Exhibit 99.4
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re )
)
STONE & WEBSTER, INCORPORATED, ) Chapter 11
et al., )
Debtors. ) Case No. 00-02142 (PJW)
DISCLOSURE STATEMENT WITH RESPECT TO THIRD
AMENDED AND RESTATED PLAN OF LIQUIDATION
DATED APRIL 22, 2003 PROPOSED BY THE
OFFICIAL COMMITTEE OF EQUITY HOLDERS OF
STONE & WEBSTER, INCORPORATED
[THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF
THE PLAN. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED
UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE COURT.
THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL
BUT HAS NOT BEEN APPROVED BY THE COURT.]
Ian C. Bifferato, Esq.
BIFFERATO, BIFFERATO & GENTILOTTI
1308 Delaware Avenue
Wilmington, DE 19806
Tel: 302/429-1900
Fax: 302/429-8606
David F. Heroy
Robert V. Shannon
Carmen H. Lonstein
BELL, BOYD & LLOYD LLC
70 West Madison Street, Suite 3300
Chicago, IL 60602
Tel: (312)372-1121
Fax: (312)372-2098
Counsel to the Official Committee
of Equity Holders
TABLE OF CONTENTS
Page
I. INTRODUCTION.......................................................1
A. RECOMMENDATION............................................1
B. COMPARISON OF THE EQUITY PLAN TO DEBTORS' PLAN............2
1. Pension Reversion................................2
2. Subrogation Claims...............................2
3. Intercompany Claims/Prepetition..................2
4. Intercompany Claims/Post-petition................3
5. Management.......................................3
C. OTHER BASES FOR RECOMMENDATION............................4
1. SWINC Creditor Recoveries........................4
2. SWINC Equity Recoveries..........................4
3. Liquidation Costs................................4
4. Pension Reversion................................4
5. SWE&C Creditor Returns...........................4
D. PURPOSE OF THIS DOCUMENT..................................5
E. HOLDERS OF CLAIMS OR INTERESTS ALLOWED TO VOTE............6
F. VOTING ON THE EQUITY PLAN.................................7
1. Acceptance Requirements..........................7
2. Confirmation Despite Rejection-Cramdown..........7
3. Time and Place of the Confirmation Hearing.......7
4. Deadline for Voting..............................7
5. Deadline for Objecting to Confirmation of
the Equity Plan..................................7
6. Administrative Claims and Bar Date...............8
7. Identity of Persons to Contact for More
Information Regarding the Equity Plan............8
G. DISCLAIMER................................................8
H. PLAN OVERVIEW.............................................9
1. Consolidation Into Two Estates...................9
(a) Disputes Regarding Consolidation.......10
(b) Equity Committee's Change in Position..10
(c) Justification for Consolidation Into
Two Estates............................10
2. Reorganized SWINC/Pension Reversion.............11
3. Property In Each Consolidated Estate............11
4. Projected Distributions.........................12
a. SWINC Consolidated Estate..............12
b. SWE&C Consolidated Estate..............12
II. BACKGROUND........................................................12
A. Description of the Debtors and the Debtors' Business.....12
1. The Debtors.....................................12
2. The Engineering, Construction and
Consulting Business.............................13
3. The Nordic Business.............................13
B. Events Leading to the Debtors' Chapter 11 Filings........13
C. Significant Funded Indebtedness..........................14
D. Summary of Securities Litigation.........................15
III. SIGNIFICANT EVENTS DURING THE DEBTORS' CHAPTER 11 CASES...........15
A. First Day Orders.........................................16
B. Advisors to the Debtors..................................16
C. Appointment of Creditors' Committee......................16
D. Appointment of Equity Committee..........................16
E. Post-Petition Lender.....................................16
F. Significant Court Orders.................................16
G. Substantive Consolidation Litigation.....................18
1. Status of Consolidation Litigation..............18
2. Summary of the Competing Views on
Substantive Consolidation.......................18
a. Equity Committee Position on
Substantive Consolidation..............18
b. Debtors' Position on Substantive
Consolidation..........................19
c. Summary of Creditors' Committee's
Position on Substantive Consolidation..20
H. Creditor-Related Activities..............................21
I. Employee Matters.........................................22
J. Sale of Substantially All of the Debtors' Assets.........22
1. The Sale Agreement..............................22
2. Working Capital Adjustment......................23
K. Filing of Schedules and Statements of Financial Affairs..23
L. Claims Process...........................................24
1. Claims Bar Date and Proofs of Claim.............24
2. Claims Objections and Claims Reconciliation.....24
3. Preparation of Claims Estimates.................25
4. Material Claims Litigation Matters..............25
a. Maine Yankee Litigation................25
b. Isobord................................26
c. CanFibre of Riverside..................27
d. CanFibre of Lackawanna.................27
e. Abdullah Bugshan & SAMBA...............28
5. Asbestos Claims.................................29
a. Description of Claims..................29
M. Management of the Debtors................................30
N. Pension Plan.............................................30
IV. THE PLAN OF LIQUIDATION...........................................31
A. Summary of Payments to Creditors and Interest Holders....31
1. The SWINC Consolidated Estate...................31
2. The SWE&C Consolidated Estate...................32
3. Information in Exhibits to the Equity Plan......33
4. Non-Debtor Subsidiaries.........................35
5. The SWINC and SWE&C Liquidation Boards..........35
6. Distributions...................................36
B. Summary of Treatment for Holders of Allowed Claims
and Allowed Interests Against the SWINC Consolidated
Estate...................................................36
C. Summary of Treatment for Holders of Allowed Claims
and Allowed Interests Against the SWE&C Consolidated
Estate...................................................38
D. Overview of the Requirements for a Plan Under the
Bankruptcy Code..........................................39
E. Partial Consolidation....................................39
F. Treatment of Unclassified Claims.........................40
1. Administrative Claims...........................40
2. Priority Tax Claims.............................40
G. Treatment of Classified Claims Against and Interests
in the Debtors included in the SWINC Consolidated
Estate...................................................41
1. Treatment of Class 1A Claims (Secured
Claims--SWINC Consolidated Estate)..............41
2. Treatment of Class 2A Claims (Priority
Claims--SWINC Consolidated Estate)..............42
3. Treatment of Class 3A Claims (Unsecured
Claims--SWINC Consolidated Estate)..............42
4. Treatment of Class 4A (Subordinated Claims-
SWINC Consolidated Estate)......................42
5. Treatment of Class 5A Interests (Common
Stock--SWINC)...................................42
6. Treatment of Class 6A Claims (510(b) /
Securities Litigation Claims--SWINC
Consolidated Estate) ..........................43
..
H. Treatment of Classified Claims Against and Interests
in the Debtors included in the SWE&C Consolidated
Estate...................................................43
1. Treatment of Class 1B Claims (Secured
Claims--SWE&C Consolidated Estate)..............43
2. Treatment of Class 2B Claims (Priority
Claims--SWE&C Consolidated Estate)..............44
3. Treatment of Class 3B Claims (Unsecured Claims
of $1,500 or less or that are Voluntarily
Reduced to $1,500 - SWE&C Consolidated Estate)..44
4. Treatment of Class 4B-1 Claims (Unsecured
Claims-- SWE&C Consolidated Estate).............44
5. Treatment of Class 4B-2 Claims (Asbestos
Claims - SWE&C Consolidated Estate).............45
6. Treatment of Class 5B (Subordinated Claims-
SWE&C Consolidated Estate)......................45
7. Treatment of Class 6B (SWINC Intercompany Claim
against the SWE&C Consolidated Estate)..........45
8. Treatment of Class 7B (SWE&C & SWE&C
Subsidiary Interests)...........................45
I. The Asbestos Trust.......................................45
a. The Asbestos Trustee...................46
(1) Appointment....................46
(2) Rights, Powers and Duties
of the Asbestos Trustee........46
(3) Compensation of the Asbestos
Trustee........................47
(4) Indemnification................47
(5) Insurance......................47
(6) Asbestos Insurance Policies....47
J. Miscellaneous Provisions.................................47
1. Modification....................................47
2. Authorization of Corporate Action...............47
3. Substantial Consummation........................48
K. Assumption or Rejection of Executory Contracts and
Unexpired Leases.........................................48
1. Rejection.......................................48
2. Pension Plan....................................48
L. Reserves.................................................48
1. SWINC Consolidated Estate.......................48
2. SWE&C Consolidated Estate.......................48
3. Reorganized SWINC...............................48
M. Objections to Claims and Pursuit of Causes of Action.....49
N. Payment of Fees Under 28 U.S.C.ss.1930....................49
V. CONFIRMATION REQUIREMENTS AND PROCEDURES..........................49
A. Who May Vote or Object...................................49
B. Vote Required for Class Acceptance.......................50
C. The Confirmation Hearing; Requirements for Confirmation..50
1. Unfair Discrimination and Fair and Equitable
Tests...........................................51
a. Secured Creditors......................51
b. Unsecured Creditors....................51
c. Equity Interests.......................51
2. Best Interests Test.............................52
3. Feasibility.....................................52
D. Risks Associated with the Equity Plan....................53
VI. EFFECT OF CONFIRMATION OF PLAN....................................54
A. General Authority........................................54
B. Compromise and Settlement of Certain Class of
Controversies............................................54
C. Vesting of Assets........................................54
1. SWINC Consolidated Estate.......................54
2. SWE&C Consolidated Estate.......................54
3. Reorganized SWINC...............................54
D. Discharge Provisions.....................................55
E. Term of Existing Injunctions or Stays....................55
F. Exculpation..............................................55
G. Preservation of Rights of Action.........................56
H. Injunction...............................................56
I. Retention of Jurisdiction................................57
J. Alternatives To Confirmation of the Plan.................58
1. Liquidation Under Chapter 7.....................58
2. Alternative Plans of Reorganization.............58
VII. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.......................59
A. General..................................................59
B. Federal Income Tax Consequences to the Debtors...........59
1. Regular Federal Income Tax......................59
2. Alternative Minimum Tax.........................60
C. Federal Income Tax Consequences to Holders of Claims.....60
D. Information Reporting and Backup Withholding.............60
E. Importance of Obtaining Professional Tax Assistance......61
VIII. CONCLUSION AND RECOMMENDATION.....................................61
I. INTRODUCTION
The official committee of equity security holders (the
"Equity Committee") was appointed by the United States Trustee to represent
the interests of the holders of the common stock of Stone & Webster
Incorporated ("SWINC"). The Equity Committee has proposed its Third Amended
and Restated Plan of Liquidation dated April 22, 2003 (the "Plan" or "Equity
Plan") for SWINC and its debtor subsidiaries ("the Debtors").
The Debtors consist of SWINC and seventy-two (72) of its
direct and indirect subsidiaries. The Equity Plan divides the Debtors into two
groups of entities - the SWINC Consolidated Estate (consisting of SWINC and
certain of its Debtor subsidiaries not involved in the construction and
engineering business) and the SWE&C Consolidated Estate (consisting of Stone
and Webster Engineers and Constructors, Inc. ("SWE&C") and all of the Debtor
subsidiaries and affiliates involved in the construction and engineering
business). The other plan of liquidation filed by the Debtors, the Creditors'
Committee and Federal Insurance Company on April 22, 2003 (the "Debtors'
Plan") divides the Debtors into the same two groups of entities.
The Equity Plan is a plan of liquidation. In other words,
the assets of each of the SWINC Consolidated Estate and the SWE&C Consolidated
Estate will be sold, and the proceeds distributed to the creditors and equity
holders of each Consolidated Estate in accordance with the terms of the Equity
Plan. The Debtors' Plan is also a plan of liquidation.
The Equity Committee has proposed the Equity Plan as a fair
and reasonable solution to the remaining issues in these cases. It provides
for an end to the chapter 11 process, new management for the remaining
liquidation issues (supervised by interests aligned with SWINC stockholders as
to the SWINC Consolidated Estate), and a means for making maximum
distributions to creditors and stockholders, while respecting the legal rights
of the constituencies of both the SWINC and SWE&C Consolidated Estates. As
such, the Equity Committee believes that the Equity Plan provides a superior
alternative to the resolution of these cases.
This Disclosure Statement contains information regarding the
history of the Debtors, their businesses, the filing of their chapter 11
petitions, the provisions of the Equity Plan and alternatives thereto,
including a comparison of the Debtors' Plan and Equity Plan. Its purpose is to
provide adequate information in order to assist voting parties in making an
informed decision whether to accept the Equity Plan or the Debtors' Plan or
some other alternative as required by Bankruptcy Code Section 1125.
Most creditors of the SWINC Consolidated Estate will not
vote to accept or reject the Equity Plan because they will be paid in full and
are therefore not impaired. All general unsecured creditors of the SWE&C
Consolidated Estate will be entitled to vote on the Equity Plan because they
will not be paid in full and are therefore impaired. Stockholders of SWINC
will be able to vote on both Plans. If a person is entitled to vote on both
the Equity Plan and the Debtors' Plan, the voting party may vote to accept
both Plans, may vote to reject both Plans, or may vote to accept one Plan
while voting to reject the other.
A chart summarizing the treatment of claims and interests
under the Equity Plan is included in Article IV, section B of this Disclosure
Statement. A chart comparing the Debtors' Plan to the Equity Plan is attached
as Exhibit G to this Disclosure Statement.
A. RECOMMENDATION
THE EQUITY COMMITTEE URGES ALL HOLDERS OF CLAIMS AND
INTERESTS IN THE IMPAIRED CLASSES TO VOTE TO ACCEPT THE EQUITY PLAN AND TO
EXPRESS A PREFERENCE FOR THE EQUITY PLAN OVER THE DEBTORS' PLAN. THE EQUITY
COMMITTEE BELIEVES, AFTER EVALUATING ALL RISKS AND OTHER FACTORS, THAT THE
EQUITY PLAN PROVIDES THE HIGHEST PRESENT VALUE RECOVERIES TO CREDITORS AND
EQUITY SECURITY HOLDERS WHILE RESPECTING LEGAL RIGHTS OF THE PARTIES, RESOLVES
ALL OF THE KEY ISSUES IN THE DEBTORS' BANKRUPTCY CASES AND IS SUPERIOR WHEN
COMPARED TO THE DEBTORS' PLAN AND OTHER ALTERNATIVES.
B. COMPARISON OF THE EQUITY PLAN TO DEBTORS' PLAN.
The Debtors' Plan differs from the Equity Plan in two
primary respects: (i) the Debtors' Plan proposes to transfer $21.9 to $27.9
million from SWINC to the SWE&C Consolidated Estate as part of a purported
"settlement" of disputes concerning consolidation and ownership of the surplus
in SWINC's pension plan, reducing returns to creditors and stockholders of the
SWINC Consolidated Estate; and (ii) management is to be different under the
two plans. A more complete description of the differences follows.
1. Pension Reversion
Under the Equity Plan, the SWINC Consolidated
Estate owns the projected surplus in the Pension Plan which
is estimated to have a value of approximately $54.2 million (the "Pension
Reversion"). Under the Debtors' Plan, a minimum of $21.9 and up to $27.9
million of this value would be transferred from SWINC to the SWE&C
Consolidated Estate. The Debtors argue that this transfer would settle two
alleged disputes: (1) a dispute concerning consolidation of the SWINC and
SWE&C Consolidated Estates into a single estate; and (2) a dispute concerning
the Debtors and the Creditors' Committee's argument that SWE&C and other
Debtors, not just SWINC, own the Pension Reversion. The Equity Committee does
not believe that there are bona fide disputes as to either SWINC's ownership
of the Pension Reversion or the separateness of the SWINC Consolidated Estate
and the SWE&C Consolidated Estate and does not believe that the Bankruptcy
Court will approve the proposed settlement under the applicable facts and law.
The Equity Committee believes that the economic
impact of the purported "settlement" proposed in the Debtors' Plan would
unjustifiably increase the risk to creditors of the SWINC Consolidated Estate
and SWINC stockholders. Further, the proposed settlement would limit the
potential recovery by SWINC stockholders to the $.50 per share offered in the
Debtors' Plan if SWINC stockholders accept the Debtors' Plan, while
unjustifiably increasing the projected returns to creditors of the SWE&C
Consolidated Estate from 10.4% projected under the Equity Plan to 89% of
Allowed Claims.
2. Subrogation Claims
Both SWINC and SWE&C are potentially liable to the
Debtors' largest unsecured creditors, Federal Insurance Company and Maine
Yankee Power Atomic Company. Under the Equity Plan, both the SWINC and SWE&C
Consolidated Estates would remain liable for these debts, and each
Consolidated Estate would keep its subrogation rights against the other in the
event that it paid more than its share under applicable law. Under the
Debtors' Plan, only the SWINC Consolidated Estate would be liable for these
two claims and would not have any right of subrogation against the SWE&C
Consolidated Estate to recover the SWE&C Consolidated Estate's share of the
debts. The Equity Committee estimates that this shifting of liability for
these debts to the SWINC Consolidated Estate unjustifiably shifts
approximately $7.9 million from the SWINC Consolidated Estate to the SWE&C
Consolidated Estate.
3. Intercompany Claims/Prepetition
Each Debtor maintained separate books and financial
records prior to the bankruptcy cases, including detailed financial accounting
as part of a cash management system that accounted for all transfers to third
parties and transfers among the Debtors. The net result of prepetition
transfers among the Debtors, based upon analysis by the Equity Committee's
financial advisors, is that the SWINC Consolidated Estate holds an unsecured
prepetition claim against the SWE&C Consolidated Estate in the estimated
amount of $50 million. Under the Equity Plan, this claim would be preserved if
the unsecured creditors of the SWE&C Consolidated Estate vote to reject the
Equity Plan, resulting in an estimated recovery of $3.6 million by the SWINC
Consolidated Estate from the SWE&C Consolidated Estate. If the unsecured
creditors of the SWE&C Consolidated Estate vote to accept the Equity Plan,
however, this prepetition intercompany claim would be voluntarily subordinated
to the claims of other creditors of the SWE&C Consolidated Estate and would
not receive any distribution from the SWE&C Consolidated Estate. Under the
Debtors' Plan, this prepetition intercompany claim would be automatically
subordinated and receive no distribution.
4. Intercompany Claims/Post-petition
The Equity Plan preserves a post-petition
administrative claim by the SWINC Consolidated Estate against the SWE&C
Consolidated Estate in the estimated amount of $4.98 million. Under the
Debtors' Plan, there are no express provisions preserving this claim.
Schedules filed with the Debtors' Plan on April 1, 2003, however, acknowledge
the existence of this claim.
5. Management
Under the Equity Plan, current management of the
Debtors would be replaced by individuals appointed by separate liquidation
boards for each of the SWINC Consolidated Estate and the SWE&C Consolidated
Estate. New management would, in the opinion of the Equity Committee, provide
a beneficial change. The members of the liquidation board for the SWINC
Consolidated Estate would also serve as the directors of Reorganized SWINC
(which, as discussed below, is the new entity that will emerge from bankruptcy
and be dissolved in a state court dissolution proceeding in order to maximize
the Pension Reversion) and as trustees for a liquidating trust created for the
benefit of SWINC's stockholders.
The Equity Committee's designees for the SWINC
Liquidation Board will include: (1) a designated manager to be named by not
later than May 2, 2003; (2) Mr. James Kjorlien of CRT Capital Group, LLC, a
current stockholder; and (3) a designee to be named from Grace Brothers Ltd.,
Chair of the Equity Committee. In addition, the Equity Committee may nominate
an additional two persons to serve on the SWINC Liquidation Board by not later
than fifteen (15) days prior to the hearing on confirmation of the Equity
Plan. Because the members of the SWINC Liquidation Board will include at least
two stockholders of SWINC the Equity Committee believes that the SWINC
Liquidation Board will have the greatest incentive in minimizing costs.
With respect to the SWE&C liquidation board, the
Equity Plan provides that the Equity Committee, the Debtors and the Creditors'
Committee shall each designate one individual, for a total of three
individuals, to serve as members of the SWE&C liquidation board. If the
Holders of Unsecured Claims against SWE&C and the SWE&C Subsidiaries vote to
reject the Plan, however, the SWINC Liquidation Board would designate the
individual that would otherwise be designated by the Creditors' Committee.
Daily management has been supplied so far by Mr.
James Carroll, the current Chief Restructuring Officer of the Debtors, at an
annual compensation of approximately $487,500. Mr. Carroll has advised the
Equity Committee that he would not continue to serve after confirmation of the
Equity Plan. Upon confirmation of the Equity Plan, Mr. Carroll thus is
expected to resign and, consistent with his fiduciary duties, cooperate in
turning over the Debtors' books and records and related information to new
management in order to provide continuity in the administration of the Debtors
after the Effective Date of the Equity Plan.
The Debtors' Plan similarly provides for separate
management for the SWINC Consolidated Estate and the SWE&C Consolidated
Estate. Under the Debtors' Plan, the SWINC Consolidated Estate would be
managed by the SWINC Plan Administrator, designated to be Mr. Carroll,
pursuant to the terms of a "SWINC Plan Administrator Agreement." It is unclear
whether Mr. Carroll would be responsible for reporting to any third parties
such as the board of Reorganized SWINC, because the SWINC Plan Administrator
Agreement has not been included with the Debtors' Disclosure Statement.
The Debtors' Plan provides that Reorganized SWINC
would be managed by its board of directors which will consist of three
individuals: one to be designated by the Debtors, one to be designated by the
Equity Committee and one to be designated by Federal Insurance Company. The
individual designated by the Debtors is Mr. Carroll.
With respect to the SWE&C Liquidation Board, the
Debtors' Plan provides that the Creditors' Committee will appoint a SWE&C
Liquidating Trustee prior to the Confirmation Date. The SWE&C Liquidating
Trustee is required to consult with the SWE&C Liquidating Trust Advisory Board
which is to be comprised of three individuals appointed by the Creditors'
Committee prior to the hearing on confirmation of the Debtors' Plan.
The Debtors' Plan thus would provide for continued
supervision of the liquidation process by current management and its
professionals, plus professionals from the Creditors' Committee. Though
providing continuity of interests and personnel knowledgeable about the
Debtors, their assets and liabilities, these would be in essence the same
management and professionals that have supervised a three year, unfinished
bankruptcy process for liquidation cases that has consumed more than $35
million in professional fees. The Equity Committee believes that management of
the SWINC Consolidated Estate by a new team controlled by stockholders of
SWINC, as proposed by the Equity Plan, will result in lower future fees
because of management by parties having interests aligned with those of SWINC
stockholders.
C. OTHER BASES FOR RECOMMENDATION
1. SWINC Creditor Recoveries.
Under the Equity Plan, unsecured creditors of the
SWINC Consolidated Estate would be paid in full plus interest at the rate
provided in the underlying agreement or at the federal judgment rate in effect
on the Confirmation Date (estimated to be 1.28%). The timing of payments will
depend on the resolution of claims filed against SWINC and the SWINC
Subsidiaries and the termination of the SWINC pension plan, though the Equity
Committee expects that the SWINC Consolidated Estate will have at least $30
million available for an interim distribution soon after the Effective Date of
the Equity Plan. The remainder will be funded from the termination of the
pension plan, which is projected to occur between six to eighteen months after
the Equity Plan becomes effective. Unsecured Creditors of the SWINC
Consolidated Estate thus would receive under the Equity Plan the highest
recoveries possible under applicable law.
2. SWINC Equity Recoveries.
Under the Equity Plan, stockholders of SWINC are to
receive all amounts remaining in the SWINC Consolidated Estate after the
creditors of the SWINC Consolidated Estate have been paid in full plus
interest. Payments to SWINC stockholders are estimated to range from $.83 to
$1.43 per share if the class of unsecured claims against the SWE&C
Consolidated Estate, Class 4B-1, votes to accept the Plan and in the range of
$1.02 to $1.67 if Class 4B-1 votes to reject the Plan. Total payments to SWINC
stockholders also will be maximized because none of the SWINC assets available
to the SWINC Consolidated Estate will be transferred to the SWE&C Consolidated
Estate.
3. Liquidation Costs.
The Equity Plan seeks to minimize costs in two
ways. By ending the chapter 11 process, the Debtors will no longer be subject
to the administrative fees and expenses of multiple professionals representing
competing constituencies. Instead, each Consolidated Estate will have new
management and professionals with its own aligned interests. In addition, new
management for the SWINC Consolidated Estate controlled by SWINC's
stockholders should reduce the remaining costs of these cases.
4. Pension Reversion.
SWINC's Pension Reversion, valued at $54.2 million
by the Equity Committee after payment of taxes under the Equity Plan, is the
largest single asset in these bankruptcy cases. The Equity Plan maximizes the
value of this asset for the benefit of SWINC and its creditors and equity
security holders. It preserves it for the exclusive benefit of the SWINC
Consolidated Estate and provides for a statutory liquidation process as soon
as practicable after the Effective Date in order to minimize tax liability.
The Debtors and the Creditors' Committee dispute the Equity Committee's
valuation and its position that SWINC is the exclusive legal owner of the
Pension Reversion.
5. SWE&C Creditor Returns.
The Equity Committee believes that the Equity Plan
also maximizes returns to SWE&C within the confines of applicable law. Holders
of allowed unsecured claims against the SWE&C Consolidated Estate are
projected to receive a distribution in the range of 7.5% to 10.4% and possibly
higher, depending upon the outcome of the claims objection and resolution
process, and depending on whether the holders of its unsecured claims vote to
accept the Plan. If the holders of unsecured claims against the SWE&C Estate
vote to reject the Plan, such holders are projected to receive distributions
in the range of 5.7% to 7.2% of their allowed claims.
To be sure, the projected returns to creditors of
the SWE&C Consolidated Estate would be higher, as much as 89% of Allowed
Claims, under the Debtors' Plan. The only reason for that, however, would be
the proposed transfer of $21.7 to $27.9 million from SWINC to the SWE&C
Consolidated Estate as a purported "settlement" of issues concerning
consolidation and ownership of the Pension Reversion. If the Equity Committee
is correct that this transfer of value will not be approved by the Bankruptcy
Court, then the return to creditors of the SWE&C Consolidated Estate under the
Debtors' Plan would be far less. In such an event, in the view of the Equity
Committee, the returns to creditors of the SWE&C Consolidated Estate
ultimately would be better under the Equity Plan because there would be no
need to solicit a new plan once the proposed settlement under the Debtors'
Plan is not approved, and because costs would be lower for the reasons stated
above.
The Equity Committee recommends that the creditors
of the SWE&C Consolidated Estate vote to accept the Equity Plan because the
Equity Plan is the most fair to all creditors and stockholders and because
acceptance of the Equity Plan will ensure that the SWINC Consolidated Estate's
claim against the SWE&C Consolidated Estate (estimated to be $50 million) is
voluntarily subordinated. Such subordination would increase recoveries by
creditors of the SWE&C Consolidated Estate from the range of 5.7% to 7.2% to
that of 7.5% to 10.4% and possibly higher depending upon the outcome of the
claims resolution process. CREDITORS OF THE SWE&C CONSOLIDATED ESTATE CAN VOTE
YES ON BOTH THE EQUITY PLAN AND THE DEBTORS' PLAN.
FOR ALL THE FOREGOING REASONS THE EQUITY COMMITTEE RECOMMENDS A VOTE FOR ITS
PLAN AS PROVIDING A SUPERIOR ALTERNATIVE FOR THE CREDITORS AND EQUITY HOLDERS
OF THE DEBTORS' ESTATES.
