided that such holder furnishes certification of its status as
a Non-United States holder (and any other required certifications), or is
otherwise exempt from backup withholding. Generally, such certification is
provided on IRS Form W-8BEN. Information reporting may apply to amounts
received by a Non-United States holder.
92
Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules may be credited against a holder's United
States federal income tax liability, and a holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing an
appropriate claim for refund with the IRS.
C. Consequences to Pension Plan
After the Effective Date, Reorganized SWINC intends to
commence a dissolution proceeding in the Chancery Court of Delaware under DGCL
ss.ss. 275-282. Reorganized SWINC then intends to undertake to terminate the
Pension Plan with a DOPT that falls during the pendency of the Delaware
dissolution proceeding. After satisfying all liabilities of the Pension Plan to
Pension Plan participants and beneficiaries, Reorganized SWINC may take a
distribution of any Reversion.
As of December 31, 202, the Pension Plan's enrolled actuary
estimated that the Pension Plan had a substantial Reversion. Whether the
Reversion will exist at a future date, and, if so, in what amount, will be
determined by the appreciation or depreciation of Pension Plan assets,
prevailing market annuity purchase rates, interest rates used to determine
various benefits under the Pension Plan, mortality and other demographic
experience, Pension Plan provisions and the interpretation of those provisions,
and other factors. Accordingly, no assurances can be given regarding the
existence or amount of the Reversion.
If Reorganized SWINC receives the Reversion, in addition to
any income tax consequences that may result, the amount of the reversion will
be subject to taxation under IRC section 4980. Unless one of the exceptions set
forth in IRC ss. 4980 applies, IRC ss. 4980 imposes a tax of 50 percent of the
amount of any employer reversion from a tax-qualified plan. If one of the
exceptions applies, then the IRC ss. 4980 tax rate is 20 percent.
One of the exceptions that results in a 20 percent IRC ss.
4980 tax rate applies in the case of "an employer who, as of the termination
date of the qualified plan, is in bankruptcy liquidation under chapter 7 of
title 11 of the United States Code or in similar proceedings under State law."
A dissolution proceeding in the Chancery Court of Delaware under DGCL ss.ss.
275-282 should constitute such a "similar" proceeding under State law and,
therefore, termination of the Pension Plan with a DOPT that falls during the
Delaware dissolution proceeding should result in a 20 percent tax rate under
IRC ss. 4980. There can be no assurance that the IRS will agree with this
position, however. The IRS could conclude that a dissolution proceeding in the
Chancery Court of Delaware under DGCL ss.ss. 275-282 is not sufficiently
"similar" to a bankruptcy liquidation under chapter 7 of title 11 of the United
States Code to warrant a 20 percent tax rate under IRC ss. 4980. Or, the IRS
could disregard the form of the Delaware dissolution proceeding because it
follows a Chapter 11 reorganization, which, unlike a Chapter 7 liquidation or
similar state law dissolution proceeding, does not qualify for the exception
noted above to the 50 percent IRC ss. 4980 tax.
The Debtors may seek a private letter ruling from the IRS
regarding the IRC ss. 4980 tax rate that would apply to Reorganized SWINC's
receipt of the Reversion. No assurances are given, however, that the IRS will
rule favorably or in advance of the date that holders of a claim or interest
must vote on the proposed Plan of Reorganization. In particular, the IRS could
rule unfavorably, could decline to rule, could insist that any such ruling
request be submitted only by Reorganized SWINC as the affected taxpayer (and
therefore after the Effective Date), or could otherwise not rule until after
the Effective Date.
D. Importance of Obtaining Professional Tax Assistance
93
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES
UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S PARTICULAR CIRCUMSTANCES.
ACCORDINGLY, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE
UNITED STATES FEDERAL, STATE, AND LOCAL, AND APPLICABLE FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF THE PLAN.
E. Importance of Obtaining Professional Tax Assistance
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES
UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S PARTICULAR CIRCUMSTANCES.
ACCORDINGLY, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE
UNITED STATES FEDERAL, STATE, AND LOCAL, AND APPLICABLE FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF THE PLAN.
VIII. CONFIRMATION OF THE PLAN
The Court may confirm the Plan only if it determines that the
Plan complies with the technical requirements of Chapter 11, including, among
other things, that (a) the Plan has properly classified Claims and Interests,
(b) the Plan complies with applicable provisions of the Bankruptcy Code, (c)
the Plan Proponents have complied with applicable provisions of the Bankruptcy
Code, (d) the Plan Proponents have proposed the Plan in good faith and not by
any means forbidden by law, (e) disclosure of "adequate information" as
required by Bankruptcy Code section 1125 has been made, (f) the Plan has been
accepted by the requisite votes of all classes of creditors (except to the
extent that "cramdown" is available under Bankruptcy Code section 1129(b)), (g)
the Plan is in the "best interests" of all holders of Claims or Interests in an
Impaired Class, (h) all fees and expenses payable under 28 U.S.C. ss. 1930, as
determined by the Court at the Confirmation Hearing, have been paid or the Plan
provides for the payment of such fees on the Effective Date, and (i) the Plan
provides for the continuation after the Effective Date of all retiree benefits,
as defined in Bankruptcy Code section 1114, at the level established at any
time prior to Confirmation pursuant to Bankruptcy Code sections 1114(e)(1)(B)
or 1114(g), for the duration of the period that the Debtors have obligated
themselves to provide such benefits.