D. PURPOSE OF THIS DOCUMENT
The Bankruptcy Code requires that the party or parties
proposing a chapter 11 plan prepare and file with the Court a document called
a "disclosure statement." THE DOCUMENT YOU ARE READING IS THAT DISCLOSURE
STATEMENT FOR THE EQUITY PLAN (THE "DISCLOSURE STATEMENT"). THIS DISCLOSURE
STATEMENT INCLUDES ALL OF THE EXHIBITS TO THIS DISCLOSURE STATEMENT WHICH ARE
INCORPORATED AS IF FULLY SET FORTH HEREIN.
This Disclosure Statement summarizes the contents of the
Equity Plan and describes certain information relating to the Equity Plan and
the process the Court follows in determining whether to confirm the Equity
Plan. This Disclosure Statement describes the Debtors, their assets,
liabilities and financial performance, and contains a summary and analysis of
the Equity Plan.
On ________, 2003, after notice and a hearing, the Court
signed the Disclosure Statement Order, a copy of which is attached as Exhibit
C to the Equity Plan, approving this Disclosure Statement as containing
adequate information of a kind and in sufficient detail to make an informed
judgment whether to accept or reject the Equity Plan. APPROVAL OF THIS
DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE
COURT AS TO THE FAIRNESS OR MERITS OF THE EQUITY PLAN.
All Holders of Claims and Interests should review this
Disclosure Statement and the Equity Plan before voting to accept or reject the
Equity Plan. If there are any inconsistencies between the Equity Plan and this
Disclosure Statement, the Equity Plan provisions will govern.
READ THIS DISCLOSURE STATEMENT CAREFULLY TO LEARN:
(1) WHO CAN VOTE ON OR OBJECT TO THE EQUITY PLAN;
(2) WHAT THE TREATMENT OF YOUR CLAIM OR INTEREST IS (i.e., what
your claim or interest will receive if the Equity Plan is
confirmed) AND HOW THIS TREATMENT COMPARES TO WHAT YOUR
CLAIM OR INTEREST WOULD RECEIVE IN A CHAPTER 7 LIQUIDATION;
(3) THE HISTORY OF THE DEBTORS AND SIGNIFICANT EVENTS DURING THE
BANKRUPTCY;
(4) WHAT THINGS THE COURT WILL LOOK AT TO DECIDE WHETHER TO
CONFIRM THE EQUITY PLAN;
(5) WHAT IS THE EFFECT OF CONFIRMATION; AND
(6) WHETHER THE EQUITY PLAN IS FEASIBLE.
THE DISCLOSURE STATEMENT CANNOT ADVISE YOU ABOUT YOUR
RIGHTS. YOU SHOULD CONSULT YOUR OWN LEGAL AND/OR FINANCIAL ADVISOR TO OBTAIN
MORE SPECIFIC ADVICE ON HOW THE EQUITY PLAN WILL AFFECT YOU AND WHAT IS THE
BEST COURSE OF ACTION FOR YOU TO TAKE.
THE COURT HAS NOT YET CONFIRMED THE EQUITY PLAN. IN OTHER
WORDS, THE TERMS OF THE EQUITY PLAN ARE NOT YET BINDING ON ANYONE. HOWEVER, IF
THE COURT LATER CONFIRMS THE EQUITY PLAN, THEN THE EQUITY PLAN WILL BE BINDING
ON ALL CREDITORS AND INTEREST HOLDERS IN THESE CASES.
E. HOLDERS OF CLAIMS OR INTERESTS ALLOWED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only
holders of allowed claims or equity interests in classes of claims or
interests that are impaired and that are in a class that will receive a
distribution under the Equity Plan are entitled to vote to accept or reject a
proposed chapter 11 plan.
Classes of claims or equity interests in which the holders
of claims or equity interests are unimpaired under a chapter 11 plan are
deemed to have accepted the plan and are not entitled to vote to accept or
reject the plan.
Under the Equity Plan, with respect to the SWINC
Consolidated Estate, only Holders of Interests in Class 5A (SWINC Common
Stock) and Holders of Claims in Class 6A (Securities Litigation Claims) are
impaired and entitled to vote. All other Holders of Claims against the SWINC
Consolidated Estate will not vote because they are unimpaired due to being
paid in full plus interest.
With respect to the SWE&C Consolidated Estate, under the
Equity Plan, Holders of Unsecured Claims and Interests in Classes 3B, 4B-1,
4B-2, 5B, 6B and 7B are impaired under the Plan because they will not be paid
in full. The non-insider Holders of Claims and Interests in these Classes as
of the Voting Record Date are entitled to vote to accept or reject the Plan.
These Classes will be solicited for votes by the Equity Committee.
Classes of Claims or Interests that receive no distribution
on account of their Claims or Interests are deemed to have rejected the Equity
Plan and are not entitled to vote to accept or reject the Equity Plan. A
LISTING OF THE CLASSES THAT ARE ENTITLED TO VOTE IS CONTAINED IN MORE DETAIL
IN SECTION V.A. OF THIS DISCLOSURE STATEMENT.
Holders of the Claims identified on Exhibit E to the Equity
Plan are not entitled to vote unless otherwise agreed to by the Equity
Committee or ordered by the Court pursuant to Federal Bankruptcy Rule 3018(a),
as more fully set forth in section V.A. of this Disclosure Statement, and the
proposed Disclosure Statement Order attached as Exhibit "C" to the Equity
Plan.
F. VOTING ON THE EQUITY PLAN
1. Acceptance Requirements. The Bankruptcy Code
defines "acceptance" of a plan by a class of claims as acceptance by creditors
in that class that hold at least two-thirds in dollar amount and more than
one-half in number of the claims that cast ballots for acceptance or rejection
of the plan. Acceptance of a plan by a class of interests requires acceptance
by at least two-thirds of the number of shares in such class that cast ballots
for acceptance or rejection of the plan.
2. Confirmation Despite Rejection--Cramdown. Section
1129(b) of the Bankruptcy Code permits the confirmation of a plan
notwithstanding the non-acceptance of a plan by one or more impaired classes
of claims or interests. Under that section, a plan may be confirmed by a
bankruptcy court if it does not "discriminate unfairly" and is "fair and
equitable" with respect to each non-accepting class. This is commonly called
"cramdown."
3. Time and Place of the Confirmation Hearing. The
hearing at which the Court will determine whether or not to confirm the Equity
Plan will take place on May 20, 2003, at 9:30 a.m. in the Courtroom of the
Honorable Peter J. Walsh, United States Judge for the Bankruptcy Court for the
District of Delaware, 824 North Market Street, Wilmington, Delaware 19801. The
Confirmation Hearing may be adjourned from time to time by the Court without
further notice except for announcement of the adjournment date made at the
Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.
4. Deadline for Voting . If you are entitled to vote,
it is in your best interest to vote timely on the enclosed ballot (the
"Ballot") and return the Ballot in the enclosed envelope to:
Trumbull Services Company, Inc.
4 Griffin Road North
Windsor, Connecticut 06095
(Attn: Stone & Webster Incorporated, et al.)
Your ballot must be received by __________,
prevailing Eastern Time, on ________________, 2003, or it will not be counted.
Facsimile voting is not allowed, unless the claimant has the express prior
permission of the Equity Committee in writing. At the Equity Committee's
request, the Court has established certain procedures for the solicitation and
tabulation of votes on the Equity Plan. They are described in the Disclosure
Statement Order, a copy of which is attached as Exhibit C to the Equity Plan.
If you are a Holder of a Claim or Interest entitled to vote on the Equity Plan
and did not receive a Ballot, received a damaged Ballot or lost your Ballot or
if you have any questions concerning the Disclosure Statement, the Equity Plan
or the procedure for voting on the Equity Plan, please contact Mark A. Young,
Bell, Boyd & Lloyd LLC, 70 West Madison Street, Suite 3300, Chicago, Illinois
60602. Mr. Young can be contacted by telephone at (312)/372-1121 or by e-mail:
myoung@bellboyd.com
If you hold Claims in more than one Class entitled
to vote on the Equity Plan, you will receive separate Ballots that must be
used for each separate Class of Claims. If you hold Claims against more than
one Consolidated Estate, you will receive separate Ballots that must be used
for each Consolidated Estate.
5. Deadline for Objecting to Confirmation of the
Equity Plan. Objections to the confirmation of the Equity Plan must be filed
with the Court and delivered to (a) Counsel for the Equity Committee, Carmen
H. Lonstein, Esq., Bell, Boyd & Lloyd LLC, 70 West Madison Street, Suite 3300,
Chicago, Illinois 60602 and Ian C. Bifferato, Bifferato, Bifferato &
Gentilotti, 1308 Delaware Avenue, Wilmington, Delaware 19806; and (b) the
Office of the United States Trustee, Julie Compton, Esq., 601 Walnut Street,
Suite 950 West, Philadelphia, Pennsylvania 19106, with copies to: (i) Gregg M.
Galardi, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, One Rodney Square,
P.O. Box 636, Wilmington, Delaware 19899-0636; (ii) Lorraine S. McGowen, Esq.,
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York
10103-0002; and (iii) Adam G. Landis, Esq., Klett, Rooney, Lieber & Schorling,
The Brandywine Building, 1000 West Street, Suite 1410, Wilmington, Delaware
19801, on or before [__________], 2003 at [4:00 p.m.], prevailing Eastern
Time.
6. Administrative Claims and Bar Date. As set forth in
the Confirmation Hearing Notice, all applications for allowance or payment of
Administrative Claims against any Debtor, including applications for
compensation of professionals retained pursuant to sections 327 or 1103 of the
Bankruptcy Code for services rendered and for reimbursement of expenses
incurred on or after the Petition Date and on or before the Effective Date,
including for substantial contribution under section 503(b)(3)(D) of the
Bankruptcy Code, shall be filed not later than thirty (30) days after the
Effective Date, including any Administrative Claim held by a Consolidated
Estate against another Consolidated Estate. The Equity Committee will, by not
later than ninety (90) days after the Effective Date, request that the Court
schedule a hearing on such applications, and the attorneys for the Equity
Committee shall give notice of the hearing in accordance with the Bankruptcy
Rules. ANY SUCH CLAIM NOT FILED WITHIN THESE DEADLINES SHALL BE FOREVER
BARRED.
7. Identity of Persons to Contact for More Information
Regarding the Equity Plan. Any Person desiring further information about the
Equity Plan should contact counsel for the Equity Committee: Carmen H.
Lonstein, Bell, Boyd & Lloyd LLC, 70 West Madison Street, Suite 3300, Chicago,
IL 60602; Telephone (312) 372-1121; Telecopy (312) 372-2098.
G. DISCLAIMER.
NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT IS OR SHALL
BE DEEMED TO BE AN ADMISSION OR STATEMENT AGAINST INTEREST OR WAIVER OF ANY
LEGAL POSITION BY THE PLAN PROPONENT FOR PURPOSES OF ANY PENDING OR FUTURE
MATTER OR PROCEEDING. SPECIFICALLY AND WITHOUT LIMITATION, THE PLAN PROPONENT
PRESERVES ANY AND ALL RIGHTS TO APPEAL THE NOVEMBER 14 ORDER (DOCKET #3564)
ENTERED IN CONNECTION WITH THE CREDITORS' COMMITTEE CONSOLIDATION MOTION, AS
DISCUSSED BELOW.
ALTHOUGH THE ATTORNEYS AND OTHER PROFESSIONALS EMPLOYED BY
THE PLAN PROPONENT HAVE ASSISTED IN THE PREPARATION OF THIS DISCLOSURE
STATEMENT BASED UPON FACTUAL INFORMATION AND ASSUMPTIONS PROVIDED BY THE
DEBTORS AND OTHERS, THEY HAVE NOT INDEPENDENTLY VERIFIED SUCH INFORMATION AND
MAKE NO REPRESENTATIONS AS TO THE ACCURACY THEREOF. THE MEMBERS OF THE EQUITY
COMMITTEE AND THE ATTORNEYS AND OTHER PROFESSIONALS EMPLOYED BY THE EQUITY
COMMITTEE SHALL HAVE NO LIABILITY FOR THE INFORMATION IN THE DISCLOSURE
STATEMENT.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE
WITH SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR
STATE SECURITIES LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAW. PERSONS HOLDING
OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST,
OR INTERESTS IN, THE DEBTOR OR ANY OF THE SUBSIDIARY DEBTORS SHOULD EVALUATE
THIS DISCLOSURE STATEMENT IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), NOR HAS THE SEC PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
THE PLAN PROPONENT HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION, OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT AND ANY ACCOMPANYING
RECOMMENDATION LETTER, REGARDING THE EQUITY PLAN OR THE SOLICITATION OF ITS
ACCEPTANCE.
The financial data relied upon in formulating the Equity
Plan is based entirely on the Debtors' books and records. The liquidation
analyses, estimates and other financial information referenced in this
Disclosure Statement and attached hereto as Exhibits have been developed with
the assistance of the professional advisors employed by the Equity Committee.
Although these professional advisors assisted in the preparation of this
Disclosure Statement, in doing so such professionals relied upon factual
information and assumptions regarding financial, business and accounting data
provided by the Debtors and third parties, much of which information has not
been audited. THE PROFESSIONAL ADVISORS OF THE EQUITY COMMITTEE HAVE NOT
INDEPENDENTLY VERIFIED SUCH INFORMATION AND, ACCORDINGLY, MAKE NO
REPRESENTATIONS OR WARRANTIES AS TO ITS ACCURACY. Moreover, although
reasonable efforts have been made to provide accurate information, the Equity
Committee cannot warrant or represent that the information in this Disclosure
Statement, including any and all financial information, is without inaccuracy
or omissions, or that actual values or distributions will comport with the
estimates set forth herein. No entity may rely upon the Equity Plan or the
Disclosure Statement or any of the accompanying Exhibits for any purpose other
than to determine whether to vote in favor of or against the Equity Plan. The
Equity Committee represents that everything stated in this Disclosure
Statement is true to the best of its knowledge.
The discussion in this Disclosure Statement may contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements consist of any statement other
than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate"
or "continue," or the negative thereof, or other variations thereon or
comparable terminology. The reader is cautioned that all forward looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The liquidation
analyses, distribution projections and other information are estimates only,
and the timing and amount of actual distributions to Holders may be affected
by many factors that cannot be predicted.
H. PLAN OVERVIEW.
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS DISCLOSURE STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN
THIS DISCLOSURE STATEMENT AND IN THE EQUITY PLAN. IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THIS SUMMARY AND THE EQUITY PLAN, THE EQUITY PLAN WILL
CONTROL. FOR A MORE DETAILED SUMMARY OF THE EQUITY PLAN, SEE ARTICLE IV OF
THIS DISCLOSURE STATEMENT.
ALL HOLDERS OF CLAIMS AND INTERESTS ARE ADVISED AND
ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE EQUITY PLAN IN THEIR
ENTIRETY BEFORE DECIDING WHETHER TO OBJECT TO CONFIRMATION OF THE EQUITY PLAN
AND WHETHER TO VOTE TO ACCEPT OR REJECT THE EQUITY PLAN. ALL SUMMARIES
CONTAINED IN AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS, OTHER EXHIBITS HERETO AND OTHER
DOCUMENTS REFERENCED AS FILED WITH THE COURT. THIS DISCLOSURE STATEMENT WILL
NOT BE UPDATED AFTER COURT APPROVAL AND, SUBSEQUENT TO THE DATE HEREOF, THERE
CAN BE NO ASSURANCE THAT (A) THE INFORMATION AND REPRESENTATIONS CONTAINED
HEREIN ARE MATERIALLY ACCURATE; OR (B) THIS DISCLOSURE STATEMENT CONTAINS ALL
MATERIAL INFORMATION.
1. Consolidation Into Two Estates
The Equity Plan implements consolidation among two groups of
Debtors: (A) the assets and liabilities of SWINC and those of the SWINC
Subsidiaries identified on Exhibit A-1 to the Plan are consolidated into the
SWINC Consolidated Estate; and (B) the assets and liabilities of SWE&C and
those of the SWE&C Subsidiaries identified on Exhibit A-2 to the Plan are
consolidated into the SWE&C Consolidated Estate.
The Equity Plan contemplates that Holders of Allowed Claims
or Interests against SWINC and/or a Subsidiary in the SWINC Consolidated
Estate will be paid only from assets of the SWINC Consolidated Estate and that
Holders of Allowed Claims or Interests against SWE&C and/or a Subsidiary in
the SWEC Consolidated Estate will be paid only from assets of the SWE&C
Consolidated Estate. The SWINC Consolidated Estate will retain and consist of
the assets of SWINC and the SWINC Subsidiaries as provided in the Equity Plan.
The SWE&C Consolidated Estate will retain and consist of the assets of SWE&C
and the SWE&C Subsidiaries as provided in the Equity Plan.
(a) Disputes Regarding Consolidation.
The Equity Plan divides the Debtors into two
consolidated estates. The Debtors' Plan provides for the same two consolidated
estates.
A major dispute among the Equity Committee, the
Debtors and the Creditors' Committee has concerned whether and to what extent
any of the Debtors' Estates should be substantively consolidated; that is,
whether the assets and liabilities of the Debtors should be pooled so that all
creditors of the Debtors are paid from a single consolidated estate. This
dispute arises in connection with a motion filed by the Creditors' Committee
in August 2001, seeking to consolidate the Debtors' assets into a single
estate (the "Consolidation Motion"). In the view of the Equity Committee, such
consolidation would mostly benefit creditors of Stone & Webster Engineering
Corporation ("SWEC") and Stone & Webster Management Consultants, Inc. ("SWMC")
but would hurt primarily the creditors and stockholders of SWINC.
The Equity Committee has opposed the Consolidation
Motion and disputed the Creditors' Committee contention that there is a legal
or factual basis to consolidate the Debtors into a single estate.
Consequently, the plans of liquidation previously proposed by the Equity
Committee proposed to liquidate the Debtors on a non-consolidated basis.
(b) Equity Committee's Change in Position.
Driven by a desire to save costs and expedite a resolution
of these cases, the Equity Committee has changed its position and proposed a
plan that consolidates the Debtors into two consolidated estates because: (1)
the Equity Committee's analysis indicated that the creditors of the SWINC
Consolidated Estate would suffer no adverse economic impact as a result of the
proposed consolidation because they would be paid in full plus interest under
either a non-consolidated plan or the current Equity Plan; (2) the facts and
circumstances of how the Debtors conducted business prior to their bankruptcy
cases could not support substantive consolidation of the SWINC Consolidated
Estate with the SWE&C Consolidated Estate but might support a finding of
consolidation amongst the Debtors included in the SWE&C Consolidated Estate if
accepted by creditors of that Consolidated Estate, which consolidation would
not harm SWINC or other parties; (3) the professional fees incurred in these
cases have materially diminished the assets otherwise available to the
Debtors, rendering SWEC and SWMC administratively insolvent unless they are
consolidated with their immediate parent company, SWE&C, (4) as discussed
further in this Article III, section G(1) below, on November 14, 2002, the
Court ruled that consolidation of the Debtors' estates is permissible as a
matter of law if appropriate under applicable law and the facts and
circumstances of these cases; and (5) continuing litigation regarding
consolidation could impose significant additional administrative costs and
delay on these estates.
(c) Justification for Consolidation Into Two Estates.
The Equity Committee believes that the consolidation
proposed by the Equity and the Debtors' Plans will be approved by the
Bankruptcy Court for the following reasons:
o SWINC Consolidated Estate: the twenty-one Subsidiary Debtors
included in this Consolidated Estate have no third party
creditors or have nominal creditors that are projected to
being paid in full with interest. Only SWINC is projected to
have Allowed Claims held by third party creditors. The
proposed consolidation as to the SWINC Consolidation Estate
is thus akin to consolidation for administrative purposes
with no possible harm to creditors or stockholders.
o SWE&C Consolidated Estate: The facts and circumstances
regarding prepetition conduct (i.e., commingling of
operations and assets, representations to third parties,
nature of business and intercorporate dealings) arguably
could support this consolidation as a matter of law, though
creditors of SWEC and SWMC will benefit to the detriment of
creditors of SWE&C.
o Consolidation of SWINC with the SWE&C Consolidated Estate:
The Equity Committee does not believe that there would be
any credible evidence to support a further consolidation
between the two Consolidated Estates, is not aware of any
creditors having incurred detrimental reliance to the
contrary and believes that creditors and stockholders of
SWINC would suffer manifest prejudice as a result of such
consolidation.
2. Reorganized SWINC/Pension Reversion.
On the Effective Date SWINC will transfer to Reorganized
SWINC the Pension Plan assets plus any funds necessary to fund an
implementation reserve for Reorganized SWINC in the initial amount of $1
million. This implementation reserve will ensure that Reorganized SWINC will
have sufficient cash to complete its dissolution and the termination of the
Pension Plan. All other assets of SWINC and the SWINC Subsidiaries are to be
retained by the SWINC Consolidated Estate. Reorganized SWINC will issue one
share of Common Stock, and that share will be distributed to the SWINC
Liquidating Trust, created under the Plan for the benefit of Holders of Common
Stock in SWINC.
The SWINC Liquidating Trust, as the Holder of the share of
Common Stock in Reorganized SWINC, will not receive any payment from
Reorganized SWINC unless and until all Allowed Claims against the SWINC
Consolidated Estate have been paid in full in accordance with the terms of the
Plan. Reorganized SWINC will be liable to the SWINC Consolidated Estate for
all Allowed Claims against the SWINC Consolidated Estate, pursuant to section
12.2.3 of the Plan. The SWINC Consolidated Estate, in turn, will remain liable
to the Holders of Allowed Claims against and Interests in SWINC and the SWINC
Subsidiaries for all Distributions required to be made to such Holders under
the Equity Plan. Thus, even though Reorganized SWINC is discharged from direct
liability to Holders of Claims and Interests against SWINC and the SWINC
Subsidiaries, it remains liable to the SWINC Consolidated Estate for payment
of all such Claims and Interests. The purpose of this limited discharge in
favor of Reorganized SWINC is to prevent the duplicative re-filing of proofs
of claim in the state court dissolution proceeding to be commenced by
Reorganized SWINC in order to liquidate the Pension Plan. Thus, the
dissolution proceeding should proceed more quickly while claims are
simultaneously resolved in the bankruptcy proceedings. All such Holders,
however, would retain claims against the SWINC Consolidated Estate.
Reorganized SWINC's primary purpose would be to liquidate
the Pension Plan in a Delaware dissolution proceeding. It is contemplated that
the process will take six to eighteen months but will result in the
maximization of the value of the Pension Reversion by payment of a lower
marginal rate of excise tax (20% instead of 50%).
3. Property In Each Consolidated Estate.
The Equity Plan provides that, on the Effective Date, the
SWINC Consolidated Estate and the SWE&C Consolidated Estate shall each be
entitled to retain and become vested in certain assets, as follows:
a. The SWINC Consolidated Estate, pursuant to
section 12.2.1 of the Plan, shall be vested in and entitled to retain: 1) all
cash held by SWINC and the SWINC Subsidiaries, including without limitation
the cash necessary to fund an implementation reserve to ensure that the SWINC
Consolidated Estate will have sufficient cash to fund the implementation and
effectuation of the intents and purposes of the Plan. The initial amount of
the reserve will be $3 million; 2) all causes of action of SWINC retained for
enforcement pursuant to Articles XVI and XVII of the Plan; and 3) all other
property of the estate of SWINC or the SWINC Subsidiaries and all causes of
action of the SWINC Subsidiaries retained for enforcement pursuant to Articles
XVI and XVII of the Plan;
b. The SWE&C Consolidated Estate, pursuant to
section 12.2.4 of the Plan, shall be vested in and entitled to retain: 1) all
assets of any kind whatsoever owned by SWE&C and any SWE&C Subsidiary,
including without limitation all causes of action of SWE&C and any SWE&C
Subsidiary retained for enforcement pursuant to Articles XVI and XVII of the
Plan; and 2) an implementation reserve. The initial amount of this reserve
will be $3 million.
4. Projected Distributions.
a. SWINC Consolidated Estate. The Plan generally
provides for the payment in full by the SWINC Consolidated Estate on the
Effective Date of Allowed Claims entitled to priority under the Bankruptcy
Code (Administrative Claims, Priority Tax Claims and Priority Claims). The
Equity Plan further provides for the payment in full with interest to Holders
of Allowed Claims in Classes 3A and 4A (Unsecured Claims and Subordinated
Claims) as promptly as practicable after the Effective Date. The Equity
Committee estimates that the SWINC Consolidated Estate will make an interim
distribution of approximately $30 million to Holders of Unsecured Claims
shortly after the Effective Date, reserving the applicable percentage payable
on account of Disputed Claims that are not expected to be resolved as of the
Effective Date. The amount of the initial distribution as a percentage of
claims and the amount and speed of subsequent distributions will depend on the
status of the claims resolution process on the date of the distribution.
Following the Effective Date of the Equity Plan,
none of the SWINC Subsidiaries will conduct any business operations, except as
necessary to maximize the recovery for Holders of Claims and Interests against
the SWINC Consolidated Estate, as determined in the sole discretion of the
SWINC Liquidation Board.
The SWINC Consolidated Estate will also make a
significant distribution to Holders of SWINC Common Stock in the range of $.83
to $1.43 per share, depending upon the outcome of the claims resolution
process and if the Holders of Unsecured Claims against the SWE&C Consolidated
Estate (Class 4B-1) vote to accept the Equity Plan. If such Holders vote to
reject the Equity Plan, the Stockholders of SWINC will receive higher
distributions in the range of $1.02 to $1.67 depending upon the outcome of the
claims resolution process because the SWINC Consolidated Estate's prepetition
claim against the SWE&C Consolidated Estate, estimated at $50 million, would
then be entitled to participate in distributions to Holders of Unsecured
Claims against the SWE&C Consolidated Estate. If the Holders of Unsecured
Claims against the SWE&C Consolidated Estate vote to accept the Equity Plan,
that prepetition intercompany claim would be subordinated and would receive
nothing.
b. SWE&C Consolidated Estate. The Equity Plan
provides for the payment in full by the SWE&C Consolidated Estate on the
Effective Date of Allowed Claims entitled to priority under the Bankruptcy
Code (Administrative Claims, Priority Tax Claims and Priority Claims) and
Convenience Claims (Claims of $1,500.00 or less or Claims that are voluntarily
reduced to $1,500 by the Holder of the Claim) (Class 3B). The Equity Plan
further provides for the ratable distribution of the SWE&C Consolidated
Estate's remaining cash to Holders of Unsecured Claims (Class 4B-1) (and also
to the SWINC Consolidated Estate on account of its claim against the SWE&C
Consolidated Estate, but only if Class 4B-1 votes to reject the Plan), as
promptly as practicable after the Effective Date in the sole discretion of the
SWE&C Liquidation Board. As shown in Exhibit B to the Plan, the Equity
Committee estimates that the SWE&C Consolidated Estate will pay each Holder of
an Allowed Unsecured Claim against the SWE&C Consolidated Estate up to
approximately 7.5% to 10.4% of its Allowed Claim if Class 4B-1 votes to accept
the Plan and the SWINC Consolidated Estate's claim is thereby subordinated,
and approximately 5.7% to 7.2% if Class 4B-1 votes to reject the Plan and the
SWINC Consolidated Estate's prepetition intercompany claim thereby shares with
the Class 4B-1 Claims.
Neither SWE&C nor any of the SWE&C Subsidiaries
will conduct any business operations, except as necessary to maximize the
recovery for Holders of Claims and Interests against the SWE&C Consolidated
Estate, as determined in the sole discretion of the SWE&C Liquidation Board.
II. BACKGROUND
A. Description of the Debtors and the Debtors' Business.
1. The Debtors. The Debtors consist of seventy-three
(73) separate corporate entities that filed petitions for relief under Chapter
11 of the Bankruptcy Code. In addition, and on information and belief, as of
the Petition Date, SWINC owned directly or indirectly twenty-five (25)
non-debtor entities ("Non-Debtor Affiliated Entities"), principally organized
under foreign laws and operating outside of the United States including,
without limitation, Stone & Webster Canada Limited, Stone & Webster Group
Limited, Stone & Webster Construction Limited, Stone & Webster Engineering
Limited, Stone & Webster Management Consultants, Limited and Stone & Webster
Engineers and Constructors BV. The Non-Debtor Affiliated Entities are listed
on Exhibit A-3 to the Equity Plan. Prior to filing these Chapter 11 cases, the
Debtors were considered global leaders in engineering, construction and
consulting for power, process, environments/infrastructure and industrial
markets worldwide.
2. The Engineering, Construction and Consulting
Business. SWINC, SWEC, SWE&C, and most of the Subsidiary Debtors were
principally engaged in providing professional engineering, construction and
consulting services, with SWE&C and SWEC exclusively devoted to engineering
and construction. They provided engineering, design, construction and full
environmental services for power, process, governmental, industrial,
transportation and civil works projects. They were active in the nuclear power
business for utility and governmental clients, and they undertook a
significant amount of modification and maintenance work on existing nuclear
power plants as well as decommissioning and decontamination projects.
The Debtors' engineering, construction and
consulting businesses included three divisions and a consulting organization
which was responsible for marketing and executing projects within a section on
a worldwide basis. Where appropriate, lump sum contracts were employed as a
means of providing comprehensive services.
Prior to the Petition Date, from 1995 through 1998,
SWINC also took steps to grow key businesses through acquisitions intended to
strengthen its construction and engineering capabilities. For example, in
1998, SWINC acquired Belmont Constructors Company, Inc., a full-service
construction firm. To expand its ability to furnish technical solutions to the
global power industry, SWMC, the consulting subsidiary of SWINC, acquired
Power Technologies, Inc., a business widely known for its software systems,
consulting services, education programs and customized hardware packages for a
range of power industry applications.
In fiscal 1999, the engineering, construction and
consulting businesses had $1.14 billion in revenues, and an operating loss of
$142.5 million. During that period, the businesses recorded a loss of $150.1
million in contract related provisions, primarily due to increases in
estimated costs to complete several lump sum contract projects. Moreover, as
of December 31, 1999, the businesses had contracts in backlog amounting to
$2.6 billion.
3. The Nordic Business. Certain of the Subsidiary
Debtors owned and operated fourteen cold storage warehousing facilities
located primarily in the southeastern United States. They provided low cost,
energy efficient refrigerator and freezer storage facilities, customized
material handling services and blast freezing capacity. In 1998, to enhance
its cold storage services, SWINC acquired The Nordic Group, a leading owner
and operator of refrigerated warehouses throughout the southeastern United
States and Ohio, with 11 refrigerated facilities and almost 23 million cubic
feet of refrigerator and freezer space. At the 1998 year-end, the Nordic Group
business, together with Stone & Webster's Commercial Cold Storage, Inc.
subsidiary, was restructured to become the Debtors' Nordic Refrigerated
Services (the "Nordic Business"), which, as of the Petition Date, on
information was the fifth largest public refrigerated logistics company in the
United States and ninth largest in the world. The company served primarily two
groups of customers: prepared food manufacturers, who require cold storage and
logistics services in their distribution channels, and poultry producers, who
require blast freezing and storage capacity. In October 1999, the Debtors
announced their intention to sell the Nordic Business, a large part of which
had been acquired in 1998.
B. Events Leading to the Debtors' Chapter 11 Filings.
Since mid-1996, the Debtors had been restructuring due to
problems at the engineering, construction and consulting businesses. For the
several years before the Petition Date, the Debtors had experienced
significant operating losses. Such losses were the result of many factors,
including major contract disputes in Saudi Arabia and a similar unresolved
claim in Ghana, lower demand by energy companies, protracted weakness in the
petrochemical industry, the lingering effects of the economic slowdown in
Asia, a major market for new process plant construction, rapid consolidation
and reduced spending in the oil sector, and higher than anticipated costs
related to lump sum contracts due to the Boston labor market. By the second
quarter of 1999, SWINC and certain of the Subsidiary Debtors began
experiencing liquidity problems. By the end of the third quarter of 1999, the
Debtors had fully drained the cash available under their existing credit
facility. As a consequence, the amount of their past due trade payables
increased, in turn causing certain of their vendors and subcontractors to
delay work on projects.
In November 1999, the Debtors sought and obtained an
agreement with their principal bank-lending group to expand and extend the
credit facility. Under that agreement, the facility was increased by $30
million, to a maximum of $160 million, and the maturity of the credit facility
was extended through May 31, 2000.
During the fourth quarter of 1999, the Debtors sought to
reduce debt and raise working capital by selling assets. In that regard, they
not only sought purchasers for the Nordic Business but also for other assets.
They sold the Boston, Massachusetts headquarters building for $187 million,
and used $140 million of the proceeds to permanently reduce their credit
facility to $20 million. SWINC also received an additional $15 million by
selling 1,000,000 shares of SWINC Common Stock from its treasury to the
Pension Plan at $15.00 per share in December of 1999. Nonetheless, as of the
end of fiscal 1999, the entire $20 million available for direct borrowings
under the credit facility remained outstanding and nearly $90 million of a
$100 million letter of credit facility was used.
Despite the efforts to restructure operations, sell the
Nordic Business and raise working capital, the Debtors continued to experience
severe liquidity problems. Anticipating the inability to pay down or refinance
the credit facility upon maturity, the Debtors, in April 2000, sought and
entered into another agreement with their bank-lending group. Under this
agreement, the maturity date of the credit facility was further extended to
January 31, 2001. The agreement further 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 bank-lending group
for the nearly $90 million in outstanding letters of credit.
In mid- to late April, 2000, the Debtors discovered a
substantial unanticipated cost overrun on a key construction project. They
were required to restate their 1999 consolidated financial statements to
record a provision of $27.5 million to complete work on the project. In
conjunction with that restatement, the Debtors' independent public accountants
issued a modified opinion regarding their ability to continue as a going
concern, which in turn slowed cash receipts, further exacerbating cash flow
problems.
In late April 2000, the Debtors embarked on an aggressive
strategy under which they sought alternative financing, strategic mergers and
possible additional asset sales. They solicited traditional and
non-traditional lenders regarding possible interim and long-term financing.
They 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 the engineering, construction and consulting
businesses.
In early May 2000, the Debtors signed a letter of intent
with Jacobs Engineering Group, Inc. ("Jacobs") regarding a transaction
pursuant to which Jacobs would acquire substantially all of the assets of the
Debtors in exchange for Jacobs immediately providing a $50 million secured
revolving credit facility, Jacobs assuming all of the Debtors' balance sheet
liabilities and Jacobs paying an additional $150 million in cash and stock.
The Debtors then negotiated the final terms of an agreement with Jacobs. An
agreement was reached on June 2, 2000.
On that day, the Debtors each voluntarily filed for relief
under chapter 11 of the Bankruptcy Code.
C. Significant Funded Indebtedness.
As of the Petition Date, SWINC's principal financing
facility was the Credit Agreement dated as of July 30, 1999, among SWINC, Bank
of America, N.A., as agent and letter of credit issuing bank, HSBC Bank USA,
as co-agent, and the other financial institutions party thereto. Most of the
Subsidiary Debtors were indebted to the Banks under the Guaranty dated as of
July 30, 1999 executed or subsequently joined by certain of SWINC's direct and
indirect subsidiaries and delivered to Bank of America, N.A., as agent under
the Credit Agreement. SWINC and certain of the Subsidiary Debtors were
obligated to other secured creditors in connection with certain advised
unconfirmed lines of credit pursuant to which the other secured creditors had
extended various letters of credit for the benefit of the Debtors.
As of the Petition Date, the Debtors were indebted to the
Banks in an aggregate principal amount, including aggregate exposure on
undrawn letters of credit, of approximately $107 million, plus unpaid fees,
expenses and accrued interest as of the Petition Date. Pursuant to the
collateral documents, a collateral agent held security interests in all or
substantially all real and personal property of each of the Debtors.
SWINC also was a party to the prepetition $50 million
Revolving Credit Agreement dated May 9, 2000 (the "Jacobs Credit Facility")
between SWINC, as borrower, and Jacobs, as lender. The Jacobs Credit Facility
was an integral part of the Debtors' efforts to sell substantially all of
their assets to Jacobs. As of the Petition Date, approximately $22 million in
aggregate borrowings was outstanding under the Jacobs Credit Facility.
Under the Jacobs Credit Facility's supporting documents, the
Debtors granted Jacobs a security interest in substantially all of their
tangible and intangible assets, and through the Intercreditor Agreement
between Jacobs and Bank of America, N.A., as collateral agent for certain
other lenders under the Collateral Agency and Intercreditor Agreement dated as
of July 30, 1999, Jacobs obtained a first priority lien in certain equipment,
accounts receivable and other property.
D. Summary of Securities Litigation.
Prior to the commencement of the Chapter 11 Cases, SWINC was
named 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 District of Massachusetts. 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: Madelbaum 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 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 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. On March 28, 2003, the
Court granted the motions to dismiss with respect to certain counts of the
Amended Complaint as to Defendants Thomas Langford and H. Kerner Smith and
with respect to all counts against PricewaterhouseCoopers, LLP. Since then,
the Court has scheduled a pretrial conference with respect to the remaining
counts against Mr. Langford and Mr. Smith in the Securities Litigation for May
28, 2003.
III. SIGNIFICANT EVENTS DURING THE DEBTORS' CHAPTER 11 CASES
On June 2, 2000, each of the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. At
that point, all actions and proceedings against the Debtors and all acts to
obtain property from the Debtors were stayed under section 362 of the
Bankruptcy Code. The Debtors continue to operate their businesses and manage
their properties as debtors-in-possession pursuant to sections 1107(a) and
1108 of the Bankruptcy Code. No trustee or examiner has been appointed in any
of these bankruptcy cases. The Bankruptcy Court has jointly administered the
Debtors' bankruptcy cases for procedural purposes only in accordance with Rule
1015 of the Federal Rules of Bankruptcy Procedure.
A. First Day Orders.
On or about June 2, 2000, several orders were entered as is
typical of a large chapter 11 case, including, authorization of (i) joint
administration pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy
Procedure, (ii) payment of prepetition employee compensation, and (iii) an
interim stipulation on an agreement between the Debtors and their bank lenders
regarding the use of cash collateral and adequate protection.
B. Advisors to the Debtors
The Debtors have retained Skadden, Arps, Slate, Meagher &
Flom as their bankruptcy counsel. The Debtors have retained Lazard Freres &
Co., LLC as their financial advisor and PricewaterhouseCoopers (now FTI
Consulting) as their accountant and auditor.
C. Appointment of Creditors' Committee.
The United States Trustee appointed an Official Committee of
Unsecured Creditors of the Debtor and its subsidiaries on or about June 14,
2000. As of April 16, 2002, the Creditors' Committee was comprised of three
members: (1) Canfibre of Riverside, Inc., (2) MDC Systems, Inc., and (3)
Harborview Electric, Ltd. The Creditors' Committee has retained Orrick
Herrington & Sutcliff LLP and Klett Rooney Lieber & Schorling as counsel and
Chanin Capital Partners LLC as its financial advisor.
D. Appointment of Equity Committee.
The United States Trustee appointed an Official Committee of
Equity Holders of SWINC on or about June 26, 2000. The current members of the
Equity Committee and the number of shares of SWINC common stock they each held
as of December 1, 2002 are as follows: (1) Dimensional Fund Advisors, 10 South
Wacker Drive, Suite 2275, Chicago, IL 60606 (220,000 shares of SWINC common
stock); (2) Harold Rickles, 16482 Ann Lee Drive, North Rose, NY 14516 (6,000
shares of SWINC common stock); and (3) Grace Brothers, Ltd., 1560 Sherman
Avenue, Suite 900, Evanston, IL 60201 (322,900 shares of SWINC common stock)
and 757,200 shares of SWINC Common Stock owned by affiliate Rock Finance LP. A
fourth member, Gregory Blair, resigned on March 13, 2003. As of the filing of
this Disclosure Statement, Dimensional Fund Advisors informed the Equity
Committee that they have sold their shares of SWINC common stock and intended
to resign. The Office of the United States Trustee may appoint replacements to
serve on the Equity Committee. The Equity Committee has retained Bell, Boyd &
Lloyd LLC and Bifferato, Bifferato & Gentilotti as counsel and Ernst & Young
Corporate Finance, LLC and Ernst & Young LLP as its financial advisors.
E. Post-Petition Lender.
On or about June 2, 2000, the Debtors entered into the
Jacobs Credit Facility, which provided them with up to $50 million in
post-petition financing. On information, on or about July 17, 2000, the
Debtors paid Jacobs $10,000,000 owing under the Jacobs Credit Agreement from
the proceeds of the sale of substantially all of the Debtors' assets to Shaw
discussed below, and the Jacobs Credit Agreement was terminated. Accordingly,
the Debtors no longer have any obligations under the Jacobs Credit Agreement.
As a result of the Shaw sale, the Debtors also no longer have any obligations
to the bank lenders, except for certain contingent indemnification Claims that
the bank lenders assert against certain of the Debtors. The Equity Committee
does not believe that any of these Debtors will have any obligations as a
result of these Claims.
F. Significant Court Orders.
Although the Debtors are authorized to operate their
businesses as debtors-in-possession, they may not engage in transactions
outside the ordinary course of business without approval of the Court after
notice and opportunity for a hearing as provided for in the Bankruptcy Code
and Bankruptcy Rules. On and after the Petition Date, the Debtors sought and
obtained from the Court certain orders that are of particular importance in
the operation of the Debtors' businesses during the pendency of the Chapter 11
Cases, including orders:
o authorizing the employment and compensation of professionals
utilized by the Debtors in the ordinary course of business;
o authorizing the retention of bankruptcy-related professionals and
establishing payment procedures for such professionals;
o authorizing the continued maintenance of the Debtors' bank
accounts,
o continued use of existing business forms, continued use of the
Debtors' consolidated cash management system and continued ability
to transfer funds to non-debtor wholly-owned subsidiaries;
o authorizing payments to employees of accrued prepetition wages,
salaries and benefits;
o prohibiting utilities from altering, refusing or discontinuing
services on account of prepetition invoices and establishing
procedures for determining requests for additional adequate
assurance of payment;
o authorizing payment of prepetition sales, use and other taxes;
o authorizing payment of certain prepetition claims of critical
trade creditors;
o prohibiting certain project owners from withholding or offsetting
payments due to Debtors or paying subcontractors directly on
account of prepetition claims;
o authorizing payment of certain prepetition shipping charges;
o authorizing post-petition financing and use of cash collateral;
o authorizing rejection of certain executory contracts and unexpired
personal property leases that were not providing benefit to the
Debtors;
o approving the implementation of a program to pay valid prepetition
mechanics' liens filed by various contractors against the Debtors'
properties;
o extending the time for the Debtors to assume or reject unexpired
leases of nonresidential real property;
o extending the time for the Debtors to remove pending litigation to
the Bankruptcy Court; and extending the exclusive periods during
which the Debtors may file and solicit acceptances to plans of
reorganization. The exclusive periods expired without any Debtor
having filed a plan.
o authorizing the continued retention and compensation of James
Carroll as Chief Restructuring Officer. Pursuant to Court order
dated July 8, 2002 Mr. Carroll's annual compensation package for
the period ending January 31, 2003 consisted of a base salary of
$375,000 and a bonus of $112,500 payable in two equal
installments, for total annual compensation of $487,500.
Additionally, the Court's order authorizes a $300,000 lump sum
severance payment if Mr. Carroll is terminated involuntarily,
prior to January 21, 2003. As of April 22, 2003, Mr. Carroll is
still the Chief Restructuring Officer.
G. Substantive Consolidation Litigation.
1. Status of Consolidation Litigation
On August 9, 2001, the Creditors' Committee initiated a
dispute concerning substantive consolidation by filing the Consolidation
Motion seeking to substantively consolidate all of the Debtors into a single
estate. On May 24, 2002, the Equity Committee filed a Motion for Summary
Judgment (the "Summary Judgment Motion") on the Consolidation Motion. On
November 14, 2002 the Court issued a Memorandum Opinion and Order Denying the
Motion of the Official Committee of Equity Security Holders for Summary
Judgment and Granting in Part the Motion of the Official Committee of
Unsecured Creditors for Substantive Consolidation (the "November 14 Order").
(Docket #3564)
In the November 14 Order, the Court ruled, inter alia, that
it would be permissible for a chapter 11 plan to contain provisions for
substantive consolidation. The Equity Committee filed an appeal of the
November 14 Order on November 25, 2002. Maine Yankee Atomic Power Company
("Maine Yankee"), a creditor of SWEC and SWINC, filed a separate appeal of the
November 14 Order on the same date (the "Grupo Appeal"). On January 6, 2003,
the Equity Committee, the Debtors, the Creditors' Committee and Maine Yankee
entered into a Stipulation to Dismiss Appeals of Interlocutory Order (the
"Grupo Appeal Stipulation"). Pursuant to the Grupo Appeal Stipulation, the
Creditors' Committee, the Debtors, the Equity Committee and Maine Yankee have
agreed that the November 14 Order is an interlocutory (non-final) order and
that the issues appealed in the Grupo Appeal can be raised at such time as the
Court enters an order confirming a plan that provides for substantive
consolidation.
Notwithstanding the proposed division of the Debtors into
two consolidated entities, the SWINC Consolidated Estate and the SWE&C
Consolidated Estate in the Equity Plan, the Equity Committee opposes the
consolidation of all of the Debtors estates into one single estate and
believes there is no legal or factual basis to support the consolidation of
the SWINC Consolidated Estate and the SWE&C Consolidated Estate into a single
estate. The Equity Committee further believes that the only consolidation
likely to be approved by any court would be a consolidation of SWINC with the
SWINC Subsidiaries, and a separate consolidation of SWE&C with the SWE&C
Subsidiaries, as provided in the Debtors' Plan and the Equity Plan and
described above. The Debtors and the Creditors Committee disagree, however.
The Equity Committee files this Plan without waiver of any
right to appeal any order confirming a plan which provides for substantive
consolidation and hereby expressly reserves all rights raised in the Grupo
Appeal and preserved in the Grupo Appeal Stipulation, as an alternative in the
event the Equity Plan is not confirmed.
2. Summary of the Competing Views on Substantive
Consolidation.
a. Equity Committee Position on Substantive
Consolidation.
The Equity Committee further believes that 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 SWINC Consolidated Estate, on the one hand, and the
Debtors included in the SWE&C Consolidated Estate, on the other hand. The
Equity Committee believes that such an analysis overwhelmingly demonstrates
that no further consolidation would be necessary or appropriate as between the
SWINC Consolidated Estate and the SWE&C Consolidated Estate. Indeed, the
Equity Committee believes 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; (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; and
(v) has no identifiable creditors that relied on contrary representations to
their detriment.
The Equity Committee further believes that the
following additional undisputed facts make it overwhelmingly clear that there
is no legal or factual basis to further substantively consolidate the SWINC
Consolidated Estate or any of its assets with the SWE&C Consolidated 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 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 Equity Committee also believes that Debtors'
own prior admissions would preclude consolidation of SWINC with the SWE&C
Consolidated Estate. In 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"), 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 Court, after reviewing numerous affidavits
submitted by the senior management and executives of SWEC, SWMC and SWINC,
accepted the factual assertions made in the Affidavits submitted by SWEC,
SWMC, and SWINC as to their corporate separateness, finding that SWEC, SWMC
and SWINC had separate management, personnel and legal staff. Id at 4855. The
Court granted partial summary judgment in favor of SWMC and SWINC determining
that an earlier notice to SWEC could not be imputed to either SWINC or SWMC.
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. The Creditors'
Committee and the Debtors disagree with these contentions, and all parties
expect the conflicts to be resolved by the Bankruptcy Court.
b. Debtors' Position on Substantive Consolidation.
The following is an excerpt of the Debtors' position on substantive
consolidation from the Disclosure Statement with Respect to Amended Debtors'
Plan of Reorganization of the Debtors in Possession, Official Committee of
Unsecured Creditors, and Federal Insurance Company dated March 14, 2003 (the
"Debtors' Plan Disclosure Statement"). For a more complete explanation of the
Debtors' Plan and their position on the purported settlement of the
Consolidation Motion, which settlement is disputed by the Equity Committee,
see the Disclosure Statement filed with the Debtors' Plan.
"The Debtors also responded to the 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 over funded Pension Plan was carried on the books and records of
SWEC. Moreover, Mercer Human Resources Consulting reported on a
non-consolidated basis by operating unit of the Debtors with respect
to the Pension Plan 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 Nordic. During this solicitation process, the Debtors eventually
received bids for the purchase of Nordic. None of these bids were
finalized before the Pension Date. However, when the Debtors entered
into the asset purchase agreement with Jacobs, Nordic was initially
carved out of the transaction, and during the post-petition 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 contend
that all excess proceeds from the sale to Shaw could be allocated to
the sale of the 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. Maine 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 agreement 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."
The Equity Committee agrees with the Debtors'
contentions regarding the separateness of the SWINC Consolidated Estate and
the SWE&C Consolidated Estate but does not agree to the extent that the
Debtors may contend that facts exist that may support further consolidation of
the SWINC Consolidated Estate with the SWE&C Consolidated Estate. All parties
expect the conflicts to be resolved by the Bankruptcy Court.
c. Summary of Creditors' Committee's Position on
Substantive Consolidation. The following is an excerpt of the Creditors'
Committee's position on substantive consolidation from the Debtors' Plan
Disclosure Statement. For a more complete explanation of the Creditors'
Committee's position with respect to the Consolidation Motion and its support
of the Debtors' Plan see the Disclosure Statement filed with the Debtor's Plan
at pages 25-27.
"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 Debtors frequently described
their various business interests as "divisions" or "segments" of
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
Debtors' intercompany accounts. 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 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, 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."
The Equity Committee disagrees with the contentions
of the Creditors' Committee, and all parties expect the conflicts to be
resolved by the Bankruptcy Court.
H. Creditor-Related Activities.
The Debtors mailed a Notice of Commencement of the Chapter
11 Cases to all known and potential creditors. The Debtors then filed
consolidated schedules of assets, liabilities and executory contracts, and
statements of financial affairs as noted in section K below.
On July 18, 2000, the Court entered an Order (Docket #370)
establishing the August 25, 2000 Bar Date for filing proofs of claim, as noted
in Section K below (the "Bar Date Order"). The Bar Date Order also approved
the form Notice of Bar Date For Filing Proofs of Claim (the "Bar Date Notice")
to be sent to all creditors informing them of the Bar Date for filing proofs
of claim and containing instructions for the filing of any such claims. On
July 19, 2000, Trumbull Services LLC, the claims and noticing agent employed
in these Chapter 11 Cases ("Trumbull" or the "Claims Agent") mailed the Bar
Date Notice to all creditors pursuant to the Bar Date Order.
The Claims Agent also caused the Bar Date Notice to be
published in widely circulated newspapers. The Bar Date Notice required, inter
alia, that creditors file a separate proof of claim for each Debtor against
which the creditors asserted a Claim.
The Bar Date Notice was mailed with Official Form No. 10 as
the proof of claim form. (Docket No. 466). Official Form No. 10 contains
instructions which state, inter alia, "Fill in the name of the... debtor in
the bankruptcy case, and the bankruptcy case number. If you received a notice
of the case from the court, all of this information is near the top of the
notice." The information at the top of the Bar Date Notice, however, contained
the jointly administered case caption for the Debtors' Chapter 11 Cases as
follows: "In re Stone and Webster Incorporated, et al, Case No. 00-2142" (the
"Joint Case Caption"). While the Bar Date Notice enclosed a list of the 73
Debtors, the list did not include any of the separate bankruptcy case numbers
for the 73 Debtors. Instead, Exhibit 1 to the Bar Date Notice lists each of
the Debtors with their tax identification number only. The only bankruptcy
case number on the Bar Date Notice is in the Joint Case Caption.
Many creditors followed the exact instructions on Official
Form 10 and filled in the Joint Case Caption information on the top of their
proofs of claim. As a result, many Claims in these cases were filed against
"In re Stone and Webster Incorporated, et al, Case No. 00-2142." The Equity
Committee believes that many claimants filled in the Joint Case Caption
information on their proofs of claim pursuant to the instructions on Official
Form 10 and because the Bar Date Notice lacked a list with all the debtor
bankruptcy case numbers.
The Claims Agent has maintained an official register of all
proofs of claim filed against the Debtors (the "Official Claims Register").
The Equity Committee believes that the Official Claims Register does not
presently reflect the proper liabilities allocable to each Debtor because
certain Claims have been docketed against SWINC merely because they have
stated the Joint Case Caption on the face of the proof of claim due to the
factors mentioned above. Indeed, the Equity Committee believes that a review
of the supporting documentation for many such Claims will support a
reclassification of many Claims to other Debtor Subsidiaries based on the
supporting documentation attached to the proofs of claim.
Consequently, the Equity Committee filed certain motions and
objections seeking to reclassify and allocate certain proofs of claim filed to
the proper Debtor based upon supporting documentation attached to the proofs
of claim and, to the extent no such documentation is provided, based upon the
Debtors' books and records. Following a hearing on March 4, 2003, the Court
generally granted those motions, continuing the motions as to only a few
claims that are likely to be resolved at an April 23, 2003, hearing. The
Equity Committee has reserved the right of the Equity Committee, the Debtors,
and the Creditors' Committee to object to the allowance of any reclassified
claims at a later time for purposes of distributions under the Equity Plan.
THE EQUITY COMMITTEE MAY ELECT TO OBJECT AND SEEK THE
DISALLOWANCE OF ANY PROOFS OF CLAIM OF ANY CREDITORS ON ANY BASIS UNDER
APPLICABLE STATE AND FEDERAL LAW, INCLUDING WITHOUT LIMITATION ON THE BASIS
THAT CERTAIN PROOFS OF CLAIM DID NOT SPECIFY THE DEBTOR AGAINST WHICH THE
CREDITOR ASSERTED THE CLAIM, OR LISTED MORE THAN ONE DEBTOR, OR FAIL TO
PROVIDE ADEQUATE SUPPORTING DOCUMENTATION TO SUPPORT A CLAIM AGAINST A DEBTOR.
I. Employee Matters.
On August 14, 2000, the Court entered an order authorizing
the implementation of an employee retention program that sought to amend
certain severance and bonus plans already in existence as well as establish
new employee incentives to remain in the Debtors' employment.