A. Acceptance of the Plan
As a condition to confirmation, the Bankruptcy Code requires
that each Class of Impaired Claims and Interest vote to accept the Plan, under
certain circumstances.
Bankruptcy Code section 1126(c) defines acceptance of a plan
by a class of impaired claims as acceptance by holders of at least two-thirds
in dollar amount and more than one- half in number of claims in that class, but
forth that purpose only counts those who actually vote to accept or reject the
Plan. Thus, a Class of Claims will have voted to accept the Plan only if
two-thirds
94
in amount and a majority in number actually voting cast their Ballots in favor
of acceptance. Under Bankruptcy Code section 1126(d), a Class of Interest has
accepted the Plan if holders of such Interests holding at least two-thirds in
amount actually voting have voted to accept the Plan.
B. Feasibility
Bankruptcy Code section 1129(a)(11) requires that
confirmation of the Plan not be likely to be followed by the liquidation, or
the need for further financial reorganization, of the Debtors or any successors
to the Debtors under the Plan, unless such liquidation or reorganization is
proposed in the Plan. Since SWINC and the SWINC Subsidiaries intend to
liquidate their remaining assets pursuant to the Plan, the ability of SWINC to
make the distributions described in the Plan does not depend on its future
earnings. Since SWE&C and the SWE&C Subsidiaries intend to liquidate their
remaining assets pursuant to the Plan, the ability of SWE&C to make the
distributions described in the Plan does not depend on its future earnings.
Accordingly, the Plan Proponents believe that the Plan is feasible and meets
the requirements of Bankruptcy Code section 1129(a)(11).
C. Best Interests Test
Even if a plan is accepted by the holders of each class of
claims and interests, the Bankruptcy Code requires that a bankruptcy court find
that the plan is in the "best interests" of all holders of claims or interests
that are impaired by the plan and that have not accepted the plan. The "best
interests" test, as set forth in Bankruptcy Code section 1129(a)(7), requires a
bankruptcy court to find either that (i) all members of an impaired class of
claims or interest have accepted the plan or (ii) the plan will provide a
member who has not accepted the plan with a recovery of property of a value, as
of the effective date of the plan, that is not less than the amount that such
holder would receive or retain if the debtor were liquidated under chapter 7 of
the Bankruptcy Code on such date.
To calculate the probable distribution to holders of each
impaired class of claims and interests if a debtor were liquidated under
chapter 7, a court must first determine the aggregate dollar amount that would
be generated from a debtor's assets if its chapter 11 case was converted to a
chapter 7 case under the Bankruptcy Code. This "liquidation value" would
consist primarily of the proceeds from a forced sale of the debtor's assets by
a chapter 7 trustee.
The amount of liquidation value available to unsecured
creditors would be reduced by, first, the claims of secured creditors to the
extent of the value of their collateral, and, second, by the costs and expenses
of liquidation, as well as by other administrative expenses and costs of both
the chapter 7 case and the chapter 11 case. Costs of liquidation under chapter
7 of the Bankruptcy Code would include the compensation of a trustee, as well
as counsel and other professionals retained by the trustee, asset disposition
expenses, all unpaid expenses incurred by the debtor in its chapter 11 case
(such as compensation of attorneys, financial advisors and accountants) that
are allowed in the chapter 7 case, litigation costs, and claims arising from
the operations of the debtor during the pendency of the chapter 11 case. The
liquidation itself would trigger certain priority payments that otherwise would
be due in the ordinary course of business. Those priority claims would be paid
in full from the liquidation proceeds before the balance would be made
available to pay general claims or to make any distribution in respect of their
equity interests. The liquidation would also prompt the rejection of a large
number of executory contracts and unexpired leases and thereby significantly
enlarge the total pool of unsecured claims by reason of resulting rejection
claims.
Once the court ascertains the recoveries in liquidation of
the secured creditors and priority claimants, it must determine the probable
distribution to general unsecured creditors and
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equity security holders from the remaining available proceeds in liquidation.
If such probable distribution has a value greater than the distribution to be
received by such creditors and equity security holders under a debtor's plan,
then such plan is not in the best interest of creditors and equity security
holders.