J. Sale of Substantially All of the Debtors' Assets
1. The Sale Agreement. On or about June 2, 2000, the
Debtors entered into the asset purchase agreement with Jacobs. Pursuant to the
Jacobs Asset Purchase Agreement, Jacobs agreed to purchase substantially all
of the Debtors' assets for $25 million in cash, plus shares of common stock of
Jacobs having a market value of $125 million, plus the assumption of all
liabilities arising under certain assigned contracts, all liability under the
mortgage loan secured by a Houston office building, all of the Debtors'
outstanding bank debt, all liabilities related to letters of credit, and all
liabilities for borrowings under the Jacobs Credit Agreement. The purchase
price was subject to adjustment based on a final determination of the Debtors'
working capital as of the date of the sale. The Debtors estimated that the
amount of ordinary course post-petition accrued liabilities to be assumed by
Jacobs was approximately $425 million.
In order to implement the Jacobs Asset Purchase
Agreement, on June 7, 2000, the Debtors filed the Motion for Orders Pursuant
to 11 U.S.C. ss.ss. 105(a), 363, 365 and 1146(c) and Federal Rules of
Bankruptcy Procedure 2002, 6004, 6006, 9014 and 9019 (A) Approving Asset
Purchase Agreement; (B) authorizing (i) Sale of Substantially All of the
Debtors' Assets Free and Clear of Liens, Claims and Encumbrances, (ii)
Assumption and Assignment of Certain Executory Contracts and Unexpired Leases,
and (iii) Assumption of Certain Liabilities; and (C) Approving Bidding
Procedures and the Form and Manner of Notice Thereof (the "Sale Motion")
seeking an order approving the bidding procedures, as well as an order to be
entered at a subsequent hearing approving the sale to Jacobs or the highest
bidder at an auction to be held pursuant to the Bidding Procedures (the
"Auction"). On June 23, 2000, the Court approved the Bidding Procedures.
After approval of the Bidding Procedures, the
Auction was held on July 6, 2000. At the Auction, the Debtors, with the
agreement of the Creditors' Committee, determined that Shaw was the highest
bidder. At the Auction, Shaw agreed to pay $37.6 million in cash, up to 2.18
million shares of Shaw common stock, the assumption of certain liabilities,
including, without limitation, all liabilities arising under the assigned
contracts, the bank debt and other obligations in respect of the letters of
credit, inter-company receivables and payables, liabilities arising under the
Jacob Credit Agreement and liabilities arising under many employee contracts.
The assets sold to Shaw expressly excluded the Debtors' rights in, to and
under the Pension Plan. On or about July 13, 2000, the Court entered an order
approving the sale to Shaw, which closed on or about July 17, 2000.
2. Working Capital Adjustment. Pursuant to the terms
of the Asset Purchase Agreement among the Debtor and Shaw (the "Shaw Asset
Purchase 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 Asset
Purchase Agreement, if the Final Working Capital was in excess of the base
working capital set forth in the Shaw Asset Purchase 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 exceeds the Final
Working Capital. Rather than incur the expense and spend resources preparing
the audited closing balance sheet, the Debtors sought approval of a letter
agreement among the Debtors and Shaw approving a settlement of disputes with
respect to the Shaw Asset Purchase Agreement (the "Shaw Agreement"). By order
dated December 18, 2000, the Court approved the Shaw Agreement. Generally, the
Shaw Agreement provided that SWINC was relieved of its 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 Asset
Purchase Agreement. Both parties were relieved of any obligation to make an
Adjustment Amount payment. Further, the Shaw Agreement 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. Pursuant to the Shaw Agreement, on or before January 15, 2001, Shaw was
required to provide the Debtors, the Creditors' Committee and the Equity
Committee with a list of cure claims and proofs of claims that Shaw contends
(i) are filed cure claims or filed proofs of claim that do not constitute, in
whole or in part, Assumed Liabilities, or (ii) the asserted amount of any such
filed cure claim or any such filed proof of claim is overstated, and sets
forth the specified basis for such contention i.e., that the Claims were
overstated as to amount or were not an assumed liability under the Shaw
Agreement. On or before January 31, 2001, Shaw was required to file and serve
an objection to those proofs of claim or cure claims that Shaw agrees are its
liabilities under the Shaw Agreement but has a dispute as to the amount of the
proof of claim or cure claim. On or before January 31, 2001, the Debtors were
required to file a motion seeking to reclassify any cure claims or proofs of
claim filed that they believe are Shaw's liability under the Shaw Agreement
but which Shaw contends are the Debtors' liability. As set forth in section
L(2) of this Disclosure Statement, the Debtors and Shaw have filed numerous
objections to proofs of claim for liabilities assumed by Shaw pursuant to the
Shaw Agreement.
K. Filing of Schedules and Statements of Financial Affairs.
On or about June 15, 2000, the Debtors requested that they
be authorized to file schedules and statements of affairs on a consolidated
basis. On or about July 12, 2000, the Debtors filed consolidated Schedules and
Statements of Financial Affairs with the Court. The Court, however, has not
yet ruled on the Debtors' request that they be authorized to file consolidated
schedules and statements of affairs. No Debtor filed a proof of claim against
any other Debtor. The Equity Committee believes that amended non-consolidated
schedules of assets and liabilities, including intercompany liabilities, will
be filed within sixty (60) days after the Effective Date, unless prior to the
Effective Date the Debtors file schedules satisfactory to the Equity Committee
allocating the scheduled claims to the SWINC Consolidated Estate or SWE&C
Consolidated Estate, as appropriate based upon the business relationship
between the underlying scheduled claimant and the appropriate Debtor.
At the request of the Equity Committee and following a
hearing on December 6, 2002, the Court directed the Debtors to work with the
Equity Committee to allocate all scheduled claims not superseded by proofs of
claim or assumed by Shaw under the Shaw Asset Purchase Agreement (the "Active
Scheduled Claims") to each Debtor entity liable for said claim. On April 2,
2003, the Debtors filed an Amendment to Schedule F of Assets and Liabilities
which identifies all Active Scheduled Claims and allocates those claims to the
SWINC Consolidated Estate or the SWE&C Consolidated Estate.
L. Claims Process
1. 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 for prepetition claims
not listed on the Debtors' Schedules or that were listed as contingent,
unliquidated or disputed. 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
January 10, 2003, 2,636 proofs of claim had been filed asserting approximately
$9.1 billion in claims, and 179 statements of cure claims had been filed
asserting approximately $196 million in claims.
Following the claims objections described below, as of
January 10, 2003, the number and amount of the remaining Unsecured Claims
against the SWINC Consolidated Estate on the Official Claims Register totals
approximately 200 claims in the aggregate amount of $1.3 billion, much of
which is subject to dispute. As of the same date, the number and amount of the
remaining Unsecured Claims against the SWE&C Consolidated Estate on the
Official Claims Register totals approximately 782 claims in the aggregate
amount of $392 million, much of which is subject to dispute. The foregoing
does not include additional claims on the Official Claims Register which as of
January 10, 2003 remained unclassified, consisting of approximately 702 claims
in the aggregate amount of $1.6 billion, many of which are the subject of
pending motions or objections. The foregoing also does not include the
remaining active scheduled claims which have not been superseded by timely
filed proofs of claim and have not been otherwise assumed by Shaw pursuant to
the Shaw Sale. The foregoing estimates do not include intercompany claims. As
of January 10, 2003, the Equity Committee estimates that the SWINC
Consolidated Estate holds a Claim against the SWE&C Consolidated Estate in the
approximate amount of $50 million, after giving the SWE&C Consolidated Estate
full credit for amounts owed to it by the SWINC Consolidated Estate.
2. Claims Objections and Claims Reconciliation. The
Creditors' Committee, the Equity Committee and the Debtors have been
reviewing, analyzing and resolving Claims on an ongoing basis as part of the
Claims reconciliation process. As of January 10, 2003, the Debtors have filed
nine (9) omnibus objections to proofs of claim and scheduled amounts; the
Creditors' Committee has filed six (6) omnibus objections to proofs of claim
and scheduled amounts as well as objections to certain individual claims; and
Shaw has filed six (6) omnibus objections to certain proofs of claim and
statements of cure relating to certain claims assumed by Shaw. The Debtors
have also settled numerous Claims, including those claims more fully described
in Article III, section L(4) of this Disclosure Statement.
By order dated December 18, 2001, the Court approved a
settlement with General Electric Capital, the then Chair of the Creditors'
Committee, whereby General Electric Capital released the $111 million claim
that it had filed against the Debtors in exchange for the Debtors' release of
Claims that they might hold against General Electric Capital. (Docket #2278.)
The Equity Committee anticipates 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. The effect of certain objections could be to prohibit
certain holders of Claims from voting absent the Bankruptcy Court's temporary
allowance of such Claims for voting purposes.
As shown in Exhibit B to the Plan, the Equity Committee
estimates that Allowed Unsecured Claims against the SWINC Consolidated Estate
will ultimately be $81.9 million to $88 million with no Allowed Prepetition
Intercompany Claims. Also as shown in Exhibit B to the Equity Plan, the Equity
Committee believes that the Allowed Unsecured Claims against the SWE&C
Consolidated Estate will be between $110.3 million and $152.3 million,
excluding the SWINC Consolidated Estate's prepetition claim against the SWE&C
Consolidated Estate in the approximate net amount of $50 million (which will
be waived if the Unsecured Creditors of the SWE&C Consolidated Estate accept
the Plan).
Notwithstanding the ongoing Claims reconciliation process,
the ultimate aggregate amount of Allowed Claims may differ from this estimate
and the estimates set forth in Article IV, "THE PLAN OF LIQUIDATION." Though
the amount, if any, of the distribution that will ultimately be received by
any particular Holder of a Claim against or an Interest in the SWINC
Consolidated Estate or the SWE&C Consolidated Estate may be affected by the
outcome of the Claims resolution process, the Equity Committee believes the
prospects of a materially adverse effect on projected distributions to be
remote.
3. Preparation of Claims Estimates. The Equity
Committee has been engaged in reviewing and analyzing the Claims asserted in
these cases. 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 Equity
Committee, working with the Debtors, has, 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 Equity
Committee has developed estimates of Allowed Claims in each Class established
under the Plan. The Equity Committee has prepared these estimates based
primarily on the following: (a) the outcome of the claims reconciliation
process and objections to Claims filed to date, (b) projections based on
pending and anticipated future Claim objections, (c) the comparison of
asserted Claims against the Debtors' books and records, (d) the Equity
Committee's experience in reconciling Claims prior to and following the
commencement of the Chapter 11 Cases, (e) the historical experience of the
Equity Committee's 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 based upon information
provided by the Debtors or independently researched by advisors to the Equity
Committee.
The Equity Committee's estimates of Allowed Claims
against each Consolidated Estate form the basis of projected recoveries for
each Class. See Article IV, "THE PLAN OF LIQUIDATION."
Notwithstanding the Equity Committee's substantial
efforts in developing its Claims estimates, the preparation of such estimates
is inherently uncertain, and accordingly there is no assurance that such
estimates will accurately predict the actual amount of Allowed Claims in these
cases. As a result, the actual amount of Allowed Claims may differ
significantly from the Equity Committee's claims estimates contained herein.
4. Material Claims Litigation Matters.
During the Chapter 11 Cases to date, the Debtors commenced
or were involved in a number of lawsuits. A summary of the material litigation
matters, based upon information provided by the Debtors and information of
public record, is set forth herein.
a. Maine Yankee Litigation
Effective August 1998, 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 SWEC, SWINC, and SWE&C 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.
On May 30, 2002, the District Court of Delaware
issued a memorandum opinion in the Claims Litigation estimating Maine Yankee's
claim under the Decommissioning Agreement at $20.8 million, in addition to the
$44 million prior payment made to Maine Yankee by Federal Insurance Company
("Federal"), for a total estimated claim of $64.8 million (the "Maine Yankee
Claim Estimation"). Maine Yankee has requested reconsideration of the Main
Yankee Claim Estimation. The Debtors and other parties in interest, including
the Equity Committee, are likely to appeal the Maine Yankee Claim Estimation.
As of April 22, 2003, the reconsideration of the Main Yankee Claim Estimation
was pending in the District Court, awaiting the assignment of a new judge to
the matter.
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. SWEC, SWINC, and SWE&C 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. In total, through the SWEC Suit, SWEC seeks
recovery of more than $7 million. As of April 22, 2003, the SWEC suit was
pending in the District Court, awaiting the assignment of a new judge to the
matter.
Meanwhile, in the Court of Appeals for the First
Circuit, SWEC and SWINC had been prosecuting an appeal (the "Appellate
Litigation") of a lower court decision by which the court rejected SWEC and
SWINC's arguments that certain discovery procedures undertaken by Maine Yankee
in its litigation with Federal Insurance Company -- SWEC's surety on the Maine
Yankee project -- violated the Bankruptcy Code's protections of debtors.
Through the Appellate Litigation, SWEC and SWINC were seeking recovery of
costs associated with complying with the subpoenas served on SWEC and SWINC by
Maine Yankee and punitive damages. The Appellate Litigation could have
impacted SWEC's and SWINC's potential liability to Federal on the performance
and payment bonds issued by Federal on behalf of SWEC on the Maine Yankee
project. However, on November 19, 2002, the First Circuit Court of Appeals
entered an Order dismissing the Appellate Litigation and taxing costs in favor
of Maine Yankee.
b. Isobord
Isobord Enterprises Inc. ("Isobord") sued Stone &
Webster Canada Ltd. ("SWCL") and SWEC in the Superior Court of Justice in
Ontario, Canada, for CN$150,000,000 in June 2000 (the "Canadian Proceedings"),
and filed a proof of claim against SWEC for the same amount in August 2000,
alleging breach of contract against SWCL and SWEC as SWCL's guarantor
(collectively, the "Isobord Claims"). The Isobord Claims arise out of a
December 24, 1996 contract between Isobord and 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 went smoothly, 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 the contract limits any liability to
CN$36,590,755.41.
On March 14, 2002, the Debtor filed an objection
under 11 U.S.C. ss.502(b) to the Proof of Claim filed by Isobord Enterprises,
Inc. (the "Isobord Objection"), seeking the disallowance of the Isobord
Claims. Thereafter, on July 15, 2002, the Debtors filed a Motion for Summary
Judgment on the Proof of Claim filed by Isobord Enterprises, Inc., (the
"Isobord Summary Judgment Motion"). In response, Isobord filed pleadings
requesting the Bankruptcy Court to stay prosecution of the Isobord Objection
and the Isobord Summary Judgment Motion and further requesting that the
Bankruptcy Court abstain from prosecuting the same in favor of allowing the
Isobord Claim to be liquidated in the Canadian Proceedings (the "Abstention
Motion"). The Creditors' Committee and Equity Committee have joined the
Debtors in requesting that the Bankruptcy Court allow the Isobord Objection to
go forward in the Bankruptcy Court in order to expedite the claims resolution
process and enable the all parties-in-interest to proceed with their
respective competing plans of liquidation. On September 13, 2002, the
Bankruptcy Court directed Isobord, Federal, and SWEC to participate in
mediation efforts in Toronto, Canada to be held in connection with the
Canadian Proceedings. The Court also set December 18, 2002 as a hearing date
on the Isobord Summary Judgment Motion and Isobord's Abstention Motion in the
event no progress was made in those mediation efforts.
Following hearings on December 18, 2002 and January
2, 2003 on the Isobord Summary Judgment Motion, the Bankruptcy Court: 1)
granted partial summary judgment in favor of SWEC, ruling that the Isobord
Claim is limited to a maximum amount of the contract price under the terms of
the EPC Contract between Isobord and SWEC, and 2) found that Isobord's notice
to SWEC's of a default on its guarantee obligations was deficient (Docket
#3866). The Debtors estimate the cap imposed by the Court's ruling resulted in
a maximum allowable amount for the Isobord Claim of CN$36,590,755.41. The
Court has yet to rule on the remaining issues raised by SWEC in the Summary
Judgment Motion, including determining the consequences of Isobord's deficient
notice to SWEC under the Guaranty. In a separate order, the Court also denied
Isobord's Abstention Motion (Docket #3865).
On March 21, 2003, counsel for the Debtors and
Isobord announced a settlement in principle pursuant to which Isobord will
withdraw the Isobord Claim. The terms of that settlement are subject to final
documentation and court approval.
c. 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, 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.
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 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 makes a
one-time cash payment to CanFibre Riverside's bondholders in the amount of
$500,000 and (ii) the CanFibre Claim is allowed against SWEC in the amount of
$3,500,000.
d. 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 (the "CanFibre Lackawanna Claim"). 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.
The CanFibre Lackawanna Claim and the Complaint
arise under 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 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.
The CanFibre Lackawanna Claim sought to recover the
costs allegedly incurred by CanFibre Lackawanna to complete the Facility.
According to CanFibre Lackawanna, this amount exceeds $22,500,000. By its
Complaint, SWEC sought to recover damages in excess of $16,390,197 for unpaid
invoices and out-of-scope work performed by SWEC on the 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.
SWEC and CanFibre Lackawanna have reached an
agreement in principle, subject to Court approval, to settle the CanFibre
Lackawanna Claims, the Objection, and the Complaint (the "Settlement").
Pursuant to the Settlement, (i) CanFibre Lackawanna will have an Allowed Claim
against SWEC in the amount of $2,600,000, subject to reduction to $2.1 million
upon approval of the Harbourview settlement described below, and (ii) SWEC
will make a one-time cash payment to CanFibre Lackawanna in the amount of
$300,000.
The settlement further provides that (i) if any
mechanics' liens that related 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 (the "Subcontractor Pool Claim"), and (ii) Debtors will own a
five percent equity interest in CanFibre of Lackawanna LLC.
The Debtors have resolved virtually all proofs of
claim and adversarial proceedings filed against SWEC by various subcontractors
for work related to the Facility, except for certain Claims asserted by
Harbourview Electric Ltd. ("Harbourview"), which are the subject of a pending
settlement proposal before the Bankruptcy Court. As of March 14, 2003, the
Debtors, CanFibre Lackawanna and Harbourview have reached a settlement which,
subject to Court approval, provides for (i) Harbourview to have an allowed
unsecured claim solely against SWEC in the amount of $1.2 million; (ii) SWEC
to make a one-time cash payment of $575,000 to Harbourview; (iii) a reduction
of the CanFibre Lackawanna Allowed Claim against SWEC to $2.1 million; and
(iv) reduction of the Subcontractor Pool Claim to $300,000.
e. Abdullah Bugshan & SAMBA
On May 31, 1980, SWEC and Abdullah Said Bugshan &
Brothers ("AB&B") formed Bugshan Stone & Webster Company Limited ("BS&W"),
which later entered into an agreement with the Saudi Arabian Oil Company for
the engineering, procurement, and construction of the Ras Tanura Oil Refinery
Utilities Upgrade Package #2 Project (the "Ras Tanura Project") in Saudi
Arabia. Saudi American Bank ("SAMBA") issued certain letters of credit on
behalf of BS&W. On or about October 11, 1994, SWEC guaranteed 50% of all
obligations of BS&W to SAMBA. On August 24, 1994, BS&W subcontracted to
Mohammad A1-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.
Neither BS&W nor AB&B has made any payment to MMG. BS&W is pursuing its appeal
rights in Saudi Arabia.
On August 24, 2000, SAMBA filed a cure claim and a
separate proof of claim against SWEC for $6,872,979 (Cure Claim No. 22220169)
and $730,843 (Claim No. 3014), respectively. SAMBA alleges the claims arise
from SWEC's guaranty of certain BS&W letters of credit and other financial
obligations.
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. On or about August 24, 2000, SAMBA filed a cure claim and a proof of
claim against SWEC alleging that SWEC had outstanding financial obligations
under certain letter of credit agreements and an existing promissory note
issued to BS&W. The Debtors have prepared an objection to the Amended AB&B
Claim on various grounds, including that SWEC has no liability to AB&B because
neither BS&W nor MMG filed a Claim in the Debtors' cases.
The Debtors also filed a complaint against SAMBA
for recovery of preferences, for disallowance of the SAMBA Claims, for
reduction of Claims to reflect amounts owed according to the Debtors' books
and records, and to estimate the SAMBA claims (the "SAMBA Litigation"). The
Debtors have undertaken expedited resolution of the SAMBA Litigation. On July
23, 2000, the Debtors filed an assented to Motion for Partial Summary Judgment
resolving certain claims relating to the letters of credit, which Motion has
been allowed.
On May 31, 2002, the Debtors commenced an action
against Saudi Arabian Oil Company claiming certain amounts owed to BS&W. On or
about January 2, 2003, the Debtors announced a settlement in principle with
AB&B for the complete withdrawal of the Amended AB&B claim. Under the
settlement, the complete terms of which have not yet been disclosed, SWEC may
collect $2.5 million as its share of certain proceeds due to BS&W. SAMBA filed
a Motion to Intervene in the action against Saudi Aramco claiming a prior
assignment of the rights to payments from Saudi Aramco. No action has been
taken on the Motion to Intervene. As of January 10, 2003, the SAMBA Litigation
trial date was scheduled for April 7, 2003 to April 9, 2003. The Court has
ruled that SAMBA may proceed to take certain witness depositions in the SAMBA
Litigation. In the interim, the Debtors may have reached an as yet undisclosed
settlement in the SAMBA Litigation, the terms of which are not expected to
have any material adverse effect on projected returns to creditors or equity
security holders.
5. Asbestos Claims
a. Description of Claims. As of January 10, 2003,
the Official Claims Register contained 553 proofs of claim for a total
aggregate amount of $18.9 million in Unsecured Claims filed against SWINC and
414 proofs of claim for a total aggregate amount of $41.4 million in Unsecured
Claims filed against SWEC by claimants asserting claims related to asbestos.
In the case of SWEC, 410 of the 414 proofs of claim were filed by a single
agent and none of the 414 proofs of claim contains adequate supporting
documentation. In the case of SWINC, several agents filed virtually all of the
proofs of claim and similarly failed to provide any supporting documentation
to support 413 of the 414 claims, and the supporting documentation for the one
remaining claim is not adequate with respect to SWINC. One such agent
represented 120 claimants that had already executed general releases of their
claims against SWEC, SWINC and all Subsidiary Debtors and has since agreed to
withdraw those claims. Further, many such claims have been improperly docketed
against SWINC merely because the proofs of claim have stated the Joint Case
Caption on the face of the proof of claim, whereas the supporting
documentation names SWEC as the alleged responsible Debtor.
The Equity Committee believes that all such proofs
of claim should be asserted only against the SWE&C Consolidated Estate because
only operating SWE&C Subsidiaries have been in privity or contact with the
claimants; whereas neither SWINC nor any of the SWINC Subsidiaries had any
contact with such claimants, and therefore should not have any liability for
any such claims. SWEC, SWE&C, and the SWE&C Subsidiaries have substantial
defenses to such claims, all of which are expressly preserved under the Plan.
M. Management of the Debtors
Following the sale to Shaw, the Debtors, with the approval
of the Court, employed Thomas Langford, James Jones, James Carroll and Gerry
Halpin, all former employees of the Debtors, to act as management for the
Debtors. Messrs. Langford, Jones and Halpin have since resigned.
The Equity Plan provides that on or prior to the Effective
Date, the Equity Committee shall designate a minimum of three (3) and a
maximum of five (5) individuals to serve as members of the SWINC Liquidation
Board. Subject to approval of such individuals by the Court, each of the
individuals so designated shall become a member of the SWINC Liquidation
Board, and the designated members shall comprise the SWINC Liquidation Board
as of the Effective Date. The members of the SWINC Liquidation Board will also
comprise the members of the board of directors of Reorganized SWINC and the
trustees of the SWINC Liquidating Trust. The Equity Committee anticipates that
the designees will include: (1) Mr. James Kjorlien of CRT Capital Group, LLC,
a current stockholder; (2) a designee to be named from Grace Brothers Ltd.,
Chair of the Equity Committee; and (3) a designated new manager to be named in
a separate filing by not later than May 2, 2003. The Equity Committee
anticipates it will nominate an additional two persons to serve on the SWINC
Liquidation Board by not later than fifteen (15) days prior to the
Confirmation Hearing. It is anticipated that upon confirmation of the Equity
Plan, Mr. James Carroll will resign and cooperate in turning over the Debtors'
books and records and related information to new management in order to
provide continuity in the administration of the Debtors after the Effective
Date of the Plan.
Daily management of the liquidation process for the SWINC
Consolidated Estate and Reorganized SWINC, though supervised by the SWINC
Liquidation Board, will be implemented by the designated new manager. The
Equity Committee believes that management by a new person will provide a
needed change in light of the more than $35 million in professional fees that
has been incurred in a three year to date, but as yet unresolved liquidation.
On or prior to the Effective Date, the Equity Committee, the
Debtors and the Creditors' Committee shall each designate one (1) individual,
for a total of three (3) individuals to serve as members of the SWE&C
Liquidation Board. Subject to approval of such individuals by the Court, each
of the individuals so designated shall become a member of the SWE&C
Liquidation Board, and the designated members shall comprise the SWE&C
Liquidation Board as of the Effective Date. If the Holders of Unsecured Claims
against SWE&C and the SWE&C Subsidiaries vote to reject the Plan, however, the
SWINC Liquidation Board shall designate the individual that would otherwise be
designated by the Creditors' Committee. Daily management of the liquidation
process for the SWE&C Consolidated Estate though supervised by the SWE&C
Liquidation Board, will be implemented by a designated new manager.
The Plan provides that the SWINC Liquidation Board for the
SWINC Consolidated Estate, and the SWE&C Liquidation Board for the SWE&C
Consolidated Estate, shall each implement and supervise the liquidation of
their respective estates as rapidly, efficiently and prudently as practicable.
Each is authorized to pursue their respective objections to Claims, causes of
action belonging to their Consolidated Estate and to pay ratable distributions
to Holders of Allowed Claims against their respective Consolidated Estate.
N. Pension Plan
The primary asset of the SWINC Consolidated Estate, besides
its share of the proceeds of the Shaw sale and its claim against the SWE&C
Consolidated Estate, is its ownership interest in the Pension Reversion. The
Debtors and their court-approved pension advisors have informed the Equity
Committee that the Pension Plan may be over-funded by approximately $54
million or more. The information in Exhibit B to the Plan assumes the Pension
Plan is over-funded by approximately $54.2 million, net of excise taxes at a
20% tax rate.
A 50% tax rate could apply to withdrawals of the Pension
Plan over-funding. However, section 4980(a) of the United States Tax Code
expressly authorizes a 20% tax rate when the employer, as of termination of
the Pension Plan, is in bankruptcy liquidation under chapter 7 of title 11 of
the United States Code or is in similar proceedings under state law. The
Equity Committee believes that the dissolution under Delaware General
Corporation Law would qualify Reorganized SWINC for the 20% tax rate. The Plan
thus provides that Reorganized SWINC will assume all obligations under the
Pension Plan, that all ownership interests in the Pension Plan will vest in
Reorganized SWINC, and that Reorganized SWINC will, after the Effective Date,
commence dissolution proceedings under Delaware General Corporation Law.
The Plan will not release or otherwise affect any claim that
any person may have against the fiduciaries of the Pension Plan, the Employee
Stock Ownership Plan of the Stone & Webster, Inc., the Group Life Insurance
and Spouses Insurance Plan of Stone & Webster and the Employee Investment Plan
of Stone & Webster. The Equity Committee anticipates that all Pension Plan
obligations will be satisfied before any distribution of funds to reorganized
SWINC are made from the Pension Plan over-funding.
The Equity Committee believes that the Pension Reversion
belongs to SWINC as the contractual owner of the Pension Reversion under the
express terms of the Pension Plan documents and applicable state and federal
law. Further, the Equity Committee believes that neither SWE&C nor any of the
SWE&C Subsidiaries have any ownership interest in the Pension Reversion. Under
the Equity Plan, any claims asserted by the SWE&C Consolidated Estate and any
SWE&C Subsidiaries to the Pension Reversion will be extinguished.
The Debtors and Creditors' Committee assert that SWEC has an
ownership interest in the pension over-funding and allege that the Pension
Plan was historically carried on SWEC's books and records. The Equity
Committee disagrees and notes that ERISA and the Pension Plan documents
expressly govern any dispute as to ownership of the reversion in the Pension
Plan. Under the Pension Plan documents and applicable provisions of ERISA,
after payment of employee pension obligations, any surplus remaining in the
Pension Plan rightfully belongs to SWINC. The Equity Committee does not
believe that the alleged fact that SWEC may have listed a "prepaid pension
cost" asset on its books is sufficient under applicable law to confer any
ownership rights in the pension surplus. The Bankruptcy Court is expected to
resolve this dispute as well.
IV. THE PLAN OF LIQUIDATION
THE DISCUSSION OF THE EQUITY PLAN SET FORTH BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED PROVISIONS SET
FORTH IN THE EQUITY PLAN AND THE OTHER EXHIBITS AND SCHEDULES TO THIS
DISCLOSURE STATEMENT, THE TERMS OF WHICH ARE CONTROLLING. HOLDERS OF CLAIMS OR
INTERESTS AND OTHER INTERESTED PARTIES ARE URGED TO READ THE EQUITY PLAN AND
THE EXHIBITS AND SCHEDULES TO THIS DISCLOSURE STATEMENT IN THEIR ENTIRETY SO
THAT THEY MAY MAKE AN INFORMED JUDGMENT CONFIRMING THE EQUITY PLAN.
A. Summary of Payments to Creditors and Interest Holders.
1. The SWINC Consolidated Estate. On the Effective
Date, the SWINC Consolidated Estate will pay all Allowed Administrative
Claims, Priority Tax Claims and Priority Claims against it in full. Further,
as soon as practicable after the Effective Date the SWINC Liquidation Board
shall determine when there is cash available for distribution from Reorganized
SWINC and the SWINC Consolidated Estate. At such time, the SWINC Consolidated
Estate will distribute such cash pro rata to Holders of Allowed Unsecured
Claims against it. At all times, and as determined by the SWINC Liquidation
Board, the SWINC Consolidated Estate shall maintain the SWINC Consolidated
Estate Implementation Reserve and the Disputed Claims Reserve required under
Article X of the Equity Plan pending the completion of the claims resolution
process and the liquidation of its remaining assets. Exhibit B to the Equity
Plan lists the expected assets and liabilities of the SWINC Consolidated
Estate and incorporates the Equity Committee's estimates for the projected
amount of Allowed Claims against the SWINC Consolidated Estate as well as the
projected amounts to be realized from the liquidation of the assets of the
SWINC Consolidated Estate. At such times as may be determined by the SWINC
Liquidation Board, the SWINC Consolidated Estate will make additional
distributions Pro Rata to Holders of Allowed Unsecured Claims against it as
funds become available. THE PLAN PROPONENT ESTIMATES THAT HOLDERS OF ALLOWED
UNSECURED CLAIMS AGAINST THE SWINC CONSOLIDATED ESTATE WILL BE PAID IN FULL
WITH INTEREST, AS SHOWN ON EXHIBIT B TO THE EQUITY PLAN.
The Equity Committee's estimates of the assets and
liabilities of the SWINC Consolidated Estate are listed on Exhibit B to the
Equity Plan. As shown in the Cash Funding Analysis attached as Exhibit B-1 to
the Plan, the Equity Committee estimates that the SWINC Consolidated Estate
will have Cash of approximately $38.7 million on the Effective Date after
payment of Administrative Claims, Priority Tax Claims and Priority Claims. The
$38.7 million amount does not include the Pension Plan over-funding estimated
at an additional $54.2 million which will not be liquidated by the Effective
Date, or additional funds in the aggregate amount of $12.8 million from
recoveries due to the SWINC Consolidated Estate, including $7.9 million due
from the SWE&C Consolidated Estate to the SWINC Consolidated Estate on account
of Claims arising from subrogation rights and administrative expenses. The
Equity Plan provides that the SWINC Consolidated Estate will retain all of
this Cash, including the funds necessary to fund the SWINC Consolidated Estate
Implementation Reserve and pay all Allowed Administrative, Priority, and
Priority Tax Claims, except for Pension Plan related assets and the funds
necessary to fund the Reorganized SWINC Implementation Reserve which shall be
vested exclusively in Reorganized SWINC on the Effective Date. The SWINC
Consolidated Estate will maintain the SWINC Consolidated Estate Implementation
Reserve to fund its duties under the Equity Plan, including the resolution of
objections to Claims, the prosecution of litigation Claims which are being
retained by the SWINC Consolidated Estate, and the liquidation of other
assets. Any surplus remaining from the SWINC Consolidated Estate
Implementation Reserve, Cash on hand, plus the Net Proceeds of the litigation
Claims and other assets constituting Distributable Cash will be distributed to
Holders of Allowed Claims against the SWINC Consolidated Estate when and as
determined by the SWINC Liquidation Board. The Equity Committee anticipates
that the SWINC Consolidated Estate will make an interim distribution of at
least $30 million shortly after the Effective Date and will make subsequent
distributions as claims are resolved and additional monies are received from
Reorganized SWINC and other sources.
Reorganized SWINC shall issue one share of common stock and
that share will be distributed to the SWINC Liquidating Trust and shall be
deemed to be held for the benefit of Holders of Common Stock of SWINC. The
Common Stock of SWINC will be cancelled.
Under Article XII of the Equity Plan, Reorganized SWINC will
pay cash in excess of its implementation reserve to the SWINC Consolidated
Estate as necessary for the SWINC Consolidated Estate to make the payments
required under the Plan to Holders of Allowed Administrative Claims, Priority
Tax Claims, and Allowed Claims and Interests in Classes 1A, 2A, 3A, 4A, 5A,
and 6A and maintain the reserves required under the Plan. Further, Reorganized
SWINC shall be liable to pay the SWINC Liquidating Trust, for the benefit of
Allowed Class 5A Interests (SWINC Common Stock), all Distributable Cash
remaining after the foregoing payments have been made or said Claims and
Interests have been paid in full. Reorganized SWINC will maintain the
Reorganized SWINC Implementation Reserve in such amount, as determined by the
SWINC Liquidation Board, as necessary to ensure its ability to fund the
completion of its duties under the Plan, including its dissolution under
Delaware General Corporation Law. The initial amount of this reserve will be
$1 million.
As promptly after the Effective Date as Reorganized SWINC
has cash available for distribution, as determined by the SWINC Liquidation
Board and subject to the Delaware dissolution proceedings, such funds will be
paid over to the SWINC Consolidated Estate, which, under the supervision of
the SWINC Liquidation Board, will pay, together with cash available for
distribution held by the SWINC Consolidated Estate, to each Holder of an
Allowed Unsecured Claim against the SWINC Consolidated Estate an amount equal
to:
Amount of Unsecured Claim X Cash Available
- ---------------------------------------------------
Total of Allowed and Disputed Unsecured Claims for Distribution
After the Effective Date, Reorganized SWINC will commence a
dissolution proceeding under Delaware General Corporation Law. After the
commencement of the dissolution proceeding, Reorganized SWINC will terminate
the Pension Plan and will otherwise pursue the dissolution proceeding toward
the end of providing for the distribution of the remaining assets of
Reorganized SWINC to Holders of Allowed Claims against the SWINC Consolidated
Estate and Holders of the beneficial interests in the SWINC Liquidating Trust.
The Equity Committee believes that Reorganized SWINC will be able to pay the
balance of all Allowed Unsecured Claims against the SWINC Consolidated Estate
in full, with money remaining for distribution to stockholders of SWINC by
means of the distribution of the remaining money to the SWINC Liquidating
Trust, as the Holder of the sole share of Common Stock in Reorganized SWINC.
2. The SWE&C Consolidated Estate. On the Effective
Date, the SWE&C Consolidated Estate will pay all Allowed Administrative
Claims, Priority Tax Claims, Priority Claims and Convenience Claims against it
in full. As soon as the SWE&C Liquidation Board deems practicable after the
Effective Date, the SWE&C Consolidate Estate will distribute its remaining
cash in excess of its implementation reserve to Holders of Allowed Unsecured
Claims against it. At all times, and as determined by the SWE&C Liquidation
Board, the SWE&C Consolidated Estate shall continue to maintain the SWE&C
Consolidated Estate Implementation Reserve and the Disputed Claims Reserve
required under Article X of the Equity Plan pending the completion of the
claims resolution process and the liquidation of its remaining assets. Exhibit
B to the Equity Plan lists the expected assets and liabilities of the SWE&C
Consolidate Estate and incorporates the Equity Committee's estimates for the
projected amount of Allowed Claims against the SWE&C Consolidated Estate as
well as the projected amounts to be realized from the liquidation of the
assets of the SWE&C Consolidated Estate. At such times as may be determined by
the SWE&C Liquidation Board the SWE&C Consolidate Estate will make additional
distributions Pro Rata to Holders of Allowed Unsecured Claims against it as
funds become available.
THE PLAN PROPONENT ESTIMATES THAT HOLDERS OF ALLOWED
UNSECURED CLAIMS AGAINST THE SWE&C CONSOLIDATED ESTATE WILL RECEIVE
DISTRIBUTIONS IN THE RANGE OF 7.5% TO 10.4%, AS SHOWN ON EXHIBIT B TO THE
EQUITY COMMITTEE'S PLAN IF THE CLASS OF UNSECURED CLAIMS (CLASS 4B-1) VOTES TO
ACCEPT THE EQUITY COMMITTEE'S PLAN. IF, HOWEVER, THE CLASS OF UNSECURED CLAIMS
(CLASS 4B-1) VOTES TO REJECT THE EQUITY COMMITTEE'S PLAN, THE ALLOWED CLASS 6B
INTERCOMPANY CLAIM HELD BY THE SWINC CONSOLIDATED ESTATE AGAINST THE SWE&C
CONSOLIDATED ESTATE, IN THE ESTIMATED AMOUNT OF $50 MILLION, WILL BE ENTITLED
TO PARTICIPATE IN DISTRIBUTIONS TO CLASS 4B-1, THEREBY DILUTING THE FOREGOING
RETURNS TO AN ESTIMATED RANGE OF 5.7% TO 7.2%.
The Equity Committee's estimates of the assets and
liabilities of the SWE&C Consolidated Estate are listed on Exhibit B to the
Equity Plan. As shown in the Cash Funding Analysis attached as Exhibit B-1 to
the Plan, the Equity Committee estimates that the SWE&C Consolidated Estate
will have Cash of approximately $10.4 million on the Effective Date. The
Equity Plan provides that after payment of Administrative Claims, Priority Tax
Claims, Priority Claims and Convenience Claims (Claims of $1,500 or less or
that are voluntarily reduced to $1,500), all remaining Cash shall be held by
the SWE&C Consolidated Estate, including the funds for the SWE&C Consolidated
Estate Implementation Reserve and any funds necessary to fund the Disputed
Claims Reserve for the SWE&C Consolidated Estate, and all other assets of
SWE&C and the SWE&C Subsidiaries will be held by the SWE&C Consolidated Estate
under the supervision of the SWE&C Liquidation Board.
As shown on Exhibit B-1 to the Equity Plan, the Equity
Committee estimates that the SWE&C Consolidated Estate will ultimately have
approximately $11.5 million in cash available for payments to Holders of
Allowed Unsecured Claims (Class 4B) against the SWE&C Consolidated Estate. As
promptly after the Effective Date as the SWE&C Consolidated Estate has cash
available for distribution, as determined by the SWE&C Liquidation Board, such
funds will be paid to each Holder of an Allowed Unsecured Claim against the
SWE&C Consolidated Estate in an amount equal to:
Amount of Unsecured Claim X Cash Available
- --------------------------------------------------
Total of Allowed and Disputed Unsecured Claims for Distribution
The SWE&C Consolidated Estate will reserve payments payable
to Holders of Disputed Unsecured Claims pending allowance or disallowance of
such Claims.
3. Information in Exhibits to the Equity Plan. All of
the information set forth in this Disclosure Statement and the Exhibits to the
Plan is subject to the Disclaimer set forth in Article I, Section G herein and
to the risks discussed in more detail in Article V, Section D herein.
The information summarized in Exhibit B to the
Equity Plan is based on information provided to the Equity Committee and its
financial advisors during the pendency of the Debtors' jointly administered
bankruptcy cases. The Debtors do not concur with the results arrived at by the
Equity Committee and its financial advisors as set forth in Exhibit B to the
Equity Plan.
Exhibit B to the Equity Plan references the assets
and liabilities indicated in the Debtors' consolidating balance sheets as of
July 14, 2000, the date of the sale of assets to Shaw under the Shaw Asset
Purchase Agreement. The estimates of asset values were derived from
information provided by the Debtors and their advisors to the Equity Committee
and its financial advisors. The amounts shown for Unsecured Claims in Exhibit
B are based upon claims docket information provided to the Equity Committee by
Trumbull Services, the Debtors' court-approved claims processing agent, as of
January 10, 2003 and claims estimates prepared by the Equity Committee as more
fully discussed in Article III, Section L of this Disclosure Statement.
Exhibit B to the Equity Plan includes cash and cash
equivalents for the SWINC Consolidated Estate representing the U.S. cash on
hand at December 31, 2002 (approximately $50.6 million) for SWINC and the
SWINC Subsidiaries, and zero for SWE&C and the SWE&C Subsidiaries, which
amounts are based upon information provided by the Debtors. The SWE&C
Consolidated Estate, however, is scheduled to receive foreign cash of
approximately $27.5 million, located in the United Kingdom and owned by Debtor
SW Overseas Group, a SWE&C Subsidiary. This cash is projected to be
transferred to the SWE&C Consolidated Estate pursuant to the Equity Plan. The
cash in Canada at December 31, 2002, estimated at $5.5 million, is not
reflected in the Canadian entity as it has restrictions on its repatriation to
the United States due to claims of Canadian creditors. The expected Canadian
liabilities have been adjusted accordingly.
The cash proceeds realized from the Shaw Sale are
allocated to each of the Debtors in accordance with generally accepted
accounting principles, that is, on a pro-rata basis based on each Debtor's
positive net assets as reflected on their respective balance sheets at July
14, 2000, the date of the sale of assets to Shaw under the Shaw Asset Purchase
Agreement, with an adjustment to the Nordic Business net assets to reflect the
value of a recorded independent sale transaction from Shaw to an unaffiliated
third party for approximately $72.5 million. With respect to intercompany
receivables and payables, the Shaw cash allocation calculation includes a
receivable from the entities with negative net assets to the entities with
positive net assets to reflect the reduced cash proceeds for the entities in
which Shaw assumed liabilities.
With respect to accounts receivable from
non-affiliated third parties, Exhibit B to the Equity Plan represents the
estimate of a zero recovery by the Debtors' legal and financial advisors. The
outstanding accounts receivable balance as of March 31, 2001 was $7.0 million.
The Debtors have informed the Equity Committee and its financial advisors that
they expected to recover $0 to $1.0 million, 0% to 14% respectively, due to
the fact that the majority of the accounts are substantially greater than one
year past due. The assumption estimates the recovery to the individual legal
entities based on the pro-rata portion of the accounts receivable balances at
May 31, 2000. At May 31, 2000, SWINC's percentage of net accounts receivable
was 9.9%. Therefore, for this analysis approximately $99,000 of the accounts
receivable balance would be recovered by SWINC in the Summary Exhibit. As a
conservative estimate, however, it is assumed that the recovery will be $0.
Intercompany prepetition payables resulting in the
intercompany claim (Class 6B) held by the SWINC Consolidated Estate against
the SWE&C Consolidated Estate, estimated to be $50 million, are based on
amounts reflected in the Debtors' books and records as of July 14, 2000, the
date of the sale of assets to Shaw under the Shaw Asset Purchase Agreement.
The source of the data is a listing of intercompany assets and liabilities
provided by the Debtors to the Equity Committee during discovery and
information verified with the Debtors that the data reflects intercompany
loans made between the Debtors. The Debtors filed certain liquidation analyses
with the Court on April 11, 2002 which reflect these intercompany balances
[Docket # 2962]. No further analysis of underlying documentation related to
the intercompany liabilities has been undertaken by the Equity Committee. As
set forth in the Plan, the SWINC Consolidated Estate's claim against the SWE&C
Consolidated Estate (Class 6B) will be subordinated to the claims of other
general unsecured creditors of the SWE&C Consolidated Estate (Class 4B-1) if
the Holders of Class 4B-1 Claims vote to accept the Plan. If these Holders
vote to reject the Plan, however, the Class 6B Intercompany Claim will be
entitled to participate pari passu in distributions to Holders of Class 4B-1
Claims.
There is a post-petition intercompany payable from
the SWE&C Consolidated Estate to the SWINC Consolidated Estate in the amount
of $4,868,000 shown in Exhibit B to the Equity Plan. This post-petition claim
arises due to post-petition administrative costs and expenses paid by SWINC
for the benefit of the SWE&C Subsidiaries during the pendency of the Chapter
11 Cases and is based upon information provided by the Debtors as of February
13, 2003. This administrative claim is deemed filed by the SWINC Consolidated
Estate against the SWE&C Consolidated Estate pursuant to Article II, section
2.3 of the Plan. Exhibit B presumes that post-petition administrative expenses
have been properly allocated to each Consolidated Estate until such time as
the Equity Committee has completed an investigation of the actual allocation
made by the Debtors from the Petition Date to the Confirmation Date. It is not
yet certain whether the SWE&C Consolidated Estate is indebted to the SWINC
Consolidated Estate for additional sums expended by SWINC in paying for
administrative expenses, including legal expenses, incurred solely for the
benefit of SWE&C and/or certain SWE&C Subsidiaries such as SWEC during the
pendency of the Chapter 11 Cases.
The Consolidated Estate Implementation Reserves
shown on Exhibit B to the Equity Plan for the SWINC Consolidated Estate and
the SWE&C Consolidated Estate, $3 million each, are described in Article XII
of the Equity Plan and are designed to ensure that each Consolidated Estate
will have sufficient funds reserved to pay for all action to be taken under
the Equity Plan by the Consolidated Estate. These reserves are based upon
forecasts prepared for the Equity Committee by its financial advisors based
upon information provided by the Debtors.
The General Administrative Reserves shown on
Exhibit B to the Equity Plan represent reserves for projected Administrative
Claims likely to be incurred before the Effective Date under the Equity Plan,
as forecast by the Equity Committee and its financial advisors based upon
information provided by the Debtors.
The Reorganized SWINC Implementation Reserve shown
on Exhibit B to the Equity Plan is described in Article XII of the Plan. This
reserve is based upon forecasts prepared for the Equity Committee by its
financial advisors based upon information provided by legal advisors to the
Equity Committee and information provided by the Debtors.
The reserves for Accrued Professional Fees in the
amount of $5.4 million shown on Exhibit B to the Equity Plan are based upon
actual legal and professional fees billed to the Debtors' estates and unpaid
through December 31, 2002. This amount includes approximately $1.2 million
billed by the Equity Committee's financial advisor, Ernst & Young LLP ("E&Y").
The Accrued Professional Fees have been allocated to the SWINC and SWE&C
Consolidated Estates, respectively, based upon information provided by the
Debtors as of February 13, 2003 and without prejudice to the Equity
Committee's right to challenge such allocation and its impact on any
additional Administrative Claims which may be owed from one Consolidated
Estate to another. The Equity Committee expressly reserves the right to
investigate whether any or all such fees are properly allocated to or payable
by the SWINC Consolidated Estate and to file any objections to professional
fees paid by or payable from the SWINC Consolidated Estate.
4. Non-Debtor Subsidiaries. A list of the Subsidiaries
that are not Debtors and estimates of their assets and liabilities is attached
as Exhibit A-3 to the Equity Plan.
5. The SWINC and SWE&C Liquidation Boards. After the
Effective Date, the SWINC Liquidation Board will supervise and control the
execution of the duties and obligations of the SWINC Consolidated Estate under
the Equity Plan and the SWE&C Liquidation Board will supervise and control the
execution of the duties and obligations of the SWE&C Consolidated Estate under
the Equity Plan. The Equity Committee will name a minimum of three and up to
five members of the SWINC Liquidation Board, all of whom will also serve as
the trustees of the SWINC Liquidating Trust and initial members of the
Reorganized SWINC Board of Directors, as provided in the Plan. The Equity
Committee anticipates that Mr. James Kjorlien of CRT Capital Group, LLC, a
current SWINC stockholder, a designee to be named from Grace Brothers, Ltd.,
Chair of the Equity Committee and the designated new manager will initially
serve as members. With respect to the SWE&C Consolidated Estate, the SWE&C
Liquidation Board shall be comprised of three members, with one member to be
designated by each of the Equity Committee, the Debtors and the Creditors'
Committee. However, as provided in section 13.2.2 of the Plan, if Holders of
Unsecured Claims against the SWE&C Consolidated Estate (Class 4B-1) vote to
reject the Equity Plan, the SWINC Liquidating Board will appoint that member
of the SWE&C Liquidating Board that would otherwise be appointed by the
Creditors' Committee. Pursuant to section 13.4 of the Plan, the compensation,
indemnification rights and material terms for retention of such individuals
shall be filed with the Court five (5) days prior to the Confirmation Date.
6. Distributions. The chart below sets forth the
estimated distributions to Holders of Claims and Interests in the event that
the Equity Plan becomes effective:
ALTHOUGH THE EQUITY COMMITTEE BELIEVES THAT THE
ESTIMATED PERCENTAGE RECOVERIES ARE REASONABLE AND WITHIN THE RANGE OF ASSUMED
RECOVERY USED IN PREPARATION OF THE EQUITY PLAN, THERE IS NO GUARANTEE THAT
THE ACTUAL AMOUNTS OF ALLOWED CLAIMS IN EACH CLASS WILL NOT EXCEED THE
ESTIMATED AGGREGATE AMOUNTS SHOWN IN THE TABLE BELOW. The actual recoveries
under the Equity Plan thus will be dependent upon a variety of factors
including, but not limited to, whether, and in what amount, contingent Claims
against the SWINC Consolidated Estate and the SWE&C Consolidated Estate,
respectively, become non-contingent and fixed and whether, and to what extent,
Disputed Claims are resolved in favor of the Debtors. Accordingly, no
representation can be or is being made with respect to whether the estimated
percentage recoveries shown in the table below will be realized by the Holder
of an Allowed Claim in any particular Class. There is no reason to believe,
however, that recoveries to general unsecured creditors of the SWINC
Consolidated Estate (Class 3A) will be less than the payment in full plus
interest as provided in the Equity Plan.
B. Summary of Treatment for Holders of Allowed Claims and Allowed
Interests Against the SWINC Consolidated Estate:
- --------------------------------------------------------------------------------------------------------------------------------
Proponent's Estimate of
Description Entitled to Amount of Allowed Claims and
Class of Class Impaired Vote Treatment of Claims Estimated Percentage Recovery
- --------------------------------------------------------------------------------------------------------------------------------
Class 1A Secured No No Paid in Full in Cash on $ -0-
Claims--SWINC Presumed to or after Effective Date.
CONSOLIDATED Accept $100%
ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
Class 2A Priority No No Paid in Full in Cash on $0
Claims--SWINC Presumed to Effective Date.
CONSOLIDATED Accept $100%
ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
Class 3A Other Unsecured No No Paid lesser of (i) Pro $81.9 to $88 million
Claims--SWINC Presumed to Rata Share of
CONSOLIDATED Accept Distributable Cash and
ESTATE (ii) amount of Allowed 100%
Claim plus
Post-petition Interest The Equity Committee expects
as promptly after the that at least $30 million
Effective Date as the will be available for an
SWINC Liquidation Board interim distribution soon
deems practicable. after the Effective Date.
Reorganized SWINC The timing of subsequent
liable to SWINC distributions is dependent
Consolidated Estate for upon the claims resolution
unpaid balance of process and termination of
Allowed Class 3A Claims. the Pension Plan.
- --------------------------------------------------------------------------------------------------------------------------------
Class 4A Subordinated No No Paid lesser of (i) Pro $ -0-
Claims--SWINC Presumed to Rata Share of
CONSOLIDATED Accept Distributable Cash 100%
ESTATE remaining after
payment to Class 3A.
Reorganized SWINC liable
for unpaid balance of
Class 4A Claims.
- --------------------------------------------------------------------------------------------------------------------------------
Class 5A Common Yes Yes Receives Pro Rata Estimated $.83 to $1.43 per
Stock--SWINC beneficial interest in share of SWINC Common Stock
CONSOLIDATED SWINC Liquidating as of Equity Record
ESTATE Trust. Will receive Distribution Date, if Class
Distributable Cash 4B-1 votes to accept Plan.
after payments to
Classes 3A and 4A. Estimated $1.02 to $1.67 per
share if Class 4B-1 rejects
SWINC Common Stock to the Plan. The timing of
be cancelled - see distributions is dependent
ss.12.8 of the Plan. upon the claims resolution
process and termination of
the Pension Plan.
- --------------------------------------------------------------------------------------------------------------------------------
Class 6A 510(b) Yes Yes If Class 6A accepts the --
Claims--SWINC Plan, holders of Class
(Securities 6A Allowed Claims
Fraud Class receive a Pro Rata
Action Lawsuits) share of $100,000 from
amounts otherwise
payable to Holders of
Class 5A Interests, and
retain rights against
insurance or proceeds of
applicable insurance.
If Class 6A rejects the
Plan, holders of Class
6A Allowed Claims shall
retain said insurance
rights and participate
in Class 5A
distributions Pro Rata
and on a pari passu
basis to the extent of
any deficiency claims
not paid by such
insurance.
- --------------------------------------------------------------------------------------------------------------------------------
C. Summary of Treatment for Holders of Allowed Claims and Allowed
Interests Against the SWE&C Consolidated Estate:
- --------------------------------------------------------------------------------------------------------------------------------
Proponent's Estimate of Amount
Description Entitled to of Allowed Claims and
Class of Class Impaired Vote Treatment of Claims Estimated Percentage Recovery
- --------------------------------------------------------------------------------------------------------------------------------
Class 1B Secured No No Paid in Full in Cash $ -0-
Claims--SWE&C Presumed to on or after Effective
CONSOLIDATED Accept Date. 100%
ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
Class 2B Priority No No Paid in Full in Cash $4.51 million
Claims--SWE&C Presumed to on Effective Date.
CONSOLIDATED Accept 100%
ESTATE
(Includes funds to establish
Asbestos Trust)
- --------------------------------------------------------------------------------------------------------------------------------
Class 3B Convenience Yes Yes Paid in Full in Cash $18,000 to $86,000
Claims--SWE&C on Effective Date.