D. Liquidation Analysis
In order to determine the amount of liquidation value
available to creditors, the Debtors, with the assistance of their financial
advisor, FTI Consulting Services, prepared a liquidation analysis, annexed
hereto as Appendix C (the "Liquidation Analysis").
E. Application of the "Best Interests" Test to the Liquidation Analysis and the
Valuation
It is impossible to determine with any specificity the value
each creditor or interestholder will receive as a percentage of its Allowed
Claim or Allowed Interest. This difficulty in estimating the value of
recoveries is due to, among other things, the inherent uncertainty with respect
to recoveries on Litigation Claims, the net amount of the reversionary interest
in the Pension Plan and the claims reconciliation process.
Notwithstanding the difficulty in quantifying recoveries to
holders of Allowed Claims and Allowed Interests with precision, the Plan
Proponents believe that the financial disclosures and projections contained
herein imply a greater or equal recovery to holders of Claims and Interests in
Impaired Classes than the recovery available in a chapter 7 liquidation.
Accordingly, the Plan Proponents believe that the "best interests" test of
Bankruptcy Code section 1129 is satisfied.
F. Confirmation Without Acceptance Of All Impaired Classes: The
"Cramdown" Alternative
Bankruptcy Code section 1129(b)provides that a plan can be
confirmed even if it is not accepted by all impaired classes of Claims and
Interests, as long as at least one impaired Class of Claims has accepted it.
The Court may confirm the Plan notwithstanding the rejection of an Impaired
Class of Claims or Interests if the Plan "does not discriminate unfairly" and
is "fair and equitable" as to each Impaired Class that has rejected, or is
deemed to have rejected the Plan.
A plan does not discriminate unfairly within the meaning of
the Bankruptcy Code if a rejecting impaired class is treated equally with
respect to other classes of equal rank. A plan is fair and equitable as to a
class of unsecured claims that rejects a plan, if, among other things, the plan
provides (a) that each holder of a claim in the rejecting class will receive or
retain on account of that claim property that has a value, as of the effective
date of the plan, equal to the allowed amount of such claim; or (b) that no
holder of a claim or interest that is junior to the claims of such rejecting
class will receive or retain under the Plan any property on account of such
junior claim or interest.
A plan is fair and equitable as to a class of equity
interests that rejects a plan if the plan provides (a) that each holder of an
interest included in the rejecting class receive or retain on account of that
interest property that has a value, as of the effective date of the plan, equal
to the greatest of the allowed amount of any fixed liquidation preference to
which such holder is entitled, any fixed redemption price to which such holder
is entitled, or the value of such interest; or (b) that no holder of an
interest that is junior to the interest of such rejecting class will receive or
retain under the Plan any property on account of such junior interest.
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Because holders of Class 6A Consolidated SWINC Intraestate
Claims, Class 10A SWINC Subsidiary Interest, Class 6B SWE&C Intraestate Claims,
Class 7B Intercompany Claims of SWINC or any SWINC Subsidiaries, Class 8B SWE&C
Subsidiary Claims, Class 9B SWE&C Subsidiary Interests, and Class 10B SWE&C
Equity Interests are receiving no distribution on account of such Claims and
Interest under the Plan, their votes are not being solicited and they are
deemed to have rejected the Plan pursuant to Bankruptcy Code section 1126(g).
Accordingly, the Plan Proponents are seeking confirmation of the Plan pursuant
to Bankruptcy Code section 1129(b) with respect to such Classes and may seek
confirmation pursuant thereto as to other Classes if such Classes vote to
reject the Plan.
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Plan Proponents believe that the Plan affords holders of
Claims and Interests the potential for the greatest realization of the Debtors'
assets and, therefore, is in the best interest of such holders.
If the Plan is not confirmed, the theoretical alternatives
include: (a) continuation of the pending Chapter 11 Cases, (b) formulation of
an alternative plan or plans of reorganization, (c) confirmation of the Equity
Plan or (d) liquidation under chapter 7 of the Bankruptcy Code.
A. Continuation of the Bankruptcy Cases
If the Debtors remain in chapter 11, they could continue to
operate their business and manage their properties as debtors-in-possession,
but they would remain subject to the restrictions imposed by the Bankruptcy
Code. The Debtors are not a going concern.
B. Alternative Plan(s)
If the Plan is not confirmed, the Debtors could attempt to
formulate and propose a different plan or plans of reorganization. Such a plan
or plan(s) might involve a reorganization and continuation of the Debtors'
business.
The Plan Proponents believe that the Plan, as described
herein enables holders of Claims and Interests to realize the greatest possible
value under the circumstances, and that as compared to any alternative plan of
reorganization, the Plan as the greatest chance to be confirmed and
consummated.