CONSOLIDATED $100%
ESTATE (Claims of
$1,500 or less or
that are reduced
to $1,500)
- --------------------------------------------------------------------------------------------------------------------------------
Class 4B-1 Other Unsecured Yes Yes Paid lesser of (i) Pro $110.3 to 152.3 million
Claims--SWE&C Rata Share of
CONSOLIDATED Distributable Cash and 7.5% to 10.4% , IF CLASS VOTES
ESTATE (ii) amount of Allowed TO ACCEPT PLAN;
Claim as promptly
after the Effective OR
Date as the SWE&C
Liquidation Board If Class votes to reject Plan,
deems practicable. Class 6B Intercompany Claim
participates in Class 4B-1
Distributions for total
projected claims of $160.3
million to $202.3 million,
resulting in projected
distributions of: 5.7% to
7.2%. The timing of
distributions is dependent
upon the claims resolutions
process.
- --------------------------------------------------------------------------------------------------------------------------------
Class 4B-2 Asbestos Claims Yes Yes Assigned Debtors' $ TBD
rights to applicable
insurance policies and 100%
proceeds thereof shall
be distributed on a
Pro Rata basis among
all Allowed Class 4B-2
Claims. Any
deficiency claims or
shortfall claims shall
be treated as Class
4B-1 Unsecured Claims
of SWEC.
- --------------------------------------------------------------------------------------------------------------------------------
Class 5B Subordinated Yes No Paid lesser of (i) Pro $ -0-
Claims--SWE&C Rata Share of
CONSOLIDATED Distributable Cash 0%
ESTATE remaining after
payment to Class
4B-1.
- --------------------------------------------------------------------------------------------------------------------------------
Class 6B Intercompany Yes No If Class 4B-1 votes to $50 million
Claim- SWE&C accept Plan, Class 6B
CONSOLIDATED is treated as a Class 0%
ESTATE 5B Claim.
If Class 4B-1 votes to accept;
If Class 4B-1 votes to
reject the Plan, Class OR
6B is treated as a
Class 4B-1 Claim. 5.7% to 7.2% if Class 4B-1
votes to reject
- --------------------------------------------------------------------------------------------------------------------------------
Class 7B SWE&C & SWE&C Yes No No Distributions N/A
Subsidiary Stock
Interests- SWE&C
CONSOLIDATED
ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
D. Overview of the Requirements for a Plan Under the Bankruptcy Code
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization shall designate classes of a debtor's claims and interests. The
Equity Plan divides the Claims and Interests into Classes and sets forth the
treatment offered each Class. Section 101(5) of the Bankruptcy Code defines
"claim" as any "right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or right to an
equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, disputed, undisputed, secured or
unsecured."
Section 1122 of the Bankruptcy Code requires that each class
of claims and interests contain only claims and interests which are
substantially similar to each other. The Equity Committee believes that it has
classified all Claims and Interests in compliance with the provisions of
section 1122. The Classes in the Equity Plan take into account the differing
nature and, with respect to certain categories of Classes, priority under the
Bankruptcy Code of the various Claims and Interests. It is possible, although
not likely, however, that the Court may find that a different classification
is required for the Equity Plan to be confirmed. In such event, it is the
present intent of the Equity Committee, to the extent permitted by the Court
and applicable law, to modify the classifications in the Equity Plan as
required by the Court and to use any acceptances received for the purpose of
obtaining approval of the Class or Classes of which the accepting holder is a
member.
E. Partial Consolidation
The Equity Plan implements consolidation among A) the assets
and liabilities of SWINC with those of the SWINC Subsidiaries identified on
Exhibit A-1 to the Equity Plan; and B) the assets and liabilities of SWE&C
with those of the SWE&C Subsidiaries identified on Exhibit A-2 to the Plan, as
provided in section 12.1 of the Equity Plan.
The Equity Plan contemplates that Holders of Allowed Claims
or Interests against SWINC and/or a SWINC Subsidiary will be paid only from
assets of the SWINC Consolidated Estate, and that Holders of Allowed Claims or
Interests against SWE&C or a SWE&C Subsidiary will be paid only from assets of
the SWE&C Consolidated Estate. The SWINC Consolidated Estate will retain and
consist of the assets of SWINC and the SWINC subsidiaries as provided in the
Plan. The SWE&C Consolidated Estate will retain and consist of the assets of
SWE&C and the SWE&C subsidiaries as provided in the Plan.
F. Treatment of Unclassified Claims
The Bankruptcy Code provides that certain types of Claims
need not be classified as part of a plan. The proposed treatment of such
unclassified Claims under the Equity Plan is as follows:
1. Administrative Claims. Administrative Claims
consist of any Claim constituting a cost or expense of administration of the
Chapter 11 Cases asserted under section 503(b) of the Bankruptcy Code,
including, without limitation, any actual and necessary costs and expenses
after the Petition Date of operating the businesses of any of the Debtors, any
indebtedness or obligations incurred or assumed by any Debtor in connection
with the conduct of its business or for the acquisition or lease of property
or the procurement or rendition of services, any costs and expenses of a
Debtor for the management, maintenance, preservation, sale or other
disposition of any assets, the administration and implementation of the Plan,
the administration, prosecution or defense of Claims of or against a Debtor
and distributions under the Plan, any Claims for compensation and
reimbursement of expenses arising during the period from and after the
Petition Date and prior to the Confirmation Date or otherwise in accordance
with the provisions of the Plan, and any fees or charges assessed against the
Estate of a Debtor under section 1930, Chapter 123, Title 28, United States
Code.
Pursuant to the Equity Plan, except to the extent that an
Allowed Administrative Claim has been paid by a Debtor or Debtors before the
Effective Date or the Holder of such Claim agrees to a different treatment,
each Holder of an Allowed Administrative Claim against any Debtor will be paid
in full in Cash by the Consolidated Estate in which such Debtor is included on
the later of the (i) Effective Date and (ii) the date such Administrative
Claim becomes due, by its terms and (iii) the date, if any, specified by the
Court for payment of such Claim, or such Claim shall be satisfied upon such
other terms more favorable to the Estates as may be agreed by the Holders of
such Claims and the SWINC or SWE&C Consolidated Estate, whichever is
applicable. All professionals or other Persons requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b), 506
and 1103 of the Bankruptcy Code for services rendered on or before the
Effective Date (including, without limitation, any compensation requested by
any professional or any other Person for making a substantial contribution in
the Case and any application for payment or reimbursement of Administrative
Claims from one Consolidated Estate against another Consolidated Estate) shall
file and serve on SWINC, the Equity Committee, the Creditors' Committee and
the United States Trustee, or, after the Effective Date, the SWINC Liquidation
Board, the SWE&C Liquidation Board and the United States Trustee, an
application for final allowance of compensation and reimbursement of expenses
not later than thirty (30) days after the Effective Date. The Equity Committee
has not yet determined the nature or extent of any Administrative Claims that
may be asserted from one Consolidated Estate against another in excess of a
$4.8 million post-petition Administrative Claim due from the SWE&C
Consolidated Estate to the SWINC Consolidated Estate, as shown on Exhibit B to
the Plan, which Administrative Claim is deemed filed pursuant to section 2.3
of the Plan. Any additional Administrative Claims from one Consolidated Estate
against another, however, must be filed on or before thirty (30) days after
the Effective Date or be forever barred. Notwithstanding the foregoing, to the
extent that any Administrative Claims were incurred by the Debtors in the
ordinary course of business, such Claims may be repaid on or after the
Effective Date without further notice or order of the Court.
2. Priority Tax Claims. Unless otherwise agreed by a
Holder of a Priority Tax Claim and its applicable Consolidated Estate, each
Holder of a Priority Tax Claim against any of the Debtors shall receive on
account of such Claim from its applicable Consolidated Estate equal,
semi-annual Cash payments over a period not exceeding six (6) years after the
date of assessment of such Claim, of an aggregate value, as of the Effective
Date, equal to the Allowed Amount of such Claim, with simple interest at the
deficiency rate as determined on the Effective Date under section 6621(c)(3)
of the Internal Revenue Code of 1986, as amended, for underpayments other than
large corporate underpayments, as therein defined on the outstanding balance
of such Claim from the Effective Date until such Allowed Claim is Paid in
Full. The Equity Committee estimates that the Priority Tax Claims chargeable
to and payable by the SWINC Consolidated Estate will be approximately $0 to
$500,000 and that the Priority Tax Claims chargeable to and payable by the
SWE&C Consolidated Estate will be approximately $0 to $500,000. The source of
the cash to pay these Claims is cash on hand for the SWINC Consolidated Estate
for claims against the SWINC Consolidated Estate, and cash on hand for the
SWE&C Consolidated Estate for claims against that Consolidated Estate, as of
the Effective Date as shown in the Cash Funding Analysis attached as Exhibit
B-1 of the Equity Plan.
G. Treatment of Classified Claims Against and Interests in the
Debtors included in the SWINC Consolidated Estate:
1. Treatment of Class 1A Claims (Secured Claims--SWINC
Consolidated Estate). Class 1A is not impaired. As promptly as reasonably
practicable following the later of (i) the Effective Date and (ii) the date
such Class 1A Claim becomes an Allowed Claim; the SWINC Consolidated Estate
shall, in its sole discretion, elect one of the following treatments for each
Allowed Class 1A Claim:
(a) The SWINC Consolidated Estate shall execute a
written undertaking in favor of the Holder of such Allowed Class 1A Claim,
whereby the SWINC Consolidated Estate assumes such Allowed Class 1A Claim and
leaves unaltered such Holder's legal, equitable and contractual rights
concerning such Allowed Class 1A Claim;
(b) Notwithstanding any contractual provision or
applicable law that would entitle the Holder of such Allowed Class 1A Claim to
demand or receive accelerated payment after the occurrence of a default, the
SWINC Consolidated Estate shall (w) cure any such default that occurred before
or after the Petition Date (other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code), (x) reinstate the maturity of such
Allowed Class 1A Claim that existed before such default, (y) compensate the
Holder of such Allowed Class 1A Claim for any damages incurred as a result of
any reasonable reliance by such Holder on such contractual provision or such
applicable law, and (z) execute a written undertaking in favor of such Holder
whereby the SWINC Consolidated Estate assumes such Allowed Class 1A Claim and,
except as permitted in clauses (w), (x) and (y) of this subparagraph (b), does
not otherwise alter the legal, equitable or contractual rights of such Holder
concerning such Allowed Class 1A Claim;
(c) The SWINC Consolidated Estate shall pay the
Holder of such Allowed Class 1A Claim the Allowed Amount thereof (x) in cash
as promptly as reasonably practicable following the later of (i) the Effective
Date and (ii) the date such Claim becomes an Allowed Claim or (y) at such
other later date(s) and upon such other terms more favorable to the SWINC
Consolidated Estate as may be agreed to by the Holder of such Allowed Class 1A
Claim and the SWINC Consolidated Estate; or
(d) As promptly as reasonably practicable following
the later of (i) the Effective Date and (ii) the date such Claim becomes an
Allowed Claim, the SWINC Consolidated Estate shall transfer to the Holder of
such Allowed Class 1A Claim any property securing such Allowed Class 1A Claim
in full satisfaction of such Allowed Class 1A Claim.
The SWINC Consolidated Estate need not elect the same
alternative for all Allowed Claims in Class 1A, but rather may elect different
alternatives for any portion of the Allowed Claims in such Class.
Notwithstanding the foregoing, for each Allowed Class 1A Claim in respect of
which an election pursuant to section 1111(b) of the Bankruptcy Code has been
made, the SWINC Consolidated Estate shall transfer to the Holder of the Claim
any property securing the Claim or shall pay the Holder of such Allowed Class
1A Claim property of a value, as of the Effective Date, that is not less than
the value of such Holder's interest in the SWINC Consolidated Estate's
interest in the property that secures such Claim.
In the event the SWINC Consolidated Estate elects, with
respect to any Class 1A Claim to pay cash to the Holder of the Claim, the
Holder of such Class 1A Claim shall, simultaneously with the delivery by the
SWINC Consolidated Estate of the cash as provided in section 5.1.1(c) of the
Plan, (a) release such Holder's security interest in all collateral securing
such Allowed Class 1A Claim, (b) take such further action as the SWINC
Consolidated Estate may request to effectuate or evidence such release and (c)
deliver or cause to be delivered to the SWINC Consolidated Estate any
collateral securing such Allowed Class 1A Claim in such Holder's possession or
control suitable for transfer to the SWINC Consolidated Estate. The Equity
Committee believes that there will be no Allowed Class 1A Claims. To the
extent such claims are to be paid in cash, the source of the cash to pay these
claims is cash on hand for the SWINC Consolidated Estate as of the Effective
Date as shown in the Cash Funding Analysis attached as Exhibit B-1 to the
Plan.
2. Treatment of Class 2A Claims (Priority
Claims--SWINC Consolidated Estate). Class 2A is not impaired. As promptly as
reasonably practicable following the later of (i) the Effective Date and (ii)
the date such Class 2A Claim becomes an Allowed Claim, the SWINC Consolidated
Estate shall pay an Allowed Class 2A Claim by one of the following treatments:
(x) the payment in full in cash of the Allowed Amount of such Class 2A Claim;
or (y) upon such other terms more favorable to the SWINC Consolidated Estate
as may be agreed upon by the Holder of such Allowed Class 2A Claim and the
SWINC Consolidated Estate. The Equity Committee estimates that there will be
no Allowed Class 2A Claims. To the extent such claims are to be paid in cash,
the source of the cash to pay these claims is cash on hand for the SWINC
Consolidated Estate as of the Effective Date as shown in the Cash Funding
Analysis attached as Exhibit B-1 to the Plan.
3. Treatment of Class 3A Claims (Unsecured
Claims--SWINC Consolidated Estate). Class 3A is not impaired. As promptly as
reasonably practicable following the later of (i) the Effective Date and (ii)
the date such Claim becomes an Allowed Claim, the SWINC Consolidated Estate
shall pay each Holder of an Allowed Class 3A Claim the lesser of (a) a Pro
Rata distribution of the remaining SWINC cash available for distribution (net
of the implementation reserve) and (b) the amount of its Allowed Claim plus
Post-petition Interest. The Equity Committee expects that the SWINC
Consolidated Estate will have at least $30 million available for an interim
distribution soon after the Effective Date. The timing of subsequent
distribution depends on the claims resolution process and the receipt of
additional cash from Reorganized SWINC and other sources, but Post-Petition
Interest will continue to accrue until paid. The SWINC Consolidated Estate
shall be entitled to a subrogation claim under section 509 of the Bankruptcy
Code and all rights of subrogation under applicable law with respect to any
Allowed Claim arising from the Guaranty by SWINC or a SWINC Subsidiary of an
Allowed Claim against SWE&C or a SWE&C Subsidiary that is an Allowed Claim
paid by the SWINC Consolidated Estate, such rights having been expressly
preserved under Article XVI of the Plan. Such subrogation claims are being
preserved regardless of how the Holders of Unsecured Claims against the SWE&C
Consolidated Estate vote on the Equity Plan and are in addition to SWINC's
prepetition claim against the SWE&C Consolidated Estate that will be waived if
Class 4B-1 votes to accept the Equity Plan. The Equity Committee estimates the
total amount of Allowed Class 3A Claims will be approximately $81.9 to $88
million. The SWINC Consolidated Estate shall be liable for the balance of the
Class 3A Claims and shall ratably pay Holders of Allowed Class 3A Claims as
cash becomes available. Reorganized SWINC will pay the Consolidated SWINC
Estate its cash available for distribution until such time as the balance of
the Allowed Class 3A and Class 4A Claims are paid in full. The Equity
Committee estimates that Reorganized SWINC will have cash to pay to the SWINC
Consolidated Estate for distributions to the Holders of such Claims from the
proceeds realized in its dissolution proceeding.
4. Treatment of Class 4A (Subordinated Claims-SWINC
Consolidated Estate). Class 4A is not impaired. As promptly as reasonably
practicable following the later of (i) the Effective Date, (ii) the date such
Class 4A Claim becomes an Allowed Claim, and (ii) the payment of any Senior
Debt in accordance with the terms of any applicable Subordination Agreement,
each Holder of an Allowed Class 4A Claim shall be paid the lesser of (a) a Pro
Rata distribution of any part of the SWINC Consolidated Estate's cash
remaining after the payments made to Holders of Class 3A Claims and the
amounts held on account of Disputed Claims pursuant to section 10.2 of the
Plan, and (b) the amount of its Allowed Claim plus Post-Petition Interest. The
SWINC Consolidated Estate shall be liable for the balance of the Class 4A
Claims and the Plan shall not otherwise affect the priority of Classes 2A and
3A as against Class 4A Claims. The Equity Committee does not believe that
there are any Allowed Class 4A Claims.
5. Treatment of Class 5A Interests (Common
Stock--SWINC). Class 5A is impaired. Upon the Effective Date, Holders of Class
5A Interests of record as of the date that is thirty days before a
distribution date (the "Record Date") shall be deemed to hold a beneficial
interest in the SWINC Liquidating Trust equal to such Holder's Pro Rata share
of the SWINC Common Stock as of the Record Date. Pursuant to section 12.8 of
the Plan all shares of SWINC Common Stock will be cancelled. The Holders of
Allowed Class 5A Interests will receive no property on account of such
beneficial interest unless and until Allowed Class 2A, 3A and 4A Claims have
been paid in full by the SWINC Consolidated Estate pursuant to the Equity
Plan. Reorganized SWINC and the SWINC Consolidated Estate shall pay the SWINC
Liquidating Trust all Distributable Cash remaining after paying the monies
necessary to make the payments described above and the amounts required for a
Disputed Claim Reserve pursuant to section 10.2 of the Plan. The SWINC
Liquidating Trust shall then pay Holders of Allowed Class 5A Interests on a
Pro Rata basis equal to such Holders' Pro Rata share of the beneficial
interests in the SWINC Liquidating Trust as of the Record Date. The Equity
Committee estimates that the SWINC Consolidated Estate will not have cash
available for distribution to such Holders of Allowed Class 5A Interests on
the Effective Date. The Equity Committee estimates that Holders of Allowed
Class 5A Interests will ultimately receive a distribution from the SWINC
Liquidating Trust as a result of their beneficial interests in that
Liquidating Trust and that such distributions will equate to in excess of
approximately $.83 to $1.43 per share of Common Stock of SWINC if Class 4B-1
votes to accept the Equity Plan and in excess of approximately $1.02 to $1.67
if Class 4B-1 votes to reject the Equity Plan. The beneficial interests in the
SWINC Liquidating Trust will not be represented by certificates and will not
be transferable except by operation of law.
6. Treatment of Class 6A Claims (510(b) / Securities
Litigation Claims--SWINC Consolidated Estate). Class 6A is impaired. Holders
of Class 6A Claims consist of Holders of Securities Litigation Claims,
including the plaintiffs in various securities fraud class action lawsuits
described above filed by and on behalf of purchasers of common stock of SWINC,
generally for the period between January 22, 1998 through May 8, 2000. The
Debtors have advised the Equity Committee that they expect all Class 6A Claims
to be covered by the proceeds of applicable insurance. If Class 6A accepts the
Equity Plan, the Holders of Class 6A Claims shall receive the first $100,000
from the amount otherwise payable to the Holders of Class 5A Interests in
addition to retaining any right they may have to a Pro Rata share, with other
claimants to such proceeds, to the proceeds of any applicable insurance
subject to the provisions of section 7.2 of the Equity Plan. If Class 6A
rejects the Equity Plan, the Holders of Class 6A Claims shall not receive the
$100,000 distribution but shall retain any right they may have to a Pro Rata
share, with other Class 6A Claimants to the proceeds of any applicable
insurance. Any deficiency claims of such Class 6A Claim Holders remaining
after exhaustion of such insurance shall be entitled to participate Pro Rata
and pari passu in Class 5A distributions.
H. Treatment of Classified Claims Against and Interests in the
Debtors included in the SWE&C Consolidated Estate:
1. Treatment of Class 1B Claims (Secured Claims--
SWE&C Consolidated Estate). Class 1B is not impaired. The SWE&C Consolidated
Estate shall, in its sole discretion, elect one of the following treatments
for each Allowed Class 1B Claim as promptly as reasonably practicable
following the later of (i) the Effective Date and (ii) the date such Class 1B
Claim becomes an Allowed Claim:
(a) The SWE&C Consolidated Estate shall execute a
written undertaking in favor of the Holder of such
Allowed Class 1B Claim, whereby the SWE&C
Consolidated Estate assumes such Allowed Class 1B
Claim and leaves unaltered such Holder's legal,
equitable and contractual rights concerning such
Allowed Class 1B Claim;
(b) Notwithstanding any contractual provision or
applicable law that would entitle the Holder of
such Allowed Class 1B Claim to demand or receive
accelerated payment after the occurrence of a
default, the SWE&C Consolidated Estate shall (w)
cure any such default that occurred before or after
the Petition Date (other than a default of a kind
specified in section 365(b)(2) of the Bankruptcy
Code), (x) reinstate the maturity of such Allowed
Class 1B Claim that existed before such default,
(y) compensate the Holder of such Allowed Class 1B
Claim for any damages incurred as a result of any
reasonable reliance by such holder on such
contractual provision or such applicable law and
(z) execute a written undertaking in favor of such
holder whereby the SWE&C Consolidated Estate
assumes such Allowed Class 1B Claim and, except as
permitted in clauses (w), (x) and (y) of this
subparagraph (b), does not otherwise alter the
legal, equitable or contractual rights of such
Holder concerning such Allowed Class 1B Claim;
(c) The SWE&C Consolidated Estate shall pay the Holder
of such Allowed Class 1B Claim the Allowed Amount
thereof (x) in cash as promptly as reasonably
practicable following the later of (i) the
Effective Date, and (ii) the date such Claim
becomes an Allowed Claim or (y) at such other later
date(s) and upon such other terms more favorable to
the SWE&C Consolidated Estate as may be agreed to
by the Holder of such Allowed Class 1B Claim and
the SWE&C Consolidated Estate.
(d) As promptly as reasonably practicable following the
later of (i) the Effective Date and (ii) the date
such Claim becomes an Allowed Claim, the SWE&C
Consolidated Estate shall transfer to the Holder of
such Allowed Class 1B Claim any property securing
such Allowed Class 1B Claim in full satisfaction of
such Allowed Class 1B Claim.
The SWE&C Consolidated Estate need not elect the same
alternative for all Allowed Claims in Class 1B, but rather may elect different
alternatives for any portion of the Allowed Claims in such Class.
Notwithstanding the foregoing, for each Allowed Class 1B Claim in respect of
which an election pursuant to section 1111(b) of the Bankruptcy Code has been
made, the SWE&C Consolidated Estate shall transfer to the Holder of the Claim
any property securing the claim or shall pay the Holder of such Allowed Class
1B Claim property of a value, as of the Effective Date, that is not less than
the value of such Holder's interest in the SWE&C Consolidated Estate's
interest in the property that secures such Claim.
In the event the SWE&C Consolidated Estate elects, with
respect to any Class 1B Claim, to pay cash to the Holder of the Claim, the
Holder of such Class 1B Claim shall, simultaneously with the delivery by the
SWE&C Consolidated Estate of the cash as provided in section 5.1.1(c) of the
Plan, (i) release such Holder's security interest in all collateral securing
such Allowed Class 1B Claim, (ii) take such further action as the SWE&C
Consolidated Estate may request to effectuate or evidence such release, and
(iii) deliver or cause to be delivered to the SWE&C Consolidated Estate any
collateral securing such Allowed Class 1B Claim in such Holder's possession or
control suitable for transfer to the SWE&C Consolidated Estate. The Equity
Committee believes that there will be no Allowed Class 1B Claims.
2. Treatment of Class 2B Claims (Priority
Claims--SWE&C Consolidated Estate). As promptly as reasonable practicable
following the later of (a) the Effective Date, and (b) the date such Claim
becomes an Allowed Claim, each Holder of an Allowed Class 2B Claim shall be
paid by the SWE&C Consolidated Estate, in respect of such Claim, cash equal to
one hundred percent (100%) of the Allowed Amount of such Claim, or such Claim
shall be satisfied upon such other terms more favorable to the SWE&C
Consolidated Estate as may be agreed upon by the Holder of such Claim and the
SWE&C Consolidated Estate. The Equity Committee estimates that Allowed Class
2B Claims will total approximately $4.5 million, consisting of the funds
reserved for an Asbestos Trust to be established by the Equity Committee. The
Equity Committee believes there will be no other Allowed Class 2B Claims.
3. Treatment of Class 3B Claims (Unsecured Claims of
$1,500 or less or that are Voluntarily Reduced to $1,500 - SWE&C Consolidated
Estate). Class 3B is impaired. As promptly as reasonably practicable following
the later of (i) the Effective Date and (ii) the date such Claim becomes an
Allowed Claim, the SWE&C Consolidated Estate shall pay each Holder of an
Allowed Class 3B Claim the amount of the Allowed Claim in Cash. The Equity
Committee estimates that the total amount of Class 3B Claims will be between
$18,000 and $86,000.
4. Treatment of Class 4B-1 Claims (Unsecured Claims --
SWE&C Consolidated Estate). Class 4B-1 is impaired. As promptly as reasonably
practicable following the later of (i) the Effective Date and (ii) the date
such Claim becomes an Allowed Claim, the SWE&C Consolidated Estate shall pay
each Holder of an Allowed Class 4B-1 Claim a Pro Rata distribution of the
SWE&C Consolidated Estate's cash available for distribution (net of its
implementation reserve). At such times as may be determined by the SWE&C
Liquidation Board, the SWE&C Consolidated Estate shall ratably pay Holders of
Allowed Class 4B-1 Claims against it from additional funds that become
available to the SWE&C Consolidated Estate. The Equity Committee estimates the
total amount of Allowed Class 4B Claims will be approximately $110.3 to $152.3
million and the range of distributions to Holders of Allowed Claims will be
7.5% to 10.4% of Allowed Claims if Class 4B-1 votes to accept the Equity Plan;
or in the range of 5.7% to 7.2% if Class 4B-1 votes to reject the Equity Plan
(and the SWE&C Consolidated Estimate's claim shares in Class 4B-1
distributions.) Class 4B-1 includes any subrogation claims of the SWINC
Consolidated Estate and any such subrogation claims are preserved pursuant to
Article XVI of the Plan regardless of how Class 4B-1 votes on the Equity Plan.
5. Treatment of Class 4B-2 Claims (Asbestos Claims -
SWE&C Consolidated Estate). Class 4B-2 is impaired. As of the Effective Date
of the Equity Plan, liability if any, for all Asbestos Claims 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 Asbestos Claim
shall receive in full satisfaction settlement, release and discharge of, and
in exchange for such Allowed Class 4B-2 Claim: (a) its pro rata share of the
Asbestos Trust assets 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 4B-2 Claim shall have agreed in writing.
Under the Equity Plan, Allowed Class 4B-2 Asbestos Claims
are impaired because the Equity Committee is unable to determine whether the
Available Trust Cash plus any Asbestos Insurance Proceeds with respect to a
specific Allowed Class 4B-2 Asbestos Claim will be adequate to pay all Allowed
Class 4B-2 Asbestos Claims in full. The Equity Committee believes, however,
based on the Debtors' historical liability and an understanding of the
Asbestos Insurance Coverage, that holders of Allowed Class 4B-2 Asbestos
Claims will receive from the Available Asbestos Trust Cash and the Asbestos
Insurance Proceeds at least the same percentage recovery as they would receive
if they held Allowed Unsecured Claims in Class 4B-1 (against the SWE&C
Consolidated Estate). Accordingly, the Equity Plan seeks a vote of Class 4B-2
Asbestos Claims to bind all members of said class to the treatment proposed in
the Equity Plan.
6. Treatment of Class 5B (Subordinated Claims-SWE&C
Consolidated Estate). Class 5B is impaired. As promptly as reasonably
practicable following the later of (i) the Effective Date, (ii) the date such
Class 5B Claim becomes an Allowed Claim, and (iii) the payment of any Senior
Debt under the terms of any Subordination Agreement, each Holder of an Allowed
Class 5B Claim shall be paid the lesser of (a) a Pro Rata distribution of any
part of the SWE&C Consolidated Estate's Distributable Cash remaining after the
payments described in subparagraphs 2 through 5 above and the amounts held on
account of Disputed Claims pursuant to section 10.2 of the Equity Plan, and
(b) the amount of its Allowed Claim. The SWE&C Consolidated Estate shall be
liable for the balance of the Class 5B Claims and the Equity Plan shall not
otherwise affect the priority of Classes 2B, 3B, and 4B-1 as against Class 5B.
The Equity Committee does not believe that there will be any amount available
for distributions to Holders of Allowed Class 5B Claims. If Class 4B-1 votes
to accept the Equity Plan, then the SWINC Consolidated Estate's claim against
the SWE&C Consolidated Estate (Class 6B) shall be treated as a Class 5B Claim.
Otherwise, the Equity Committee does not believe that there are any Allowed
Class 5B Claims and does not believe that any amounts would be available for
distribution if there were such claims.
7. Treatment of Class 6B (SWINC Intercompany Claim
against the SWE&C Consolidated Estate). Class 6B is impaired. If Class 4B-1
votes to accept the Equity Plan, then the SWINC Intercompany Claim shall be
treated as a Class 5B Subordinated Claim and shall receive nothing. If Class
4B-1 votes to reject the Equity Plan, then on, or as soon as reasonably
practicable after the Effective Date of the Plan, Class 6B shall be entitled
to participate pari passu with any holders of Allowed Class 4B-1 Claims in any
distributions otherwise payable to holders of Allowed Class 4B-1 Claims. The
Equity Committee estimates that the amount of the SWINC Intercompany Claim is
$50 million. Class 6B does not include any subrogation claims of the SWINC
Consolidated Estate. Such subrogation claims are preserved as Class 4B-1
Claims.
8. Treatment of Class 7B (SWE&C & SWE&C Subsidiary
Interests). Class 7B is impaired. There shall be no distributions to Holders
of Class 7B Interests. On the Effective Date, or such other date set by Order
of the Court, all Interests in SWE&C and the SWE&C Subsidiaries shall be
eliminated and the holders of Class 7B Interests shall not receive or
otherwise be entitled to receive or retain any property or interest.
I. The Asbestos Trust. On the Effective Date, and pursuant to the
terms of the Asbestos Trust Agreement substantially in the form attached as
Exhibit F to the Equity Plan, the SWE&C Consolidated Estate shall transfer to
the Asbestos Trust Cash in the amount of $4.5 million and an Allowed Unsecured
(Class 4B-1) 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. The Asbestos Trustee shall
liquidate all Asbestos Claims. 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 Consolidated Estate.
a. The Asbestos Trustee.
(1) Appointment. From and after the Effective Date,
_______________ 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 her 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 investment that may be permissible under (x) Bankruptcy
Code section 345 or (y) any order of the Court entered in the Debtors' Chapter
11 Cases;
(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 section 502(c) of the Bankruptcy Code;
(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 Trustee will receive timely notice of any Asbestos Claim including,
without limitation, taking action to maintain the corporate existence of one
or more of the Debtors; and
(k) shall enter 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) shall take 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 her 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 her 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 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 herself,
her 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 her 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. This Plan shall
not expand the scope of, the amount of, or alter in any 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.
J. Miscellaneous Provisions.
1. Modification. The Equity Committee may propose
amendments to or modifications of this Plan as permitted by section 1127 of
the Bankruptcy Code at any time prior to the Confirmation Date.
2. Authorization of Corporate Action. All matters and
actions provided for under this Plan involving the corporate structure of the
Debtors or corporate action to be taken by or required of the Debtors shall be
deemed to have occurred and be effective as provided herein, and shall be
deemed to be authorized and approved in all respects without any requirement
for further action by the stockholders or board of directors of any of the
Debtors.
3. Substantial Consummation. The Equity Plan shall be
deemed substantially consummated within the meaning of section 1101(2) of the
Bankruptcy Code upon the Effective Date. Notwithstanding the entry of a Final
Decree closing the Chapter 11 Cases, the Court shall continue to have
jurisdiction over the matters set forth herein and under Article XVII of the
Plan.
K. Assumption or Rejection of Executory Contracts and Unexpired
Leases.
1. Rejection. Except as otherwise provided herein, any
and all leases or executory contracts not previously rejected by a Debtor,
unless specifically assumed pursuant to order of the Court, shall be deemed
rejected by such Debtor on the Confirmation Date, and all leases or executory
contracts so assumed shall remain unaffected by the Plan. All Claims arising
from rejection of leases or executory contracts pursuant to the Plan must be
filed within thirty (30) days after the Confirmation Date, and all other
Claims arising from rejection must be filed on or prior to such date. Any
Holder of a Claim arising from rejection of any lease or executory contract
shall have, to the extent such Claim becomes an Allowed Claim, the rights of a
Holder of an Unsecured Claim (Class 3A or Class 4B-1) against the applicable
Consolidated Estate. Any Claim arising from rejection of a lease or executory
contract shall be conclusively deemed to be an Allowed Claim unless prior to
one hundred twenty (120) days after the Confirmation Date either an objection
to such Claim has been filed (including objections based on section 502(d) of
the Bankruptcy Code) or a notice from the applicable Consolidated Estate or
the Equity Committee has been sent to the Holder of such Claim evidencing an
intention to object to such Claim.
2. Pension Plan. The Pension Plan shall be and is an
executory contract and is assumed by SWINC and assigned to Reorganized SWINC
pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, as provided
in Article XI of the Plan. 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, Inc., the Group Life Insurance and
Spouses Insurance Plan of Stone & Webster and the Employee Investment Plan of
Stone & Webster, 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,
as set forth in section 16.4 of the Plan.
L. Reserves. From and after the Effective Date, the SWINC
Consolidated Estate, Reorganized SWINC and the SWE&C Consolidated Estate shall
maintain the following reserves:
1. SWINC Consolidated Estate. The SWINC Consolidated
Estate shall maintain the SWINC Consolidated Estate Implementation Reserve, as
more fully set forth in Article XII of the Plan, to ensure the ability to fund
the implementation and effectuation of the intents and purposes of the Plan,
including without limitation the resolution of objections to Claims against
the SWINC Consolidated Estate, pursuit of actions retained by the SWINC
Consolidated Estate under Articles XVI and XVII of the Plan, the liquidation
of all other assets of the SWINC Consolidated Estate, and making distributions
to the Holders of Allowed Claims against and Interests in the SWINC
Consolidated Estate as provided in the Plan. The initial amount of SWINC
Consolidated Estate Implementation Reserve will be $3 million.
2. SWE&C Consolidated Estate. The SWE&C Consolidated
Estate shall maintain the SWE&C Consolidated Estate Implementation Reserve, as
more fully set forth in Article XII of the Plan, to ensure the ability to fund
the implementation and effectuation of the intents and purposes of the Plan,
including without limitation the resolution of objections to Claims against
the SWE&C Consolidated Estate, pursuit of actions retained by the SWE&C
Consolidated Estate under Articles XVI and XVII of the Plan, and the
liquidation of all other assets of the SWE&C Consolidated Estate, and making
distributions to the Holders of Allowed Claims against the SWE&C Consolidated
Estate as provided in the Plan. The initial amount of SWE&C Consolidated
Estate Implementation Reserve will be $3 million.
3. Reorganized SWINC. Reorganized SWINC shall maintain
the Reorganized SWINC Implementation Reserve, in an amount to be determined by
the board of directors of Reorganized SWINC, as more fully set forth in
Article XII of the Plan, to ensure its ability to fund the implementation and
effectuation of the intents and purposes of the Plan and the dissolution of
Reorganized SWINC as provided for in Article XII of the Plan. The initial
amount of the Reorganized SWINC Implementation Reserve will be $1 million.
In the event the monies in any of the foregoing
reserves are exhausted, the SWINC Liquidation Board and the SWE&C Liquidation
Board may, with respect to each of their estates and in their sole discretion,
replenish their Implementation Reserve from cash otherwise available in their
respective Consolidated Estates, including from a Disputed Claims Reserve to
the extent such Reserve has excess cash in it because of the disallowance of
Disputed Claims. Similarly, the SWINC Liquidation Board and/or the board of
directors for Reorganized SWINC may replenish the Reorganized SWINC
Implementation Reserve from cash otherwise available to Reorganized SWINC, or
if no cash is available, from cash otherwise available to the SWINC
Consolidated Estate. In the event any cash remains in an Implementation
Reserve after the final resolution of Claims and Interests, the remaining cash
shall be distributed to the respective Consolidated Estate for distribution to
Holders of Allowed Claims and Interests against such Consolidated Estate as
otherwise provided for in the Plan.
M. Objections to Claims and Pursuit of Causes of Action. After the
Effective Date, each Debtor and its successor-in-interest, including the SWINC
Consolidated Estate on behalf of SWINC and any SWINC Subsidiary, and the SWE&C
Consolidated Estate on behalf of SWE&C and any SWE&C Subsidiary, will have the
sole authority to pursue any causes of action for the benefit of their
respective Consolidated Estates and to object to and contest the allowance of
any Claims filed with the Court against their respective Consolidated Estates,
with the exception of Claims assumed by Shaw in connection with the Shaw Sale,
as to which Shaw has standing to object as approved by prior order of the
Bankruptcy Court as provided in Articles IX and XVI of the Plan. The Equity
Committee has not yet analyzed potential avoidance actions or the amount of
potential recoveries available to each of the Debtor's respective estates.
N. Payment of Fees Under 28 U.S.C. ss.1930. Any fees due under 28
U.S.C. ss.1930 after the Effective Date shall be paid by the Consolidated
Estate for the Debtors included in that Consolidated Estate and charged with
such fees, from the appropriate Implementation Reserve for such Consolidated
Estate as described in Article XII of the Equity Plan.
V. CONFIRMATION REQUIREMENTS AND PROCEDURES
The Bankruptcy Court may confirm the Equity Plan only if it
determines that the Equity Plan complies with the requirements of chapter 11,
including, among other things, that (a) the Equity Plan has properly
classified Claims and Interests, (b) the Equity Plan complies with applicable
provisions of the Bankruptcy Code, (c) the Equity Committee has complied with
applicable provisions of the Bankruptcy Code, (d) the Equity Committee has
proposed the Plan in good faith and not by any means forbidden by law, (e)
disclosure of "adequate information" as required by section 1125 of the
Bankruptcy Code has been made, (f) the Equity Plan has been accepted by the
requisite votes of all Classes of Creditors (or that "cramdown" would be
ordered under section 1129(b) of the Bankruptcy Code), (g) the Equity Plan is
in the "best interests" of all Holders of Claims or Interests in an Impaired
Class, and (h) all fees and expenses payable under 28 U.S.C. ss. 1930, as
determined by the Bankruptcy Court at the Confirmation Hearing, have been paid
or the Equity Plan provides for the payment of such fees on the Effective
Date.
A. Who May Vote or Object
In accordance with sections 1126 and 1129 of the Bankruptcy
Code, the Claims in Classes 1A, 1B, 2A, 2B, 3A and 4A are unimpaired under the
Equity Plan and are therefore conclusively presumed to have accepted the
Equity Plan. As such, the Holders of such Claims as of the date of the entry
of the Order approving the Disclosure Statement (the "Voting Record Date") are
not entitled to vote. Thus, the only Holders of Claims and Interests against
the SWINC Consolidated Estate entitled to vote are the Holders of Class 5A
Interests (the stockholders of SWINC) and the Holders of Class 6A Claims
(holders of securities litigation claims).
The Claims and Interests in Classes 3B, 4B-1, 4B-2, 5A and
6A are non-insider Claims that are impaired under the Plan. The Holders of
Claims and Interests in these Classes as of the Voting Record Date are
entitled to vote to accept or reject the Equity Plan. These Classes will be
solicited for votes by the Equity Committee. Thus, the Holders of Claims
against the SWINC Consolidated Estate entitled to vote are Classes 3B, 4B-1
and 4B-2.
The Claims and Interests in Classes 6B and 7B are held by
Debtors. The Holders of such Claims and Interests are "insiders," and their
votes, if cast, would therefore be disregarded. In addition, the Holders of
Claims in Class 5B are sufficiently unlikely to receive or retain any property
on account of such Claims and, as a result, are conclusively deemed to have
rejected the Equity Plan under the Bankruptcy Code. Accordingly, the votes of
Holders in these Classes will not be solicited.
Voting will be by Consolidated Estate. That is, for example,
with respect to the SWINC Consolidated Estate, Holders of Claims and Interests
will vote based upon their classification within the designated classes for
the SWINC Consolidated Estate, and with respect to the SWE&C Consolidated
Estate, Holders of Claims and Interests will vote based upon their
classification within the designated classes for the SWE&C Consolidated
Estate.
The Claims identified in Exhibit E to the Equity Plan shall
not be entitled to vote unless the holder of such a claim files a motion
pursuant to Federal Bankruptcy Rule 3018(a) seeking the temporary allowance of
such claim for voting purposes and such motion is granted on or before the
Rule 3018 Motion Deadline to be set by the Court, as more fully set forth in
the proposed Disclosure Statement Order attached as Exhibit C to the Equity
Plan.
B. Vote Required for Class Acceptance.
As to the classes of claims and interests entitled to vote
on a plan, the Bankruptcy Code defines acceptance of a plan by a class of
claims as acceptance by holders of at least two-thirds in amount, and more
than one-half in number, of the claims of that class that actually cast
ballots for acceptance or rejection of the plan determined without including
any acceptance of the plan by an insider. The Bankruptcy Code defines
acceptance of a plan by a class of interests as acceptance by holders of at
least two-thirds in amount of the allowed interests held by holders of such
interests that actually cast ballots for acceptance or rejection of the plan.
The Code does not require that each claim or interest holder vote in favor of
a plan of reorganization in order for the Court to confirm the plan. At a
minimum, however, the plan must be accepted by the required number of holders
of claims and interests in a class actually voting.
HOLDERS OF CLAIMS OR INTERESTS WHO FAIL TO VOTE WILL NOT BE
COUNTED AS EITHER ACCEPTING OR REJECTING THE EQUITY PLAN. TO BE COUNTED, YOUR
BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE EQUITY PLAN MUST BE RECEIVED
NO LATER THAN 4:00 P.M., ON [ ______________,] 2003.
C. The Confirmation Hearing; Requirements for Confirmation.
The Bankruptcy Code requires the Court, after notice, to
hold a Confirmation Hearing. The Confirmation Hearing in respect of the Equity
Plan has been scheduled for August 27, 2003 at 9:30 a.m. before the Honorable
Peter J. Walsh, United States Bankruptcy Judge for the Bankruptcy Court for
the District of Delaware, at the United States Bankruptcy Court, 824 Market
Street, Wilmington, Delaware, 19801. The Confirmation Hearing may be adjourned
from time to time by the Court without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing. Any party
in interest may object to confirmation. Any objection to confirmation must be
made in writing and specify in detail the name and address of the objector,
all grounds for the objection and the amount of the Claim against or the
Interest in a Debtor held by the objector. Any such objection must be filed
with the Court and served so that it is received on or before
[_________________], at 4:00 p.m., prevailing Delaware time by the Clerk of
the Court at 824 Market Street, Wilmington, Delaware 19801 and the following
persons:
Bell, Boyd & Lloyd LLC
70 West Madison Street
Suite 3300
Chicago, Illinois 60602
Attn: Carmen H. Lonstein
Bifferato, Bifferato & Gentilotti
1308 Delaware Avenue
Wilmington, Delaware 19806
Attn: Ian C. Bifferato
Office of the United States Trustee
District of Delaware
844 North King Street, Room 2313
Wilmington, Delaware 19801
Attn: Julie Compton, Esq.
Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014.
Even if all classes of claims and interests were to accept a
plan, the Court must make certain findings set forth in section 1129 of the
Bankruptcy Code before confirming a plan. At the Confirmation Hearing, the
Court will confirm the Equity Plan only if all of the requirements of section
1129 of the Bankruptcy Code are met. Among the requirements for confirmation
of a plan are that the plan is (a) accepted by all impaired Classes of Claims
and Interests or, if rejected by an impaired Class, that the plan "does not
discriminate unfairly" and is "fair and equitable" as to such Class, (b)
feasible and (c) in the "best interests" of creditors and stockholders that
are impaired under the plan. Section 1129 of the Bankruptcy Code requires,
among other things, that a plan be in the "best interests" of creditors, which
generally requires that the value of the consideration to be distributed to
the creditors under a plan may not be less than creditors would receive if the
debtor were liquidated under a hypothetical liquidation occurring under
chapter 7 of the Bankruptcy Code. A plan must also be "feasible," which
requires there is a reasonable probability that the Debtor will be able to
perform the obligations imposed by the plan, and that the Debtor will be able
to continue operations without the need for further financial reorganization.
Section 1129 of the Bankruptcy Code additionally requires, among other things,
that a plan comply with the applicable provisions of title 11 and other
applicable law, that the Plan be proposed in good faith, and that at least one
impaired class of creditors has voted to accept the plan. The Equity Committee
believes that the Equity Plan will satisfy all the applicable requirements of
section 1129 of the Bankruptcy Code.
1. Unfair Discrimination and Fair and Equitable Tests.
To obtain non-consensual confirmation of the Equity Plan, it must be
demonstrated to the Court that the Equity Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
non-accepting Class. The Bankruptcy Code provides a non-exclusive definition
of the phrase "fair and equitable." The Bankruptcy Code establishes "cramdown"
tests for secured creditors, unsecured creditors and equity holders, as
follows:
a. Secured Creditors. Either (i) each impaired secured
creditor retains its liens securing its secured claim and receives on
account of its secured claim deferred cash payments having a present
value equal to the amount of its allowed secured claim, (ii) each
impaired secured creditor realizes the "indubitable equivalent" of
its allowed secured claim, or (iii) the property securing the claim
is sold free and clear of liens, with such liens to attach to the
proceeds of the sale and the treatment of such liens on proceeds to
be as provided in clause (i) or (ii) of this subparagraph.
b. Unsecured Creditors. Either (i) each impaired unsecured
creditor receives or retains, under the plan, property of a value
equal to the amount of its allowed claim or (ii) the holders of
claims and interests that are junior to the claims of the dissenting
class will not receive any property under the plan.
c. Equity Interests. Either (i) each holder of an equity
interest will receive or retain, under the plan, property of a value
equal to the greatest of the fixed liquidation preference to which
such holder is entitled, the fixed redemption price to which such
holder is entitled or the value of the interest or (ii) the holder of
an interest that is junior to the non-accepting class will not
receive or retain any property under the plan.
As described above, Holders of Claims and Interests in
Classes 5B and 7B either are unlikely to receive or retain any property under
the Equity Plan or will not receive or retain any property under the Equity
Plan on account of their Claims Interests. Accordingly, under section 1126(g)
of the Bankruptcy Code, these Classes are presumed to have rejected the Plan.
The Equity Committee (a) requests confirmation of the Equity
Plan under section 1129(b) of the Bankruptcy Code notwithstanding the deemed
rejection of the Equity Plan by Classes 5B and 7B and (b) reserves the right
to seek confirmation of the Equity Plan under section 1129(b) of the
Bankruptcy Code notwithstanding the rejection of the Equity Plan by other
Classes of Claims or Interests. The Equity Committee believes that the Equity
Plan may be confirmed pursuant to the above-described "cramdown" provisions,
over the dissent of certain Classes of Claims and Interests, in view of the
treatment proposed for such Classes.
The Equity Committee believes that the treatment under the
Equity Plan of the Holders of Claims and Interests in Classes 5B and 7B
satisfies the "fair and equitable" test since, although no distribution will
be made in respect of Claims and Interests in such Classes and, as a result,
such Classes will be deemed to have rejected the Equity Plan, no Class junior
to such non-accepting Classes will receive or retain any property under the
Equity Plan. In addition, the Equity Committee does not believe that the
Equity Plan unfairly discriminates against any dissenting Class because all
dissenting Classes of equal rank are treated equally under the Equity Plan.
2. Best Interests Test. With respect to each impaired
class of claims and interests, confirmation of the plan requires that each
holder of a claim or interest against a debtor either (a) accept the plan or
(b) receive or retain under the plan property of a value, as of the Effective
Date, that is not less than the value such holder would receive or retain if
the debtor were liquidated under chapter 7 of the Bankruptcy Code.
A substantial part of each Debtor's assets has
already been liquidated pursuant to the Shaw Asset Purchase Agreement and
during the pendency of the Chapter 11 Cases. As shown on Exhibit B to the
Equity Plan, the assets of the SWINC Consolidated Estate and the SWE&C
Consolidated Estate consist of their respective allocable share of the
remaining proceeds of the Shaw Sale, various causes of action and certain
other assets owned by the Debtors included in each Consolidated Estate. The
Equity Plan's proposed liquidation includes the liquidation of all SWE&C
Consolidated Estate assets for the benefit of the SWE&C Consolidated Estate
and the liquidation of all SWINC Consolidated Estate assets for the benefit of
the SWINC Consolidated Estate, including the dissolution of Reorganized SWINC
under Delaware General Corporation Law. Although the Equity Plan's proposed
liquidation and a chapter 7 liquidation would have the same goal of
liquidating the remainder of assets owned by the respective Consolidated
Estates and distributing all proceeds to their respective creditors, the
Equity Committee believes that the Equity Plan provides a more efficient
vehicle to accomplish this goal. Liquidating each Debtor's Estate pursuant to
a chapter 7 liquidation would require the appointment of a chapter 7 trustee.
The appointment of the chapter 7 trustee, as well as any professionals
retained by the chapter 7 trustee, would increase the operating costs
associated with the liquidation of the Debtors' Estates. Further, a chapter 7
trustee might not have the benefit of the historical knowledge of the Debtors'
businesses and the significant litigation developments during the Chapter 11
Cases to resolve the Disputed Claims efficiently. Therefore, the Equity
Committee believes that a chapter 7 trustee, on average, might settle Disputed
Claims for higher amounts than would the SWINC Liquidation Board and the SWE&C
Liquidation Board for their respective estates. The Equity Committee also
believes that distributions might occur in a shorter time period pursuant to
the Equity Plan than if the Debtors' Estates were liquidated pursuant to a
chapter 7 liquidation. A conversion to chapter 7 would take time. In addition,
the chapter 7 trustee, once appointed, and any professionals hired by the
chapter 7 trustee, would need to gain familiarity with the Debtors and their
creditors, thus further delaying the initial distribution to creditors.
After considering the effects that a chapter 7
liquidation would have on the ultimate proceeds available for distribution to
creditors in the Chapter 11 Cases, the Equity Committee has determined that a
chapter 7 liquidation would result in a diminution in the value to be realized
by the Holders of certain Claims, the diminution and possible elimination of
any return to Holders of Class 5A Interests, and a delay in making
distributions to all Classes of Claims and Interests entitled to a
distribution. Therefore, the Equity Committee believes that the Equity Plan
satisfies the requirements of section 1129(a)(7) of the Bankruptcy Code.
3. Feasibility. Section 1129(a)(11) of the Bankruptcy
Code requires that confirmation of the Equity 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 Equity Plan, unless
such liquidation or reorganization is proposed in the Plan. The Plan proposed
by the Equity Committee provides for a liquidation of the assets of SWE&C and
the SWE&C Subsidiaries for the benefit of the SWE&C Consolidated Estate and
the liquidation of the assets of SWINC and the SWINC Subsidiaries for the
benefit of the SWINC Consolidated Estate, including the dissolution of
Reorganized SWINC, and a distribution of cash to creditors holding Allowed
Claims against each of the Consolidated Estates in accordance with the
priority scheme of the Bankruptcy Code and the terms of the Equity Plan. The
ability of the SWINC Consolidated Estate and the SWE&C Consolidated Estate to
make the distributions described in the Equity Plan does not depend on the
future earnings of any Debtor and the Equity Committee believes that the
Equity Plan is feasible and meets the requirements of section 1129(a)(11) of
the Bankruptcy Code.
D. Risks Associated with the Equity Plan
HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS SHOULD
READ AND CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW, AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS
DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING
TO ACCEPT OR REJECT THE PLAN. This information, however, should not be
regarded as the only risk involved in connection with the Equity Plan and its
implementation. The primary risk faced by Holders of Unsecured Claims against
and Interests in the SWINC Consolidated Estate and the SWE&C Consolidated
Estate is that the amount of Allowed Claims in the various Classes may be
higher than estimated in Exhibit B to the Equity Plan. The Equity Committee
believes however that the probability of materially higher claims or lesser
assets is remote. Therefore, the Equity Committee believes that the risk that
there will ultimately be insufficient cash to pay all Claims in full, plus
post-petition interest is remote, though payments to SWINC stockholders (Class
5A) could be materially less in that event. If total Allowed Claims, including
Administrative, Secured, or Priority Claims, sufficiently exceed the Equity
Committee's estimates for the SWE&C Consolidated Estate, Holders of Claims
against the SWE&C Consolidated Estate could receive less than the projected
payments under the Equity Plan.
Another risk concerns the allocation of the proceeds of the
Shaw Sale among the Debtors. The proceeds were allocated based on the net book
value of each Debtor's assets, except with respect to the Nordic Business.
Allocations to the Nordic Business were based on the market value of the
Business' assets. If this allocation is challenged or revised, the allocation
of the proceeds may ultimately be different from the allocation on which this
Plan is based. Administrative Claims were similarly allocated among the
Debtors. Any Administrative Claims from one Consolidated Estate in excess of
the $4.8 million Administrative Claim owed from the SWE&C Consolidated Estate
to the SWINC Consolidated Estate pursuant to Article II of the Equity Plan may
also have a significant effect on creditors of the SWINC Consolidated Estate
and the SWE&C Consolidated Estate. Further, this Plan assumes that the Pension
Reversion belongs solely to SWINC. Creditors' Committee counsel has advised
counsel for the Equity Committee that the SWE&C Consolidated Estate may allege
it is entitled to some or all of the Pension Reversion. If the Court were to
find that other Debtors had an interest in the Pension Reversion, the effect
on creditors of the SWINC Consolidated Estate and the SWE&C Consolidated
Estate may be significant. The Equity Committee believes that this possibility
would be remote given (i) applicable facts and law and (ii) that these issues
are ultimately to be resolved at the Confirmation Hearing.
Because the Pension Reversion is a significant asset for the
SWINC Consolidated Estate, a determination that Reorganized SWINC would not
qualify for a 20% tax (as opposed to 50%) rate would negatively affect Holders
of Claims and Interests in the SWINC Consolidated Estate. The Equity Committee
believes however that section 4980(a) of the United States Tax Code expressly
authorizes a 20% tax rate and that the probability of a higher tax rate being
imposed is remote. Additional risks that exist from tax implications which may
arise from liquidation of the Pension Plan include: (i) there may be federal
income tax implications from the change in the Pension Plan's ownership, (ii)
net operating losses may not be available to offset such tax implications,
(iii) net operating losses may be eliminated and/or income realized as a
result of SWINC's treatment as constructively liquidated. The Equity
Committee, however, believes that any chance of a reduction in projected
distributions to a creditor or equity security holder as a result of these
risks under the Equity Plan would be remote.