C. Confirmation of the Equity Committee Plan
The Equity Committee has filed an alternative plan of
reorganization and/or liquidation. In the event the Court approves the Equity
Committee Disclosure Statement and allows the Equity Committee to solicit with
respect to its plan, holders of Claims and Interests will be asked to vote to
accept or reject the Equity Committee Plan. If more than one plan is
confirmable under Bankruptcy Code section 1129, the Court shall consider the
preferences of creditors and equity security holders in determining which plan
to confirm.
D. Liquidation under Chapter 7
If no plan is confirmed, the Chapter 11 Cases may be
converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be elected or appointed to
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liquidate the Debtors' assets for distribution to creditors in accordance with
the priorities established by the Bankruptcy Code. It is impossible to predict
precisely how the proceeds of the liquidation would be distributed to the
respective holders of Claims against and Interests in the Debtors.
The Plan Proponents believe that a liquidation in chapter 7
would result in (i) significant dely in distributions to all creditors who
would have received a distribution under the Plan and (ii) diminished
recoveries for certain classes of creditors.
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X. RECOMMENDATION AND CONCLUSION
THE DEBTORS, THE CREDITORS' COMMITTEE, AND FEDERAL BELIEVE
THAT CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS, THEIR
ESTATES, AND THEIR CREDITORS. The Plan provides for an equitable and early
distribution to creditors. The Debtors, the Creditors' Committee, and Federal
believe that any alternative confirmation of the Plan, such as liquidation
under Chapter 7, could result in significant delays, litigations, and costs, as
well as a reduction in the distributions to holders of certain Classes of
Claims and Interests. FOR THESE REASONS, THE DEBTORS, THE CREDITORS' COMMITTEE,
AND FEDERAL URGE YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE PLAN.
Dated: Wilmington, Delaware
April 22, 2003
STONE & WEBSTER, INCORPORATED, et al.
Debtors and Debtors-in-Possession
By: /s/ James P. Carroll
____________________
Name: James P. Carroll
Title: President & Chief Restructuring Officer
FEDERAL INSURANCE COMPANY
By: /s/ Wayne Walton
________________
Name: Wayne Walton
Title:________________
OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF
STONE & WEBSTER, INC., et al., Debtors
and Debtors-in-Possession
By: /s/ Bayard Graf
_______________
Name: Bayard Graf
Company: MDC Systems
Title: Chairperson, Official Committee
of Unsecured Creditors
/s/ Gregg M. Galardi
____________________
Gregg M. Galardi (I.D. No. 2991)
Eric M. Davis (I.D. No. 3621)
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
Attorneys for Debtors and
Debtors-in-Possession
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Anthony Princi, Esq.
Lorraine S. McGowen, Esq.
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103
- and -
/s/ Adam G. Landi
_________________
Adam G. Landis (I.D. No. 3407)
KLETT, ROONEY, LIEBER
& SCHORLING PC
The Brandywine Building
1000 West Street, Suite 1410
Wilmington, Delaware 19801
Attorneys for the Official Committee
of Unsecured Creditors
J. Michael Franks
Sam H. Poteet, Jr.
Thomas T. Pennington
MANIER & HEROD
150 4th Avenue North, Suite 2200
Nashville, Tennessee 37219
(615) 244-0030
-and-
/s/ Michael R. Lastowski
_________________________
Michael R. Lastowski (I.D. No. 3892)
DUANE MORRIS LLP
1100 North Market Street, Suite 1200
Wilmington, Delaware 19801-1246
(302) 657-4900
Attorneys for Federal Insurance
Company
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APPENDIX A
LIST OF DEBTOR ENTITIES COMPRISING THE CONSOLIDATED SWINC
ESTATE AND THE CONSOLIDATED SWE&C ESTATE
APPENDIX B
JOINT PLAN OF REORGANIZATION OF DEBTORS IN POSSESSION,
OFFICIAL COMMITTEE OF UNSECURED CREDITORS AND
FEDERAL INSURANCE COMPANY WITH RESPECT TO
(I) STONE & WEBSTER, INCORPORATED AND CERTAIN OF ITS
SUBSIDIARIES AND AFFILIATES AND(II) STONE & WEBSTER ENGINEERS
& CONSTRUCTORS, INC. AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
APPENDIX C
LIQUIDATION ANALYSIS
APPENDIX C-1
LIQUIDATION ANALYSES FOR CONSOLIDATED SWINC ESTATE
AND CONSOLIDATED SWE&C ESTATE
APPENDIX C-2
LIQUIDATION ANALYSES FOR EACH DEBTOR ENTITY
APPENDIX D
SUBSTANTIVE CONSOLIDATION SETTLEMENT
CASH FUNDING ANALYSIS`
APPENDIX E
INCURRED PROFESSIONAL FEE SUMMARY BY ESTATE