Further, the Debtors have filed a competing plan of
liquidation and there is uncertainty whether the Equity Plan would be
confirmed instead of the Debtors' Plan. The Equity Committee believes that the
Equity Plan is more fair and equitable to the interests of all Holders of
Claims and Interests against the Debtors' estates because: (i) the assets
legally owned by each of the Debtors are grouped for the benefit of its own
creditors in its respective Consolidated Estate as referenced in the Equity
Plan and in accordance with the priorities provided for under the Bankruptcy
Code; and (ii) the Equity Plan provides a reasonable return to the
stockholders of SWINC, whereas the Debtors' Joint Plan is based on a transfer
of assets from the SWINC Consolidated Estate to the SWE&C Consolidated Estate
for the benefit of creditors of the SWE&C Consolidated Estate at the expense
of the creditors and stockholders of SWINC without any legal or factual basis,
in the opinion of the Equity Committee.
Other risks include: (i) the Court may deny confirmation of
the Equity Plan even if all impaired Classes vote to accept the Equity Plan or
the cramdown requirements are satisfied, (ii) significant uncertainty exists
with respect to the ultimate resolution of and recovery from litigation, (iii)
several lawsuits and administrative proceedings against the Debtors are
pending, and (iv) termination of the Pension Plan requires government
approval, which approval may not be obtained.
VI. EFFECT OF CONFIRMATION OF PLAN
A. General Authority.
During the period from the Confirmation Date up to but not
including the Effective Date, the Court shall retain custody and jurisdiction
of each Debtor, its property and its operations in accordance with the
provisions of the Bankruptcy Code.
B. Compromise and Settlement of Certain Class of Controversies.
From and after the Confirmation Date, all controversies
pending before any court other than the Court shall constitute a class of
controversies under Rule 9019(b) of the Bankruptcy Rules, and the SWINC
Liquidation Board with respect to the SWINC Consolidated Estate, and the SWE&C
Liquidation Board with respect to the SWE&C Consolidated Estate, may
compromise or settle any controversy in such class without further approval by
the Court.
C. Vesting of Assets. As provided in Article XII of the Equity
Plan:
1. SWINC Consolidated Estate. On the Effective Date,
the SWINC Consolidated Estate shall be vested in and entitled to retain: a)
all Cash held by SWINC and the SWINC Subsidiaries including without limitation
the Cash necessary to fund the SWINC Consolidated Estate Implementation
Reserve (in the initial amount of $3 million) but excluding the Cash necessary
to fund the Reorganized SWINC Implementation Reserve; b) all causes of action
of SWINC retained for enforcement; and c) all property of any kind of the
SWINC Subsidiaries and all causes of action of the SWINC Subsidiaries retained
for enforcement pursuant to Articles XVI and XVII of the Plan.
2. SWE&C Consolidated Estate. On the Effective Date,
the SWE&C Consolidated Estate shall be vested in and entitled to retain,
subject to the provisions of this Plan: a) the SWE&C Consolidated Estate
Implementation Reserve (in the initial amount of $3 million; and b) all assets
of any kind whatsoever owned by SWE&C and any SWE&C Subsidiary, including
without limitation all causes of action of SWE&C and any SWE&C Subsidiary
retained for enforcement.
3. Reorganized SWINC. On the Effective Date, all SWINC
assets other than those retained by the SWINC Consolidated Estate pursuant to
section 12.2.1 of the Equity Plan, shall vest exclusively in Reorganized
SWINC. Specifically, and without limitation, as of the Effective Date,
Reorganized SWINC shall be vested exclusively in: (a) any and all property
interests in and to any reversion in the Pension Plan and any Pension Plan
related property interests of any kind; (b) any Letters of Credit in which
SWINC owned a proprietary interest of any kind as of the Petition Date and
which remain to be liquidated as of the Effective Date; and (c) the Cash
necessary to fund the Reorganized SWINC Implementation Reserve, the initial
amount of which shall be $1 million. On the Effective Date, subject to the
provisions of this Plan, no other Debtors or Debtors' Estates shall have any
claim, equitable or otherwise, to such reversionary interest in the Pension
Plan, any such claims being extinguished on the Effective Date. Reorganized
SWINC shall remain liable to the SWINC Consolidated Estate for the payment of
all Allowed Claims against the SWINC Consolidated Estate and shall further
remain liable to the SWINC Liquidating Trust for the payment of any monies
remaining after payment of such obligations for distributions to the Holders
of beneficial interests in the SWINC Liquidating Trust, as provided in section
12.2 of the Plan.
D. Discharge Provisions. The confirmation of the Equity Plan does
not discharge any Debtor from any debt that arose prior to the Effective Date
or any debt of any kind specified in section 502(g), 502(h) or 502(i) of the
Bankruptcy Code, except any Claims disallowed under the Plan including without
limitation Claims not filed by any deadline set by the Bankruptcy Code, order
of the Court or this Plan.
1. Notwithstanding the foregoing, Reorganized SWINC
shall be discharged from liabilities to Holders of any and all Claims against
any Debtor arising prior to the Petition Date, any debt of any kind specified
in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, and any Claims
disallowed under the Equity Plan including without limitation Claims not filed
by any deadline set by the Bankruptcy Code or order of the court, except for
liability for payment to the SWINC Consolidated Estate of such cash as
necessary to pay all Allowed Claims against the SWINC Consolidated Estate in
full, plus Post-Petition Interest.
2. Pursuant to section 19.7.2 of the Plan, in the
event Reorganized SWINC files a state court dissolution proceeding, any
Holders of Claims against any Debtor arising prior to the Petition Date shall
be barred from filing such Claims in such dissolution proceeding; however, the
Holders of Claims against any Debtor included in the SWINC Consolidated Estate
shall retain all rights to seek payment of their Allowed Claims from the SWINC
Consolidated Estate in accordance with the terms of the Plan. Pursuant to
section 12.2.3 of the Equity Plan, Reorganized SWINC shall remain liable to
the SWINC Consolidated Estate for payment of all cash necessary to pay Allowed
Claims against the SWINC Consolidated Estate in full, plus Post-Petition
Interest, in accordance with the terms of the Equity Plan.
E. Term of Existing Injunctions or Stays.
Unless otherwise provided, all injunctions or stays provided
for in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall continue,
to the extent permitted by applicable law, as to all Persons until each Case
is closed pursuant to applicable law. The stay of any act provided by section
362 of the Bankruptcy Code shall also apply to the property of Reorganized
SWINC until Reorganized SWINC commences a dissolution proceeding under
Delaware General Corporation Law, at which time Delaware General Corporation
Law will govern the stay of any action against Reorganized SWINC.
F. Exculpation. As of the Effective Date, none of the Equity
Committee or any of its respective current or former members, or any officers,
directors, employees, advisors, professionals or agents of members or the
Equity Committee (the "Exculpated Parties") shall have or incur any liability
to any Holder of a Claim or Interest for any act or omission in connection
with, related to, or arising out of, the Chapter 11 Case of any Debtor, the
pursuit of confirmation of the Plan, the consummation of the Plan, the
administration of the Plan, or the property to be distributed under the Plan,
except for with respect to any such Exculpated Party:
1. Any indebtedness of such Exculpated Party to a Debtor
for money borrowed by such Exculpated Party;
2. Any setoff or counterclaim a Debtor may have or
assert against such Exculpated Party, provided that the aggregate amount
thereof shall not exceed the aggregate amount of any Claims held or asserted
by such Exculpated Party against such Debtor and provided further that such
Debtor shall not be permitted to assert any such setoff or counterclaim
against any Post-petition Indemnification Claims;
3. The uncollected amount of any Claim made by a Debtor
(whether in a filed pleading, by letter or otherwise) prior to the Effective
Date against such Exculpated Party; or
4. Any Claims arising from the fraud, gross negligence
or willful misconduct of such Exculpated Party; or
5. Any Claim against a fiduciary of the Pension Plan,
the Employee Stock Ownership Plan of Stone & Webster, Inc., the Group Life
Insurance and Spouses Insurance Plan of Stone & Webster or the Employee
Investment Plan of Stone & Webster with respect to the Pension Plan or such
other Plan.
6. This release, embodied in section 16.4 of the Plan,
is in addition to, and not in lieu of, any other release separately given,
conditionally or unconditionally, by any person to any other Exculpated Party.
Nothing in the Equity Plan shall affect or limit any action by the Secretary of
Labor, United States Department of Labor (the "Department of Labor") consistent
with the Stipulated Agreement between Stone & Webster, Inc. and the Department
of Labor approved by the Court (Docket #2946). Pursuant to that Stipulated
Agreement, the Department of Labor compromised certain claims against SWINC in
exchange for agreement as to the termination of the EIP, ESOP and Pension Plan
and payment of $300,000 to be allocated pro rata to EIP Participants.
G. Preservation of Rights of Action.
1. Except as otherwise provided in the Equity Plan or in
any contract, instrument, release, or other agreement entered into in
connection with the Equity Plan, in accordance with section 1123(b) of the
Bankruptcy Code, each Debtor shall retain the sole and exclusive authority to
enforce any claims, rights and causes of action that the Debtor or its Estate
may hold against any entity. As successors in interest to such Debtors, the
SWE&C Consolidated Estate on behalf of SWE&C and the SWE&C Subsidiaries, and
the SWINC Consolidated Estate on behalf of SWINC and the SWINC Subsidiaries,
shall each retain the sole and exclusive right to pursue or retain any Claims,
rights and causes of action that such Debtors may hold against any entity, as
provided in Article XVI of the Equity Plan.
H. Injunction.
1. Except as provided in the Equity Plan, as of the
Effective Date, all persons are permanently enjoined from commencing or
continuing in any manner, any action or proceeding, whether directly,
derivatively, on account of or respecting any claim, debt, right or cause of
action of any Debtor as to which a Debtor retains sole and exclusive authority
to pursue in accordance with the Plan or which has been released by a Debtor in
accordance with the Equity Plan.
2. In the event Reorganized SWINC files a state court
dissolution proceeding, any Holders of Claims arising prior to the Petition
Date including Holders of any Claims discharged under section 16.3 of the Plan
shall be barred from filing or asserting such Claims against Reorganized SWINC
and shall instead be required to assert any rights to payment they may have
against the SWINC Consolidated Estate in accordance with the terms of the
Equity Plan. Pursuant to section 12.2.3 of the Equity Plan, Reorganized SWINC
shall be liable to the SWINC Consolidated Estate for payment of Allowed Claims
against the SWINC Consolidated Estate in accordance with the terms of the
Equity Plan.
3. Pursuant to sections 19.7.3 and 19.7.4 of the Equity
Plan, 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 either (a) SWINC, a SWINC Subsidiary or the
SWINC Consolidated Estate or an Interest in SWINC or a SWINC Subsidiary or the
SWINC Consolidated Estate or (b) SWE&C, a SWE&C Subsidiary or the SWE&C
Consolidated Estate or an Interest in SWE&C or a SWE&C Subsidiary or the SWE&C
Consolidated Estate, are (x) permanently enjoined from taking any of the
following actions against any entity described in (a) or (b), or any of their
property on account of any such Claims or Interests and (y) preliminary
enjoined from taking any of the following actions against any entity described
in (a) or (b) 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 any
entity described in (a) or (b); 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
Spouse Insurance Plan of Stone & Webster or the Employee Investment Plan of
Stone & Webster Incorporated and Participating Subsidiaries. The foregoing
provisions shall not apply to Holders of Allowed Asbestos Claims seeking to
enforce their rights against the Asbestos Trust in accordance with the Plan.
I. Retention of Jurisdiction.
The Bankruptcy Court shall retain and have exclusive
jurisdiction over the Chapter 11 Cases, as provided in Article XVII of the
Equity Plan, including for the following purposes:
1. to resolve any matters related to the assumption,
assumption and assignment or rejection of any executory contract or unexpired
lease to which a Debtor is a party or with respect to which a Debtor may be
liable and to hear, determine and, if necessary, liquidate, any Claims arising
therefrom;
2. to adjudicate matters and enter such orders as may
be necessary or appropriate to correct, implement or consummate the provisions
of the Plan and all contracts, instruments, releases, indentures and other
agreements or documents created in connection with the Plan;
3. to determine any and all adversary proceedings,
applications and contested matters with respect to a Debtor, including
proceedings for the recovery of assets and property of any of the Debtors,
wherever located;
4. to assure performance by a Debtor, the SWINC
Consolidated Estate, the SWE&C Consolidated Estate or the SWINC Liquidating
Trust of its obligations to make distributions under the Plan and otherwise
ensure that distributions to Holders of Allowed Claims and Allowed Interests
are accomplished as provided for in the Plan;
5. to hear and determine any timely objections to
Administrative Claims or to proofs of claim and equity interests filed, both
before and after the Confirmation Date, including any objections to the
classification of any Claim or Interest, and to allow, disallow, determine,
liquidate, classify, estimate or establish the priority of the secured or
unsecured status or any Claim, in whole or in part;
6. to enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified, reversed or vacated;
7. to issue such orders in aid of execution,
implementation or consummation of the Plan, to the extent authorized by
section 1142 of the Bankruptcy Code;
8. to consider any modifications of the Plan, to cure
any defect or omission, or reconcile any inconsistency in any order of the
Bankruptcy Court, including the Confirmation Order pursuant to section 1127(b)
of the Bankruptcy Code;
9. to hear and determine all applications for awards
of compensation for services rendered and reimbursement of expenses incurred
prior to the Effective Date pursuant to sections 330, 331, 507(a)(1), 503(b)
and 1129(a)(4) of the Bankruptcy Code;
10. to hear and determine disputes arising in
connection with the interpretation, implementation, or enforcement of the Plan
or the extent of any entity's obligations incurred in connection with or
released under the Plan;
11. to 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 or enforcement of the
Plan, except as otherwise provided herein;
12. to determine any other matters that may arise in
connection with or relate to the Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan or the Disclosure
Statement;
13. to hear and determine matters concerning state,
local and federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code including any federal tax reporting and withholding issues
which arise in connection with the confirmation and consummation of the Plan;
14. to hear any other matter not inconsistent with the
Bankruptcy Code including the enforcement of prior Orders of the Bankruptcy
Court in the Debtors' Chapter 11 Cases;
15. to assure the timely performance by the SWINC
Consolidated Estate and the SWE&C Consolidated Estate of their respective
obligations under the Plan; and
16. to enter final decrees closing the Chapter 11 Cases.
J. Alternatives To Confirmation of the Plan.
The Equity Committee believes that the Equity Plan affords
Holders of Claims and Interests against each Debtor as a whole the potential
for the greatest feasible realization from each Debtor's assets, and,
therefore, is in the best interest of such Holders. The Equity Committee has
considered alternatives to the Plan such as a chapter 7 liquidation. In the
opinion of the Equity Committee, such alternatives would not afford Holders of
Claims or Interests a return greater than may be achieved under the Equity
Plan.
1. Liquidation Under Chapter 7. If no plan can be
confirmed, a Debtor's Chapter 11 Case may be converted to a case under chapter
7 of the Bankruptcy Code, pursuant to which a trustee would be elected or
appointed to liquidate the Debtor's assets for distribution to creditors in
accordance with the priorities established by the Bankruptcy Code. Although a
liquidation under chapter 7 might result in payment in full to the Holders of
all Allowed Claims against SWINC, the Equity Committee believes that a
liquidation would result in a greater risk that Holders of Allowed Claims
against SWINC would not be paid in full and in a greater risk that Holders of
Allowed Class 5A Interests in SWINC would receive nothing. The Equity
Committee further believes that a liquidation under chapter 7 might result in
reduced distributions to holders of claims against and interests in SWE&C and
the SWE&C Subsidiaries. This determination is based, in part, upon a
consideration of the effects that chapter 7 liquidation would have on the
ultimate proceeds available for distribution to Holders of Allowed Claims and
Interests, including (i) the erosion in value of assets in chapter 7 cases in
the context of the expeditious liquidation required under chapter 7; and (ii)
the increased costs and expenses of a liquidation under chapter 7 arising from
fees payable on a priority basis to a chapter 7 trustee and professional
advisors to such trustee who are not familiar with the Debtors' bankruptcy
cases.
2. Alternative Plans of Reorganization. If the Plan is
not confirmed, the Equity Committee or any other party in interest could
attempt to formulate and confirm a different plan.
On or about August 10, 2001, the Creditors' Committee
filed the Disclosure Statement (the "UCC Initial Disclosure Statement") With
Respect to Consolidated Liquidation Plan (the "Initial UCC Plan") which was
subsequently amended by the First Amended Disclosure Statement (the "UCC
Disclosure Statement") with Respect To First Amended and Restated Consolidated
Liquidation Plan dated March 22, 2002, and further amended on April 14, 2002,
(the "UCC Plan"). The UCC Plan was premised entirely upon the substantive
consolidation of all of the Debtors' estates into a single estate. On or about
December 6, 2002, the Creditors' Committee filed pleadings with the Court
stating that they were joining the Debtors in the Debtors' proposed competing
plan and that they had an "agreement in principle" for the parameters of a
Debtors' Plan.
On March 14, 2003, the Debtors, Federal Insurance
Company and the Creditors' Committee filed the Debtors' Plan. The Debtors' Plan
is premised upon the substantive consolidation of SWINC and certain of its
subsidiaries and affiliates into one estate and the separate substantive
consolidation of SWE&C and certain of its affiliates and subsidiaries into
another separate estate, in a fashion similar to the Plan proposed by the
Equity Committee. However, the Debtors' Plan proposes that SWINC will pay more
than $21 million to the SWE&C Consolidated Estate on the alleged grounds of a
"settlement" of substantive consolidation related legal issues arising under
the Creditors' Committee Consolidation Motion and disputes concerning ownership
of the Pension Reversion. THE EQUITY COMMITTEE BELIEVES THAT NO BONA FIDE LEGAL
OR FACTUAL BASIS EXISTS FOR THE CONSOLIDATION OF THE SWE&C CONSOLIDATED ESTATE
AND THE SWINC CONSOLIDATED ESTATE INTO A SINGLE ESTATE AND THEREFORE PAYMENT OF
CONSIDERATION FROM ONE CONSOLIDATED ESTATE TO ANOTHER FOR THE ALLEGED
SETTLEMENT OF SUCH ISSUES IS NOT PERMISSIBLE UNDER APPLICABLE LAW AND WILL NOT
BE APPROVED BY THE BANKRUPTCY COURT.
VII. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. General
A summary description of certain federal income tax
consequences of the Equity Plan is provided below. The description of tax
consequences below is for informational purposes only and is subject to
significant uncertainties. Only the principal consequences of the Equity Plan
for the Debtors and for the Holders of Claims or Interests who are entitled to
vote to confirm or reject the Equity Plan are described below. No opinion of
counsel has been sought or obtained with respect to any tax consequences of
the Plan, and no tax opinion is given by this Disclosure Statement. No rulings
or determinations of the Internal Revenue Service ("IRS") or any other tax
authorities have been obtained or sought with respect to the Plan, and the
description below is not binding upon the IRS or such other authorities.
The following discussion of federal income tax consequences
is based on the Internal Revenue Code (the "Code"), regulations promulgated
and proposed thereunder, judicial decisions and published administrative
rulings and pronouncements of the IRS as in effect on the date hereof.
Legislative, judicial or administrative changes or interpretations enacted or
promulgated in the future could alter the analyses and conclusions set forth
below. Any such changes or interpretations may be retroactive and could
significantly affect the federal income tax consequences discussed below.
This discussion does not address foreign, state or local tax
consequences of the Equity Plan, nor does it purport to address the federal
tax consequences of the Equity Plan to special classes of taxpayers (such as
foreign entities, nonresident alien individuals, S corporations, mutual funds,
insurance companies, financial institutions, small business investment
companies, regulated investment companies, broker/dealers and tax-exempt
organizations). Furthermore, estate and gift tax issues are not addressed
herein.
No representations are made regarding the particular tax
consequences of the Equity Plan to any Holder of a Claim or Interest. Each
Holder of a Claim or Interest is strongly urged to consult its own tax advisor
regarding the federal, state, local and foreign tax consequences of the
transactions described herein and in the Equity Plan.
B. Federal Income Tax Consequences to the Debtors.
1. Regular Federal Income Tax. Federal income taxes,
like many other taxes, are Priority Claims. Accordingly, such claims must be
satisfied before most other Claims may be paid. With the possible exception of
alternative minimum tax, the Equity Committee does not believe that any
federal income taxes have accrued with respect to taxable years ending after
the Petition Date because the Debtors have not, as an affiliated group filing
consolidated tax returns, had positive taxable income for those periods.
Generally, the discharge of a debt obligation by a
debtor for an amount less than the adjusted issue price
(in most cases, the amount the debtor received on incurring the obligation,
with certain adjustments) gives rise to cancellation of debt ("COD") income,
which must be included in the debtor's income. The Debtors should be able to
utilize a special tax provision which excludes from income debts discharged in
a Chapter 11 case. If debts are discharged in a Chapter 11 case, however,
certain tax attributes otherwise available must be reduced, in most cases by
the principal amount of the indebtedness forgiven. Tax attributes subject to
reduction include net operating losses ("NOLs") and NOL carryforwards. If the
Debtors have COD income as a result of the Equity Plan, the Debtors' NOLs
would first be available to offset any gains recognized on the liquidation of
the Debtors' assets. Accordingly, it is not expected that the Debtors will owe
regular federal income tax with respect to taxable years ending after the
Petition Date. If, however, the IRS were to prevail in assessing federal
income tax for any of these years, payments of such taxes would reduce the
amounts otherwise available for distribution under the Equity Plan.
Any remaining NOLs would then be reduced as a
result of the excluded COD income to the extent of such COD
income. Because the Debtors are liquidating rather than continuing to operate,
and because the Debtors' historic assets and businesses have been sold, any
remaining NOLs will have no material value, except to the extent that they are
expected to offset income that might otherwise be recognized as a result of
the withdrawal of over-funding of the Pension Plan.
2. Alternative Minimum Tax. A corporation or a
consolidated group of corporations may incur alternative minimum tax liability
even where NOL carryovers 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 will be liable for the alternative minimum tax.
C. Federal Income Tax Consequences to Holders of Claims.
Holders of Claims or Interests should generally recognize
gain (or loss) to the extent the amount realized under the Equity Plan in
respect of their Claims or Interests exceeds (or is exceeded by) their
respective tax bases in their Claims or Interests. The amount realized for
this purpose will generally equal the amount of cash received under the Equity
Plan in respect of their respective Claims or Interests. The tax consequences
of distributions made on account of principal claim amounts may differ from
the tax consequences for distributions made on account of interest, and thus
Holders of Claims or Interests should consult with their own tax advisor as
set forth below.
The tax treatment of Holders of Claims or Interests and the
character and amount of income, gain or loss recognized as a consequence of
the Equity Plan and the distributions provided for by the Equity Plan will
depend upon, among other things, (i) the manner in which a Holder acquired a
Claim or Interest; (ii) the length of time a Claim or Interest has been held;
(iii) whether the Claim or Interest was acquired at a discount; (iv) whether
the Holder has taken a bad debt deduction in the current or prior years; (v)
whether the Holder has previously included accrued but unpaid interest with
respect to a Claim or Interest; (vi) the method of tax accounting of a Holder,
and (vii) whether a Claim or Interest is an installment obligation for 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 situation and circumstances and the particular tax consequence to
such Holders as a result thereof.
D. Information Reporting and Backup Withholding
Certain payments, including the payments of Claims or
Interests pursuant to the Equity Plan, are generally subject to information
reporting by the payor (the SWINC Consolidated Estate, the SWE&C Consolidated
Estate, or the SWINC Liquidating Trust) to the IRS. Moreover, such reportable
payments are subject to backup withholding under certain circumstances. Under
the Code's backup withholding rules, a Holder of a Claim or Interest may be
subject to backup withholding with respect to distributions or payments made
pursuant to the Equity Plan, unless the Holder: (a) comes within certain
exempt categories (which generally include corporations) and, when required,
demonstrates this fact or (b) provides a correct taxpayer identification
number and certifies under penalty of perjury that the taxpayer identification
number is correct and that the taxpayer is not subject to backup withholding
because of a failure to report all dividend and interest income. The backup
withholding rate will decrease to 30% in 2003, 29% in 2004 and 2005, and 28%
thereafter, until 2011, when the percentage will revert to 31% unless amended
by Congress.
E. Importance of Obtaining Professional Tax Assistance.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EQUITY 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
INDIVIDUAL CIRCUMSTANCES. ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR
TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF THE EQUITY PLAN.
VIII. CONCLUSION AND RECOMMENDATION
THE EQUITY COMMITTEE BELIEVES THAT CONFIRMATION AND
IMPLEMENTATION OF THIS PLAN IS PREFERABLE TO THE ALTERNATIVE PLAN PROPOSED BY
THE DEBTORS OR TO A CHAPTER 7 LIQUIDATION BECAUSE IT WILL RESULT IN THE
GREATEST RECOVERY TO HOLDERS OF CLAIMS AGAINST AND INTERESTS IN SWINC AND THE
SWINC SUBSIDIARIES WHILE ALSO PROVIDING THE MAXIMUM RETURN AVAILABLE TO
CREDITORS OF SWE&C AND THE SWE&C SUBSIDIARIES FROM THE LIQUIDATION OF THEIR
OWN ASSETS. OTHER ALTERNATIVES WOULD INVOLVE SIGNIFICANT DELAY, UNCERTAINTY
AND SUBSTANTIAL ADMINISTRATIVE AND LITIGATION COSTS OR WOULD UNJUSTIFIABLY
BENEFIT HOLDERS OF CLAIMS AGAINST SWE&C AND THE SWE&C SUBSIDIARIES AT THE
EXPENSE OF HOLDERS OF CLAIMS AGAINST AND INTERESTS IN SWINC AND THE SWINC
SUBSIDIARIES.
Consequently, the Equity Committee urges all Holders of
Claims and Interests entitled to vote to accept the Equity Plan and to evidence
their acceptance by duly completing and returning their Ballots so that they
are received on or before 5:00 p.m., prevailing Eastern Time, on __________,
2003.
Dated: April 22, 2003
Wilmington, Delaware
Respectfully submitted,
THE OFFICIAL COMMITTEE OF EQUITY
HOLDERS OF STONE & WEBSTER,
INCORPORATED, et al.
By: Grace Brothers, Ltd.
By: /s/ Brian Brookover
--------------------------------------
Name: Brian Brookover
Title: Portfolio Manager
COUNSEL:
Bifferato, Bifferato & Gentilotti
By: /s/ Ian C. Bifferato
----------------------------------
Ian C. Bifferato (No. __________)
1308 Delaware Avenue
Wilmington, DE 19806
Tel: (302) 429-1900
Fax: (302) 429-8606
-- and --
David F. Heroy
Robert V. Shannon
Carmen H. Lonstein
BELL, BOYD & LLOYD LLC
70 West Madison Street, Suite 3300
Chicago, IL 60602
Tel: (312)372-1121
Fax: (312)827-8000
Counsel to the Official Committee
of Equity Holders